Outlook for semiconductor manufacturing equipment market remains fair
20 Nov 2024
As we enter the final two months of 2024, what are the expectations for the semiconductor industry? TechInsights’ 2025 semiconductor manufacturing outlook estimated that integrated circuit (IC) sales will witness increases of 17% and 14% in silicon demand and semiconductor capital expenditure respectively. Second, there will be a 20% rise in equipment sales, driven by strong demand from China. Third, the glass substrate business continues to optimise cost and performance in advanced packaging. Fourth, the subsystem market will grow 15%, driven by continued investment and overall market growth. Fifth, there will be significant advancements in the semiconductor testing market, with strong growth in probe cards, test and burn-in sockets, and interface boards.
In short, strong semiconductor manufacturing expectations in 2025 will be driven by robust semiconductor sales growth in 2024. As at 3Q2024, global semiconductor sales grew 23% to reach US$166 billion (RM745 billion). This substantial growth driven by rising demand for artificial intelligence (AI), 5G and electric vehicles in turn led to a significant production surge for logic and memory chips, and specifically graphic processing units and high-bandwidth memory. The new chips not only provide higher computing power but also enormous data storage capacity and faster read/write speeds that enable AI to pull data much faster than a traditional hard disk drive in the data centre.
As more IC units are being sold, they are driving better sales in semiconductor equipment. According to SEMI’s latest data, IC equipment sales reached US$53 billion in the first half of 2024 and are projected to reach US$128 billion in full-year 2025. The sales forecast comes from strong equipment investment in Asian regions. China’s purchases alone exceeded US$24 billion, driven by the country’s ambitious goal to develop its own AI chatbots, independent of Western influence. Although Taiwan’s and South Korea’s semiconductor equipment investments are insignificantly smaller compared with China’s, TSMC and Samsung foundries are focused on developing advanced chips, whereas China is heavily invested in 300mm fabs.
The top five leading front-end equipment vendors — Advanced Semiconductor Materials Lithography (ASML), Tokyo Electron, Kokusai Electric, Applied Materials, and Lam Research — accounted for 74% of the total IC equipment sales in the first half of 2024. ASML was the market leader in the wafer fabrication equipment segment, producing top-of-the-line extreme ultraviolet (EUV) lithography machines that are critical to producing the smallest and most powerful chips to support AI applications. Three weeks ago, ASML revealed that the number of machines it ordered in 3Q2024 was lower than expected, resulting in US$56 billion being wiped off its market cap, larger than Intel’s loss of US$30 billion in August.
In 3Q2024, China accounted for almost 50% of ASML’s total sales, purchasing US$2.8 billion worth of equipment, which is more than double its revenue from the US. This equipment can only be used for production of chips used mainly in consumer appliances such as refrigerators, phones, toys and automobiles. For comparison, ASML’s sales to Taiwan and South Korea were US$951 million each, where Taiwan is a leading producer of logic chips, while South Korea is a major manufacturer of memory chips. Investment in foundries has slowed, as companies realised that the EUV machines are very expensive. Each of the latest EUV machines cost US$350 million, equivalent to the price of an Airbus A350! As TSMC senior vice-president of business development Dr Kevin Zhang remarked, “I like the high-NA EUV’s capability, but I don’t like the sticker price.” Buoyed by export controls and market dynamics, ASML finds itself balancing the immediate revenue boost from China’s demand for less advanced machines with the slow uptake of cutting-edge machinery in Taiwan and South Korea. Despite this, analysts expect capital spending to likely increase again in 2025.
As ASML’s sales slow down, the back-end equipment sector is experiencing growth. Quarterly revenue grew 8.5% year on year, reaching US$1.3 billion in 2Q2024, driven by strong growth coming from wafer and die preparation and packaging equipment for advanced packaging solutions. The world’s leading back-end equipment suppliers — Hanmi, Hanwha, Semes, ASMPT, and Kulicke and Soffa (K&S) — together contributed 22% of the total IC equipment market. While front-end equipment sales are stronger, back-end equipment suppliers face fewer restrictions from export controls. Yole Group’s analysts forecast that back-end equipment revenue will reach US$1.74 billion in 1Q2025, with China as the largest buyer.
Malaysia also played a significant role in this segment of back-end equipment revenue. The Herfindahl-Hirschman Index, which measures market concentration, reveals that Malaysia hosts a sufficient number of vendors to sustain the supply of back-end equipment. This suggests that Malaysia has the ability to create a diverse and competitive equipment market, capable of supporting the needs of both local and foreign chipmakers. In 2022, Malaysia sold US$171 billion worth of industrial manufacturing equipment. Of this total, Malaysian Bursa-listed semiconductor manufacturing equipment suppliers, including Aemulus Holdings Bhd (KL:AEMULUS), Edelteq Holdings Bhd (KL:EDELTEQ), Elsoft Research Bhd (KL:ELSOFT, Greatech Technology Bhd (KL:GREATEC), Mi Technovation Bhd (KL:MI), MMS Ventures Bhd (KL:MMSV), Pentamaster Corp Bhd (KL:PENTA), TT Vision Holdings Bhd (KL:TTVHB), VisDynamics Holdings Bhd (KL:VIS) and ViTrox Corp Bhd (KL:VITROX), accounted for 34% of industrial machinery sales. China is not only the largest buyer of such machines from the West, but also one of the most attractive markets for Malaysian suppliers.
Despite harsh export controls implemented under the Biden administration, the semiconductor trade remains relatively stable. The return of Donald Trump as president-elect on Nov 5, 2024, raises some concerns about erratic decisions. In an interview in October with an American podcaster, Joe Rogan, Trump said that he did not like the CHIPS Act, and criticised the US CHIPS Act, saying that he would implement tariffs on chips from Taiwan if elected president. “You know, Taiwan, they stole our chip business … and they want protection,” Trump said.
Nevertheless, once Trump settles down, the semiconductor business in the short term should remain robust, as demand for powerful chips to drive artificial intelligence and military equipment and data centres needed by the great and middle powers would keep demand strong. In the medium term, there is worry about oversupply arising from the upturn in overall capacity. The market leaders seem to have their markets intact, whereas those with lagging technology may be the losers.
Tan Sri Andrew Sheng writes on Asian global issues. Loh Peixin is a research associate at the George Town Institute of Open and Advanced Studies, Wawasan Open University. The authors are engaged in a major study of the tech industry in Penang.
Source: The Edge Malaysia
