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China’s Chipmaking Equipment Purchases Expected to Decline in 2025

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China’s spending on chipmaking equipment is projected to decline this year after three consecutive years of growth, driven by overcapacity and U.S. sanctions, according to a report released by Canadian semiconductor research firm TechInsights on Wednesday.

China has led global purchases of wafer fabrication equipment for the past two years, buying $41 billion worth of tools in 2024 and accounting for 40% of global sales. However, spending is expected to fall to $38 billion in 2025, a 6% year-over-year decline, with China’s share of global purchases dropping to 20%, marking the first decrease since 2021, according to Boris Metodiev, a senior semiconductor manufacturing analyst at TechInsights.

“We can see some slowdown in Chinese spending due to export controls and overcapacity,” Metodiev stated during an online seminar.

China had been a key growth driver in the global wafer fabrication equipment sector in 2023 and 2024, even as demand for consumer electronics declined globally. Much of the country’s recent equipment purchases were spurred by stockpiling in response to U.S. sanctions aimed at limiting China’s access to advanced chip technology, particularly those with potential military applications.

Despite these sanctions, Chinese companies such as Semiconductor Manufacturing International Corporation (SMIC) and Huawei have made advancements. Last year, they produced an advanced chip using more labor-intensive and costly methods. Chinese firms have also expanded significantly in the mature-node chip segment, boosting production capacity and gaining market share from Taiwanese competitors.

However, SMIC warned on Wednesday of potential oversupply risks in the mature-node chip market.

Leading Chinese equipment manufacturers like Naura Technology Group and AMEC have also expanded globally, with Naura now ranking as the world’s seventh-largest equipment maker by sales. Despite these efforts to bolster self-sufficiency, China still faces significant challenges in producing lithography systems and testing and assembly tools.

Dutch company ASML, the largest manufacturer of lithography machines, continues to dominate this sector. In 2023, Chinese companies provided only 17% of the testing tools and 10% of the assembly equipment used within the country, Metodiev added.

China’s SMIC Flags Chip Oversupply Risk on Weakening Demand, Rising Output

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Semiconductor Manufacturing International Corp. (SMIC), China’s largest chipmaker, has raised concerns about a potential oversupply of mature-node chips in the second half of 2025. The company, which specializes in established chips used in consumer electronics and home appliances, noted that the market could face an imbalance due to weakening demand and increased output.

During the COVID-19 pandemic, SMIC benefited from a surge in demand for its chips as people relied on consumer electronics during stay-at-home orders. However, as people return to offices and replacement demand slows, SMIC has experienced a drop in consumer-driven demand. Advanced chips for Huawei smartphones account for a small portion of SMIC’s revenue, with the company never confirming whether it produces chips for Huawei.

Co-CEO Zhao Haijun warned analysts that two key factors could impact the second half of 2025. First, the company expects a decline in order volume as demand for chips has been pulled forward into the first half of the year. Second, the increase in production capacity across the industry is likely to result in price competition among manufacturers for orders.

SMIC reported a 31.5% year-on-year increase in revenue for the October-December period, reaching $2.2 billion, meeting market expectations. The company expects first-quarter revenue to grow by 6% to 8% compared to the previous quarter. The positive share movement was attributed to broader optimism in Chinese stocks and the development of cost-effective AI models by DeepSeek, which could benefit domestic chipmakers like SMIC.

Despite the challenges, SMIC’s strong first-quarter outlook and steady capital expenditure (CAPEX) plans have bolstered investor confidence. In 2023, SMIC’s capital expenditure surged to $7.3 billion from $4.5 billion in 2021, and the company expects to maintain a similar level in 2024 and 2025.

However, SMIC’s gross profit margin has seen a decline, dropping to 20% in 2023 compared to over 30% in previous years. While profitability improved in the October-December period, Zhao expects continued pressure on profitability in 2025 due to rising depreciation costs from increased capital expenditure. Profit attributable to owners of SMIC was reported at $107.6 million for the period, below analysts’ expectations of $193.45 million.

Taiwan’s Legacy Chip Industry Faces Competition as China Expands Market Share

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Taiwan’s legacy chipmakers, once dominant in the production of mature node chips, are grappling with increased competition from Chinese foundries that are rapidly expanding their market share. The shift began in 2015 when Taiwan’s Powerchip Technology entered a deal with China’s Hefei city to establish a foundry, Nexchip. Initially hoping to access the promising Chinese market, Powerchip now faces Nexchip as a major competitor, leveraging Beijing’s support and steep price discounts. This rivalry is most prominent in the $56.3 billion market for 28-nanometer chips, which are commonly used in sectors like automotive and display panels.

Chinese foundries, including Nexchip, Hua Hong, and SMIC, have aggressively expanded production capacities and undercut Taiwanese prices, further intensifying competition. The increased Chinese capacity has prompted concerns in Taiwan’s chip industry, with Powerchip and other Taiwanese companies like UMC and Vanguard International now focused on more advanced or specialized chip technologies.

Taiwanese chipmakers are struggling to maintain their foothold in the mature node segment as Chinese firms benefit from substantial state backing and lower margins. According to TrendForce, in 2024, China is projected to control 34% of global legacy chip production, surpassing Taiwan’s 43% share by 2027. The situation is made worse by the U.S. trade tensions, with U.S. President Donald Trump proposing up to 100% tariffs on semiconductors produced outside the U.S., which could impact Taiwanese exports.

Chinese foundries have become more aggressive in their efforts to capture business from Taiwanese clients. Many Chinese customers, particularly in consumer sectors like display panels, are increasingly opting to use Chinese fabs, following Beijing’s push for domestic supply chain localization. Taiwanese chip designers have acknowledged that they must adapt to survive, with some already shifting focus to more advanced technologies like 3D stacking, which combines logic and DRAM chips to enhance performance.

Despite the growing Chinese competition, some relief may come from the U.S. efforts to restrict China’s chip industry, particularly in light of rising geopolitical tensions. Taiwanese chipmakers are beginning to receive orders from international clients asking for chips to be made outside of China, a shift away from previous reliance on Chinese foundries.