China’s biggest contract chipmaker SMIC saw its shares plunge by more than 4.5 percent on the Hong Kong Stock Exchange (HKSE) on Oct. 5, one day after the company acknowledged that it was now facing U.S. export restrictions.
Shares of Semiconductor Manufacturing International Corp. took a nosedive immediately after the HKSE opened on Monday, dropping more than 6 percent to reach HK$16.88 ($2.18) about an hour after trading started. The shares eventually clawed back to close at HK$17.28 ($2.23) at the end of trading day.
The Shanghai Stock Exchange, where SMIC’s shares are also traded, was closed on Monday due to China’s eight-day-long National Day holiday.
SMIC explained that it learned it was being blacklisted after holding talks with its U.S. suppliers. The Chinese chipmaker added it was evaluating the impact of the export restrictions, adding that they could have “adverse effects” on its future production and operations.
At the time, SMIC said it had not received any official notice of export restrictions.
The commerce department did not immediately respond to a request for comment on current discussions with SMIC.
In 2017, Beijing established a government agency called the Central Commission for the Development of Military-Civil Fusion to oversee cooperation between the military and private industry to advance technology innovations.
China’s efforts to leverage this cooperation has been targeted by the Trump administration.
China’s hawkish state-run media Global Times, in an article published after SMIC’s statement, estimated that SMIC had enough inventory to sustain its production for six months, citing a local technology expert named Xiang Ligang.
Xiang said that SMIC’s client, Chinese tech giant Huawei, could also be affected by the export restrictions, as Huawei is SMIC’s biggest client.
Citing unnamed analysts, the Global Times accused the Trump administration of using the sanctions against SMIC as “a desperate move” to “score political points ahead of the November election.”
The U.S. export restrictions perhaps did not come as a surprise to the Chinese chipmaker.
Implications
The U.S. export restrictions potentially have far-reaching consequences for SMIC, its suppliers, and its clients.Beijing announced through its industrial policy of “Made in China 2025” that it seeks to domestically produce 70 percent of its semiconductor needs by 2025. However, China is currently heavily dependent on foreign semiconductor chips, which are used in everything from computers and cellphones to missiles and fighter jets.
TrendForce predicted that the U.S. sanctions could force SMIC to slow down its production expansion plans for its mature chipmaking technologies (28 nanometers and above), and research and development for advanced chipmaking technologies (14 nanometers and below).
As chips reduce in size on the nanometer scale, they become more powerful and advanced.
TrendForce also predicted that U.S.-based suppliers of chipmaking equipment, such as Applied Materials, Lam Research, and KLA, would “bear the brunt of the impact”—as the machines contain U.S.-originated components and thus, would be subject to the sanctions.
Meanwhile, SMIC would not be able to find Chinese alternatives.
“Within the next five to ten years, semiconductor equipment suppliers in China are highly unlikely to be able to provide semiconductor equipment covering all aspects of the manufacturing process,” TrendForce stated.
There are also other imminent troubles for SMIC. TrendForce said that SMIC’s non-Chinese clients—such as South Korea-based Samsung and Taiwan-based UMC, Vanguard, and TSMC—might move their orders elsewhere, anticipating that SMIC would not be able to obtain the necessary equipment or materials to produce, and thus be unable to fulfill their orders.
TrendForce said that Apple, which has been sourcing memory chips from Chinese memory designer GigaDevice for its wireless headphones AirPods, might need to direct its memory orders to Taiwan-based companies such as Winbond and Macronix, since GigaDevice has relied on SMIC to make the chips.
The export restrictions would “have less of an impact” for SMIC in terms of obtaining silicon wafers, which are the base that chips are built on, and other raw chemicals for semiconductors, said TrendForce based on its analysis, since these items are mostly supplied by Japanese and European companies.
The report noted that Shanghai-based Will Semiconductor could potentially transfer some of its orders for making CMOS Image Sensor (CIS) chips from SMIC to TSMC. CIS chips are used in digital cameras to convert light into a digital image.