Chinese telecoms giant ZTE clarifies that it only designs chips, does not make them, after share price spikes

The clarification from Shenzhen-based ZTE came at a time when China is doubling down on efforts to build up its chipmaking capability.

Chinese telecommunication giant ZTE has clarified that it does not have internal chipmaking capability and instead focuses on the design of telecoms chips after its shares rallied last week on media reports that it possessed mass production capability for advanced 7-nanometre chipmaking.

“In terms of chipmaking, we rely on global partners for the manufacturing of our chips,” ZTE said in a statement on its official WeChat account on Saturday, adding that the interpretation of “self-media outlets” that it had 7-nm capacity was incorrect.

The clarification from Shenzhen-based ZTE came at a time when China is doubling down on efforts to build up its chipmaking ability, including huge state-backed investments in local chip companies, in a bid to reduce its dependence on American technologies.

The urgency came after the US introduced a new export rule last month that effectively bans ZTE rival Huawei Technologies from using silicon foundries like Taiwan Semiconductor Manufacturing Co (TSMC) to make its chips. The rule requires any foreign chip maker that uses US technology to apply for a license to ship semiconductors to Huawei. It takes effect in September after a 120-day grace period to reduce disruptions to the global chipmaking supply chain

Huawei was using the 7nm process at TSMC to pack 6.9 billion transistors on its Kirin 980 smartphone chip, delivering 20% improved performance and 40% greater power efficiency than the previous generation.

ZTE said on Wednesday, in a response to investor inquiries, that it has “chip design and development capabilities”, adding that the mass production of 7nm chips has been commercialized in the global deployment of 5G wireless networks and its 5nm chips, a more advanced process, were being “imported”.

That prompted some internet-based media outlets, including Sina and Sohu, to publish reports that could have been interpreted as saying ZTE had such capability inhouse, sending its Hong Kong listed shares soaring by 22% on Thursday.

ZTE did not immediately respond to a request for comment on Monday. Its Hong Kong-listed shares were down 5.36% to HKD 25.6 (USD 3.3) during morning trading on Monday.

In 2018, the Trump administration slapped a ban on US companies selling goods to ZTE after it determined the Chinese telecoms maker made false statements about disciplining 35 employees tied to violations of US sanctions on Iran.

The ban was lifted in 2018 after the company paid a USD 1 billion penalty to the US Treasury and put another USD 400 million in escrow. However, the incident proved a wake up call to the Chinese government, prompting calls from Chinese president Xi Jinping for the country to become self reliant in semiconductors.

This article was originally published by the South China Morning Post.