Since late 2022, four of the world’s largest semiconductor equipment manufacturers, including ASML, have seen a significant increase in their China revenue, with the share more than doubling. This surge in revenue was driven by China’s accelerated purchase of semiconductor manufacturing equipment following the tighter export restrictions imposed by the U.S. in October 2022. The aim of China’s increased investment in semiconductor manufacturing equipment is to develop its own capability in the sector. The BofA analysis focused on Lam Research, ASML, KLA Corp., and Applied Materials, finding that their China revenue went from 17% of total revenue in the fourth quarter of 2022 to 41% in the first quarter of 2024.
The report highlighted the significance of the tech industry, particularly the semiconductor sector, in the ongoing trade tensions between the U.S. and China. The potential for further escalation of tensions poses a risk to the tech industry, including semiconductor manufacturers. In response to the U.S. export controls on advanced semiconductors and related manufacturing equipment to China, Beijing has been actively working to enhance its tech self-sufficiency. This was reaffirmed by top Chinese leaders at a key policy meeting held last week. There are also concerns that the Biden administration may consider broader restrictions on semiconductor equipment exports to China, which could impact non-U.S. companies as well.
Despite the challenges posed by geopolitical tensions and export restrictions, the VanEck Semiconductor ETF (SMH), which tracks U.S.-listed chip companies, has performed well this year. While the ETF has experienced some declines in the last week, it is still showing gains of nearly 46% for the year so far. This indicates the resilience of the semiconductor industry in the face of global challenges and uncertainties. It also underscores the continued demand for semiconductor products and equipment, which is driving growth for manufacturers like ASML, Lam Research, KLA Corp., and Applied Materials, particularly in the Chinese market.
The trend of increasing China revenue for semiconductor equipment manufacturers reflects the country’s strategic focus on developing its semiconductor industry and reducing dependence on foreign suppliers. This shift is part of China’s broader push for technological self-reliance and innovation in key industries. By boosting investment in semiconductor manufacturing equipment, China aims to enhance its capabilities in producing advanced semiconductors domestically. This has implications for the global semiconductor market, as Chinese companies and manufacturers are increasingly becoming major players in the industry.
As tensions between the U.S. and China continue to impact the tech industry, semiconductor manufacturers are navigating a complex landscape of regulatory challenges and market dynamics. The evolving trade policies and export restrictions have forced companies to adapt their strategies and operations to mitigate risks and capitalize on new opportunities. The semiconductor sector remains a critical component of the global tech ecosystem, and developments in China’s semiconductor industry will have far-reaching implications for the broader market. It will be essential for companies to closely monitor geopolitical developments and regulatory changes to stay competitive and resilient in the volatile semiconductor market.
Despite the uncertainties and challenges facing the semiconductor industry, the strong performance of companies like ASML, Lam Research, KLA Corp., and Applied Materials in the Chinese market reflects their ability to adapt to changing market conditions and capitalize on emerging opportunities. As China continues to invest heavily in semiconductor manufacturing equipment and technology, global semiconductor companies are positioned to benefit from the growing demand in the region. By staying agile and innovative, semiconductor manufacturers can navigate the complex geopolitical landscape and drive further growth and innovation in the ever-evolving semiconductor industry.
