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Red-hot Chinese chip investment fuels boom in used equipment

Written by Nikkei Asia Published on   3 mins read

Strong demand for older models has created tailwinds for Nikon, Japanese peers.

The prices of secondhand chipmaking machines have soared on ravenous demand over the past two years, especially in China, which is projected to account for a fifth of global chip production capacity this year.

For used lithography machines that etch circuits onto silicon wafers, prices have doubled, according to industry sources.

This booming market reflects the high level of investment in the production of chips for cars and appliances, a less-advanced but still-lucrative segment than high-end chips for smartphones.

“This is an unprecedented boom for used semiconductor production machinery,” said Shuji Kumazawa, senior vice president at SurplusGLOBAL Japan, a vendor of secondhand chipmaking devices. Buyers appear as soon as an item is on the market, he added.

Chipmakers are expanding existing production lines and building new ones as the chip shortage continues. A record-high 3.35 trillion yen (USD 26 billion) worth of Japanese-made chipmaking equipment was sold during the fiscal year ended March 31, estimates by the Semiconductor Equipment Association of Japan show, a 41% increase from fiscal year 2020.

Suppliers of chipmaking equipment are unable to keep up with this high demand.

“Delivery times for new products have lengthened from one year to about one and a half years,” said a representative from a leasing company.

Chipmakers have scrambled to work around a longer wait period for new equipment. C.C. Wei, CEO of Taiwan Semiconductor Manufacturing Co., said during last week’s earnings call that the world’s top contract chipmaker has dispatched “several teams” to assist machine suppliers.

“We’re working very hard to get tool suppliers to resolve all the issues,” said Wei.

Used equipment can be obtained within a month or so. Leasing companies and brokers acquire machines no longer in use from advanced chipmakers and resell them to makers of commodity-grade ships.

“Honestly, we would prefer new machines, but to respond to the sudden jump in output by clients, we went with secondhand alternatives because they can be procured quickly,” said a representative from a prominent chipmaker.

Prices of used equipment vary based on their condition and years in service.

“At the upper extreme, there are items whose prices have quintupled,” said a sales representative from leasing company Mitsubishi HC Capital.

A shortage is especially apparent in legacy machinery for 200 mm wafers. While smartphones and similar devices typically use chips from 300 mm wafers, 200 mm wafers are still used to make chips for automobiles and appliances.

Machines for 200 mm wafers have been in the mainstream since the 1990s, so many of the ones on sale in the secondhand market are more than two decades old.

Even so, “there are cases when they fetch the same prices they had when they were new,” a source said.

China has invested heavily in production lines for legacy chips. Although the U.S. has imposed export restrictions on advanced chip equipment, there are few restrictions on older products.

Global investment in 200 mm fab equipment is forecast to hit USD 5 billion in 2021-2022 after surpassing USD 3 billion in 2020, according to semiconductor industry group SEMI. China is projected to account for 21% of global production capacity this year, making it the leading region.

In particular, capacity is being ramped up for power semiconductors amid the anticipated rise of electric vehicles. As a result, entire power chip production systems are being frequently bought up.

“Procurement activity has become notable even at high prices,” said a sales manager at Sumitomo Mitsui Finance and Leasing.

The red-hot investment in legacy chip lines offers business opportunities for Japanese suppliers. When it comes to advanced extreme-ultraviolet lithography (EUV) equipment, Dutch supplier ASML holds a monopoly. But Nikon and other Japanese peers have enjoyed a high share in older standards such as i-line.

Because of the renewed demand, Nikon has decided to roll out new i-line equipment by fiscal year 2024.

Prices for secondhand chipmaking machines “will probably continue to be high through the end of the year,” said Moriaki Abe, CEO of used semiconductor equipment vendor Hightec Systems, echoing a widely held view.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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