By 2025, China’s domestic self-sufficiency rate for semiconductor equipment is expected to rise to 21%, with the three leading companies set to benefit.

Overview

Bernstein has updated its analysis of competitive dynamics in China’s wafer‑fab equipment (WFE) market through 2025. The report indicates that, despite earlier front‑loading driven by geopolitical concerns, the growing market share of domestic Chinese equipment suppliers reflects genuine technological and commercial breakthroughs. By 2025, China’s overall WFE self‑sufficiency rate is projected to rise from 16% in 2024 to 21%. Etching and deposition equipment are leading the charge in domestic substitution, while lithography and photoresist coating/development systems remain heavily reliant on imports. Given the certainty of capacity expansion at domestic fabs and the irreversible trend toward localization, the research report maintains an “Outperform” rating for NAURA, AMEC, and Piotech.

Core views

The pace of domestic substitution is accelerating, with differentiated performance across sub‑segments. In 2025, China’s WFE market is expected to reach a record US$50 billion, accounting for 41% of global demand. Within this vast market, the overall self‑sufficiency rate of domestically produced equipment has risen to 21%. However, progress varies significantly across different process segments: 1. **Tier 1 (Rapid Breakthroughs):** Dry etch and deposition are the largest segments and those where domestic progress has been most rapid. By 2025, the localization rates for these two categories are projected to reach 31% and 27%, respectively, with local vendors’ revenues growing year‑on‑year by 37% and 67%. This is attributable to relatively lower technological barriers compared with lithography, as well as the successful integration of leading domestic firms into core supply chains. 2. **Tier 2 (High Barriers, Low Self‑Sufficiency):** Lithography, process control, doping, and track equipment continue to face extremely high technical hurdles. There has been virtually no substantive breakthrough in lithography equipment, with ASML maintaining an overwhelming dominant position. Although local process‑control vendors posted a 63% year‑on‑year revenue increase, their overall self‑sufficiency remains around 10% due to a low base. Progress in doping and track equipment has also been relatively slow. 3. **Tier 3 (Mature Nodes Dominate):** In areas such as cleaning, thermal processing, and chemical mechanical polishing—where technological barriers are comparatively lower—domestic suppliers have captured significant market shares and established dominance in mature nodes, gradually expanding into advanced nodes. Domestic Competitive Landscape: Duopoly and Emerging Players Coexist Among domestic suppliers, market concentration is high, with a pronounced head‑effect: - **Deposition:** NAURA and Piotech are the dominant players. NAURA maintains a monopoly in PVD while expanding its CVD business; its share of the domestic deposition market edged up slightly from 64% in 2024 to 65% in 2025. Piotech leads in PECVD, but its share has been somewhat diluted due to delayed revenue recognition. AMEC has begun recognizing LPCVD/ALD revenue, emerging as a strong new entrant. - **Etching:** AMEC and NAURA form a duopoly, collectively accounting for nearly 95% of domestic supply. AMEC’s leadership in CCP etching is firmly entrenched, with robust growth in ICP etching; NAURA focuses primarily on ICP, and its CCP business is expected to see a substantial ramp‑up in 2026 as orders are delivered. While their current overlap is limited, long‑term competition is inevitable. - **Other Areas:** ACMR has significantly increased its share in cleaning equipment, becoming the market leader; Hwatsing holds an absolute lead in CMP; Kingsemi is the sole Chinese supplier capable of mass‑producing front‑end track equipment. Global Vendors’ Performance in China: Clear De‑Americanization Trend In 2025, most global equipment giants saw their revenue growth in China decelerate or turn negative, reflecting the dual pressures of de‑Americanization and domestic substitution: - **ASML and KLA:** Their compound annual growth rates (CAGR) in China from 2018 to 2024 reached 32% and 28%, respectively, but both reported single‑digit year‑on‑year declines in 2025, indicating that earlier front‑loaded procurement has subsided. - **Tokyo Electron (TEL) vs. U.S. Vendors:** In deposition and etching, as Chinese foundries prioritize non‑U.S. suppliers, TEL has benefited more than Applied Materials (AMAT) and Lam Research (LRCX). From 2018 to 2024, TEL’s CAGR in China was 25%, outpacing AMAT’s 12% and LRCX’s 15%. - **Exception:** Lam Research recorded a 36% year‑on‑year revenue increase in China in 2025, driven by shifts in its customer mix—specifically, rising demand for advanced logic chips, where most etching tools remain unaffected by export controls. Future Outlook: Multi‑Year Structural Growth The report projects that domestic equipment vendors will continue to grow at a faster pace than their global peers in 2026–2027. By 2028, the combined market share of China’s top ten equipment suppliers is expected to rise from 17% in 2025 to around 25%, implying a compound annual growth rate of approximately 35% for Chinese semiconductor equipment manufacturers during 2024–2028—far outpacing the low single‑digit growth of their global counterparts in the region. This trend is underpinned by capacity expansions fueled by China’s memory chip supercycle and surging demand for AI chips.

Analysis framework

The research report employs a bottom-up approach to estimate market size, integrating import–export data and company financial statements to construct a competitive‑landscape model: 1. **TAM Estimation:** For lithography and process control, the total Chinese market size (TAM) is calculated as the sum of import value and estimated domestic sales. In other sub‑segments, the allocation is based on Gartner’s global market share proportions. 2. **Market Share Calculation:** By tracking each listed company’s total revenue, its China‑region revenue share, and its WFE revenue proportion, we derive its specific WFE revenue in China and further disaggregate it across individual sub‑segments according to its product mix. 3. **Categorical Analysis Framework:** The equipment segment is categorized into three types (A, B, and C) based on “market size” and “difficulty/progress of domestic substitution,” enabling us to identify which areas represent the “sweet spot” for domestic substitution—such as etching and deposition—and which remain critical bottlenecks, like lithography. 4. **Validation Through Comparison:** We compare the growth trajectories of domestic players with those of global firms operating in China to assess the relative strength of two key drivers: “de‑dollarization” and “localization.”

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-and-Demand Framework

  Analysis of the Domestic Production Rate in the Semiconductor Equipment Industry

  The research report calculates the self-sufficiency ratio by analyzing the ratio of the total addressable market (TAM) to domestic supply across each sub‑segment. This approach helps identify which links in the value chain are adequately supplied and which are experiencing supply gaps, thereby assessing the potential and urgency of domestic substitution.

• Competitive and Strategic FrameworkMoat / competitive advantage

  Analysis of Technological Barriers and Customer Loyalty

  The research report notes that, although the etching and deposition segments are characterized by high technological barriers, they are relatively easier to overcome than lithography. Moreover, leading domestic players have established robust technological moats and strong customer stickiness through sustained R&D efforts and collaborative development with foundries, making it exceedingly difficult for new entrants to challenge their market position.

• Event-Driven Trading and Behavioral FinanceEarnings Discrepancy / Expectations Management

  Exclusion of the Pull-forward Effect

  The research report distinguishes between “front-loading” demand driven by geopolitical anxieties and genuine share‑growth fueled by technological breakthroughs. By examining the deceleration in global manufacturers’ revenue growth in China, it demonstrates that the current increase in domestic market share is not merely the result of short‑term stockpiling, but rather reflects a sustainable commercial success.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Northern Huachuang (002371.CH)

  Benefit: As the domestic leader in WFE, the company boasts the broadest product portfolio, covering deposition, etching, thermal processing, and more, and stands to gain directly from the accelerated domestic substitution across all product categories.

  Strengths

  It boasts the most comprehensive product portfolio, with customer coverage spanning major manufacturers across DRAM and NAND segments. In the PVD segment, it maintains a monopoly, while its market shares in CVD and ICP etching continue to expand.

  Comparison

  Compared with Zhongwei Company, Northern Huacheng exhibits stronger platform‑based characteristics and greater resilience to fluctuations in any single market segment.

• AMC (688012.CH)

  Benefits: The company boasts strong global competitiveness in etching equipment, rapid expansion in deposition equipment, and high levels of technological recognition.

  Strengths

  The company boasts global competitiveness in CCP etching, with ICP etching experiencing rapid growth; its deposition equipment (ALD/LPCVD) has begun to contribute to revenue.

  Weaknesses

  Its product lineup is relatively narrower than that of Northern Huacheng, primarily focused on etching and MOCVD.

  Comparison

  In the etching segment, it has established a duopoly with Northern Huacheng and is widely regarded as one of the strongest players in China in terms of technological prowess.

• Tuojing Technology (688072.CH)

  Benefits: a specialist in deposition equipment, a leader in PECVD, and expansion into hybrid bonding equipment.

  Strengths

  The company holds a leading domestic position in the PECVD sector, with rapid growth in ALD, and boasts a strong track record of product innovation.

  Weaknesses

  In 2025, revenue recognition delays will result in a slight dilution of shareholding.

  Comparison

  In the thin-film deposition segment, it both complements and competes with North Huachuang, focusing on specific thin-film processes.

• ASML (ASML.NA)

  Damaged/Neutral: The company holds an absolute monopoly in the lithography sector, but is constrained by export controls, preventing it from participating in China’s advanced-node capacity expansion; moreover, its mature-process offerings face potential future competition from domestic Chinese players.

  Strengths

  It is irreplaceable in the EUV and high-end DUV fields.

  Weaknesses

  The revenue share from the Chinese market is expected to decline from its elevated level (with a 2026 guidance of approximately 20%).

  Comparison

  Compared with other equipment suppliers, ASML’s business in China is most heavily impacted by policy, and its growth potential is constrained.

  Risks

  Geopolitical risks have led to further export restrictions.

• Tokyo Electron (8035.JP)

  Benefit: As a non-U.S. supplier, it is favored by Chinese wafer fabs over its U.S. peers amid the “de‑Americanization” trend.

  Strengths

  It maintains a solid market share in areas such as deposition, photoresist coating, and development, while the depreciation of the Japanese yen enhances its price competitiveness.

  Weaknesses

  In the long term, it仍将 face competition from Chinese domestic manufacturers at mature process nodes.

  Comparison

  From 2018 to 2024, its performance in China outpaced that of Applied Materials and Lam Research.

Key data

• 2025 China WFE Overall Domestic Production Rate21%An increase of 5 percentage points from the 16% recorded in 2024.
• 2025 China WFE Market SizeUS$50 billionAccounting for 41% of the global total WFE demand (US$122 billion)
• Domestication rate of dry etching31%Domestic manufacturers’ revenue increased by 37% year over year.
• Domestication rate of thin-film deposition27%Domestic manufacturers’ revenue increased by 67% year over year.
• Northern Huacheng’s share of the domestic deposition equipment market65%A further increase from 64% in 2024.
• AMEC’s share of the domestic etching equipment market47%It has formed a duopoly with Northern Huacheng (48%).
• Projected market share of China’s top 10 equipment vendors in 202825%A significant increase from 17% in 2025.

Impact & implications

For China’s semiconductor equipment industry, 2025 data confirm that domestic substitution has entered a critical phase, advancing from “usable” to “user-friendly” and ultimately to “mass‑production scale.” Leading platform players and niche market leaders—such as North Huachuang, AMEC, and Top-Joy Technology—are set to continue benefiting from the expansion plans of domestic wafer fabs, particularly those focused on memory and advanced logic technologies. Meanwhile, for global equipment suppliers, the era of rapid growth in the Chinese market may be drawing to a close, with intensified local competition and geopolitical uncertainties looming ahead. Consequently, their revenue contribution from China is expected to gradually normalize—i.e., decline. Investors should focus on domestic industry leaders that possess strong technological innovation capabilities and deep customer lock‑in across core segments like etching and deposition.

Risks

• Geopolitical Risks: The United States may further tighten export controls on semiconductor equipment to China, impacting global manufacturers as well as certain Chinese firms that rely heavily on overseas components.
• Technological breakthroughs fall short of expectations: In high-barrier areas such as lithography and metrology, domestic manufacturers will remain dependent on foreign suppliers unless they achieve substantial progress.
• Slower capacity expansion: If downstream demand for memory or logic chips falls short of expectations, reductions in wafer fab capital expenditures will directly impact equipment orders.
• Intensified Competition: As domestic manufacturers increase their market share in areas such as etching and deposition, internal price wars or margin pressures may emerge.

What to watch

• The status of capital expenditure plans among domestic memory manufacturers (DRAM/NAND), particularly whether they have raised their expansion targets in response to the supercycle.
• The pace of capacity expansion for advanced logic chips (AI-related) will determine the incremental demand for high-end etching and deposition equipment.
• The specific order execution status and market share dynamics of Northern Huacheng and AMEC in the CCP/ICP etching segment.
• Global equipment giants, such as ASML and AMAT, have adjusted their revenue guidance for the China region through 2026 to assess the extent of demand normalization.