On Wednesday, Bernstein stated in its latest research report that as China's semiconductor equipment industry expands rapidly, the supply of key components from Japanese and European suppliers is becoming increasingly tight, and domestic wafer fab equipment (WFE) manufacturers are accelerating the adoption of domestic substitute products.
The firm expects that with local suppliers expanding capacity and accelerating customer certification, the current component supply bottleneck is expected to ease within the next one to two quarters and will not have a substantial impact on China's semiconductor equipment shipments in 2027.
Bernstein maintained its "outperform" rating on Naura Technology Group Co.,Ltd. (002371), Advanced Micro-Fabrication Equipment Inc. China (688012), and Piotech Inc. (688072), with target prices of RMB 1,380, RMB 660, and RMB 1,200 respectively.
Bernstein believes that the localization of China's semiconductor equipment components is entering its second phase, and the industry's growth logic has shifted from geopolitically driven supply chain substitution to local procurement driven by supply shortages.
The report noted that first-phase localization was mainly driven by U.S. export controls and supply chain security needs. Chinese equipment manufacturers gradually reduced their dependence on U.S. supply chains by bringing in Japanese and European suppliers and adopting domestic components with relatively lower technical thresholds.
However, as China's wafer fab equipment market continues to expand, some Japanese and European suppliers have failed to increase capacity in time, extending lead times for key components and putting new supply pressure on domestic equipment manufacturers.
Bernstein said the current supply tightness reflects capacity and customer certification progress issues rather than insurmountable technical barriers for domestic components. In recent years, Chinese local suppliers have made significant progress in product performance, and some high-end products have passed preliminary customer certification. The remaining challenges mainly lie in long-term reliability, mass production consistency, and capacity expansion.
Taking Advanced Micro-Fabrication Equipment Inc. China as an example, the proportion of its suppliers from mainland China has increased from 72% in 2022 to 87% in 2025, while the proportion of European and U.S. suppliers fell from 6% to 3% over the same period, indicating that the localization of the domestic semiconductor equipment supply chain continues to deepen.
The strong growth of the global wafer fab equipment market also provides greater development space for Chinese component manufacturers. Bernstein expects global wafer fab equipment spending to grow 26.3% year on year to US$154 billion in 2026, further increase 32.6% to US$204 billion in 2027, and reach US$259 billion in 2028, up 27% year on year.
Among this, China's wafer fab equipment market demand is expected to reach US$57 billion, US$73 billion, and US$101 billion in 2026, 2027, and 2028 respectively, with a compound annual growth rate of about 26% from 2025 to 2028.
The firm also expects China's wafer fab equipment self-sufficiency rate to rise from 23% in 2025 to 28% in 2026, and reach 37% and 52% in 2027 and 2028 respectively.
According to market research firm Yole, the global semiconductor equipment subsystem and components market is worth about US$55 billion annually. In the first quarter of 2026, the market grew 4.5% quarter on quarter to US$15.3 billion. Driven by growing AI demand and backlogged equipment orders, the related subsystem market is expected to achieve 22% year-on-year growth in 2026.
Bernstein pointed out that as domestic equipment manufacturers accelerate the adoption of local components, domestic suppliers can not only benefit from overall equipment market expansion but also gain additional import substitution opportunities. Once domestic components pass verification and are included in equipment bills of materials, customer stickiness is usually strong because switching suppliers requires re-certification.
From the perspective of specific sectors, Bernstein believes that key components with low localization rates and high technical barriers will become the main investment opportunities for the next phase of import substitution. The report focuses on four major areas, including RF power supplies, vacuum systems, mass flow controllers (MFC), and electrostatic chucks (ESC).
In the RF power supply field, the global market has long been dominated by U.S., Japanese, and European companies. Bernstein noted that RF power supplies have high product added value and customer stickiness, and domestic manufacturers Yingjie Electric (300820) and Hengyunchang (688785) have made important progress in customer certification and are expected to gradually expand market share.
In the vacuum systems field, substitution progress for domestic vacuum valves has been relatively fast, but vacuum gauges and vacuum pumps are still mainly occupied by overseas suppliers. The firm believes that local companies such as Kingsemi (300260), Zhongke Keyi, and Kunpeng Technology are expected to benefit from the domestic substitution trend.
The mass flow controller market is still mainly dominated by Japanese suppliers, while Naura Technology Group Co.,Ltd. and Gaokai Technology (688835) are accelerating product certification.
In electrostatic chucks, Japanese companies maintain a leading advantage through advanced ceramic materials, thermal management, and process integration technologies, but domestic manufacturers such as Kema Technology (301611) are gradually making breakthroughs.
By contrast, localization rates for quartz components, ceramic structural parts, precision metal machined parts, and some consumables are already at a relatively high level. Bernstein believes growth in these areas will depend more on the expansion of domestic semiconductor equipment orders rather than new import substitution space. Related companies include Fortune Precision (688409), Xianfeng Jingke (688605), Jiangfeng Electronics (300666), and Feilihua (300395), among others.
However, Bernstein cautioned that the localization process still faces certain challenges. For key components that directly affect the stability and yield of semiconductor manufacturing processes, such as RF power supplies and electrostatic chucks, even if domestic products have reached technical specifications, they still need to pass long-term reliability verification by wafer fabs.
In addition, production line yield, a shortage of skilled technical personnel, and adaptation requirements across different equipment platforms may also limit the actual delivery capacity of some suppliers.
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