- China is reportedly advising domestic semiconductor manufacturers to achieve a seventy percent localization rate of silicon wafers by the end of the year. This move marks a deep extension of its semiconductor supply chain strategy to the most fundamental material level.
- As a core player in domestic substitution, Xi'an ESWIN Materials Technology plans to significantly increase its monthly production capacity of 12-inch silicon wafers to 1.2 million pieces within the year, a capacity expansion expected to directly meet forty percent of internal market demand.
- Under this framework, the market space available in China for international oligopolies, such as Japan's Shin-Etsu Chemical (4063:JP) and Sumco Corporation (3436:JP), will be forced to contract to thirty percent. The global trade flow of silicon materials faces a structural re-evaluation.
Immediate Supply and Demand Restructuring in the Silicon Wafer Market
In the semiconductor industry's capital expenditure cycle, the supply structure of 12-inch large silicon wafers, as the fundamental material for high-performance logic operations and high-density storage chips, has always lacked flexibility. If the seventy percent localization target is strictly implemented, it will trigger a dramatic adjustment in procurement models of foundries. As leading wafer foundries like SMIC (688981:CH) have been required to prioritize domestic silicon wafers, the market has begun pricing in expectations of order loss for non-domestic suppliers. Although advanced logic process wafers still heavily rely on imports, the rapid substitution in mature process and traditional storage markets is adequate to alter the regional supply-demand balance in the short term.
Pressure on the Pricing Power and Market Share of International Oligopolies
From a global competition perspective, Japan’s Shin-Etsu Chemical (4063:JP) and Sumco Corporation (3436:JP) have long held more than half of the global market share due to their formidable technological barriers. The policy shift in China, as a major consumption terminal, will directly reflect in the forward revenue expectations of these international corporations. The remaining thirty percent external procurement quota means that overseas suppliers' businesses in China will shift from full competition to a stock contest for high-end nodes. If other emerging markets fail to effectively fill this demand gap, these international firms may face a marginal downturn in overall capacity utilization and pricing power in the coming quarters.
Capital Expenditures and Capacity Expansion of Domestic Suppliers
To meet the surge in internal demand, domestic silicon wafer companies are entering an intensive capital expenditure expansion phase. Xi'an ESWIN Materials Technology, while maintaining stable supply to major firms like SMIC (688981:CH), is accelerating its expansion plan to achieve a monthly production of 1.2 million pieces within the year. Concurrently, competitors such as Shanghai Silicon Industries (688126:CH), Zhonghuan Leading, and Hangzhou Lion Microelectronics are also ramping up their capacity expansions. Although this high-intensity investment in fixed assets can alleviate supply concerns in the medium term, it poses substantial challenges to the free cash flow of each company due to short-term depreciation pressures and yield improvement curves.
Overseas Supply Chains and Cross-Verification with International Firms
It is noteworthy that the expansion of domestic silicon material companies is not confined to the internal market. Xi'an ESWIN Materials Technology's wafer products have entered the verification sequence of Samsung Electronics (005930:KS) and SK Hynix (000660:KS), and have established preliminary supply connections with Micron Technology (MU:US) and United Microelectronics Corporation (2303:TW). This move indicates that under the dual drive of price advantage and capacity assurance, domestic silicon wafers are attempting to breach geopolitical boundaries and integrate into the supply chain systems of international tier-one storage and foundry giants. If related verifications are successfully passed, the cost benchmark of global semiconductor materials could undergo a new wave of downward restructuring.
