China Accelerates Chip Equipment Localization as Five Major Japanese Suppliers See Combined 12% Drop in China Revenue
Claire Weston
Five major Japanese semiconductor-equipment makers saw combined China revenue fall to ¥1.47 trillion (~$9.1 billion), down roughly 12% year-on-year — their first-ever collective decline — as China's front-end equipment localization rate doubled in four years.
How much did the five Japanese suppliers lose in China?
Tokyo Electron, Advantest, SCREEN, Disco, and Kokusai Electric posted combined China revenue of roughly ¥1.47 trillion (~$9.1 billion) for the fiscal year ending March 2026, down about 12% from ¥1.66 trillion the prior year.
This is the group's first-ever year-on-year decline. This means → China has flipped from growth engine to drag — the inflection point is confirmed.
Dutch lithography giant ASML's China revenue share also fell from 27% to 19% over the same period. The retreat is industry-wide, not company-specific.
Who took the hardest hit, and who still grew?
Front-end equipment makers — those supplying wafer-processing tools — were hit hardest: Tokyo Electron, SCREEN, and Kokusai Electric saw combined China sales drop nearly 20% year-on-year.
Tokyo Electron's China revenue share fell from a 50% peak in Q2 2024 to 27% in Q1 2026 — a 7-percentage-point slide in one year. In plain terms = half its revenue once came from China; now barely a quarter does.
Back-end suppliers told a different story: Advantest's China revenue rose roughly 20%, and Disco posted modest growth. This reflects ongoing expansion of packaging and testing capacity at Chinese fabs — back-end localization hasn't caught up yet.
How far has China's equipment localization actually come?
According to MIR, China's front-end equipment localization rate — the share of wafer-fab tools sourced domestically, by value — rose from 10% in 2021 to 21% in 2025. It doubled in four years.
Back-end packaging-equipment localization is even higher, climbing from 19% to 36% over the same period.
NAURA and AMEC are the main domestic champions. Huawei has gone further, embedding engineers at NAURA and Shenzhen Sizhuo to help develop equipment for its AI-chip programs. This means → localization isn't just "buy domestic" — China's chip designers are now directly helping equipment makers close the capability gap.
Lithography — where is the biggest gap?
Advanced lithography remains China's critical bottleneck. An EUV lithography system — a machine that uses extreme-ultraviolet light to etch the finest chip circuitry — involves more than 100,000 components from over 5,000 suppliers.
Executives from NAURA, YMTC, and Empyrean called on Beijing during the 2026 Two Sessions to concentrate resources and develop a usable domestic lithography system between 2026 and 2030, framing EUV capability as "an urgent policy priority."
China has made component-level progress in EUV laser sources, wafer stages, and optical systems, but integrating them into a working machine remains a major challenge. In plain terms = some parts work individually; assembling a complete tool is a different problem entirely.
ASML's position — has any EUV equipment reached China?
ASML stated explicitly: it has never shipped any EUV lithography system to China, nor exported any component or module designed specifically for EUV systems.
Bloomberg previously reported that U.S. Commerce Secretary Howard Lutnick raised the issue with ASML executives, asking whether the company's most advanced equipment had been diverted to China.
This reflects how EUV controls have escalated from a technology competition to a diplomatic-level issue — whether tools were sold and whether parts leaked are now political questions.
Can foreign equipment makers hold their ground?
KPMG FAS partner Jun Okamoto assessed that Chinese domestic equipment makers are growing rapidly, and the erosion of foreign market share will most likely continue.
Tokyo Electron president Toshiki Kawai emphasized the company's edge in safety, environmental performance, and production efficiency; SCREEN argued it can still grow as China ramps high-performance chip capacity.
This means → foreign suppliers are shifting from a "sell volume" strategy to "defend high-end differentiation." Whether that defense holds is one of the most important variables to watch in semiconductors over the next several years.
Content is for reference only, not financial advice.