By
Kseniia Klichova
April 18th, 2024
The shares of Semiconductor Manufacturing International Corporation (SMIC) have sunk to its four-month low following reports on export restrictions from the United States.
The shares of Semiconductor Manufacturing International Corporation (SMIC), a Chinese partially state-owned publicly-listed semiconductor foundry company has sunk to its four-month low following reports of export restrictions from the United States. Per reports from Japan Times, Shanghai-listed SMIC shares (SHA: 688981) slumped as much as 7.9 percent on Monday, adding to their 25 percent loss for the month. The foremost chipmaker also slumped on its Shanghai stock exchange listing by 6.6 percent, the lowest dip recorded since it got listed back in July.
The United States sanctions on SMIC which resulted in the recorded dip in shares is based on allegations that the company is manufacturing products that present “an unacceptable risk of diversion to a military end use,” a position that has been refuted by the company. The ban on SMIC requires U.S. companies intending to supply certain products to the company to get license approval from necessary authorities before doing so.
Bernstein analysts led by Mark Li wrote in a note:
“The restriction, once implemented, will severely damage SMIC’s existing and future manufacturing capabilities, and customer trust. Without steady supply and service from the U.S., the yield and quality of SMIC’s capacity will degrade, as early as in a few months for more advanced nodes.”
The company noted that it has not received any notice of the ban and there are expectations that a formal statement that includes details of the restriction may be released by the U.S. Commerce Department Monday, Citigroup said. There will be a comment period of 30 days before the ruling takes effect, with semiconductor equipment companies and industry groups expected to push back against the restrictions, analysts including Atif Malik wrote in a note.
SMIC Shares Drop, Company May Have Similar Fate as Huawei
With the SMIC shares dip, there are agitations that the company may experience similar restrictions as much as Huawei Technologies Co. The latter company was placed under a severe trade restriction in which both U.S.-based firms, as well as foreign-based entities, require a license to supply products to the company.
The hit on these Chinese firms is an attempt by Washington to cut down on Beijing’s momentum to attain a complete tech dominance, particularly in the most crucial aspects of technology. While Huawei is battling limitations in operations due to the sanctions, SMIC may likely bear the same pains.
“As a result, we believe expansion and node advancements of SMIC and other Chinese foundries will inevitably suffer in the next three years following a potential ban,” Morningstar Equity Research, said in a note dated Sept. 18, the situation will be aggravated as “Complete localization of semiconductor equipment is unlikely in 10 years.”
While the ban hits have been coming more from the United States on Chinese technology firms, analysts believe that there will be a commensurate retaliation in due course. Independent Strategy’s Roche said:
“I think every U.S. company operating in this area in China is potentially a target, but I also think that the Chinese don’t want to damage their own economy. While the hit is likely to be more measured, I still think it will come but it probably will not be disastrous. Having said that, this is an escalator. The tensions in the cold war are going up all the time, this is another movement up and there will be others.”
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