Chip equipment manufacturers are facing rising challenges in China, where local competitors are gaining traction and demand patterns are beginning to shift, Barclays analysts warned.
The bank now projects a 5% decline in China’s wafer front-end (WFE) spending for 2025, followed by a 5% rebound in 2026. However, the outlook appears less favorable for Western suppliers.
“The addressable market for our coverage could decline 10-20% in 2025e and additional 2-5% in 2026e, depending on export controls,” said Barclays analysts led by Simon Coles.
Chinese firms are increasingly substituting domestic equipment for imports, with localisation rising from the mid-teens in 2023 to over 20% in 2024.
“Many local semicap companies have announced in the last year a plethora of new tools coming to market,” the analysts wrote.
“These will take time to be verified and accepted, but within 1-2 years we anticipate local semicap companies offer products that cover an even higher proportion of the market.”
Barclays estimates that local suppliers could capture more than five additional percentage points of market share per year, particularly in polishing and grinding tools, though sectors like lithography and process control remain dominated by foreign firms.
Demand for lagging-edge technologies is also expected to weaken, with Barclays forecasting roughly a 10% year-on-year decline.
Export controls continue to pose a significant risk. The report notes that around a quarter of China’s WFE market could be localized in 2025, with 10-30% restricted—affecting U.S. companies more than their European or Japanese peers.
“That leaves only 70-75% addressable for Western players, a share Barclays expects to shrink further if restrictions widen. If export controls/entity lists are expanded … addressable WFE in 2026e could decline >15% YoY – a very different outcome than what our 5% headline WFE growth forecast suggests,” the analysts said.
Regional exposure differences are evident. U.S. companies such as Lam Research and KLA are already seeing China impact results, while Applied Materials faces pressure from domestic competitors NAURA and AMEC.
In Europe, ASML’s near-term position appears more secure due to lower substitution risk in lithography, though Barclays cautions that Chinese breakthroughs could emerge in the coming years.
The bank also estimates that the U.S. addressable market could be around 14% smaller in 2026 than industry forecasts, at $25 billion versus $29 billion.
Overall, Barclays argues that headline resilience in China’s WFE spending masks a more challenging reality for foreign suppliers, estimating that the global market for Western semicaps could drop below $100 billion in 2025 and shrink further to $90-95 billion in 2026, with any recovery dependent on growth outside China.
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