The Rise of China’s Semiconductor Equipment Purchases

The world’s largest semiconductor equipment manufacturers, such as ASML, have experienced a significant surge in their China revenue in recent years. According to a report by Bank of America analysts, the share of China revenue for companies like Lam Research, KLA Corp., and Applied Materials has more than doubled since late 2022. This growth can be attributed to China’s accelerated purchase of semiconductor manufacturing equipment following tighter export restrictions imposed by the U.S. in October 2022.

The BofA analysis revealed that the companies’ China revenue increased from 17% of their total revenue in the fourth quarter of 2022 to 41% in the first quarter of 2024. This shift underscores China’s efforts to develop its own semiconductor manufacturing capabilities and reduce its dependence on foreign suppliers. However, the escalating trade tensions between the U.S. and China pose risks to the tech industry, particularly the semiconductor sector.

The U.S. government initiated sweeping export controls on advanced semiconductors and related manufacturing equipment sales to China in October 2022. Recent reports suggest that the Biden administration is considering even broader restrictions on semiconductor equipment exports that could impact non-U.S. companies as well. In response, Beijing has prioritized enhancing its tech self-sufficiency, as reaffirmed by top leaders during a recent policy meeting.

Amidst these developments, the VanEck Semiconductor ETF (SMH), which tracks U.S.-listed chip companies, has experienced fluctuations in the last week. While the ETF has seen a slight decline recently, it still maintains year-to-date gains of nearly 46%. The uncertainty surrounding trade relations between the U.S. and China continues to impact investor sentiment and market dynamics within the semiconductor industry.

The rise of China’s semiconductor equipment purchases reflects the evolving dynamics of global trade and technology competition. As countries like China strive for greater self-sufficiency in the semiconductor sector, the industry faces challenges amidst geopolitical tensions. The market response to these developments underscores the importance of monitoring trade policies and regulations that could shape the future of the semiconductor industry.