China's semiconductor equipment component localization process accelerates. Bernstein: Supply bottlenecks are expected to ease within one to two quarters, bullish on leading players such as NAURA Technology Group (002371) and Advanced Micro-Fabrication Equipment Inc. China (688012).

On Wednesday, Bernstein noted in its latest research report that as China's semiconductor equipment industry expands rapidly, supply of key components from Japanese and European suppliers is becoming increasingly tight, and domestic wafer fabrication equipment (WFE) manufacturers are accelerating the adoption of domestic alternatives. The bank expects that, as local suppliers expand capacity and customer certification accelerates, the current component supply bottleneck is expected to ease within the next one to two quarters and will not have a material impact on China's semiconductor equipment shipments in 2027. Bernstein maintained "Outperform" ratings on NAURA Technology Group (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 semiconductor equipment components in China is entering its second phase, with the industry's growth logic shifting from geopolitically driven supply chain substitution to domestic 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 barriers. However, as China's wafer fabrication equipment market continued to expand, some Japanese and European suppliers failed to increase capacity in time, extending lead times for key components and putting domestic equipment manufacturers under new supply pressure. Bernstein said the current supply tightness reflects more of a capacity and customer certification issue than an insurmountable technical barrier for domestic components. In recent years, Chinese local suppliers have made significant progress in product performance, with some high-end products having passed preliminary customer certification, and the remaining challenges are mainly 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 risen 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 continued increases in the localization of the domestic semiconductor equipment supply chain. The strong growth of the global wafer fabrication equipment market also provides greater room for development for Chinese component manufacturers. Bernstein expects global wafer fabrication equipment spending to grow 26.3% year over year to $154 billion in 2026, further increase 32.6% to $204 billion in 2027, and reach $259 billion in 2028, up 27% year over year. Among this, China's wafer fabrication equipment market demand is expected to reach $57 billion, $73 billion, and $101 billion in 2026, 2027, and 2028, respectively, with a compound annual growth rate of about 26% from 2025 to 2028. The bank also expects China's wafer fabrication equipment domestic 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 subsystems and components market is worth about $55 billion annually. In the first quarter of 2026, the market grew 4.5% quarter over quarter to $15.3 billion. Driven by growing AI demand and a backlog of equipment orders, the related subsystems market is expected to achieve 22% year-over-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 the overall expansion of the equipment market but also gain additional import substitution opportunities. Once domestic components pass validation and are included in equipment bills of materials, customer stickiness is usually strong because changing 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 stage of import substitution. The report focuses on four major areas, including RF power supplies, vacuum systems, mass flow controllers (MFCs), and electrostatic chucks (ESCs). In the RF power supply sector, 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 Sichuan Injet Electric (300820) and Shenzhen CSL Vacuum Science and Technology (688785) have already made important progress in customer certification and are expected to gradually expand market share. In the vacuum systems sector, substitution progress for domestic vacuum valves is relatively fast, but vacuum gauges and vacuum pumps are still mainly dominated by overseas suppliers. The bank believes that local companies such as Kunshan Kinglai Hygienic Materials (300260), KYKY, 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 and Jiangsu Gao kai Precision Fluid 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 Suzhou Kematek, Inc. (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 relatively high levels. Bernstein believes that growth in these areas will depend more on the expansion of domestic semiconductor equipment orders rather than new import substitution space. Related companies include Shenyang Fortune Precision Equipment (688409), Sprint Precision Technologies (688605), Konfoong Materials International (300666), and Hubei Feilihua Quartz Glass (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 wafer fabs' long-term reliability validation. In addition, production line yields, a shortage of skilled technical personnel, and adaptation requirements across different equipment platforms may also limit the actual delivery capacity of some suppliers.