SMIC shares plunge after U.S. announces new export restrictions

Business & Technology

The U.S. has slapped new limits on exports to China’s biggest chipmaker, citing the danger of military use of the company’s products.

semiconductors china squeezed
Illustration by Derek Zheng

Last week Friday, the U.S. Department of Commerce put export restrictions on Semiconductor Manufacturing International Corporation (SMIC), citing an “unacceptable risk” of “military end use,” according to a copy of a letter seen by the Financial Times, Reuters and the Wall Street Journal. The company is China’s largest manufacturer of microchips.

It’s not clear which American companies received the letter, but Reuters notes that “U.S. companies including Lam Research, KLA Corp, and Applied Materials which supply chipmaking equipment, may now need to get licenses to ship certain goods to SMIC.”

  • SMIC itself says it has not been officially notified. The statement also says the company “has no relationship with the Chinese military and does not manufacture for any military end-users or end-uses.”
  • SMIC’s shares on both the Hong Kong Stock Exchange and on the Shanghai Star Market fell about 7%.
  • The move will affect Huawei, SMIC’s biggest client. Other companies that buy SMIC’s chips include “lesser-known Chinese chip designers including Gigadevice and Unisoc, as well as international companies including Qualcomm and Broadcom,” per the BBC.

Is this a death blow for SMIC?

The FT quotes Paul Triolo, head of tech policy analysis at consultancy Eurasia Group: “It all depends on how the U.S. implements this. In the worst-case scenario, SMIC is completely cut off, which would severely set back China’s ability to produce chips. This would be a tipping point for U.S.-China relations,” he said.

  • A SMIC engineer also told the FT that industry insiders were “pessimistic” and feeling “very helpless.”
  • The nationalist tabloid Global Times said that China needs to prepare for a “new long march” in order to “control all research and production chains” of its domestic semiconductor industry, but that the difficulties in achieving this should not be underestimated.

Related, on SupChina: Huawei is now cut off from advanced semiconductors. What happens next?