Semiconductor Manufacturing International Corp tumbled the most in seven weeks following a report that the Trump administration was considering adding the chip maker to a blacklist amid an escalating crackdown on Chinese technology companies.
The shares plunged 15% in Hong Kong pre-market trading, the biggest slump since 16 July. The US defence department is working with other US agencies to determine whether to take action against SMIC, which would force American suppliers to seek a special licence before shipping to the company, Reuters reported on Friday.
SMIC’s ties to the Chinese military are under scrutiny, according to the report. The company subsequently said it has no relationship with the Chinese military and that its chips and services are “solely” for civilian and commercial uses.
Chinese tech companies including Huawei Technologies have been caught in the middle of worsening tensions between the two countries, which have clashed on a multitude of issues ranging from trade to the coronavirus pandemic and a Beijing-imposed security law for Hong Kong. Sanctions against SMIC would be an additional blow to Huawei, which has already been shut out from access to US technologies and equipment.
“If implemented, this will severely undermine SMIC’s ability to advance technologies,” Bernstein analysts led by Mark Li wrote in a note. “As US equipment is indispensable for advanced semiconductor R&D and production, such a restriction, once implemented, effectively allows the US government to decide how fast, or slow, SMIC’s technology progress would be.”
Five-year plan
SMIC’s rivals including Taiwan’s United Microelectronics Corp and Vanguard International Semiconductor Corp jumped more than 9% in intraday trading in Taipei.
In response to the widening US crackdown, China is planning to provide broad support for so-called third-generation semiconductors in its next five-year plan to increase domestic self-sufficiency in chip manufacturing. These chipsets are mainly made of materials such as silicon carbide and gallium nitride and are widely used in 5G radio frequency chips, military-grade radars and electric vehicles.
“The equipment to make third-generation semiconductors has only limited exposure to US vendors. The technology is unique, but does not involve high barriers, and China is well positioned thanks to its strength as the largest manufacturer of MOCVD tools with the largest installed base worldwide,” Citigroup analyst Roland Shu wrote in a note. “However, development on first-generation semiconductors — integrated circuits on silicon substrates — are ultimately under the control of the US government, without any clear long-term alternatives.” — (c) 2020 Bloomberg LP
