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The semiconductor market in China has been experiencing unprecedented growth, establishing itself as a crucial player in the global arenaAs we enter the final stages of 2024, projections indicate that domestic semiconductor sales will reach a remarkable $135.8 billion within the first three quarters aloneThis staggering figure amounts to almost 30% of the global market share, effectively reinforcing China's position as the largest single market for semiconductors in the world.

However, while this growth is commendable, it is crucial to note that the domestic semiconductor industry's output constitutes only about 7% of the global semiconductor market valueThis statistic highlights a significant challenge: the self-sufficiency rate of China's semiconductor market is merely around 23%. Moreover, local manufacturers contribute just over half of the production capacity for the domestic market, underscoring the urgent need for improvement and growth in production capabilities within the country.

As a response to these demands, leading players in the industry, such as Semiconductor Manufacturing International Corporation (SMIC), Jingfang Integration, and Huahong Group, are gearing up for expansions with new production facilitiesReports suggest that by the end of 2024, there could be as many as 18 new wafer fabs coming online, which would elevate monthly production capacity from 7.6 million to 8.6 million wafersThis advancement is quintessential for enhancing the country’s overall manufacturing capabilities in the semiconductor sector.

In the highly technical and resource-intensive semiconductor industry, the tools and equipment used in fabrication are as vital as the technological prowess behind the chips themselvesFor example, the lithography process is one of the most critical components in fabricating semiconductors, requiring advanced equipment to achieve precise results.

Over recent years, domestic players in the semiconductor equipment market have made significant strides in areas such as etching, deposition, cleaning, chemical mechanical polishing (CMP), and testing

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Notable companies like Northern Huachuang, Zhongwei Technology, and Shengmei Shanghai have developed products that can compete with leading international brandsHowever, there is still a considerable gap when it comes to lithography machines and associated coating and developing equipment, wherein domestic manufacturers have yet to match the capabilities of their overseas counterparts.

The growing complexity of chip manufacturing necessitates a higher level of automation and efficiency, particularly on larger production lines of 200mm (8 inches) and above, where coating and developing equipment typically operates in unison with lithography machinesThis interdependency highlights the pivotal role of coating and developing equipment—also referred to as 'Track' systems—as these machines handle critical processes involving film application, baking, and developingAlarmingly, domestic brands account for less than 5% of the market share for these vital tools, indicating a stark reliance on foreign technology.

Examining the current state of the market, Tokyo Electron (TEL) is an obvious heavyweight, dominating the coating and developing equipment sectorThis Japanese company has a remarkable market share exceeding 90%, particularly in the EUV (Extreme Ultraviolet) lithography track technology where it claims a monopoly with a full 100% market shareThis level of dominance surpasses even that of ASML, a leading manufacturer of lithography machinesTEL’s extensive product range, production capabilities, and reliance on components from Japanese suppliers have established it as a stalwart partner for major semiconductor foundries such as TSMC, Samsung, and Intel.

Interestingly, China’s growing semiconductor market has also contributed significantly to TEL’s growth, and in 2023, the mainland became the only region with positive revenue growth for the company, accounting for nearly 50% of its total incomeDespite the apparent synergy, aggressive macroeconomic changes have underscored the pressing necessity for China to accelerate its domestic semiconductor manufacturing capabilities.

In light of these developments, it is heartening to note that, despite the high barriers to entry imposed by TEL’s offerings, domestic firms like Chipmore Micro are successfully carving out a presence in the domestic market

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Chipmore Micro represents a small but growing faction of utilizing domestic equipment for coating and developing semiconductor productsTheir advancements are a beacon of hope for self-sufficiency in China's semiconductor industry.

Chipmore Micro has made impressive progress, achieving comprehensive coverage in front-end wafer processing for technology nodes of 28nm and aboveThe company’s products—encompassing off-line, I-line, and KrF machines—have successfully entered mass productionTheir offerings in mature process areas have begun to compete with TEL’s ACT series and certain models from the LITHIUS series, suggesting a potential breakthrough of the technological monopoly held by foreign entitiesIn the face of various non-commercial influences affecting the semiconductor industry, Chipmore Micro's status as a unique domestic supplier of coating and developing equipment contrasts sharply with the prevailing landscape.

The commitment to R&D at Chipmore Micro illustrates a long-term investment strategy that has seen funding for research and development exceed 11% of total revenue for several yearsIn the first three quarters of 2024, the company allocated an impressive $1.92 million for research, resulting in a remarkable 17.37% of its total revenue—far exceeding TEL’s average of around 10%—underscoring its commitment to innovative progress.

Furthermore, the financial performance of Chipmore Micro during the years 2019 to 2023 saw sales and net profit skyrocket by over seven times, indicative of its robust growth trajectoryThe company has established partnerships with notable clients, including TSMC, Huawei, and Yangtze Memory Technologies, to leverage the increasing market demand for semiconductor solutionsFollowing a successful 2023 where revenues from coating and developing machinery reached about $10.66 million with a year-on-year growth of 41%, Chipmore Micro remains a core revenue generator for the company.

Despite a slight drop in revenue in the first three quarters of 2024, attributed to production and delivery timelines, their long-term aspirations remain high

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