The Real Cost of Sanctions? Sales Drop 9.5% for China Equipment But Surge 33.9% for Local Vendors

After 23 Quarters of Sanctions, Sales of China’s Semiconductor Equipment Industry Are Accelerating—While the Non-Chinese AreLosing Market Share

It has now been 23 quarters—nearly six full years—since the U.S. government first imposed sanctions on Huawei. Since then, a wave of escalating controls has targeted China’s access to advanced semiconductor technology, including U.S., Japanese, and Dutch wafer front end (WFE). But the latest data from Q1 2025 shows that the effects are not what many policymakers expected.

Chinese semiconductor equipment vendors are growing faster than ever. Meanwhile, their foreign competitors—long dominant in the Chinese market—are seeing double-digit-percentage sales declines. What’s more, the steep drop in revenue from China is now dragging down global performance of equipment manufacturers.

In a June 5 interview with The New York Times, ASML CEO Christophe Fouquet called out the consequences of current U.S. policy: “The people you try to stop will work harder to succeed,” he said. Fouquet warned that Washington’s export bans have not only encouraged Chinese domestic development—they’ve also introduced economic instability, cost uncertainty, and slowed innovation globally. “These trade measures,” he added, “may delay AI progress for years.”

That claim is now backed by hard numbers. For those who want to track these market developments to learn what stocks to own, consider subscribing to our Gilder’s Technology Report investment newsletter. According to Chart 1, the performance gap between Chinese and foreign equipment vendors was already stark in calendar year 2024. Chinese firms averaged 36.7% year-over-year growth, with all six major players comfortably above 14%. Most grew above 35%. The same period saw non-Chinese firms average just 11.9% growth, and some, like ASML, experienced outright declines. The implication here isn’t simply that Chinese companies grew—it’s that they captured share. In the middle of a globally softening equipment cycle, China’s procurement continued—but increasingly favored its own national champions. That growth wasn’t random. It aligned with state-driven policies to accelerate tool independence and replace U.S. and allied suppliers wherever possible.

Chart 1: WFE Semiconductor Equipment YoY Revenue Change – 2024 versus 2023

According to Chart 2, the trend intensified in Q1 2025. Chinese vendors collectively grew 33.9% year-over-year, while non-Chinese vendors declined by 5.3%. But even more revealing is which foreign companies declined and which did not. ASML saw a 20.4% drop. Screen fell 12.8%. Tokyo Electron slipped 1.6%. These are not random fluctuations. They represent the exact group of firms impacted by Dutch and Japanese export controls that went into effect in late 2023. Meanwhile, companies like ASML and Lam Research—whose core product portfolios face fewer export restrictions—saw modest gains. The distinction shows that the YoY losses are driven by access restrictions and procurement bans, not macro demand collapse. Chinese fabs are still buying—and where export policy allows, foreign suppliers are still shipping. But the sanctioned vendors are no longer competing on a level playing field.

Chart 2: WFE Semiconductor Equipment YoY Revenue Change – Q1 2025 versus Q1 2024

According to Table 1, the geographic consequences of sanctions and procurement substitution are now visible in vendor revenue splits. ASML earned 49% of its revenue from China in Q2 2024. That figure has now stabilized at just 27%. The drop isn’t due to weak end-demand—China’s imports remain robust—but rather to policy restrictions and buying shifts. TEL dropped from 50% to 35% China exposure. KLA dropped from 43% to 26%. These are not minor reallocations—they are structural shifts in business mix. What’s even more telling is that over three consecutive quarters, the share of revenue non-Chinese firms derive from China has declined, quarter by quarter. The 45% China exposure in Q2 2024 is now just 34%. This shows a slow-motion decoupling: not a collapse in demand, but a redirection of orders.

According to Table 2, the sequential drop in China revenue is both sharper and more revealing than the total global slowdown. While total semiconductor equipment revenue for these companies dropped 6.3% from Q4 to Q1, China revenue dropped 9.5%. That gap confirms China was the epicenter of the slowdown. But there’s another layer: the global drop is softened by other regions growing. For example, Lam Research and LRCX grew overall in Q1, despite drops in China. This shows that their problems are not with industry demand, but with geographic access. It also reinforces the risk concentration: the slowdown is localized to China, and is directly connected to sanctions and domestic substitution—not to weakening global fundamentals.

Is this Just Macro Weakness—or is it Sanctions?

Yes, China’s broader economy is under stress. GDP missed the official target. Property developers are defaulting. Consumer confidence remains weak. U.S. and E.U. tariffs are hitting exports. But if macro were the core reason for falling WFE revenue, Chinese toolmakers wouldn’t be posting 30%–50% growth. The fact that they are proves that capital investment in semiconductors is still being made. It’s simply not going to the usual suppliers.

The real signal here is not a demand drop—it’s a supplier switch.

Conclusion: The Global Slowdown is Real—but it’s not Global

Q1 2025 confirms what the YoY and QoQ data are both showing: the weakness in global semiconductor equipment revenue is disproportionately coming from China—and even within China, it is disproportionately falling on non-Chinese vendors. Meanwhile, domestic Chinese suppliers are growing aggressively. This is not a cyclical demand issue. It is the result of sanctions, licensing blocks, and a coordinated national effort to eliminate dependency on foreign tools.

The longer this divergence continues, the more irreversible it becomes. For foreign World Federation of Exchanges (WFE) companies, the risk is no longer just lost sales—it is permanent loss of market access. For investors, the takeaway is simple: growth is shifting, and the winners may no longer be in Tokyo or San Jose—but in Beijing and Shanghai.