A conversation among four Chinese semiconductor equipment giants

Recently, to mark the fifth anniversary of the Sci-Tech Innovation Board, four leaders from top Chinese semiconductor equipment companies—namely AMEC(中微公司), Tuojing Technology(拓荆科技), HWATSING(华海清科), and SKYVERSE(中科飞测)—came together for a rare discussion titled "Key Breakthroughs in Semiconductor Equipment." They delved into the challenges in the localization process, reaching international advanced levels, and the feasible paths to break into overseas markets.

The four leading guests in the semiconductor equipment industry were Yin Zhiyao(尹志尧), the Chairman and General Manager of AMEC; Lv Guangquan(吕光泉), the Chairman of Tuojing Technology; Zhang Guoming(张国铭), the Director and General Manager of HWATSING; and Chen Lu(陈鲁), the Chairman and General Manager of SKYVERSE. Xu Xingjun, the General Manager of the Development Research Center of GF Securities, served as the host.

Yin Zhiyao predicted that "by this summer, we should be able to achieve basic autonomy and control," and mentioned that there are still shortcomings in domestic photolithography machines in the fields of ion implantation and electron beams that need to be addressed.

Both Lv Guangquan and Zhang Guoming believe that new technological directions like Chiplet and HBM (High Bandwidth Memory) could be key leverage points for domestic alternatives to outpace competitors.

Additionally, while domestic replacements need the trust and cooperation of clients and the industry chain, Zhang Guoming emphasized that we can't lower equipment standards just because they are made domestically.

They noted that self-sufficiency and globalization should be addressed simultaneously, as many global companies are willing to cooperate with China. It's difficult to keep up with the world's advanced levels by "closing the door and doing it alone. International cooperation within legal bounds can promote technological progress and reasonably save resources.

It was noted that Chinese semiconductor equipment companies are actively attempting to expand overseas; despite facing numerous obstacles, advanced Chinese semiconductor equipment has already shown up in regions like Taiwan, Europe, Japan and South Korea.

Yin Zhiyao, Lv Guangquan, and Chen Lu all have overseas education or work backgrounds. Yin Zhiyao pointed out that 70%-80% of advanced semiconductor equipment in the U.S. is contributed by Chinese students studying abroad, and many talents are quickly returning. He stressed that capital, talent, and patience are the three most crucial factors for technological development. To boost the progress of China's semiconductor equipment industry, both efforts of the private sector and policy support are needed.

Lv Guangquan hopes for an increase in tax incentives for companies, while Zhang Guoming believes that support for forward-looking technologies should be more focused rather than scattered. Chen Lu hopes for changes in merger and acquisition policies.

When discussing future development, Yin Zhiyao said he doesn’t see any bottlenecks in high-end process equipment. Zhang Guoming also believes there are no obstacles or clear boundaries in the development of advanced processes. However, Chen Lu emphasized that advancing to higher-end technologies requires collaboration with upstream supply chains and equipment manufacturers to tackle tough challenges.

At the same time, to ensure stable performance and hedge against the cyclical nature of the semiconductor industry, all four companies have adopted a multi-line development strategy. The four guests all agree that the shift from 2D to 3D chip structures will bring significant market opportunities.

Yin Zhiyao indicated that as integrated circuits reach this stage, the crucial role of photolithography is diminishing, while the importance of etching, thin films, and other equipment is increasing. Deep structures won’t rely on photolithography but rather on comprehensive operations involving thin film and other equipment, which presents a great opportunity for domestic companies.

With the AI boom in full swing, Yin Zhiyao acknowledged that AI represents a huge market, but he doesn’t see it as a revolution; instead, it's just an application of the digital industry. AI has widespread applications and profound effects, and the integrated circuit industry needs to find its place within it.

The guests also shared their early struggles in entrepreneurship. Yin Zhiyao returned to China to start his business in 2004 at the age of 60, starting from scratch and experiencing many ups and downs; he described himself as someone who “builds bridges when he encounters rivers and adapts to challenges.” Lü Guangquan recounted that his company faced numerous difficulties, including many farewell dinners with team members, and it was tough even to get equipment validated for clients, which led to a situation where all employees were laid off. Chen Lu’s company was incubated at the Institute of Microelectronics of the Chinese Academy of Sciences. Initially, they had to rent a residential apartment for office space and cross the street to use the institute's cleanroom labs for experiments.

Here is the full transcript of the conversation:

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01

Latest Progress in Domestic Substitution: Some Surpassing International Advanced Levels, Focusing on Chiplets and HBM

Xu Xingjun: We know that in the semiconductor industry, a key term is domestic substitution. In recent years, with the overall development of the industry, the process of domestic substitution has also been accelerating, and our market share is steadily increasing. The first question I’d like to ask the experts here is, what breakthroughs and achievements have we made in this field, and how is the process of domestic substitution going?

Yin Zhiyao: The plan of AMEC, which started in 2004, was to develop plasma etching machines and chemical vapor deposition equipment. Besides photolithography machines, etching and deposition machines are also very important products, they have a large market, and it’s our expertise.

So, in the first ten years, we focused solely on developing one type of equipment, which is the Capacitively Coupled Plasma Etcher" (CCP). In the following ten years, we developed low-energy plasma etcher and MOCVD thin film equipment. In recent years, we have been dedicated to expanding our range of chemical vapor deposition equipment and market access.

With competition in the domestic and international markets becoming more intense, we have no other choice but to embrace a spirit of self-reliance and independence, ensuring that our domestic equipment reaches international advanced levels as quickly as possible, and even surpasses them in some areas.

Over the past 20 years, we can say that we’ve made relatively smooth progress overall. In terms of etching machines, we now cover almost all etching machine applications, and our coverage in chemical vapor deposition is also continuously improving, giving us a lot of confidence.

The third aspect is that we began exploring optical inspection equipment six years ago. We invested in RuiLi Technology and recently decided to quickly develop electron beam inspection equipment. This is also the largest gap in the domestic market besides photolithography machines, and we are very confident in continuously improving our competitiveness and market coverage.

Lv Guangquan: Since our establishment ten years ago, we’ve focused on thin film deposition. There are several major segments, the largest of which is called plasma-enhanced chemical vapor deposition (PECVD). This is the foundation of our startup.

As this product gradually matured, we expanded outward into more advanced processes that require complex three-dimensional structures for filling, which is called filling chemical vapor deposition. This also includes sub-atmospheric chemical vapor deposition (SACVD) and high-density plasma (HDP). Subsequently, we ventured into atomic layer deposition (ALD) technology.

As our processes have progressed from 45 nanometers to 28 nanometers and continue to advance, the application of ALD is becoming more widespread. So, in our product development roadmap, ALD technology has become increasingly important over the last four to five years.

Another area that people might not be as familiar with, but which has been gaining more attention in the past two years, is the use of Chiplet technology in AI chips and other advanced functional chips. This three-dimensional integrated wafer bonding equipment includes wafer-to-wafer and die-to-wafer systems.

We have been pushing into the Chiplet area over the last four to five years and officially began introducing it to clients last year, achieving mass production. The equipment I mentioned has achieved 100% coverage based on domestic production line technology nodes and is widely applied in clients' setups. We will continue to enhance cooperation with clients to advance to more advanced technology nodes.

Chen Lu: SKYVERSE has always focused on optical measurement and equipment, working around yield control for integrated circuits. This year marks the tenth anniversary of our company, during which we have developed nine series of measurement equipment and three major series of software products.

Measurement typically divides into detection and measurement directions. We mainly focus on non-graphic detection as our key product. We also have graphic wafer defect detection equipment, including the commonly referred to "bright field" and "dark field" devices, which are currently being rolled out.

Our measurement equipment is quite diverse, including thin film thickness measurement (for both dielectric and metal films), photolithography alignment measurement equipment, and three-dimensional morphology measurement devices. We have covered all core optical measurement needs for wafers with our nine major series of products.

At the same time, we have developed some manufacturing software products combined with yield control. These nine series of detection equipment and three series of software products should fulfill all detection and measurement needs of our clients, especially wafer fab plants.

Zhang Guoming: Huahai Qingke started with CMP (Chemical Mechanical Polishing), and we have now entered various leading enterprises with a high degree of domestic substitution. Based on this, we’ve launched a series of equipment around Chiplet and HBM (High Bandwidth Memory), such as thinning and polishing equipment that has been sent out in small batches to users, all of whom are leading companies, and the results have been very positive. In particular, the average line indicators in some Total Thickness Variation（TTV） processes have already surpassed those of foreign competitors.

Looking ahead, with the promotion of Chiplet and HBM, there is a very promising market outlook. We have also developed trim machines, which are now online. Additionally, we have edge polishing machines that significantly improve clients' yields, and this equipment is currently being validated on the client side.

On this basis, we have also developed cleaning machines, which have been validated in the large silicon wafer industry. The cleaning aspect has very high special requirements in the silicon materials industry, and previously, equipment for this was all imported.

Furthermore, we invested in an ion implantation machine company, which has now entered client validation. We have also been laying the groundwork for consumables and maintenance work for CMP. As our installation volume increases, this segment is expanding rapidly. At the same time, we are developing new types of consumables to provide clients with a full set of solutions.

02

The biggest problem is asymmetric competition.

Development relies on money, talent, and patience.

Xu Xingjun: Looking at the development of the semiconductor industry, two factors are particularly important: funding and technology. How are you all dealing with the issues of funding and technology? Also, what support do our innovation platforms and national funds provide us in this regard?

Yin Zhiyao: As a company, especially an innovative one, I've always believed we need three types of funding instead of just one. First, there's equity capital, second, low-interest loans, and third, R&D grants. Integrated circuits have been developing internationally for nearly 40 years, and when we vigorously develop the integrated circuit industry, the biggest problem is asymmetric competition. International companies are hundreds of times larger, at least 10 to 20 times bigger than us, and they invest more in R&D. We are also 3 to 5 generations behind in processing technology. Under these circumstances, we need support from the government in various areas, such as R&D grants.

For publicly traded companies, equity capital is no longer the most crucial thing for us. We're already making a profit. Given the current severe situation, we need to develop about 70-80% of semiconductor equipment domestically in a very short time, and it’s not enough for one company to tackle this alone. I believe all the companies here hope to receive substantial R&D grants to boost our development speed.

Xu Xingjun: How do we accumulate technological expertise during the development of semiconductors?

Yin Zhiyao: I want to mention two points. First, I believe talent is the most important aspect for innovative enterprises. While having money is certainly important, talent is even more crucial. I’ve seen in Silicon Valley that over 40 years, the U.S. has developed no less than ten advanced international devices, including high-energy and low-energy plasma etchers, etc. Who made these devices? About 70-80% were created by Chinese students who have studied abroad, and luckily, many of them have returned. The people here are all from the U.S., playing important roles in various fields and collaborating with domestic experts. Talent is vital.

After acquiring talent and funding, the most critical element is patience; good things take time. What we are doing cannot be rushed. Our etchers have progressed from the micron level to the nanometer level, and now our best etchers have reached the picometer level with an accuracy of 20 picometers (1000 picometers = 1 nanometer), which is 1/350 the diameter of a human hair. This isn't just talk; the same goes for testing, and it requires a step-by-step approach, persevering through challenges. We’ve been working on this for 20 years. In the past, it took ten years to sharpen a sword, but now it’s actually taken twenty years, and we’re still working on it. I believe the most important factors in technological development are funding, talent, and patience.

Lv Guangquan: In terms of equity capital, the establishment of TuoJing was actually based on the 02 Special Project. The initial funding came from that. This funding allowed the company to transition from 0 to 1, and then to grow further, relying on local government venture capital.

This industry has a huge demand for capital and requires significant investment; relying on individual fundraising is very difficult, especially in the early stages. The process of going from 1 to 10 is mostly achieved through venture capital. As we scale up, we depend on national-level large funds, such as the integrated circuit industry fund and the state investment venture fund.

The most crucial thing for these funds is their investment in R&D, and the core of R&D is to independently design products. The autonomy of intellectual property is our key point. We require all our products to stand firm from the perspective of international intellectual property. Accumulating R&D and maintaining the independence of our intellectual property has always been a priority for us.

This relies on talent. We’ve brought in a batch of experienced professionals from abroad to foster local talent development. It’s not about copying others’ work but about encouraging innovation and developing new products.

Zhang Guoming: Our team received funding from a project under the 02 Special Project, which later attracted social capital leading up to our IPO. In terms of technology, there was a team from Tsinghua University that started by studying some fundamental theories and components. Our entire tech system is built from the ground up, making it very deep and solid.

We've also been working closely with our users. When they have new needs, we quickly identify them, which helps save costs for our clients. One characteristic of our equipment is that it should stay ahead of the manufacturing process. In other words, when the customer is ready to use it in bulk, you should already be prepared, so proactive technological research is essential.

Chen Lu: When our company was founded ten years ago, I remember our first investment was 10 million yuan. We've gone through a process of increasing investment amounts from 10 million, to tens of millions, and eventually to over a hundred million. Initially, we received funding from local industry funds, and later, national funds like the SDIC Venture Capital and the National Integrated Circuit Industry Investment Fund came into play. I'm also very grateful that the Sci-Tech Innovation Board allowed us to go public right when we needed to scale up most, giving us the necessary funds to mass-produce and expand our customer base widely.

We believe that besides financial support, what we need most is opportunities from the industry, meaning opportunities from our clients. We need excellent talent and a spirit of craftsmanship, which is incredibly important. While we need to catch up with foreign developments more quickly, we must not forget the spirit of craftsmanship. All equipment requires patience and precision in production.

03

Policies should limit plagiarism and price wars

Support foundational industries and forward-looking technologies

Xu Xingjun: After discussing funding and technology, another vital external factor is policy. What policies have we benefited from over the past few years? More importantly, what kind of policies do we expect in the future?

Yin Zhiyao: Since 2004, many companies in our equipment sector have sprung up, with at least a hundred established now, and over twenty of them are quite large. Thanks to the nation's reform and opening-up, the industry is developing rapidly and generating significant market demand.

Secondly, during this process, we've seen national policies continually deepen reforms, with many policy upgrades promoting industry development. Moving forward, the advancement of new productive forces relies heavily on innovative production relationships, which require deeper reforms.

Lv Guangquan: If we're hoping for further policies, I think there should be better tax incentives for gradually maturing enterprises. After generating profits, these incentives can help companies invest in developing new products and take their business to the next level.

Additionally, policies should address how to limit industry resource wastage. For instance, social capital and local funding might support smaller companies, but this can lead to talent poaching from leading enterprises, who then replicate our products and sell them at very low prices. This creates a negative business and industrial environment, becoming a hindrance to our forward progress.

Zhang Guoming: Regarding policy, since this industry requires significant R&D investment, there should be some encouragement and support. For a publicly traded company, my R&D spending and current profits present a conflict, which also impacts market value maintenance. In this area, particularly concerning forward-looking technologies, it's crucial to provide support and encouragement. We should focus on this, rather than scattering our efforts widely.

In terms of industrialization policy, it's essential for policies to offer everyone a "level playing field." Currently, some policies don't include equipment, materials, and components, yet foundational industries play a crucial role in overall industry development. The initial investments in foundational industries have been relatively low and overlooked, so I hope policies can encompass equipment as well.

Furthermore, on talent policies, our companies have a high proportion of top talent, bringing in many domestic and international experts during development, whose labor costs are quite high. I hope there will be some tax benefits for individuals in this regard.

Lastly, to enhance industry competitiveness and cooperation along the supply chain, policies should encourage users to support the development of local industrial chains. This indirectly supports our equipment companies.

Chen Lu: I just want to add that I hope the mergers and acquisitions directions suggested by the Sci-Tech Innovation Board, stock exchanges, and the China Securities Regulatory Commission can be implemented step by step. This is crucial for leading companies in different segments of the industrial equipment market.

04

Localization is an unavoidable choice. This summer, we'll achieve self-control.

Xu Xingjun: The current international trend is the localization of the semiconductor industry chain. As the world's largest semiconductor consumer market, we are seeing overall production capacity gradually moving to China. What impact does this process have on the development of China's semiconductor industry?

Yin Zhiyao: Localization is a choice we have to make. Ideally, the global integrated circuit industry should be mutually coordinated. This industry involves thousands of steps, and the upstream and downstream supply chains are very robust. It's rare for any country or company to fully integrate the whole chain. However, given the tense international situation, it's a necessary option.

This also serves as an incentive for us to see if we can effectively localize in such a short time and build our supply chain and materials supply chain on a self-controlled basis. Initially, I thought it would take at least 3-5 years, or even a decade, to resolve this.

But I've noticed that supplier companies have been very proactive in the last couple of years, really working hard. I have some good news: by this summer, we should be able to achieve self-control, and domestic manufacturers will basically catch up.

Of course, there’s still a gap in quality and reliability, but at least we can substitute products, which is no small feat. We need to keep pushing forward. On the other hand, we should advocate for international cooperation. Many different countries and suppliers worldwide are willing to continue collaborating with us, and we shouldn't shut ourselves off.

Lv Guangquan: China's chip market is still incredibly huge, with a semiconductor chip demand of about $200 billion last year. It's still heavily reliant on imports, which account for 70%-80%. If the manufacturing centers for these chips move to China, it could gradually build up the industry chain and ecosystem, which is certainly something we actively seek.

However, it's impossible to completely decouple from such a long supply chain, as that would mean disengaging from the most advanced international technologies. International cooperation must continue, as long as it's within permissible policies and legal frameworks.

Zhang Guoming: The shift in the industry chain presents a great opportunity for building our domestic ecosystem. The Chinese market has been the world's largest equipment market for four consecutive years, and equipment has been growing rapidly; we've seen an 80% compound annual growth rate in revenue over the past five years.

The development of our equipment has also spurred the growth of components. This has created a positive cycle in the ecosystem. We're pursuing a secure supply chain without differentiating between domestic and imported goods; as long as suppliers can guarantee supply, we will support them wholeheartedly.

We've made many strategic moves in this area, such as deepening ties with core component manufacturers and providing support for developing talent. With the overall increase in chip manufacturing capacity, our domestic equipment companies are poised for a very promising development period. I have high confidence for the next few years.

Chen Lu: The global capacity moving to domestic markets certainly presents a historic opportunity for our equipment companies. Measurement detection equipment is actually one of the weaker segments among our core equipment. Even when combined, all domestic measurement detection equipment companies can't account for 10% of the domestic market share, which means there's a lot of room for growth and improvement.

Of course, our growth rate in recent years has been significant, sending a strong signal to our upstream component manufacturers and guiding them to continuously provide R&D and core components that support us. We also call on everyone to actively develop the core components needed for measurement detection equipment to keep pace with our rapid growth.

05

"We're Not Scientists"

Xu Xingjun: Let’s get a bit sentimental and talk about our journeys. Everyone here is not just a scientist but also an entrepreneur and a practitioner of using technology for the country. Throughout our entrepreneurial journey, what moment or aspect stands out as the most unforgettable for you, and why?

Yin Zhiyao: I've corrected the term "scientist" a few times because, honestly, we're not scientists. When I was a kid, I dreamed of being a scientist, which is someone who discovers new laws of nature. But what we do is take those already discovered laws and turn them into products; we should really be called engineers. I often feel embarrassed that I didn’t become a scientist but ended up as an engineer.

Before 2004, I worked for five of the biggest domestic and international companies or research institutions, with zero entrepreneurial experience. When I started my business at 60, I was really anxious and unsure about the future.

Over the past 20 years, I've faced a lot of ups and downs, like "crossing bridges when I come to them," and I've learned a ton. I think the most valuable thing I've gained is experience, especially in financing. I had no clue about capital operations before, and in the end, the company raised 15 billion, and I still don’t know how that happened.

From starting with a blank slate to reaching an internationally advanced level, what excites me the most is the variety of experiences, including years of interaction with the U.S. Department of Commerce and the Department of Defense. There were good times and tough times.

It’s hard to pinpoint a specific moment that was particularly thrilling; I feel like I've been in a constant state of excitement. I believe the most important things in life are not money or fame, but experiences.

Lv Guangquan: Just like what Mr. Yin said, there isn’t really one specific moment that stands out, but the whole process of entrepreneurship is incredibly tough. When we founded TuoJing, there was hardly any awareness of semiconductors in the country, let alone semiconductor equipment.

Back then, finding capital and getting clients to recognize us was extremely challenging. It wasn’t just about selling them equipment; we had to give them the equipment and even pay them to help us validate it, and they might not even want to assist us. Just like the name TuoJing implies, it was a struggle to get started.

We had to deal with many near-breakups; there was a time we had to disband the team, only to bring everyone back together. What I want to emphasize is the importance of persistence. Everyone sitting here today has stuck it out, and persistence is victory.

Zhang Guoming: Absolutely, I've experienced the ups and downs of semiconductor equipment for decades, and persistence is crucial. I’m especially grateful for our team, who have stood by each other, and it’s their perseverance that has brought us rewards.

Semiconductors aren't just a scientific issue; they're an engineering issue. We need constant replacement and iteration to keep progressing. I think the hardest part is taking that first step—validating the first piece of equipment. This process involved a lot of support from clients and friends, which opened many opportunities and brought in great feedback and suggestions. This allowed our company to quickly iterate alongside our clients, leading to rapid growth.

Chen Lu: The most unforgettable time was when our company was just starting out. Our team was small, coming from the Institute of Microelectronics at the Chinese Academy of Sciences, and we were setting up the business. Our cleanroom lab was in the institute, and since we had no space, we rented a roughly 200-square-meter apartment across the street in a residential area, turning it into an office after clearing out the furniture.

When hiring, people would ask where our cleanroom was, and we’d point out the window, saying it’s just downstairs in the institute. That’s how we gradually attracted talent. I think we had a good amount of courage back then. That whole process is probably the most unforgettable.

Xu Xingjun: Everyone’s entrepreneurial journey has been tough, but persistence and courage are key to our success.

06

Position, Advantages, and Disadvantages of Domestic Semiconductor Equipment

Xu Xingjun: China has been the largest semiconductor equipment market in the world for four consecutive years, but in some areas, foreign companies still hold a significant market share. In certain sectors, it shows an oligopolistic monopoly by foreign enterprises. So, I’d like to ask everyone what position our company holds in the domestic and international competition, and what advantages and disadvantages we have compared to international giants?

Yin Zhiyao: We should acknowledge that we're still a considerable distance from reaching international advanced levels in the semiconductor equipment field. It’s safe to say that domestic equipment can cover about 15% of the integrated circuit production line. If we’re a bit more ambitious, it could be 30% or even higher.

I’m really pleased to see that hundreds of semiconductor equipment companies in China are working hard and developing quickly. There are over 20 mature firms here that nearly cover all ten categories of semiconductor equipment. Personally, I have a lot of confidence that in 5 to 10 years, we can reach the international advanced level; it’s totally achievable.

Xu Xingjun: So, where does Zhongwei stand in the domestic and international scene?

Yin Zhiyao: As I mentioned earlier, Zhongwei’s etching machines can basically cover most etching applications, but since our customer base is technologically advanced and still two or three generations behind international standards, we still have some ground to make up.

But in terms of capability, we are basically at the same level as foreign equipment companies. We provide both dual-station and single-station options, which are unique to us. Major international manufacturers only have single-station machines and lack the courage to develop dual-station ones.

We currently have a large number of dual-station machines in production, with over 600 reaction chambers in top-tier foundries, all dual-station machines, reaching international advanced levels. I believe that with thin-film equipment, our collaboration with TuoJing can gradually cover most chemical thin-film equipment.

Lv Guangquan: Looking at TuoJing’s application scenarios in China, TuoJing’s chemical vapor deposition equipment has achieved 100% coverage in terms of application types. Our advantage lies in being closer to our customers, allowing us to participate more directly in their R&D and production processes. We can create customized equipment or specific industrial materials, and our response speed is our biggest advantage.

Our disadvantage is that we started a bit late, so this gap still relies on application scenarios to provide support for us to move forward.

Zhang Guoming: Domestic equipment has evolved from nothing to catching up with foreign ones. In recent years, we’ve made significant replacements in CMP among our top clients. Our integrated planarization machines are developing rapidly; one customer has processed over 10,000 wafers since installation during the Spring Festival, achieving large-scale production.

I believe that domestic equipment should not lower its standards just because it is domestically made; this has always been our guiding principle. The strength of domestic equipment lies in its fast iteration speed, proximity to customers, and timely service. The main disadvantage is still the accumulation of process experience, which isn’t as abundant as foreign counterparts.

Chen Lu: In the field of measurement equipment, there’s a monopolistic foreign enterprise that occupies 50% of the global market. I’ll start with the disadvantages: we lag in history, scale, and brand recognition compared to others. To tackle this issue, we need to achieve rapid iteration.

We have already completed in less than ten years what foreign equipment manufacturers took decades to develop. So, from pre-sales to R&D to mass production and after-sales, we’re establishing a closed-loop iteration process, which is crucial for catching up with some of the monopolistic foreign equipment manufacturers.

07

Didn’t see any bottlenecks in high-end equipment

Next step is to fill the gaps

Xu Xingjun: Overall, we hold our products to a high standard, matching international benchmarks. The second key point is rapid iteration to enhance product competitiveness. We see that in the high-end field, we're just getting started, so there's some market doubt about whether we can keep pace in more advanced processes as we grow in mature processes. What kind of challenges are we facing in the high-end area?

Yin Zhiyao: To be honest, I don’t see any bottlenecks from an equipment perspective. A lot of people misunderstand our etching machines, thinking they’re only for 5nm, 3nm, or 14nm. But we can actually use the same design, with a few tweaks, and can move straight from 45nm down to 2nm without a hitch—just a few refinements needed.

I haven’t encountered any technical hurdles that can’t be overcome. Like I said, we just need to keep pushing through patiently, step by step. There are a few areas that require a special approach. We all know about lithography machines, there’s a huge gap in electron beam inspection domestically, and then there's ion implantation. Our next move will be into electron beam inspection; I’ve heard HWATSING is also working on ion implantation to fill these gaps.

Xu Xingjun: Looking forward, do you think our high-end equipment can catch up with the growth rate driven by the increase in penetration of our mature processes?

Yin Zhiyao: Right now, 70% of our sales are concentrated in advanced processes, and that’s expanding rapidly with high demands that are only getting higher.

Zhang Guoming: Integrated circuit equipment needs a research and development process, and we really need to plan ahead for our advanced processes. On both a technical and performance level, we’re already moving forward. We’ve hit the technical benchmarks, but the most important thing about equipment isn’t just that it works—it has to be user-friendly. It’s an ongoing improvement process.

Xu Xingjun: From our company’s perspective, can we maintain our growth speed with our advanced sections?

Zhang Guoming: I don’t see any barriers; there are no obvious limits.

Chen Lu: I just want to add that any semiconductor equipment upgrade or shift towards high-end is a result of collaboration between equipment companies and upstream component manufacturers. We hope these component suppliers can work with us to tackle these tough challenges.

08

Supply chain autonomy is progressing smoothly. We need to tackle the tough challenges of core components.

Xu Xingjun: What measures have we taken to ensure supply chain security right now?

Yin Zhiyao: Honestly, companies that don't make equipment generally don't understand the importance of the supply chain. After dealing with so much equipment, I've realized the supply chain is the most critical part. We design the equipment, but the thousands of components inside are mostly sourced from over 600 suppliers worldwide.

If you can’t manage your suppliers, and just one decides to pull out because they’re not making money or lose interest, you could be completely stuck—you won't be able to ship a single machine. That’s why the supply chain is such an essential link.

We also work hard to keep close communication with various suppliers to ensure they can supply us with goods on time and with quality. We're pleased to see that our suppliers are really putting in the effort, so this year we should be able to address the issues of autonomy and control.

Xu Xingjun: How long did it take us to achieve full autonomy and control over the components?

Yin Zhiyao: It took us 20 years. In the first 18 years, before 2022, we laid a solid foundation, so now around 60% of components for our etching machines are sourced domestically. For MOCVD equipment, about 80% of components are also domestically sourced, which looks pretty good.

But out of that 60%-80%, a portion still comes from leading foreign suppliers' branches in China, which are subject to various limitations. In the next two years, we're aiming to solve the problem for that remaining 30%-40% of components that lack autonomy and control.

Lv Guangquan: Our semiconductor equipment components are quite different from those used in the automotive market, for instance. Almost every component has some customization involved, making it very unique.

In this aspect, our collaboration with suppliers is very close. In most cases, we don’t just call them suppliers; we refer to them as partners. We involve them from the R&D stage, letting them help us design, develop, and validate together.

During production, we provide them with sufficient forecasts and pricing. This cooperation is a long-term, ongoing partnership.

Xu Xingjun: What proportion of our supply chain has achieved autonomy and control?

Lv Guangquan: As Mr. Yin mentioned, mature products can achieve autonomy and control, while advanced products will need more time.

Xu Xingjun: Mr. Zhang, how is the situation on your side? I’ve heard that you’ve also started getting into some upstream components.

Zhang Guoming: Since we began localizing components and working on a secure supply chain relatively early, we’ve treated it as a top priority, and progress has been pretty smooth.

CMP equipment is a bit different; for some core components, I can’t buy them because my competitors make them themselves and don't sell them. From the very start, we had to crack this issue, or we wouldn’t be able to sell our products. We're continuously iterating on this equipment.

For components that can be sourced domestically, we started early and are seeing ideal progress; we shouldn't face any major roadblocks or risks.

Xu Xingjun: So we’ve basically achieved autonomy and control over the components, right?

Zhang Guoming: For general components, like indicator lights, importing is fine since they’re not specifically made for semiconductors. I believe we can ensure safety with them as other industries use them too. We've categorized them—some key parts we must secure ourselves while we leverage social resources for others.

Xu Xingjun: In the testing field, upstream components are quite critical. How are we doing in this area, Mr. Chen?

Chen Lu: The components needed for testing equipment differ from those used in semiconductor processing equipment, and domestically, this area is relatively weak. We've recognized this early on and, out of necessity, started working on it before the supply chain blockade from abroad. We need to develop these components ourselves since no other company in the world offers them.

This process has been quite challenging. We not only need to align the release times of the components with the machinery but also need our suppliers to continuously work with us to tackle these tough challenges and complete the R&D for components in the next generation of products. The demands are high. I hope that every component manufacturer entering the semiconductor equipment industry is prepared to work hard with us.

Xu Xingjun: So overall, we recognized the importance of components early on, prepared extensively, and have basically achieved a good level of autonomy and control. I also believe we can achieve significant growth in the future.

09

In the next 3 to 5 years, how will domestic semiconductor equipment develop?

Xu Xingjun: In the coming 3-5 years, when we look at the entire semiconductor equipment industry in China, how much growth potential and opportunity will there be, and what kind of development strategies and business plans will be in place?

Yin Zhiyao: The integrated circuit industry faces many challenges, one being the limits of physics and chemistry. From a business perspective, the equipment industry is quite volatile. Over the past 40 to 50 years, there have been major ups and downs several times.

In such an environment, how can a company maintain consistent and stable growth? I believe a company shouldn't put all its eggs in one basket. If it does, it could face significant problems.

In the next few years, our strategy at AMEC is to pursue three-dimensional growth, which has been the case for the past decade as well. The first dimension is integrated circuit equipment, focusing on etching, films, and testing, and increasing our development efforts.

But the cycle for integrated circuits is the same; when it’s high, it’s very high, and when it’s low, it’s very low. So, the second dimension is the broader semiconductor equipment. This includes etchers, films, and testing but applied across different semiconductor fields. Solar cells are one such area, primarily involving micrometer-level processing. Another area is large flat-panel equipment, also on a micrometer scale. We need a solid strategy here.

We are also considering the third dimension of development—using our core competitive advantage to find more application fields beneficial to both the country and society. This is our basic strategy: to diversify our investments across different areas to maintain rapid and stable growth for the company.

Xu Xingjun: How do you view the growth potential for the domestic semiconductor industry in the next 3-5 years?

Yin Zhiyao: I believe there is a lot of room for growth. For instance, the film equipment sector alone represents a market of 30 to 50 billion RMB, which is huge. We should focus on getting this right first because China’s integrated circuit industry has not yet faced drastic cyclical fluctuations; it’s still growing fairly quickly. We need to leverage this favorable trend to improve our operations.

Lv Guangquan: TuoJing's current scale is still relatively small, mainly involving chemical-related film equipment. If we look at the entire film market, it’s around a 50 to 60 billion RMB opportunity. TuoJing’s sales and shipment volumes for its products account for less than 15%, so there’s a lot of room for growth.

Our top priority should be to expand the market share of the products we’ve already invested in and developed. Then, based on this, we’ll aim to broaden our market presence and industry coverage. TuoJing’s strength lies in films, and another new area that just started to pick up in the past year or two is Chiplet technology.

This concept will introduce a range of new technologies, and there will be more than 30 types of equipment throughout the entire supply chain. Thus, in the next 3, 5, or even 10 years, this market capacity is significant and won't be smaller than that of the film market. We’re starting with chip bonding technology and are at the forefront, with performance indicators often surpassing those of international suppliers. We’re very confident about this.

Next, we need to expand internationally, engaging with global suppliers and customers so we can keep up with cutting-edge technologies worldwide. So, going international will also be a key project for the next three to five years.

Zhang Guoming: In the future, Huahai Qingshi will focus on the dual business of the equipment platform along with consumables and service platforms. We’ve already made some early moves into the consumables market, hoping to smooth out equipment volatility through the growth of our consumables business.

In terms of equipment, besides CMP thinning and cleaning, we are also focusing on some key products expected to develop in the future, such as advanced packaging and specialized processes like HBM. This could represent a significant area of domestic development.

As we pursue infinite line width reduction in line with Moore's Law, we’ll face some limitations with equipment. We may not be able to buy the most advanced machinery, but we can still improve chip performance through packaging technology. This is also a path for growth.

Chen Lu: In the domestic market for measurement and detection equipment, local suppliers occupy less than 10% of the market share, and we must work hard to increase our market share over the next 3-5 years. Especially for equipment that has already been launched and is in mass production, there’s still a lot of potential for market share growth.

Long-term, we can frame it simply as “3+1.” The three dimensions include the types of equipment, the improvements in process nodes resulting from continuous iteration and upgrades, and finally, going overseas.

The “+1” represents our launch of three series of software, which acts as the nerve center for connecting various measurement and detection devices used on-site by our customers. Once we use software to link this data, we can provide customers with further yield analysis and potential optimization of their processes.

10

Chinese equipment needs to go global and enter international markets!

Xu Xingjun: We're all representing leading companies in various sectors of the semiconductor industry here. What’s our outlook on the positioning and development potential of our domestic equipment in the international market? Given the new circumstances, what’s China’s path to catching up in semiconductors?

Yin Zhiyao: When Zhongwei was founded, we set our sights on getting our equipment into international markets. After years of effort, we’ve made some progress, but it’s quite limited. We have around 700 to 800 units of equipment in Taiwan, and we’re doing well with the reaction chambers. We’ve also got a small number of units in Japan, South Korea, Singapore, and Europe, but overall, it’s not satisfactory.

When we try to enter foreign markets, we often face regional barriers, cultural barriers, and high entry thresholds for new suppliers. In recent years, the international situation has posed even greater challenges for us to break into international markets. In this context, we can't give up our plans to expand abroad. Because no matter how big our domestic market is, the majority of the market is still overseas in the short term, and that hasn’t changed. We still need to keep pushing forward.

Lv Guangquan: A few years ago, we ventured into Taiwan. We also need to explore other channels or applications. If there’s a steep hill we can’t climb directly, we need to find another way, and that involves partnerships. Our equipment has advantages in advanced packaging and 3D integration, so we need to keep pushing outwards.

Yin Zhiyao: Let me add two points. I think there are two possible directions for breaking into international markets. One is that there are similar products abroad, but our performance is significantly better—lower costs, higher output, higher efficiency, saving our clients money. The other possibility is that we are the only ones with certain technologies and products that meet the strictest requirements.

The first direction is achievable, but breaking into the market still has its challenges. The second direction requires us to have the courage to develop equipment that doesn’t exist abroad and create better products.

Zhang Guoming: Running a business has to aim for the global market. Right now, Chinese equipment faces some obstacles in overseas promotion. I believe Southeast Asia presents a good opportunity for the future. Ultimately, expanding into international markets will depend on product performance. If our products perform exceptionally, clients who don’t use our equipment will end up spending more, and that’s how we can break into the market.

Chen Lu: We’ve also started exploring international business and have made some initial progress. Moving forward, we definitely need to stay committed to this direction. When new companies emerge and compete against established monopolies, the key is to seize the opportunities created by technology upgrades and innovations. This could be a significant chance for domestic equipment to go overseas, and we should seize it firmly.

11

The role of lithography machines is weakening, AI isn’t a revolution, and the demand for storage is growing significantly.

Xu Xingjun: Looking ahead, what new technologies or processes might have a disruptive impact, and how might they affect the future landscape and trends in the industry? Do we have any new strategies in these areas?

Yin Zhiyao: This is a topic I’m really interested in. First, when we’ve been working on integrated circuits for the past fifty to sixty years, what have we really been doing? We haven’t invented Ohm’s Law or changed the game dramatically; we’ve just been making things smaller. In this process, the key role of lithography machines is diminishing, while the importance of etching, thin films, and other equipment is increasing. Deep structures aren't built just with lithography, but through the combined efforts of thin films and other devices. This presents a huge opportunity for us. I suggest that we focus particularly on the transition from 2D to 3D structures; we can definitely leverage this advantage.

The second point is that AI represents a huge market. But I want to be clear that AI isn’t a revolution; it’s just an application within the digital industry. It doesn't exist outside of the digital realm or integrated circuits. AI is an application but it has a very broad and profound impact, so we need to identify the roles of integrated circuits and equipment within that.

Third, I believe the transition from 2D displays to 3D displays will become a significant application area that hasn’t received enough attention yet. In the future, we could see iPads, computers, TVs, and large screens transition into true 3D. This will require a lot of computing power and storage capacity, which is a great opportunity.

Lv Guangquan: As Mr. Yin just mentioned, there’s a breakthrough in introducing a new architecture and concept, transitioning from two dimensions to three. Whether it’s within chip architecture or between chips, this shift creates many challenges for equipment, but also many opportunities.

The chiplet technology stacks different chips or similar chips face-to-face, introducing a new avenue. We need to seize this opportunity to develop new products and create better growth spaces for the future.

Zhang Guoming: It’s clear that future demands are for continuous improvements in chip performance and reductions in power consumption, but these things will hit physical limits. When it becomes tough to operate in two dimensions, market drivers will weaken, leading everyone to move towards three dimensions. We are already laying the groundwork for equipment in this area.

Additionally, as AI technology and the demand for high computing power increase, storage represents a massive market. The demand for storage, including mobile storage, will see significant growth. We’re also collaborating on new storage technologies.

Chen Lu: The shift from 2D to 3D is bringing forth new requirements for measurement equipment. In terms of wavelength, we currently cover a very narrow range, including deep UV, near UV, visible light, and near-infrared.

Looking forward, our customers are innovating and asking for shorter wavelengths, such as in the vacuum UV range; they also want longer wavelengths, including mid-infrared and far-infrared, to achieve better resolution and penetration capabilities to adapt to the transition from 2D to 3D.

These new requirements present many new opportunities for domestic equipment companies, which is extremely important.

11

Four Industry Leaders Share Their Insights

Xu Xingjun: If you had to summarize or share your thoughts on the semiconductor equipment industry in just two sentences, what would you say?

Yin Zhiyao: Our company’s motto is, "Climbers are brave, aiming for the peak."

Lv Guangquan: We’ve been in this industry for many years, and every day we’re still pushing forward as the industry keeps evolving. Every year and a half to two years, there’s a new iteration, each bringing its own technical challenges. It’s these challenges that motivate us to persevere.

Zhang Guoming: Domestic semiconductor equipment has a long road ahead, but we’re full of confidence.

Chen Lu: Our entrepreneurial journey has been filled with opportunities and challenges, and the future will still present us with plenty of both. We will continue to work hard and not let down the historical mission placed on our shoulders.