21 August 2025 Global Semiconductor Capital Equipment China WFE Import Tracker (Jul 2025): Record high month of the year, demand still resilient with imports YTD +2% Qingyuan Lin, Ph.D. +852 2123 2654 qingyuan.lin@bernsteinsg.com Stacy A. Rasgon, Ph.D. +1 213 559 5917 stacy.rasgon@bernsteinsg.com David Dai, CFA +852 2918 5704 david.dai@bernsteinsg.com Carmine Milano +44 207 762 1857 carmine.milano@bernsteinsg.com We track monthly Wafer Fabrication Equipment (WFE) imports to China through data from the China ...

Summary of the Global Semiconductor Capital Equipment Conference Call Industry Overview - The focus is on the **Wafer Fabrication Equipment (WFE)** market in China, with a specific update on **May 2025** import data indicating resilience despite a year-to-date (YTD) year-over-year (YoY) decline of **2%** [2][22]. Key Insights - **May 2025 WFE Imports**: Total imports reached **USD 2,829 million**, reflecting a month-over-month (MoM) decline of **16%** and a YoY decline of **1%**. The YTD average import is **USD 2,773 million**, slightly lower than the previous year's average of **USD 3,159 million** [2][22]. - **Import Segmentation**: The largest segments for imports are **Deposition (26%)**, **Dry Etch (21%)**, and **Lithography (12%)**. Japan remains the largest trading partner, accounting for **25%** of imports, while Guangdong and Shanghai are the biggest domestic buyers, with shares of **37%** and **22%**, respectively [3][22]. Company-Specific Insights - **Tokyo Electron (TEL)**: Expected to see a **12% QoQ** increase in China revenue, with a projected **-10% YoY** decline for FY26/3. China is anticipated to contribute **42%** of total revenues [4][62][63]. - **Kokusai**: Forecasted to experience a **-32% QoQ** decline in China revenue, with an expected contribution of **37%** to total revenues [4][66][70]. - **Screen**: Anticipated to decline by **-27% QoQ** in China revenue, with a contribution of **30%** to total revenues, below the company's guidance of **45%** [5][73][79]. - **Advantest**: Expected to see a significant decline of **-60% QoQ** in China revenue, with exposure dropping to **8%** from **19%** in the previous quarter [5][82]. Market Dynamics - The **lithography segment** is experiencing a sharp decline, with imports expected to drop to **EUR 0.79 billion** in Q2, down **66% YoY** and **49%** sequentially. This is attributed to record low import levels in April and May [9]. - The overall WFE market in China is becoming increasingly important, with global vendors capturing approximately **84%** of the market share in 2024 [18]. Investment Implications - **NAURA**: Rated as **Outperform** with a target price of **CNY 550.00**, benefiting from a broad product portfolio and diverse client base [11]. - **AMEC**: Also rated **Outperform** with a target price of **CNY 300.00**, recognized for its technology and market position [12]. - **Piotech**: Rated **Outperform** with a target price of **CNY 280.00**, noted for its innovation in advanced packaging [13]. - **AMAT**: Positive outlook with a target price of **$210.00**, driven by secular WFE growth and capital return [16]. - **ASML**: Rated **Market-Perform** with a target price of **EUR 700.00**, reflecting a cautious stance on growth relative to consensus [17]. Additional Observations - The **import data** indicates a shift in sourcing, with increased imports from **Singapore and Malaysia** as U.S. direct imports decline [34][40]. - The **market for cleaning equipment** remains competitive, with potential upside from panel-level packaging [15]. This summary encapsulates the key points from the conference call, highlighting the current state of the WFE market in China, company-specific forecasts, and broader market dynamics.

Investment Rating - The report upgrades ACMR to Buy and identifies NAURA as the most preferred stock in the China wafer fabrication equipment (WFE) sector [4][7]. Core Viewpoints - The market has significantly underestimated the resilience of China WFE demand, forecasting a modest decline of 9.5% YoY in 2025, followed by a growth of 6.0% YoY in 2026, contrasting with the consensus expectation of a 20% decline [4][19][20]. - The report highlights that over 70% of survey respondents expect higher or flat capacity expansion in 2025, indicating stronger demand than previously anticipated [5][19]. - The top three Chinese vendors are expected to increase their market share to 25-30% by 2027, driven by localization and tighter US export controls [6][60]. Summary by Sections Market Demand Forecast - China WFE demand is projected to reach US$33.5 billion in 2025, reflecting a 9.5% YoY decline, and US$35.5 billion in 2026, indicating a 6.0% YoY increase [20][24]. - Domestic fabs' capacity expansion is identified as a major driver for sustained demand, with a projected CAGR of 9.0% from 2023 to 2027 [20][24]. Vendor Performance and Market Share - The combined revenue of the top three Chinese WFE suppliers is expected to reach US$10.8 billion by 2027, representing a significant increase in domestic market share from 13% in 2024 [60][61]. - The report emphasizes the narrowing technology gap and increasing willingness of domestic fabs to procure local equipment as key factors for market share gains [66][67]. Investment Dynamics - The report notes that 35% of foundry respondents and 29% of memory respondents indicated plans for higher capital expenditures in 2025, suggesting a positive outlook for the sector [28][41]. - The analysis of semiconductor production equipment imports indicates strong demand in Guangdong, which has not been fully reflected in prior forecasts [5][54]. Competitive Landscape - The report outlines that Chinese WFE companies have achieved higher revenue growth compared to the industry average, with a CAGR of 41%-82% from 2020 to 2024 [67][71]. - Tighter export controls are expected to expand the total addressable market for local vendors, as US companies face limitations in accessing the Chinese market [73][76].

Summary of China Semiconductor Industry Conference Call Industry Overview - The focus is on the **China Wafer Fab Equipment (WFE)** market, with a revision of the 2025 outlook due to stronger foundry demand [1][17] - The 2025 WFE demand projection for China has been revised up to **USD 39 billion**, reflecting a **-13% YoY** change, while the 2026 projection is set at **USD 41 billion** with a **5% YoY** increase [1][26] Key Insights - **Demand Sustainability**: The sustainability of WFE demand in China remains a key topic of discussion, with recent data showing resilient import figures year-to-date [1][4] - **Local Production Growth**: Local AI chip production is gaining traction, driven by export controls limiting access to advanced overseas manufacturing, making local production essential [2] - **Capacity Expansion**: Despite global overcapacity concerns in mature logic, Chinese foundries are expected to continue expanding capacity, aiming for self-sufficiency [3][35] - **Utilization Rates**: Companies like Hua Hong are operating at **103% utilization** with only a **9% gross margin**, indicating a focus on filling new capacity rather than protecting margins [3] Financial Projections - **2024 WFE Demand**: Projected at **USD 45 billion**, with a **23% YoY** increase, supported by strong import data and local supplier growth [25][30] - **2025 and 2026 Projections**: The demand is expected to decrease slightly in 2025 and 2026, with projections of **USD 39 billion** and **USD 41 billion**, respectively [26][32] Import Data - Year-to-date import data shows a **-2% YoY** decline, indicating stability rather than a slowdown in demand [4][42] - The largest import region is **Guangdong**, suggesting a ramp-up in advanced logic customers [4] Company Ratings - **NAURA, AMEC, and Piotech** are rated as **Outperform** due to their leadership in deposition and dry etch technologies, benefiting from domestic WFE substitution [5][8][9][10] - **AMAT and LRCX** are also rated as **Outperform**, with expectations of growth driven by market dynamics and service narratives [11] Market Dynamics - The share of Chinese foundries in global mature logic revenue is currently at **21%**, with a target of **30%** [3] - The domestic share of WFE is expected to reach **36% by 2026**, driven by government incentives and local co-development efforts [22][28] Conclusion - The Chinese semiconductor industry is poised for continued growth, with a focus on self-sufficiency and local production capabilities. The demand for WFE is expected to remain strong despite global market fluctuations, supported by local foundries' expansion and government policies promoting domestic suppliers.