UBS: Closer look at China's capex - SMIC

Capex spend by SMIC's foundry fabs likely favors Applied Materials the most

We have been monitoring SMIC's monthly purchases of semicap equipment in our proprietary China fab tracker as Applied has likely benefitted the most given its long-standing relationship. SMIC has been one of the most consistent spenders in China as it operates three 300mm fabs. We estimate SMIC spent $1.4B on wafer fab equipment last year versus its prior average of $400M/yr. Our analysis shows that SMIC is actually purchasing much more deposition, implant and litho tools and slightly less etch and inspection tools than we expected. We believe SMIC's recent capex spending could be a good proxy for future capex spend by upcoming incumbent foundry fab build-outs including TSMC and GlobalFoundries (GF) the next 2-3 years.

Estimate SMIC's foundry capex has favored deposition, implant and litho

Our detailed look at our China fab tracker finds that SMIC's total spend the past 4+ years on chemical vapour deposition (CVD) tools has been averaging about 19% of its total wafer fab equipment spend. This is much higher than the industry average spend on CVD tools which has been 12%. Our analysis also shows SMIC's total spend on ion implanters has been averaging about 10% of its total. This is also higher than the average spend on implanters by the industry at 3% of the total. We believe Applied is likely SMIC's primary supplier of deposition tools and ion implanters.

SMIC's capex spend on etch & inspection tools was not as high as we thought

Our analysis of SMIC's spending on etch equipment the past 4+ years shows it was 14% of its total spend on all wafer fab equipment. This is slightly below the industry average for etch at 16%. We expect Lam is one of the suppliers to SMIC. Our analysis also shows SMIC's purchases of inspection tools the past 4+ years were only 11% of its total spend on WFE. This is also slightly below the industry average for inspection tools at 12%. We believe KLA is likely a big supplier to SMIC. 

Incumbent foundry fabs from TSMC & GlobalFoundries may favor AMAT & KLA

TSMC plans to invest $3B in its fab in Nanjing with capacity of 20k wafers per month for the 16nm technology node. This fab targeted mass production in 2H18 as construction started in Jul-16. GF announced plans to invest up to $9B in its Chengdu fab for 22nm chips in 2019. GF started construction of its China fab in Feb-17.

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