This year, with the gradual recovery of the semiconductor industry, the market for equipment and components is also showing a growth trend. According to SEMI's forecast, the global semiconductor equipment market is expected to grow by 3.4% year-on-year in 2024, reaching $109 billion, with China accounting for 32%. Benefiting from China's expansion and the continuous high demand for AI, SEMI estimates that the global semiconductor equipment market will achieve a 17% growth to $128 billion in 2025.

Faced with the growing market and changes in the external environment, China's semiconductor industry chain has also accelerated the localization process of core equipment and components in recent years. At present, the industry pays more and more attention to technological innovation in basic industries such as materials, components, and equipment.

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At the recent 2024 Semiconductor Equipment and Core Components Supporting New Progress Forum, many industry insiders believed that the technology involved in the industry chain includes mechanics, electricity, software, process, and other aspects. However, many core components in China still have gaps. After years of development, the progress of core components has now entered a critical stage. With the booming development of the equipment market, the upstream components and materials fields have ushered in new opportunities and challenges.

Opportunities and challenges of market recovery

At present, driven by AI and consumer terminals, the semiconductor market is slowly recovering. Some industry chain insiders told reporters from the 21st Century Economic Report: "This year's market is better than last year, orders have increased, and the utilization rate of factories is also recovering, with some areas approaching full production."

Although there are divisions in the sub-industries, more and more signs are confirming the overall recovery momentum. Song Kaiyu, the director of the Vacuum Valve Research Institute of Zhongke Jiuwei Technology Co., Ltd., cited an example that in 2024, the main manufacturers of the power semiconductor industry have generally increased by 10% to 20%, TSMC plans to raise the price of 3-nanometer process foundry by more than 5%, and advanced packaging is expected to increase the price by 10%-20% next year. In addition to prices, manufacturers' inventory, performance, and capacity utilization are all improving.

Combining the development of the semiconductor cycle, Song Kaiyu pointed out: "In 2024 and 2025, the entire semiconductor industry is in a clear growth period, which is good for semiconductor equipment manufacturers, including key component manufacturers."

Institutions have predicted the same trend, and this year is expected to usher in an industry inflection point. The semiconductor equipment industry report from Open Source Securities stated that by March 2024, global semiconductor sales have achieved a positive year-on-year growth for five consecutive months, indicating that the industry's prosperity is expected to bottom out and rebound. ASML believes that 2024 will be the year of semiconductor market recovery, and at the same time, it guides that the industry will usher in stronger demand growth in 2025.

On the one hand, facing the growing market, how upstream manufacturers dynamically adjust production capacity according to demand, control costs, and quickly develop to seize the market window period are all tests for companies.On the other hand, technological innovation and the acceleration of localization is a long-term process. Kaiyuan Securities believes that under the circumstances where overseas foundry for high-end chips is restricted and the import control of high-end semiconductor manufacturing equipment is strict, if China's semiconductor industry wants to keep up with the global development speed, it must enhance the local manufacturing capabilities of high-performance processors and memory devices and accelerate the localization of core equipment.

At present, the localization rate of many key semiconductor components is very low. For example, "quartz parts, Shower Head (gas shower head), and pump types are 10%-15%, and the rates for valves, vacuum gauges, and O-Ring (sealing ring) are also relatively low," said Song Kaiyu.

In his view, the breakthrough of components faces five major challenges. First, the semiconductor submarket is small and fragmented, making it difficult for components to achieve economies of scale, which weakens the motivation for localization. Second, the performance indicators required for raw materials are relatively high, but compared with mature industries, the development of the material industry is relatively lagging.

Third, the foundation of electrical products is relatively weak, and there is a gap compared with internationally advanced equipment. Fourth, the certification process in the semiconductor industry is very complex and has a very long cycle, requiring repeated iterations. At present, the verification cycle for key components is at least about 1 to 1.5 years. Fifth, the requirements for surface treatment technology are very high, which is quite different from ordinary industry.

Despite many difficulties ahead, Chinese equipment manufacturers and component manufacturers have been strengthening research and development in recent years, exploring development paths in new opportunities. According to Kaiyuan Securities' calculation, based on the increase in capital expenditure for advanced storage and logic wafer factories, as well as the improvement of localization rate of production line equipment, the sales of semiconductor equipment in China are expected to grow from $36.6 billion in 2023 to $65.77 billion in 2027, with a compound annual growth rate (CAGR) of 15.8%.