Barclays Warns of Risks for Chip Equipment Makers in China Amid Cooling Demand

Barclays analysts flag risks for chip equipment makers in China as domestic rivals gain ground and demand trends shift. The bank expects China's wafer front-end spending to fall 5% in 2025 and 5% growth in 2026, with Western suppliers facing a declining addressable market. Local manufacturers are substituting domestic tools for imported ones, and export controls remain a key overhang. Barclays estimates that about a quarter of China's WFE market could be localised in 2025, with 10-30% restricted, leaving only 70-75% addressable for Western players.

Barclays analysts have sounded the alarm for chip equipment makers operating in China, highlighting growing risks as domestic rivals gain market share and demand trends shift. The investment bank expects China's wafer front-end (WFE) spending to decrease by 5% in 2025, followed by a 5% growth in 2026. However, the outlook for Western suppliers is less optimistic, with the addressable market for their products declining by 10-20% in 2025 and an additional 2-5% in 2026, depending on export controls [1].

Local manufacturers in China are increasingly substituting domestic tools for imported ones, with localization rising from the mid-teens in 2023 to over 20% in 2024. According to Barclays, many local semiconductor companies have announced new tools that will cover an even higher proportion of the market within 1-2 years [1]. The bank estimates that local suppliers could add more than 5 percentage points of market share annually, with strong progress in polishing and grinding tools, although areas such as lithography and process control remain dominated by foreign firms.

Lagging-edge demand is also expected to be a drag, with Barclays forecasting around a 10% year-on-year decline. Export controls remain another key overhang, with about a quarter of China's WFE market expected to be localized in 2025, and 10-30% restricted, particularly for U.S. companies [1]. This leaves only 70-75% of the market addressable for Western players, a share that Barclays expects to shrink further if restrictions widen.

Barclays points to diverging exposures across regions. U.S. companies such as Lam Research and KLA are already seeing China weigh more heavily on their results, while Applied Materials faces pressure from local competitors NAURA (SZ:002371) and AMEC (SS:688012). In Europe, Barclays sees ASML's position as more insulated in the near term, but cautions that breakthroughs by Chinese peers could emerge in the coming years [1]. The bank estimates the U.S. addressable market could be about 14% weaker in 2026 than industry forecasts, at $25 billion versus $29 billion.

In sum, Barclays argues that the headline resilience in China's WFE spending masks a more challenging picture for foreign suppliers. The bank estimates the global market for Western semicaps could fall below $100 billion in 2025 and shrink further to $90-95 billion in 2026, before any recovery depends on growth outside China [1].

References:
[1] https://www.investing.com/news/stock-market-news/barclays-flags-risks-for-chip-equipment-makers-as-china-demand-cools-4210484
[2] https://finance.yahoo.com/news/barclays-flags-risks-chip-equipment-104712769.html