By Li Panpan
The Chinese semiconductor equipment industry has faced sliding performances, especially in the packaging and testing fields since this year, particularly after the 2nd quarter. However, the industry will continue to grow because of robust demand in the China market and its growing localization process, said a recent JW Insights article.
The industry in China experienced eight month boom in 2021. It then did not last after IC design sector started to weaken with reduced consumer electronics demands.
The market orders for equipment used in packaging and testing fields close to downstream applications fell at the end of last year. In the first half of 2022, order volume and capacity utilization decreased, especially for Chinese manufacturers focusing on driver chips and mature wire-bonding packaging businesses.
"The performance of packaging houses generally declined in the second quarter, and so did that of the testing companies. A large number of wafers are stored in the testing houses, creating a short supply of nitrogen cabinets," a packaging and testing equipment manufacturer executive said.
Nitrogen cabinets can store precision components such as semiconductor wafers because they create an atmosphere of inert gas to prevent the oxidation of oxygen-loving and hydrophilic items in the air. Their popularity is in sharp contrast to the downturn in the packaging and testing market.
Another industry observer said that due to the low utilization rate of the packaging and testing factories, the deliveries of equipment to factories would not be signed in time, leading to a slowdown of revenue for the equipment suppliers.
Affected by repeated pandemic lockdowns, global supply chain changes, and the economic recession, the supply of semiconductor equipment has also begun to show structural differentiation.
With longer delivery cycle of semiconductor equipment, downstream customers usually pay a part of the deposit in advance to form contract liabilities, indicating a company's order growth rate or future growth potential. As of the first half of this year, among the A-share semiconductor equipment listed companies, the contract liabilities of GLTech(光力科技), ACCO Test(华峰测控), and Changchuan Technology(长川科技) in the packaging and testing field have grown the slowest at -21.6%, 4.1%, and -13.8%, respectively.
An industry insider predicted that the turning point would be in the first half of next year, as the orders in hand are gradually delivered, the recognized revenue of equipment manufacturers will be greater than the number of new orders.
While the packaging and testing market is down, the demand for equipment in the foundry market is still rising. The latest data from SEMI shows that global fab equipment spending is expected to increase by about 9% year-on-year in 2022, reaching a record high of $99 billion, and will continue to maintain healthy growth next year.
Many Chinese equipment manufacturers are still confident for the second half of the year and next year, mainly because the orders in hand are still high, and it will take some time to digest them fully.
What’s more, the growing localization of China's semiconductor industry has a strong demand for semiconductor equipment. According to incomplete statistics, only the four fabs of SMIC, Huahong Group, YMTC and Yangtze River Storage, and CXMT will have a combined capacity expansion of over one million wafers per month in the future. SMIC recently launched a new 12-inch wafer foundry in Tianjin, with a planned production capacity of 100,000 wafers per month, further verifying that the boom of the Chinese semiconductor equipment industry is expected to continue.
According to the statistics of JW Insights, in August's fab bidding process, Chinese equipment manufacturers won the bid for 329 sets of equipment, accounting for 33.6% of the total number of bid-winning equipment, showing that the verification/introduction process of Chinese semiconductor equipment is accelerating.
A key client manager of a Chinese front-end equipment manufacturer told JW Insights that the demand for equipment from Chinese fabs is still robust but shows differences considering the introduction of the US chip bill, the "Chip 4" alliance, and other geopolitical factors.
Wang Hui, Chairman of ACM Research, said that the Chinese mainland equipment companies are still catching up in technology and need to ramp up production capacity due to the sizeable Chinese chip market. Therefore, the boom of Chinese semiconductor companies will last longer than international counterparts."
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