China’s biggest chip maker set for massive IPO

Business & Technology

China’s largest silicon chip maker, SMIC, is essential to China’s quest to become technologically independent from the U.S. It is set to raise an eye-popping sum of money with a new listing on Shanghai’s Star Market on July 16.

workers wearing dust-protective gowns in a clean room in beijing for semiconductor manufacturer smic
SMIC employees dressed in dust-proof clothing work at a Beijing chip plant of SMIC. Reuters/Oriental Image.

In possibly the world’s biggest listing of 2020, on Thursday, China’s largest chip maker, SMIC, is set to open on Shanghai’s Star Market with a 46.3 billion yuan ($6.6 billion) share sale. This valuation is 109 times its 2019 earnings.

Semiconductor Manufacturing International Corporation (SMIC) is already listed in Hong Kong, where its share price has tripled since March.

SMIC’s high valuation might seem surprising given its 7% sales slump in 2019 and the United States’ ban on manufacturers who supply chips to Huawei from buying American parts. SMIC currently relies on intellectual property and equipment from many American companies.

However, these sanctions also increase the urgency of China’s need to become more self-sufficient in the production of semiconductors, which are essential pieces of smartphones and laptops. SMIC presents China with its best hope of developing these chips domestically, and can expect to see strong backing from the Chinese government going forward. SMIC’s second-biggest shareholder is the state-owned China Integrated Circuit Industry Investor Fund.

Currently, the chip manufacturing market is dominated by Taiwan Semiconductor Manufacturing Co (TSMC). It is unlikely SMIC will be able to catch up with TSMC in the near future. Even if SMIC’s spending doubles this year, it will still be only a third of what TSMC forecasts to spend.

SMIC plans to spend 40% of the proceeds from the new share sales on building a plant that can produce chips with 14 and 7 nanometer technology. Being able to produce 7 nm chips would make it capable of taking orders from tech giants like Huawei. However, some industry experts say it is unlikely SMIC will be able to produce 7 nm chips without the support of American suppliers.