Shares of Chinese Chipmaker SMIC Plunge as Possibility of US Ban Looms

September 7, 2020 Updated: September 7, 2020

Shares of SMIC, China’s biggest contract chipmaker, plunged more than 20 percent on the Hong Kong Stock Exchange on Sept. 7, after the Pentagon said it was considering an export ban on the Chinese company.

Shares tumbled almost 23 percent to HK$18.24 ($2.35), wiping about HK$28 billion (about $3.6 billion) off its market value. SMIC’s shares listed on the Shanghai Stock Exchange fell about 11 percent, closing at 58.8 yuan ($8.61) per share.

On Sept. 4, Reuters reported that the Pentagon might blacklist SMIC (Semiconductor Manufacturing International Corp.), preventing U.S. companies from doing business with the chipmaker unless they obtain special government-issued licenses. Pentagon spokeswoman Sue Gough told The Washington Post on Sept. 5 in an email that actions against SMIC were being considered.

“Such an action would ensure that all exports to SMIC would undergo a more comprehensive review,” Gough said.

Semiconductor chips are used in everything from computers and cellphones to missiles and fighter jets. China still heavily relies on foreign chips for its tech manufacturing, although Beijing aims to domestically produce 70 percent of its semiconductor needs by 2025, under its industrial policy of “Made in China 2025.”

A ban on SMIC would likely affect China’s tech ambitions.

China’s Ministry of Foreign Affairs spokesperson Zhao Lijian, at a daily briefing on Sept. 7, accused the United States of “abusing its power” to impose restrictions on Chinese companies, when asked about the possible U.S. ban on SMIC.

A day earlier, China’s hawkish state-run media Global Times cited a Chinese telecom analyst who said the ban would “deal some blows to the company as well as China’s semiconductor industry.”

An export ban would affect whether SMIC could purchase key chipmaking equipment from U.S. companies such as Applied Materials, Lam Research, and KLA. The ban could also impact Chinese tech giant Huawei, one of SMIC’s customers.

Taiwan-based TSMC, the world’s leading contract chipmaker, said that it would stop shipping chips to Huawei after Sept. 14, in response to U.S. restrictions announced in May to block Huawei from obtaining chips from global firms that are made with U.S. technology.

SMIC is a state-backed semiconductor foundry headquartered in Shanghai. According to its website, two of SMIC’s biggest shareholders as of April 2018 were China’s state-run Datang Telecom Technology and the state-backed China Integrated Circuit Industry Investment Fund with about a 16 percent share and a roughly 15 percent stake, respectively.

Beijing set up the investment fund in 2014 to boost its semiconductor industry. A 2018 report by the Office of the U.S. Trade Representative, citing SMIC’s own website, said the company received $400 million from the fund in 2015.

SMIC is technologically several generations behind TSMC and has a small market share.

SMIC is the fifth-largest contract chipmaker in the world, with a market share of almost 5 percent as of the second quarter of this year, lagging TSMC’s almost 54 percent, according to data from Taiwan-based research firm Topology Research Institute.

If SMIC is blacklisted by the U.S. government, TSMC’s technological lead over SMIC would only widen further, Taiwan’s government-run Central News Agency reported, citing a local analyst.

Any export ban against SMIC would benefit both TSMC and South Korean chipmaker Samsung Electronics, Doh Hyun-woo, an analyst with South Korean securities firm NH Investment & Securities, wrote in an article published Sept. 7 on the Business Korea news portal.

Doh said that it would become “all but impossible” for SMIC to secure equipment from U.S. semiconductor equipment companies. In the long term, Doh added that Chinese semiconductor companies, including SMIC, would likely face delays in securing technology to manufacture advanced chips.

Meanwhile, TSMC is making inroads in the U.S. market; in May, it announced plans to build a $12 billion factory in Arizona. 

Follow Frank on Twitter: @HwaiDer