China is expected to become the largest semiconductor equipment market in the world next year by beating South Korea. China’s intensive investment in chip production equipment is expected to generate trickle-down effects. Chinese semiconductor companies, which have expanded their business from non-memory to memory with the government backing, are about to increase their presence in such fields as equipment, materials and components as well.
The rapid growth of the Chinese semiconductor industry is based on the Chinese government’s efforts. It is planning to invest no less than 200 trillion won in the industry until 2025 to boost the domestic production ratio from 13% to 70%. The Chinese semiconductor equipment market is expected to grow from US$8.2 billion to US$11.8 billion and US$17.3 billion between last year and next year whereas the South Korean market is likely to show a negative growth from US$17.9 billion to US$16.3 billion during the same period.
Of course, the growth of the equipment market does not immediately lead to a higher competitiveness of equipment suppliers. The global semiconductor equipment market is still dominated by traditional powerhouses such as the United States, the Netherlands and Japan. South Korean equipment manufacturers’ global market share stood at 10.1% in 2017 despite the fact that the South Korean semiconductor equipment market is the largest in the world. This is because only 18.2% of the equipment they use is made in South Korea. In other words, massive investments by Samsung Electronics and SK Hynix have been a boon to American and European equipment suppliers in most cases.
Experts point out that the rapid growth of the Chinese market is nothing to be ignored. “China is unlikely to repeat South Korea’s mistake in view of China's frequent M&A attempts targeting South Korean equipment and material suppliers, its strong will to boost its domestic production ratio, its large pool or engineers, etc.,” said one of them.
At present, China is imposing penalties on non-Chinese companies. It has mentioned collusion by Samsung Electronics and SK Hynix on repeated occasions and told Micron Technology not to produce and sell its products in China. Such interferences for the sake of Chinese companies can be repeated in the equipment and material markets as well.
China’s capabilities in the semiconductor industry differ from field to field. For example, China already overtook South Korea in some non-memory segments although the latter is four to five years ahead in memory semiconductor. Especially, China is ahead of South Korea in fabless. This is because China is home to a huge number of semiconductor design firms and has focused on fabless even before its efforts in the memory semiconductor segment. HiSilicon, a fabless company affiliated with Huawei, recently developed an AI chip. “China is excellent in semiconductor chip design related to Industry 4.0 like Sony in image sensor and NXP in automotive semiconductor,” said another insider.
When it comes to foundry, South Korean companies are a couple of years ahead of Chinese. However, this is not so when Taiwanese firms are taken into account. Last year, TSMC alone accounted for 50.41% of the global foundry market and three out of the top five in the market were Chinese and Taiwanese players.
Memory semiconductor is another segment where South Korea is ahead of China. In this segment, however, YMTC recently developed its own NAND flash chip. “China’s rise in related industries as well as memory semiconductor is in stark contrast to the current situation of South Korea, which is suffering from the lack of R&D personnel and less and less government support and industry-academic cooperation,” a local company said.