Oct 06, 2020 02:59 AM

Chinese Chipmaker SMIC Confirms U.S. Export Curbs

SMIC’s Hong Kong-traded shares fell more than 5% Monday.
SMIC’s Hong Kong-traded shares fell more than 5% Monday.

Semiconductor Manufacturing International Corp. (SMIC), China’s largest computer chipmaker, was caught up in the escalating China-U.S. tech war as it was hit by U.S. trade restrictions limiting access to American suppliers.

Some SMIC suppliers received letters from the U.S. Bureau of Industry and Security (BIS) telling them that exports to the Chinese company are subject to additional export restrictions, SMIC said Sunday. The Shanghai-based company is evaluating the impact of the curbs and warned of adverse effects on its production amid supply uncertainties, it said.

SMIC’s Hong Kong-traded shares fell more than 5% Monday. The curbs threaten sales to American customers as well as to Chinese telecom giant Huawei Technologies Co. The sanctions also may hobble the company’s efforts to catch up with the technological capabilities of the world’s most advanced chipmakers.

The development makes SMIC the latest Chinese tech major to be targeted by the Trump administration amid growing tensions between the world’s two biggest economies. The U.S. government has already placed dozens of Chinese technology companies on its “Entity List” of foreign businesses subject to export restrictions.

Seen as the Chinese mainland’s most advanced contract chip manufacturer, SMIC still depends on U.S. companies and technologies. A large portion of equipment and applied materials for chip manufacturing relies heavily on U.S. supplies, a chip industry investor said.

SMIC has made preliminary exchanges with the BIS about the export restrictions and will continue to actively facilitate communications with relevant U.S. government departments, the company said.

News of curbs on SMIC began circulating last week. Bloomberg cited a BIS letter requiring American companies to apply for an export license before selling to SMIC, saying the company and its subsidiaries present “an unacceptable risk of diversion to a military end use.”

“The U.S. previously saw SMIC as a civilian enterprise but now deemed it as a military business,” an electronics industry analyst in China said. SMIC has denied it has links to China’s military.

Under the latest round of sanctions, Huawei was banned from buying semiconductors from any chipmaker in the world that uses U.S. technologies. SMIC has not joined Huawei on the entity list, meaning the restrictions are not yet as severe as those imposed on Huawei.

The military end-use rules apply only to a subset of listed U.S.-origin items. The entity-list rules apply to all items of U.S. origin and to some of foreign origin.

A U.S. semiconductor industry analyst said the current situation is not the worst scenario for SMIC compared with being blacklisted on the entity list. Nevertheless, the curbs will have a negative impact on SMIC’s business, especially on its ambition to speed development of more advanced chips, he said.

Currently, U.S. and Japanese companies dominate the chip manufacturing equipment market. In 2019, two U.S.-based companies — Applied Materials and Lam Research — were among SMIC’s top three suppliers.

Without access to U.S. technology, SMIC’s chances of challenging industry leader Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) will grow even more remote. The Taiwan-based company can mass-produce the industry’s most-advanced, 5-nanometer chips, reflecting the degree of electronic circuit miniaturization, which affects computing speed and size of components.

SMIC’s most advanced chips are at the 14-nanometer level, and the company is thought to be at least three product generations behind TSMC. SMIC previously said it planned to start mass production of 10-nanometer chips in 2021 and 7-nanometer chips in 2023. The latest sanctions may delay those plans, Taiwan-based research institute Isaiah Research said.

But the curbs’ impact on SMIC’s revenue for now is likely to be marginal as advanced chips still account for less than 10% of the company’s sales, according to its second-quarter financial report.

The restrictions will affect SMIC’s supplies to Huawei as the sanctioned telecom giant shifts to domestic manufacture for chip production. SMIC said earlier in September that it submitted an application seeking exemption from Washington’s latest sanctions to continue selling products to Huawei.

More restrictive curbs on SMIC may also affect the company’s U.S. customers, which contributed 21.6% of SMIC’s second-quarter revenue, analysts said. U.S.-based Qualcomm Technology Inc. is among SMIC’s major American clients.

In July, SMIC raised more than 45 billion yuan ($6.5 billion) in a high-profile Shanghai IPO, which came just two months after it raised $2.2 billion from two state-owned funds. The company said it would scale up its procurement expenditures and ramp up chip production.

Mo Yelin contributed to this story.

Contact reporter Han Wei ( and editor Bob Simison (

Download our app to receive breaking news alerts and read the news on the go.

You've accessed an article available only to subscribers
Share this article
Open WeChat and scan the QR code