China Securities Co., Ltd. has released a research report stating that as domestic component suppliers continue to achieve R&D breakthroughs and scale up production, the current investment focus in the components sector is shifting towards specific sub-sector opportunities. On one hand, attention should be paid to investing in segments with low domestic market penetration rates, anticipating continuous breakthroughs in the R&D, sampling, and small-batch production stages for related categories. Examples include Equipment Front End Module (EFEM), robotics, vacuum pumps/molecular pumps, valves, electrostatic chucks, RF power sources, Mass Flow Controllers (MFC), and components related to lithography machines, such as dual-stage systems/immersion systems and optical components. On the other hand, focus should be on categories where localization is progressing smoothly and financial performance is gradually being realized, such as large mechanical metal parts and gas delivery subsystems like GASBOX. Regarding specific companies, attention should be directed towards those in sectors with low localization rates and those experiencing product volume increases and earnings realization. The main views of China Securities Co., Ltd. are as follows.
The semiconductor equipment components market offers vast potential, and domestic substitution is accelerating for core upstream segments of integrated circuits amid overseas restrictions. Technological advancements in components drive improvements in equipment process nodes. The precision components industry for semiconductor equipment underpins the semiconductor equipment sector itself. A multi-billion dollar market supports a hundred-billion dollar equipment market and a trillion-dollar end-market. The upgrading and iteration of equipment largely depend on technological breakthroughs in precision components. Consequently, semiconductor precision components are not only one of the most challenging and technically intensive parts of the semiconductor equipment manufacturing process but also represent a critical bottleneck for domestic semiconductor equipment companies.
Under the dual trends of localization, semiconductor equipment components are expected to contribute higher growth elasticity. Trend One: The localization rate for domestic semiconductor equipment has increased rapidly since 2021. The domestic semiconductor equipment localization rate has risen from 4.91% in 2018 to 18.02% in 2024, showing a consistent upward trend. The rate of increase has accelerated significantly since 2021, indicating that equipment-side import substitution has entered an accelerated phase. It is judged that the domestic semiconductor equipment localization rate will continue to rise. Trend Two: The localization level of upstream components urgently needs improvement. The localization rate for semiconductor equipment components in Mainland China is continuously improving but remains low overall. As external sanctions gradually extend from complete equipment systems to upstream components, enhancing the localization level of components has become imperative. Against the backdrop of these converging dual localization trends, it is believed that the growth elasticity from the localization and volume expansion of the components sector will be higher than that of complete systems.
The market space for semiconductor equipment components is extensive. Components constitute the primary source of cost for semiconductor equipment. The components market is approximately 50%-55% of the global semiconductor equipment market size. Driven by the current AI-fueled demand cycle boosting global semiconductor equipment景气, the global market for semiconductor equipment components is projected to reach $85.8 billion by 2027, with the Mainland China market estimated at $34.32 billion.
For categories representing critical bottlenecks, the localization rate urgently needs improvement, while categories scaling up production are expected to contribute inflection points in financial performance. From the perspective of replacing foreign suppliers with high-end products, breakthroughs in the localization of semiconductor equipment components are still in the early stages. By category, basic components like mechanical parts and gas/liquid/vacuum system parts have already achieved a certain level of independent supply capability. Some products have achieved batch substitution and entered the international market, but high-end models are still constrained by foreign manufacturers. Electrical and electromechanical components, which are core to equipment performance, already see participation from local companies. However, core technologies, such as highly stable RF power sources and precision motion control modules, are still dominated by international giants, resulting in an overall low localization rate. Optical components and instrumentation represent segments with the highest technical barriers, demanding extreme precision, stability, and consistency. Currently, the localization rate is generally low, large-scale application has not been formed, and high-end products are largely dependent on imports.
Rapidly growing industry demand is expected to accelerate R&D and mass-production breakthroughs at the component level. Examining the development trends for subsequent equipment components by sub-category: 1. Mechanical Components: Focus on capacity release for metal parts and import substitution for ceramic components. 2. Electromechanical Components: Domestic volume expansion for general-purpose components is imminent; monitor breakthrough progress in lithography-related subsystems. 3. Gas/Vacuum/Liquid System Components: Import substitution for pumps and valves is relatively early-stage;看好 high-integration products like domestic gas delivery modules scaling up. 4. Electrical Components: Monitor breakthroughs and volume expansion progress among domestic RF power supply suppliers. 5. Optical Components: Europe and America still lead the industry; it is advised to focus on breakthroughs in optical capabilities by core suppliers in the domestic market. 6. Instrumentation: This is a critical bottleneck sector with an extremely low localization rate; focus on substitution progress for categories like MFC, replacing US and Japanese suppliers.
Risk factors include the inability to keep pace with process node evolution and semiconductor equipment updates, the risk of losing technical talent and leakage of core technologies, and risks associated with the development of new products and processes.