China’s Semiconductor Equipment Market Is Being Reshaped: Localization Accelerates, Foreign Share Under Pressure

Keywords: China semiconductor equipment, localization, Tokyo Electron, ASML, SEMI, front-end equipment, market share, semiconductor supply chain

Introduction

Over the past few years, the competitive landscape of the global semiconductor supply chain has been changing profoundly. In China, as domestic wafer fabrication, packaging and testing, and supporting materials and equipment capabilities keep improving, local semiconductor equipment companies are gradually taking market share from international giants. A supply system long dominated by Japanese, American, and European vendors is now facing mounting substitution pressure from Chinese firms.

According to a recent Nikkei Asia report, sales by major Japanese semiconductor equipment companies in China have fallen sharply, and this is not a short-term fluctuation. It reflects a broader shift: China’s semiconductor equipment localization is accelerating, procurement patterns are being reshaped, and supply-chain self-reliance is strengthening. For the global equipment industry, this is not just a redistribution of share in an important market; it also signals that the rules of competition are being rewritten.

1. China’s market: from the biggest growth source to structural repricing

China has long been one of the most important markets for semiconductor equipment worldwide. Whether it is wafer-fab expansion, upgrades to existing lines, or parallel development of advanced and mature processes, demand for equipment in China is extremely strong. International suppliers have long viewed China as a growth engine and have reaped substantial benefits during capacity-expansion cycles.

However, the latest earnings data show that this situation is changing. Tokyo Electron, Advantest, Screen Holdings, Disco, and JEOL said their combined sales in China fell 12% year over year to 1.47 trillion yen, or about 58.8 billion yuan, in the last fiscal year. Even more notable, this is the first decline on record.

The significance is not just that sales dropped. It shows a deeper trend: as China’s semiconductor supply chain builds a more complete domestic ecosystem, the growth logic of foreign vendors in China is weakening. Advantages that once came from technology gaps and concentrated supply are now being eroded by localization and procurement diversification.

2. Front-end equipment is under the most pressure, and localization has reached a critical zone

If the overall decline can still be seen as industry-cycle fluctuation, the sharp drop in front-end equipment sales shows the core of the issue. According to reference data, Tokyo Electron, Screen Holdings, and JEOL—three of the five Japanese firms involved in front-end equipment—saw combined sales in China fall by nearly 20% year over year.

Front-end tools include core processes such as lithography, etching, thin-film deposition, cleaning, and metrology. They are the “lifeblood” of wafer fabrication. These tools have high technical barriers, long verification cycles, and strong customer stickiness, so they have long been the area where foreign suppliers have had the biggest advantage. The fact that this segment is now weakening clearly shows that Chinese equipment makers are breaking through in high-value-added areas and entering the main supply chains of major customers.

By industry logic, localization does not happen overnight. But once stable mass production and continuous iteration are achieved at certain process nodes, market share can shift to domestic vendors quickly. In particular, mature-node expansion, specialty-process growth, and preferential sourcing by domestic fabs are all reducing the “irreplaceability” of foreign equipment in some areas.

3. Changes at Tokyo Electron and ASML reflect a global supply-chain rebalancing

Tokyo Electron’s latest performance is especially telling. In the first quarter of this year, China accounted for only 27% of its total sales, down 7 percentage points from a year earlier. That share had once reached 50% in the second quarter of 2024, and such a sharp drop shows how quickly its competitive environment in China is changing.

European and U.S. equipment makers are also under pressure. ASML, the world’s leading lithography machine maker, saw China’s share of its first-quarter sales fall to 19%, down 8 percentage points year over year. Applied Materials and KLA face similar pressure. While these companies still have clear advantages in advanced technology, patent depth, and global customer bases, they are now confronting a more complex environment in China: domestic vendors are growing quickly, and Chinese customers are placing greater weight on supply security, delivery stability, and long-term controllability.

For foreign firms, China is not just a revenue source; it is also an important part of global capacity planning and technology validation. When share in this market starts to fall, the impact is not limited to one quarter’s earnings—it may also trigger a reassessment of product roadmaps, R&D spending pace, and global capacity allocation strategies.

4. Why domestic Chinese equipment firms are rising so fast

Chinese semiconductor equipment companies are breaking through quickly in this round of competition because of several factors working together.

First, demand is providing abundant application scenarios. China has one of the world’s largest and most complete semiconductor manufacturing bases, covering logic chips, memory chips, power devices, analog chips, RF chips, and advanced packaging. Domestic equipment companies have a natural edge in serving customers up close, responding quickly to process changes, and lowering delivery costs.

Second, policy support and industrial capital have been stepping up. In recent years, investment in semiconductor equipment, materials, components, and process integration has risen significantly, helping companies align R&D, manufacturing, verification, and mass production more closely. Equipment is a capital-intensive, long-cycle, validation-heavy industry. Only with sustained funding and supply-chain coordination can firms move from “usable” to “easy to use” and then to “batch replacement.”

Third, the technical capabilities of domestic firms are no longer limited to isolated breakthroughs; they are moving toward platform-level and system-level development. As some niche areas achieve scaled delivery, companies keep improving in process accumulation, customer qualification, after-sales service, and stability optimization, and are now capable of competing head-on with international players.

5. The deeper logic behind market-share shifts: not less demand, but substitution

It should be noted that the decline in foreign sales does not mean China’s semiconductor equipment market is shrinking. According to SEMI, China still accounts for 37% of the global equipment market, and the overall market size in 2025 is expected to remain stable at about $49.3 billion. That means total demand in China has not materially contracted; what has changed is the supply structure.

In other words, foreign sales are down while the market total remains broadly stable. That gap is the most direct sign that localization is accelerating. For China’s semiconductor industry, this is structural progress: companies are no longer relying solely on external supply and are gaining more control over key links. For global equipment giants, it means a high-value market is shifting from growth-driven expansion to stock-based competition.

Over a longer horizon, this shift will also ripple upstream through the global supply chain. Competition among equipment makers will not only be about performance and price; it will also involve local service capabilities, delivery flexibility, ecosystem compatibility, and joint development with customers. Whoever adapts faster to the new logic of the Chinese market will be more likely to keep an edge.

6. Future trend: localization is not the end of substitution, but the start of a new round of competition

Although domestic Chinese equipment makers are moving fast, the industry should remain realistic. Semiconductor equipment is a classic high-barrier sector. In advanced-node key tools in particular, global leaders still hold deep technical reserves, strong patent portfolios, and long-term validation advantages. Localization is not a simple matter of taking market share; it is a long process of technical breakthroughs and industrial adaptation.

In the near term, China’s semiconductor equipment market will likely show three trends: first, domestic equipment will keep raising penetration in mature nodes and some front-end areas; second, foreign vendors will speed up localization to stay competitive; third, supply-chain coordination will strengthen further, lifting materials, components, and process software along with it.

In that sense, the changes in China’s market are not merely about “less importing,” but about an entire industrial upgrade. Domestic equipment makers are moving from “backup players” to “core participants,” and the global semiconductor equipment industry is entering a more multipolar and more complex phase.

Conclusion

The drop in sales by major Japanese and Western semiconductor equipment makers in China may look like an earnings swing on the surface, but it is really a snapshot of the global semiconductor supply reshaping. As China’s domestic semiconductor industry keeps pushing forward and equipment localization accelerates, market-share redistribution has become an irreversible trend.

For China, this means stronger industrial autonomy and rising influence in key links. For global equipment companies, it means they must rethink the Chinese market, rebuild competitive strategies, and invest more in localization, coordination, and innovation. The competition in China’s semiconductor equipment market will likely get even tougher, but it will also give rise to more companies with real global competitiveness.