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Time To Watch China’s Equipment Efforts

Look out for compound semis, materials and wafers too.

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For years, China has been developing its own semiconductor equipment and materials industry.

The goal has been to reduce its dependence on foreign equipment and material vendors. Some China-based equipment vendors have made their presence felt. But overall, China’s equipment companies have barely made a dent in the market.

Hardly anyone has been paying attention to China’s equipment efforts, that is, until it recently surfaced that the nation is trying to develop its own extreme ultraviolet (EUV) lithography technology.

Now, perhaps it’s time to pay attention.

For some time, China has been under the microscope. China is the world’s largest market for chips. China imports most of its chips from foreign suppliers, creating an enormous trade gap, at least in the semiconductor arena.

At the same time, China has been developing its own domestic semiconductor industry, hoping to become less dependent on foreign suppliers. So far, though, China has experienced mixed results here.

The same is true for equipment. China is fast becoming the world’s largest market for semiconductor equipment. Like chips, China imports most of its equipment from foreign suppliers.

In 2020, equipment vendors are seeing robust demand across the board, especially in China. “Business is strong,” said Dan Hutcheson, CEO of VLSI Research. “It’s being heavily driven by China. China is trying to buy everything they can so they can be self-sufficient from the U.S., if the U.S. should cut them off. The growth in China for the equipment industry is offsetting any kind of weakness anywhere else.”

Indeed, the U.S. and China are embroiled in a trade war. As part of that effort, the U.S. is making it more difficult for China to obtain U.S. technology.

Nonetheless, multinational equipment and materials suppliers dominate the China market. Applied, ASML, KLA, Lam, TEL and others all have significant business in China.

All multinationals are also keeping a close eye on China’s ongoing efforts to develop its own equipment and materials industry. In the 2000s, China launched an initiative. That plan, called Project 02, was designed to reduce its reliance on foreign suppliers by developing its own, domestic fab equipment industry. Over time, China has developed tools for every segment in the manufacturing flow, such as cleaning tools, etch, deposition, lithography and so on.

Recently, the China government launched a directive under which China’s chipmakers must buy a small percentage of China-made equipment. So far, though, this project has produced modest results. In each equipment segment, China remains behind. And worldwide market share for Chinese fab tool suppliers is tiny.

To get a handle on the situation, Semiconductor Engineering talked to Risto Puhakka, president of VLSI Research. Puhakka conducted a tour of China-based equipment vendors about 18 months ago.

“When I came back, my conclusion was that they were underfunded,” Puhakka said. “They were lacking in operations. And then, they lacked in scale.”

Generally, equipment companies need to operate globally and support billion-dollar fabs worldwide. “If you do an equipment program, it costs you a couple of hundred million dollars. You have to be able to sell the equipment globally to everybody to really make an impact. There were not hundreds of millions of dollars of funding flowing to the equipment space in China,” Puhakka said.

Not all China fab tool vendors are in the same boat. “The exception is AMEC. They have been well funded. They have what I would characterize as a world-class operation,” Puhakka said.

Advanced Micro-Fabrication Equipment (AMEC), a supplier of etch, MOCVD and other tools, is the largest equipment vendor in China. In some cases, AMEC has been a thorn in the side of some multinational equipment vendors.

“Yet, they are struggling to penetrate in markets outside China,” Puhakka said. “They have sold to Hynix. They have sold to TSMC. They are selling to some European customers. But 80% to 90% of their business is in China.”

Still, the industry must keep a close eye on China’s equipment industry. As reported, China is developing EUV. This is an extremely difficult technology to develop. It’s a long-shot whether China will succeed here.

There are other areas of interest in China, namely silicon wafers and materials. So far, though, China has barely made a dent here.

Then, the nation is the world’s largest market for electric vehicles. Many of these vehicles are embracing power semiconductors based on silicon carbide (SiC).

For example, China’s Zhengzhou Yutong Group is developing an electric bus. Yutong will use SiC power semiconductors in the powertrain. Cree is developing the SiC power semis here. “Cree’s technology is at the heart of the dramatic change underway in electric vehicles for the commercial and consumer markets, and we are committed to supporting the industry as it transitions to more efficient, higher performing silicon carbide solutions,” said Gregg Lowe, CEO of Cree.

At the same time, though, China-based SiC vendors have emerged. It’s unlikely they will succeed in the short term.

Still, there is a pattern developing in China—the nation wants to make its own products. So it’s time to pay attention, even if they have little or no success in these segments.



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