The market for chipmaking equipment is likely to recover next year, energized by China increasing its spending on production gear for memory ICs and other new projects. If China buys as much equipment as anticipated, it will become the world’s largest buyer of fab tools for the first time ever, according to industry organization SEMI.

SEMI expects total spending on equipment in 2020 to rise to $55.8 billion from $52.1 billion this year. The organization is tracking fab projects in China that are expected to move in equipment next year. About 55% of those fabs will be for memory.

Once again, Asia is likely to be the main location for investment in new production equipment next year, but this time it will be led by a number of projects in China, as it progresses toward becoming a key chipmaking nation.

“Samsung, SK Hynix and Intel will spend over $5 billion on equipment for memory in China next year,” Clark Tseng, director of Industry Research and Statistics at SEMI, told EE Times. We're currently tracking over $2 billion likely to be spent by Chinese memory suppliers, which translates to about 30% of memory equipment investments in China.”

SEMI forecasts that China, South Korea, and Taiwan will be the top-three markets for chip equipment next year. In 2020, the China market is expected to soar 24% from 2019 to $14 billion while South Korea is expected to be the second-largest market at $11.7 billion, followed by Taiwan at $11.5 billion and Japan at $9.0 billion.

More upside is likely if the macroeconomy improves and trade tensions subside in 2020, according to SEMI.

A “mild” recovery in semiconductor manufacturing equipment is likely in 2020, with growth of 1.8%, following a decline of 13.5% in 2019, according to Dan Hutcheson of VLSIresearch.

“One has to remember that this cycle is mostly a memory boom/bust,” Hutcheson says.

China

China’s emergence as a chip manufacturer has been in low-cost, lagging-technology nodes used mainly in MCUs and low-end consumer electronics. More recently, China has been attempting to enter higher-value segments such as DRAM, flash memory and microprocessors. These segments require more advanced fabs and additional manufacturing equipment.

To approach the leading edge of chip-manufacturing technology, however, requires the development of considerable expertise that goes well beyond buying and installing the latest equipment, according to Linley Gwennap, principal analyst with The Linley Group.

“It makes sense that China’s total chip output would surpass that of any other single country within the next few years,” Gwennap told EE Times. “Becoming a technology leader in chip manufacturing will take longer.”

China has become a leader in designing devices for its domestic market, which can be seen in the quality of HiSilicon’s devices, VLSIresearch’s Hutcheson says. HiSilicon is the semiconductor unit of Huawei, the world’s largest telecom networking system supplier. China has also excelled in development of cryptocurrency chips and dedicated mining hardware.

The nation leads the world in device assembly and some packaging classes in terms of cost levels, according to Hutcheson.

“I give them less than a 5% probability of the spending approach locking in successful world dominance in leading-edge logic and memory wafer processing or semiconductor manufacturing equipment,” according to Hutcheson. “Moreover, they face an overwhelming multitude of productivity and technology challenges to be globally competitive on all fronts.”

Restrictions

The U.S. government sees China’s policy to build a domestic semiconductor industry as a threat to American dominance.

While the Trump Administration this year restricted sales of U.S. technology to China, a number of American companies have sought to ease those regulations. Earlier this year, the Trump administration banned exports of U.S.-related technology to Huawei, for example.

After the U.S. government added Huawei to the Entity List, Trump said that some companies would be granted permission to sell to the Chinese tech giant. Any transaction with a company on the Entity List is seen as a “red flag” by the U.S. government, meaning that the transaction should be monitored for illegal attempts at obtaining technology. More than 130 companies have applied for permission from the U.S. Commerce Department to sell to Huawei.

Cracks may emerge in the American restrictions.

SEMI declined to comment on whether European and Japanese suppliers of chipmaking equipment may skirt the U.S. regulations to tap the expected surge in demand from China.

The restrictions on shipping advanced technology to China apply to U.S., European and Japanese companies.

For the European and Japanese suppliers, “U.S. restrictions are largely in place due their being allies, which could be in jeopardy going forward due to the winner take-all attitude in Washington, D.C. these days,” Hutcheson says. “The result of U.S. semiconductor equipment companies losing share and thus R&D dollars to European and Japanese on this point is largely up to the respective governments, which is essentially unpredictable.”