Semiconductor front-end testing and repair equipment companies will benefit from the good environment created by national policies

At present, the mainland semiconductor front-end inspection and repair equipment market is dominated by the repair departments of international original manufacturers such as KLA and MAT, and the repair manufacturers in mainland China continue to improve their repair capabilities, and have gradually formed an effective competition with the international original repair departments. The semiconductor front-end detection and repair equipment industry is a strategic emerging industry supported and developed by the state. The issuance and implementation of multiple regulations and policies have provided financial, tax, technical and talent support for the semiconductor equipment industry, created a good business environment for enterprises in the industry, and promoted the development of the semiconductor equipment industry in mainland China. Domestic semiconductor front-end inspection and repair equipment enterprises will also benefit from the good industrial environment created by national policies to achieve healthy and sustainable development.

1. Overview of the semiconductor repair equipment industry

(1) The semiconductor repair equipment industry has a long history, and the use of repair equipment is an industry practice for wafer manufacturing enterprises

The semiconductor repair equipment industry has a long history, and almost at the same time as the equipment manufacturing industry, the two are complementary and jointly radiate the global equipment market. Restoration manufacturers are divided into original repair departments and independent third-party restoration manufacturers.

Semiconductor equipment, especially front-end testing equipment, lithography machines and other front-end equipment, has the characteristics of higher unit price and longer technical value retention period. For downstream chip production lines, even if semiconductor equipment is decommissioned, it will generally not be scrapped directly, but will be sold to obtain a certain residual value return. For chip production lines with relatively advanced processes, the equipment that is retired after the process upgrade often meets the current equipment procurement needs of mature process chip production lines at the process node. For mature process chip production lines, the purchase of repaired decommissioned equipment can also greatly save fixed asset investment.

Due to the fact that the retired equipment generally has faults or lack of functions, it cannot be used directly after purchase, and the acceptance standards of the repaired equipment in the mature process chip production line are high, which is completely consistent with the new equipment. Therefore, the decommissioned equipment needs to be repaired and improved before it can be put back into the chip production line. In the above context, the repair equipment industry came into being, through the diagnosis, functional repair, precision repair and debugging of the decommissioned equipment, so that the repaired equipment can meet the same acceptance standards as the original new equipment.

In addition, because semiconductor equipment is a high-precision instrument, if a failure may lead to the failure of the chip production line to operate normally, chip production line customers also have higher requirements for the maintenance of semiconductor equipment.

Taking foreign developed markets as a reference, the restoration business also has a long history, forming a complementary and coexisting relationship with the self-developed business. Leading foreign companies generally set up repair departments to occupy the mature process equipment market by repairing and reselling decommissioned equipment.

Semiconductor front-end testing and repair equipment companies will benefit from the good environment created by national policies

(2) The semiconductor repair equipment industry chain is composed of wafer fabs, traders and repair enterprises, and repair companies mainly provide technical value for equipment repair

In the semiconductor repair equipment industry chain, the main participants include equipment suppliers, equipment demanders, manufacturers, and repair equipment companies.

The chip industry is developing rapidly, and a generation of products needs a generation of technology, and a generation of technology corresponds to a generation of equipment. Therefore, with the iteration process of some relatively advanced chip production lines, the corresponding equipment will be retired and sold. On the one hand, traders in the industry will purchase decommissioned equipment and promote the circulation of decommissioned equipment, on the other hand, repair equipment companies will also purchase decommissioned equipment by directly participating in public bidding and bidding of chip production lines. After purchasing the decommissioned equipment from the chip production line or trader, the repair equipment enterprise will carry out a series of diagnosis, functional repair, precision repair, debugging, etc., and finally complete the repair, and sell it to the equipment demander wafer factory or a trader with a wafer factory channel, so that the equipment can be re-serviced in the demand-side chip production line.

The role of the supply and demand side of the wafer fab is not static, when the demand-side wafer fab has process progress and equipment failure is decommissioned, the decommissioned equipment will also be generated, and after repair, it will be put into service in the chip production line with a lower process.

In the industrial chain of the repair equipment industry, the repair equipment enterprises give the value of the retired equipment to meet the service standard again, which is the core link in the industry, and the traders mainly play the role of equipment circulation, and they do not have the ability to repair the equipment, and only rely on buying and selling to earn the difference.

(3) The repair work has different levels, and only enterprises that have mastered the ability of fault diagnosis, parameter adjustment, parts design, selection, and self-developed substitution can complete in-depth and substantive repair work

The restoration work ranges from easy to difficult, including in-house preparation, design selection and substitution, parameter adjustment, diagnostics and in-house parts or core components. In the case of diversification of decommissioned equipment failures and changes in the form of international trade, it is necessary to complete the in-depth and substantive repair work through long-term practice accumulation, which specifically includes a deep understanding of the equipment structure, technical principles, and industry technical needs, cross-industry knowledge reserves, and whether other industry technologies have the possibility of migrating to the industry, and finally forming parts design, selection, and self-research capabilities.

2. The market size and supply and demand of front-end inspection and repair equipment

(1) The diversity of terminal applications of semiconductors leads to differences in production line processes, resulting in a continuous downstream market demand for repair equipment

In the process of generational replacement of wafer manufacturing processes, semiconductor products with different processes are diversified in the end market. For example, products such as CPUs, AI chips, and memories are mainly used for large wafer sizes and advanced process manufacturing processes, while power discrete devices, MEMS, and analog chips, which are widely used in automotive electronics, consumer electronics, and other fields, still mainly use mature process technologies. In addition, the advanced and mature process of the chip production line is also relative, and with the progress of technology, the process nodes of the chip production line will continue to evolve.

In the above context, the demand for equipment in different chip production lines has also diverged. For example, for chip production lines whose terminals are CPU, AI chips, memories and other products, they have the motivation to maintain the pursuit of advanced technology, and are willing to pay higher investment in fixed assets to purchase the latest "new equipment" developed by international leading enterprises such as KLA; Although it can also be used in some cases, its high purchase price and maintenance cost lead to its low cost performance, which does not meet the commercial and economic needs of chip production lines, and this type of chip production line will choose more "repair equipment".

Therefore, the downstream chip production line will choose new equipment or repair equipment according to the specific situation, and there is no difference between new equipment and repair equipment, and both have a broad market. The diversity of terminal applications determines the continuous process differences between different production lines, which in turn determines the continuous demand of the repair equipment market.

(2) The rapid development of the downstream terminal application market has accelerated the construction of mature process chip manufacturing production lines in mainland China, resulting in rapid growth in demand for repair equipment

The rapid growth of downstream automotive electronics, consumer electronics and other terminal demand has generated a huge demand for chips manufactured by mature process technology, which has laid a market foundation for the construction of mature process chip production lines in mainland China. In 2023, the production and sales of new energy vehicles in mainland China will reach 9.587 million units and 9.495 million units, respectively, an increase of 35.8% and 37.9% year-on-year, respectively, the production and sales of new energy vehicles in mainland China will account for more than 60% of the world's total, ranking first in the world for nine consecutive years, and the export of new energy vehicles will be 1.203 million units, a year-on-year increase of 77.2%, both reaching a record high. According to Deloitte's estimates, in 2022, the average number of chips installed in new energy vehicles will be 1.56 times that of traditional fuel vehicles. In addition, according to IDC data, from 2018 to 2022, the shipment of wearable devices in mainland China increased from about 73.21 million units to about 160 million units.

In the context of the rapid growth of the market demand for mature process chips, the chip production line in mainland China has grown rapidly. By the end of 2022, the global wafer production capacity (equivalent to eight inches) will reach 25.46 million pieces per month, of which Chinese mainland wafer production capacity accounts for about 24% of the global total.

The rapid construction of mature process chip production lines in mainland China has led to a continuous growth in downstream demand for front-end quantity testing equipment for mature processes, but in the context of insufficient supply of international leading original equipment and self-developed equipment, repair equipment has become an important source of mature process equipment in the iteration process of mainland chip production lines, and the market scale has grown rapidly.

(3) Under the combined influence of the development law of the industry and the number of semiconductor equipment, the supply of retired equipment market is sufficient

Affected by the characteristics of the semiconductor industry, the process nodes of various chip production lines will continue to improve over time. The progress of the process node will inevitably bring about the generation of decommissioned equipment. In this context, the cycle of "decommissioning→ repairing → reusing" of equipment will continue dynamically.

For example, more than a decade ago, the 45nm process was the most advanced process node in the world, and the Apple A5 processor used in Apple's iPhone 4S mobile phone released in 2011 was processed using the 45nm process, and more than a decade later, the CPU chips of flagship smartphones have been widely produced using the 3nm-7nm process technology. Today, although the 45nm process is not capable of manufacturing smartphone processor chips, it can still produce high-end MCUs, OLED display driver chips, CMOS sensor chips, etc., which has strong economic value. Up to now, the mainland chip production line is still dominated by mature processes. From the perspective of industry development law, the supply of upstream decommissioned equipment is dynamic and sustainable, and can be used in a variety of applications in the next generation.

According to the annual report of Surplus GLOBAL (14070.KS), a world-renowned semiconductor decommissioning equipment trader, "Wafer manufacturers such as Samsung, SK hynix, Micron, Toshiba and other wafer manufacturers will bid to sell equipment to the market if the equipment utilization rate decreases due to new process design and changes in some processes, and about 7,000 to 8,000 semiconductor professional decommissioned equipment are sold every year around the world." In addition, according to CAE data, one of the world's largest semiconductor used equipment trading platforms, a total of 166 countries or regions around the world provide 692,400 units of decommissioned equipment and parts for sale.

In recent years, in the context of changes in the international trade situation, the mainland has also strengthened the construction of chip production lines. A total of 23 12-inch fabs are in operation in Chinese mainland, and 25 new 12-inch fabs are expected by 2026. The above-mentioned fabs have invested a lot of semiconductor equipment. In the future, with the upgrading of the chip production line in China, this part of the equipment will also become an important source of retired equipment.

3. The main trends of the future development of the industry

(1) The development process of the repair market is expected to continue to advance

On the one hand, some leading domestic repair equipment companies have achieved a certain market share, and continue to compete with foreign giants in the repair department, providing stable and reliable equipment support for the production of chips, and accompanying continuous operation and maintenance services to ensure the safety and stability of the mainland semiconductor industry. On the other hand, in view of the widespread dependence of domestic manufacturers on foreign suppliers for core components, some domestic repair equipment companies have also carried out a series of research and development to achieve the development of core components and avoid the problem of "small to large" in the production of chips due to the interruption of supply of core components by foreign suppliers. Through the continuous exploration of domestic enterprises, the development of the industry is expected to continue to advance.

(2) In the repair equipment market, the dominant position of leading enterprises with strong technical iteration ability and rich repair experience will be more obvious

As mentioned above, chip production line customers have the need to continuously improve the process node, and with the improvement of the process node, the complexity of the product will also increase, and the corresponding repair difficulty will be further improved. The front-end testing equipment is a high-precision instrument, involving optics, physics, mechanics, algorithms and other disciplines, repair enterprises must continue to learn new theoretical knowledge, and continue to realize the iteration of the repair process platform, in order to meet the new repair needs.

With the iteration of the upstream decommissioning equipment process node, the traditional small repair enterprises will gradually not be able to adapt to the new industry environment due to less technical experience, narrow business scope, and weak R&D capabilities.

Compared with the original repair department, domestic head repair enterprises have gradually narrowed the technology gap through technological catch-up, and formed their own competitive advantages through the cultivation of supply chains, research and development of core components and parts. In addition, head repair companies have studied the products of various brands on the market, while the original repair department often only focuses on the repair of their own brand products, and there are certain advantages in terms of the breadth of technical routes. In the above context, the replacement of the original repair business by head repair companies will also continue.

For more industry information, please refer to the "2024-2030 Semiconductor Front-end Detection and Repair Equipment Industry Market Research and Development Trend Forecast Report" of PwC Consulting, and PwC Consulting also provides special market research projects, industry research reports, industrial chain consulting, project feasibility study reports, specialized and special new small giant certification, market share reports, 15th Five-Year Plan, post-project evaluation reports, BP business plans, industrial maps, industrial planning, blue white papers, National manufacturing single champion enterprise certification, IPO fundraising and investment feasibility study, IPO working paper consulting and other services.

Semiconductor front-end testing and repair equipment companies will benefit from the good environment created by national policies

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