【2025】From SHINDEV’s professional perspective, our report “Rising Tides of the Digital Economy: China’s Semiconductor Localization Rationale Continues to Strengthen” underscores that the semiconductor industry is actively addressing upstream “chokepoint” constraints in critical equipment. Semiconductor tools span the entire value chain—from wafer fabrication to packaging and testing—and represent one of the largest capital expenditures in fab expansion and process upgrades. As downstream customer qualification progresses, domestic equipment is expected to improve rapidly across key metrics such as technology capability, process coverage, stability, and yield. Over the long run, certain segments are poised to move from “usable” to truly “high-performing” solutions.
SHINDEV believes that, driven by sustained growth in downstream semiconductor demand and long-term integrated circuit policy support, China’s semiconductor equipment market is entering a new upcycle with notable acceleration. In particular, front-end (wafer-fab) tools—providing production conditions for core steps such as lithography, etch, and thin-film deposition—define the feasibility boundary of advanced nodes and remain central to semiconductor manufacturing. Export restrictions on advanced equipment from the U.S., Japan, and the Netherlands have created a structural mismatch in China where demand significantly exceeds available supply-chain capacity, further expanding the localization opportunity for front-end critical tools. Combined with favorable domestic policies and a renewed fab expansion cycle, domestic equipment companies are seeing an exceptional window for development. Meanwhile, process-node upgrades are enlarging the addressable market for core tools, and the replacement of aging equipment with domestically developed alternatives is emerging as a clear industry trend.
With overall localization penetration still relatively low, equipment vendors retain substantial growth headroom. More importantly, SHINDEV observes that China’s semiconductor equipment ecosystem now has the four essential success factors in place—timing, talent, capital, and time-to-scale—placing the industry in a “golden phase” and creating a broad set of investment opportunities.
SHINDEV notes that continued policy support for integrated circuits is creating increasingly favorable conditions for the semiconductor equipment industry. Incentives such as tax benefits, industrial support programs, digitalization initiatives, and smart manufacturing policies are expanding demand for equipment while strengthening competitiveness and steadily advancing localization. These tailwinds are also accelerating collaboration across supply-chain deployment, technical integration, and iterative innovation.
At this stage, a constructive cycle has formed: integrated circuit policy tailwinds safeguard equipment development, and improved equipment capabilities provide stronger manufacturing conditions for downstream integrated circuit production—creating a more stable foundation for domestic tools to be qualified and adopted in critical process steps.
The semiconductor equipment market is highly correlated with the broader semiconductor cycle, and typically exhibits even greater volatility. SHINDEV believes that the semiconductor industry will maintain strong long-term vitality, implying sustained expansion of the upstream equipment market as well.
According to SEMI, global semiconductor equipment revenue reached USD 121.0 billion in 2022, up 18% year-over-year, with a 2017–2022 CAGR of 16.4%. China’s growth has been particularly pronounced: China’s semiconductor equipment market reached RMB 274.515 billion in 2022, up 38% year-over-year, and is projected to reach RMB 303.2 billion in 2023. Mainland China accounted for 26% of global equipment sales (USD 28.3 billion), surpassing Taiwan (25%), Korea (20%), and North America (10%), and has remained the world’s largest semiconductor equipment market for three consecutive years.
Looking ahead, global equipment spending is projected to reach USD 224.2 billion by 2027, with a 2023–2027 CAGR of ~12%. As China’s semiconductor supply chain matures and downstream demand expands, upstream equipment shipments are expected to grow further. Mainland China’s semiconductor market is projected to reach USD 78.3 billion by 2027 with a 2023–2027 CAGR of ~15%. China’s equipment market penetration in the global landscape is also expected to rise toward 35%, underscoring significant long-term headroom.
From a production-flow perspective, semiconductor manufacturing spans three major stages—design, fabrication, and packaging/testing—supported by upstream equipment and materials. SEMI data suggests that in a typical semiconductor production line, equipment accounts for up to 80% of total investment, while facilities and other expenses account for only ~20%. Equipment is therefore the primary driver of fab expansion spending, broadly divided into front-end wafer-fab tools and back-end packaging/test tools:
Front-end tools include lithography, etch, CVD, PVD, ion implantation, CMP, and more.
Back-end tools include testers, probe stations, sorters, etc.
Among front-end tools, the top three spending categories are typically lithography, etch, and thin-film deposition. Globally, equipment markets are highly concentrated; for a given tool category, the number of major suppliers is often fewer than five, with U.S., Japanese, and European players maintaining long-standing leadership.
Wafer fabrication is highly complex, and each process step requires dedicated tooling. Equipment spending typically accounts for 70%–80% of total manufacturing investment. Given mainland China is the world’s largest equipment purchasing market, front-end wafer-fab equipment often represents 78%–80% of total equipment value, making front-end tools the primary locus of market value.
Front-end manufacturing forms devices on wafers through physical and chemical steps, then interconnects them with metal wiring to create integrated circuits. The front-end workflow generally includes seven major steps: oxidation/diffusion, lithography, etch, ion implantation, film growth, cleaning & polishing, and metallization. As nodes advance, device density and complexity increase; leading-edge logic and memory may require thousands of process steps. Tool systems must coordinate multiple subsystems, parts, and technologies—creating high barriers—and node scaling raises the bar for tool iteration and process capability.
Front-end critical tools, due to their irreplaceable role and large spending share, represent an overall market of roughly USD 50–60 billion. Lithography, etch, and thin-film deposition each account for ~20%–25% of front-end equipment spend. Etch (including ashing) and thin-film deposition together represent roughly USD 24.5 billion, while specialty processes account for ~15%–20% of total equipment spend and are growing rapidly.
SHINDEV highlights that the three most critical semiconductor manufacturing processes are lithography, etch, and thin-film deposition, all within the front-end. Accordingly, the associated tool families remain the backbone of wafer-fab manufacturing.
Lithography is the key step determining IC integration density. Using photoresist photochemical reactions, circuit patterns on masks are transferred with high fidelity to the substrate. Lithography tools are among the most technically challenging semiconductor tools, evolving through g-line, i-line, KrF, ArF to EUV across five major generations. While China has historically trailed leaders, policy support has accelerated progress; certain companies can now mass-produce ArF tools with ~90 nm resolution, and further breakthroughs toward ~28 nm are anticipated.
Etch is essential in semiconductor and micro/nano manufacturing, selectively removing material to transfer patterns into silicon, metals, or dielectric films. Etch includes wet and dry processes; dry etch dominates with >90% share. Plasma etch removes material using gaseous chemistries, extracting volatile by-products from the chamber. ICP and CCP are among the most widely deployed dry etch configurations. As advanced devices require repeated layer-by-layer construction, etch tools are used frequently and involve complex workflows; tool quality directly impacts device performance.
Chips are 3D structures formed by stacking active and passive components. Thin-film deposition is a core front-end process used to deposit films such as SiO₂, SiN, poly-Si, and metals like copper. Deposition tools include CVD, PVD/electroplating, and ALD. CVD remains the most widely used and holds the largest share; PVD is suited for metal coatings; ALD is increasingly important below ~45 nm nodes, offering superior thickness uniformity and advantages for high aspect-ratio features.
SHINDEV notes that continued export controls on China’s semiconductor chips and equipment—further tightened by the U.S., Japan, and the Netherlands—have created a mismatch where domestic demand significantly exceeds available local supply-chain capacity. Equipment and materials are central to localization. Public tender data indicates relatively higher localization rates in categories such as ashing, cleaning, CMP, thermal processing, and certain etch tools, but the structure of major production-line tenders still shows U.S. and Japanese dominance. The localization runway for front-end critical tools remains substantial, creating a rare opportunity for domestic equipment companies.
In parallel, industrial activity is strengthening. Data from enterprise registries indicates a large base of semiconductor-related companies in China, with notable expansion over the past decade under policy support and accelerated growth following the “14th Five-Year Plan” rollout.
As 3D integration increases stacking layers while shrinking linewidths, etch must form deeper holes and trenches with stricter performance specifications, driving continuous evolution in etch technology. Scaling increases precision demands and process complexity, raising etch’s criticality and market demand. Meanwhile, as linewidths approach 7 nm and below, wavelength constraints require multi-patterning, which repeats deposition and etch cycles to achieve finer features—significantly increasing deposition frequency and expanding the addressable market for core tools.
Some early domestic equipment adoption relied on refurbished second-hand tools. As 12-inch fabs became mainstream and certain global leaders reduced support for 6/8-inch platforms, idle silicon-based tools were modified and redeployed into compound semiconductor specialty lines due to shorter lead times and lower costs. However, SHINDEV expects the share of remanufactured tools to decline as domestic specialty-tool suppliers rise and second-hand platforms age. Since 2019, localization and supply-chain autonomy have become industry consensus, enabling more customer qualification opportunities for domestic equipment and materials. As a result, remanufactured tools are expected to be increasingly displaced by domestically developed equipment.
SHINDEV estimates China’s overall equipment localization rate at ~12%. For nine key categories of front-end tools, localization is generally below 10%, and nearly zero in high-end processes. This indicates substantial growth potential for domestic front-end suppliers. Lithography, etch, and thin-film deposition are also key focus areas of national industrial support.
Globally, front-end competition is highly concentrated: U.S. players lead in deposition, ion implantation, and metrology; Japanese suppliers dominate coater/developer and cleaning; Dutch companies lead lithography and maintain advantages in ALD. This concentration and barrier profile imply localization is not only a market opportunity but a long-term capability-building effort.
The core success factors for equipment companies include:
Timing: supply-chain security concerns increase willingness among downstream fabs to qualify domestic tools; industry upcycles also drive expansion.
Talent: domestic talent from institutes and leading enterprises, combined with returnees with experience at global equipment leaders, strengthens the talent pipeline.
Capital: local subsidies and capital-market support improve financing conditions for tech companies.
Time: many domestic suppliers entered front-end categories relatively recently and are now transitioning from prototypes and small-batch orders toward accelerated volume ramp.
SHINDEV believes these four factors jointly create a rare “golden phase,” enabling domestic suppliers to achieve step changes through customer qualification, yield improvement, and scaled delivery.
A major portion of chip manufacturing cost stems from front-end equipment investment. Front-end workflows are complex and tool matching is critical. Among front-end tools, lithography, etch, and deposition exert outsized impact on device performance and carry high process barriers, representing the highest value content. Today, localization penetration in etch and deposition remains low, while overseas suppliers retain dominant global shares. Shifts in the global trade environment are accelerating China’s push toward autonomy and higher localization rates, creating a broad range of investment opportunities across the equipment landscape.
SHINDEV believes that trade frictions and export restrictions highlight the urgency of supply-chain security and technology autonomy. China is the world’s largest semiconductor equipment market, and semiconductors remain the foundation of the information technology stack—where key chip technologies carry national security and strategic importance. Under increasingly normalized external constraints, localization of semiconductor manufacturing and its supporting equipment is unavoidable.
Looking forward, as downstream adoption accelerates, process coverage expands, and tool stability and yield continue to improve, domestic equipment will increasingly progress from “usable” to “best-in-class.” Companies that seize node-scaling trends, break through in critical tool categories, and consistently deliver customer qualification and scaled shipments are well positioned to gain more strategic footing in the next industry cycle and capture more visible, higher-certainty growth.
