US regulators have told American suppliers of Semiconductor Manufacturing International Corporation (SMIC), China’s largest semiconductor foundry, that they will have to apply for export licenses—a hamper to SMIC’s ambitions to play industrial catchup with Taiwan Semiconductor Manufacturing Company (TSMC), Reuters reported on Saturday.
SMIC’s (SSE:688981; HKSE: 00981) stock plunged by 3.88% to HKD 17.86 (USD 2.30) at the close in Hong Kong, while the Shanghai-listed shares dived 7% to RMB 49.94 (USD 7.31)—the lowest price since its listing in July.
According to a report by the Wall Street Journal, the US Commerce Department said that SMIC may pose an unacceptable risk of diversion to military end-use in the People’s Republic of China. Suppliers must therefore submit an application for an individually-validated license prior to exporting, reexporting, or in-country transfer of certain sensitive technologies.
SMIC on Tuesday clarified in a filing made with the Shanghai Stock Exchange (SSE) that “as of now, we haven’t got any official notice regarding this matter.” It also stresses that SMIC only provides products and services for civilian and commercial use and that it has no ties with the Chinese military.
Earlier this month, Reuters reported that the Trump administration was considering adding the chip manufacturer to the “Entity List” due to its purported links with the Chinese military. The reported tightening rules, part of the ongoing tech battle between the world’s two largest economies, will likely affect companies such as equipment provider KLA, semiconductor firm Lam Research and Applied Materials.
SMIC went public via a dual listing on the New York Stock Exchange (NYSE) and Hong Kong’s stock exchange in 2004 but delisted from the NYSE in 2019 due to the limited trading volume in the US market and the significant administrative burden and costs of maintaining a listing in New York. It said the decision had nothing to do with the China-US trade war and was not related to Huawei being blacklisted by the US Department of Commerce.
National champion
China’s national semiconductor champion listed on SSE’s high-tech Star market in July. Its shares began trading at RMB 95 (USD 13.93), up 246% from the IPO price of RMB 27.46. SMIC raised USD 7.6 billion ahead of the listing, making it the biggest domestic IPO in a decade. The strong debut of SMIC was considered as a signal for the importance of the homegrown firm to China’s goal of fostering a self-sufficient chipmaking industry.
In the second quarter of 2020, SMIC’s sales increased by 18.7% year-on-year (YoY) and 3.7% quarter-on-quarter to USD 938.5 million, while gross profits rose by 64.5% YoY to USD 248.6 million. China has set a goal of producing 70% of the semiconductors it uses by 2025, but so far the country is not a world-leading player in the advanced technology industry. A July 2 Goldman Sachs report predicted that SMIC would move from 14-nanometer (nm) to 12-nm chips during 2020, but would not be able to mass-produce a 7-nm chip before 2023, or a 5-nm chip by 2025.
By comparison, TSMC plans to produce 5-nm chips in late 2020. Additionally, it also announced that it plans to reach volume production for the 3-nm chip in late 2022 and set up R&D facilities for a 2-nm node.