Concerns over China's semiconductor equipment self-sufficiency have cast a shadow over the South Korean stock market. Reports indicate that China’s largest DRAM manufacturer, Changxin Memory Technologies (CXMT), has begun producing critical semiconductor production equipment, specifically lithography equipment.
On July 28, during trading, shares of Samsung Electronics and SK Hynix fell by as much as 13.4% and 14%, respectively. The KOSPI index also dropped more than 9% at one point. Investor sentiment has soured amid fears of intensified competition with Chinese firms, compounded by a downturn in U.S. semiconductor stocks.
Reuters cited concerns over funding for artificial intelligence (AI) investments, advancements in Chinese technology, and increased competition from Chinese companies as factors behind the sharp decline in semiconductor stocks.
According to the U.S. technology news outlet The Information, a Shanghai-based company backed by the Chinese government has started producing its own immersion deep ultraviolet (DUV) lithography equipment.
This company is expected to produce about five units this year, supplying them to China’s largest semiconductor foundry, Semiconductor Manufacturing International Corporation (SMIC), as well as Huahong Semiconductor and CXMT. The production target for 2027 is approximately 20 units. The name of the company has not been disclosed.
Lithography equipment is essential for etching fine circuits onto semiconductor wafers. The Dutch company ASML currently monopolizes the supply of advanced extreme ultraviolet (EUV) equipment and leads the immersion DUV market.
However, Chinese DUV equipment is not yet at a level to replace ASML products. The Information reported that “Chinese equipment lags behind ASML products in performance and reliability, and further testing is needed before it can be deployed in actual production lines.”
Despite this, the market's sensitive reaction stems from the fact that lithography equipment has long been considered the biggest weakness in China’s semiconductor supply chain. China has already expanded the use of domestic equipment in various processes, including etching, deposition, cleaning, and thermal treatment.
If China can achieve a certain level of performance with lithography equipment, it could reduce the burden of procuring equipment due to U.S. export restrictions. This would bring China a step closer to establishing a so-called “full-stack” semiconductor ecosystem, connecting design, equipment, materials, production, memory, and finished products domestically.
Design is handled by Huawei’s subsidiary HiSilicon, production by SMIC and Huahong Semiconductor, and memory by CXMT and Yangtze Memory Technologies (YMTC). With the addition of Chinese lithography equipment, a structure could emerge where semiconductors designed by Chinese companies are produced using domestic equipment for smartphones, servers, and AI services.
Kim Seok-hwan, a researcher at Mirae Asset Securities, told Reuters, “Market concerns are more about the potential for CXMT to expand its production capacity and technology development after its listing, which could lead to competition with Korean companies.”
This situation could pose a double burden for domestic equipment manufacturers. If Chinese companies increase their use of domestic equipment, it could narrow the market presence of South Korean firms in China. If CXMT and YMTC expand production, it could lead to a decline in memory prices, prompting Samsung Electronics and SK Hynix to adjust their investment pace.
However, it is still too early to conclude that China has completed its semiconductor full stack. The performance, yield, and reliability of Chinese DUV equipment have yet to be validated. There remains a technological gap in EUV equipment, semiconductor design software, advanced materials, and precision inspection equipment.
In the future, the level of threat posed by China’s equipment self-sufficiency will depend on whether Chinese DUV can secure the processing speed and yield required for actual production lines.
Sandeep Deshpande, a JP Morgan analyst, told Barron's, “The drop in semiconductor equipment stocks following the news of Chinese DUV production seems excessive, but this news indicates that China’s ambitions for AI semiconductor self-sufficiency are becoming more concrete,” adding that it raises long-term risks for ASML’s revenues in China.
* This article has been translated by AI.
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