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Semiconductor equipment is an essential support for the entire semiconductor industry. In recent years, the rapid development of the semiconductor industry has continuously driven the expansion of the semiconductor equipment market.

Even in the face of fluctuations in the semiconductor industry, the semiconductor equipment industry still delivered an impressive performance in the first quarter of this year.

01

Semiconductor Equipment Companies Have a Strong Start

Benefiting from the rise of domestic wafer factory construction and the continuous advancement of domestication, the domestic semiconductor equipment sector maintains a high level of prosperity. Companies such as North Microelectronics, SinoMicro, SEMI Shanghai, Tuojing Technology, Zhongke Feice, Zhichun Technology, Huahai Qingke, and Changchuan Technology have seen a significant increase in orders for domestic semiconductor equipment manufacturers. Accordingly, the first-quarter revenue of each company also performed very well.

North Microelectronics' revenue increased by 51.36% year-on-year

North Microelectronics achieved a business income of 5.859 billion yuan in the first quarter of 2024, a year-on-year increase of 51.36%; the net profit attributable to the parent company was 1.127 billion yuan, a year-on-year increase of 90.40%; the net profit excluding non-recurring gains and losses was 1.072 billion yuan, a year-on-year increase of 100.91%.Zhongwei Company's revenue grows by 31.23% year-on-year

Zhongwei Company achieved a business income of 1.605 billion yuan in the first quarter of 2024, a year-on-year increase of 31.23%, while the net profit attributable to the parent company was 249 million yuan, a year-on-year decrease of 9.53%. Despite this, the net profit attributable to the parent company excluding non-recurring gains and losses achieved a year-on-year increase of 15.40%, reaching 263 million yuan.

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Shengmei Shanghai's revenue grows by 49.63% year-on-year

Shengmei Shanghai achieved a business income of 921 million yuan in the first quarter of 2024, a year-on-year increase of 49.63%; the net profit attributable to the parent company was 80.1834 million yuan, a year-on-year decrease of 38.76%; the net profit excluding non-recurring gains and losses was 84.3262 million yuan, a year-on-year decrease of 22.36%.

Tuojing Technology's revenue grows by 17.25% year-on-year

Tuojing Technology achieved a revenue of 472 million yuan in the first quarter of 2024, a year-on-year increase of 17.25%; the net profit attributable to the parent company was 10 million yuan, a year-on-year decrease of 80.51%; the net profit attributable to the parent company excluding non-recurring gains and losses was -44 million yuan, a year-on-year decrease of 325.07%.

Zhongke Feice's revenue grows by 45.60% year-on-year

Zhongke Feice achieved a total business income of 236 million yuan in the first quarter of 2024, a year-on-year increase of 45.60%; the net profit attributable to the parent company was 34.2401 million yuan, a year-on-year increase of 9.16%; the net profit excluding non-recurring gains and losses was 7.7809 million yuan, turning from loss to profit year-on-year.

Zhichun Technology's revenue grows by 3.48% year-on-year

Zhichun Technology achieved a business income of 811 million yuan in the first quarter of 2024, a year-on-year increase of 3.48%. The net profit attributable to the shareholders of the listed company was 63.5854 million yuan, a year-on-year increase of 1.45%.Huahai Qingke's Revenue Grows by 10.40% Year-on-Year

Huahai Qingke achieved a total operating revenue of 680 million yuan in the first quarter of 2024, a year-on-year increase of 10.40%; the net profit attributable to the parent company was 202 million yuan, a year-on-year increase of 4.27%; the net profit excluding non-recurring gains was 172 million yuan, a year-on-year increase of 2.78%.

Changchuan Technology's Revenue Grows by 74.81% Year-on-Year

Changchuan Technology achieved a total operating revenue of 559 million yuan in the first quarter of 2024, a year-on-year increase of 74.81%; the net profit attributable to the parent company was 4.0752 million yuan, turning a loss into profit compared to the same period last year; the net profit excluding non-recurring gains was 1.6257 million yuan, also turning a loss into profit compared to the same period last year.

From the latest first-quarter performance reports, it can be clearly observed that the recovery trend of the semiconductor equipment industry is gradually strengthening. Wind data shows that in the first quarter of 2024, the listed companies in the semiconductor equipment sector collectively achieved a total operating revenue of 13.003 billion yuan, a year-on-year increase of 37.11%; they achieved a net profit attributable to the shareholders of the listed companies of 1.991 billion yuan, a year-on-year increase of 26.35%, which is higher than the overall level of the semiconductor industry.

In addition, domestic semiconductor equipment has gradually gained the trust and recognition of customers in the industry chain in terms of performance and stability, and the overall development of the domestic semiconductor equipment industry has been accelerated. At the recent 2023 annual performance briefing session for the science and innovation board's semiconductor equipment special session, many listed companies also stated that since the fourth quarter of last year, the industry has gradually shown signs of recovery, market demand has warmed up, and there are sufficient orders on hand.

02

Sufficient Orders on Hand, Q2 Expected to Welcome Bonus Again

The 12 semiconductor equipment companies participating in this performance briefing session cover key links such as cleaning, thin film deposition, and testing.

Cai Lin, director and general manager of Huafeng Measurement and Control, introduced at the performance meeting that after a period of inventory reduction, the semiconductor market gradually showed signs of recovery since the fourth quarter of last year, and the prosperity has been continuously rising. Up to now, the company's order volume has significantly rebounded, and there has been a noticeable increase in bulk orders from major customers. With the market warming up, overseas markets represented by Taiwan and Southeast Asia will also contribute orders in succession, adding to the company's performance.Jingsheng Shares' Chairman and General Manager, Li Hui, stated, "The company currently has a sufficient number of orders on hand. It is expected that a significant part of the future order growth will come from the company's 8-inch silicon carbide crystal growth equipment and new products. This year, there will be a substantial increase in orders for silicon carbide and silicon equipment in the Taiwan region of China. In addition, domestic photovoltaic customers have plans for overseas layout, and we are actively cooperating and following up."

Nai Ke Equipment's Chairman, Huang Mingjiu, stated that the company currently has a sufficient number of orders on hand, with over 200 million yuan in orders as of April, and the number is continuously growing. From the current understanding, the semiconductor packaging equipment market is recovering, and the order situation will continue to improve; the company's extrusion molding equipment orders mainly come from overseas, with steady growth. It is expected that in 2024, the company can achieve sales between 350 million and 380 million yuan, an increase of more than 50% compared to 2023.

Weidou Nano's General Manager, Zhou Ren, said, "As of March 31, 2024, the company's semiconductor orders on hand amounted to 1.115 billion yuan. The types of ALD and CVD processes that the company has entered the industrialization verification stage are continuously increasing, and it is still developing new processes such as IGZO and Nb2O5 in response to customer needs." It is worth noting that in 2023, the company's new order total was about 6.469 billion yuan, 2.96 times the new orders of the same period last year. Among them, the new orders in the semiconductor field were 3.29 times the new orders of the same period last year.

In addition, the recent quarterly performance reports released by North Huachuang and Zhongwei Company also actively indicate that the two companies currently have a considerable amount of orders on hand.

The financial report shows that North Huachuang signed new orders exceeding 30 billion yuan in 2023. As of the end of the first quarter of 2024, the company's contract liabilities were 9.25 billion yuan, compared with 8.32 billion yuan at the end of 2023 and 7.2 billion yuan at the end of 2022. The increase in contract liabilities indicates that the company's orders are also steadily increasing. North Huachuang stated in interactions with investors that the increase in inventory matches the growth in orders, and the company currently has a full order book, normal inventory turnover, and a lower risk of inventory backlog.

Zhongwei Company signed new orders of 8.36 billion yuan in 2023, a year-on-year increase of 32.3%, of which etching equipment new orders were 6.95 billion yuan, a year-on-year increase of 60%; MOCVD equipment new orders were 260 million yuan, a year-on-year decrease of 72.2%, mainly due to the impact of market fluctuations.

As of the end of the first quarter of 2024, Zhongwei Company's inventory was 5.58 billion yuan, an increase of 1.32 billion yuan from the previous quarter, mainly due to the purchase of raw materials under the growth of orders, a large number of production machines, and the delivery of machines to customers. Among them, the balance of goods shipped was 1.92 billion yuan, an increase of 1.055 billion yuan from the beginning of the period; as of the end of the first quarter, the contract liabilities were 1.17 billion yuan, an increase of 400 million yuan from the end of the previous year.

Zhongwei Company's contract liabilities balance as of the first quarter was 1.169 billion yuan, a 51.51% increase from the beginning of the year. Zhongwei Company stated that in the first quarter of 2024, the company's etching equipment production and shipment volume increased significantly, and the company received more shipment payments, leading to an increase in the contract liabilities balance.

03

Two Major Driving FactorsDomestic Semiconductor Equipment Accelerates Penetration

In recent years, under the impetus of policies, domestication has continued to accelerate, especially in the field of semiconductor equipment, where significant progress has been made.

On the one hand, domestic equipment manufacturers have increased their investment in technological research and development, and their technical strength has been enhanced. On the other hand, with the new regulations on equipment management from the United States, Japan, and the Netherlands being implemented one after another, domestic semiconductor equipment has gained more opportunities for process verification from wafer fabs and packaging and testing factories.

Driven by the above two factors, semiconductor equipment manufacturers are expected to usher in a golden period of development.

Semiconductor manufacturing is divided into front-end processes (wafer manufacturing) and back-end processes (packaging).

Front-end process equipment focuses on the manufacturing and processing of semiconductors, covering steps such as oxidation/diffusion, lithography, etching, cleaning, ion implantation, thin film growth, and polishing. It includes lithography machines, etching machines, CVD equipment, PVD equipment, ion implantation equipment, and CMP grinding equipment. Back-end equipment is mainly used for the packaging and performance testing of semiconductors, including testers, probe stations, and sorters.

Generally speaking, front-end equipment has a higher technical difficulty, numerous production processes, and is the most technically challenging and capital-intensive part of the chip manufacturing process. In terms of sales, front-end equipment accounts for about 80% of the cost in semiconductor-specific equipment, occupying the main market share of semiconductor-specific equipment.

Looking at the global market, Applied Materials holds a large market share in the etching equipment, CVD, PVD, metrology/testing equipment, thermal processing equipment, and CMP equipment markets. Lam Research ranks at the forefront in the markets for etching equipment, CVD, and cleaning equipment. In addition, American companies such as Teradyne, KLA Corporation, and Cohu are also at the forefront in the segmented semiconductor equipment market. Among Japanese companies, companies represented by Tokyo Electron, Hitachi, Disco, Nikon, Canon, Tokyo Seimitsu, and DISCO have a prominent market share in the segmented semiconductor equipment market, with clear advantages in etching, ALD, cleaning equipment, and dicing saws. Dutch companies such as ASML and ASM specialize in lithography machines and ALD equipment.In the front-end domain, some domestic enterprises have already broken through the global competition, but overall, the market share is relatively low. In the etching equipment market, China's main manufacturers include North Microelectronics, SMIC; in the thermal treatment equipment market, there are domestic manufacturers such as North Microelectronics, Yitang Semiconductor, etc., but the number of domestic manufacturers participating in each sub-field and the market share of each are not high, and most of the market is still dominated by foreign enterprises.

Although domestic manufacturers have not yet made significant breakthroughs in front-end wafer manufacturing, in the back-end field, domestic semiconductor equipment manufacturers have relatively complete support in testing machines, sorting machines, probe stations and other equipment, and domestic semiconductor equipment manufacturers represented by Changchuan Technology and Huafeng Measurement and Control are also rapidly advancing in the research and development and market expansion of SoC testing machines, probe stations and other products, and have a certain market share advantage in the back-end equipment market.

According to the report "Resilience in the Semiconductor Supply Chain is Emerging" released by the Semiconductor Industry Association of America and the Boston Consulting Group, mainland China currently accounts for 20% of global equipment expenditure and 18% of global equipment imports. Export controls by the United States, Japan, and the Netherlands have increased the urgency of developing domestic substitutes. It is reported that at least five Chinese manufacturers are in mass production; small and medium-sized enterprises have created lithography demonstration equipment; North Microelectronics and SMIC have entered the etching market with larger nodes.

Semiconductor equipment and materials are the cornerstone of semiconductor chip manufacturing, and the wafer foundry process is an indispensable core link in the industry chain. According to the report of the 20th National Congress, "A new security pattern ensures a new development pattern," insisting on safety and development has been placed in a more important position.

At present, the domestic semiconductor equipment industry is still in the early stage of growth. With various manufacturers continuously establishing and strengthening their own competitive advantages, domestic semiconductor equipment is expected to accelerate penetration.

Wafer factory production capacity maintains high growth

The Semiconductor Manufacturing Monitor (SMM) Report, compiled by SEMI and TechInsights, pointed out that with the rise of electronic sector sales, the stabilization of inventory, and the increase in wafer factory production capacity, there were signs of improvement in the global semiconductor manufacturing industry in the first quarter of 2024. It is expected that the industry growth will be stronger in the second half of the year.

According to a previous report by SEMI, the global wafer factory production capacity increased by 1.2% in the first quarter of this year, and it is expected to continue to grow by 1.4% in the second quarter. Among them, mainland China is still the region with the most increased global wafer factory production capacity. According to SEMI statistics, from 2022 to 2024, the global semiconductor industry plans to put 82 new facilities into production, including 11 in 2023 and 42 in 2024, covering production lines from 4-inch (100mm) to 12-inch (300mm) wafers.

SEMI estimates that Chinese chip manufacturers will start operating 18 projects in 2024, with production capacity increasing by 13% from 7.6 million wafers per month in 2023 to 8.6 million wafers per month in 2024. That is, the Chinese wafer factories that started operation in 2024 will account for more than 42% of the global market.

The cyclical nature of semiconductor equipment is closely related to the expansion pace of downstream wafer factories. According to SEMI data, in 2023, the global wafer factory production utilization rate and equipment expenditure were at a low point, and it is expected that the global wafer factory equipment expenditure will rebound by 15% year-on-year in 2024, which is expected to drive a year-on-year increase of 4.37% in global semiconductor equipment sales in 2024.Against the backdrop of domestic wafer fabs expanding production against the trend and external strengthening of export controls on equipment, opportunities for domestic equipment verification are increasing, and domestic substitution will continue to advance. In addition, the development of advanced processes and the improvement of process flows have brought new growth space to the semiconductor industry. In summary, semiconductor equipment companies may maintain high growth in orders and delivery volumes in 2024.

In 2023, the semiconductor industry is at the bottom of the cycle. Despite the strong demand from the Chinese market, the global equipment manufacturers, as the "shovel sellers" of the semiconductor industry chain, are inevitably affected, including equipment manufacturers such as Lam Research, Tokyo Electron, KLA, Advantest, and Teradyne, all of which have seen a decline in performance.

In contrast, the domestic market has seen China become the world's largest semiconductor equipment market since 2020. Driven by the golden wave of domestic substitution, domestic semiconductor equipment manufacturers have shown a trend of high growth in performance in 2023, except for testing equipment. From the current situation, domestic semiconductor equipment manufacturers may hope to usher in a new phase of dividend period in 2024.

It is undeniable that there is still a significant gap between China's semiconductor equipment industry and international leading enterprises. In 2024, domestic manufacturers still need to forge ahead.