Down 7percent! SMIC faces the impact of us export control measures

 Down 7percent! SMIC faces the impact of us export control measures

Photo source: company announcement

As of press release, the official website of the U.S. Department of commerce did not disclose the above restriction information.

Source: wind

SMIC: assessing impact

SMIC said it was assessing the impact of the export restrictions on its production and operations. Due to the delay or uncertainty in the supply of some equipment, accessories and raw materials exported from the United States, it may have an important adverse impact on the companys future production and operation.

It is understood that the integrated circuit wafer foundry industry has high requirements for raw materials and equipment, and the number of qualified suppliers of some important raw materials and core equipment in the world is small, and most of them come from outside China, especially the United States.

For example, integrated circuit manufacturing four big pieces. In terms of lithography, ASML, a Dutch manufacturer, has a global market share of over 70%. In terms of etching machine, pan forest group, Tokyo electronics, applied materials and other international enterprises occupy the main global market share. In terms of film deposition equipment, PVD field is mainly monopolized by applied materials, evatec and avatech, of which application materials account for about 85%; global main suppliers of CVD field are applied materials, Tokyo electronics and Fanlin group, of which application materials account for about 30%. In the field of IC ion implanter, applied materials and Axcelis have gained most of the global market share, of which application materials account for more than 50% of the market share.

Equipment value accounts for more than 75% of the total investment in a production line to manufacture advanced semiconductor products. Therefore, affected by export control, SMICs international mature process capacity expansion plan and SMIC Southern phase II, which undertakes advanced process business, may be hindered. According to the announcement, SMIC and the Management Committee of Beijing Development Zone jointly signed and signed the cooperation framework agreement on July 31. The two sides will establish a joint venture to engage in development and operation, focusing on the production of 28nm and above integrated circuit projects. The first phase of the project is planned to invest 7.6 billion US dollars, about 53.1 billion yuan.

It should be emphasized that SMIC is not directly included in the entity list, but export control. If you enter the list of entities, it means that you can no longer trade with US companies, while export control leaves the possibility of continuing transactions.

According to xinmou research, if it is included in the export control, the US supplier should apply for a special license in accordance with ear744.21 (b) of the US export control regulations when supplying to SMIC.

It is worth mentioning that in early September, in response to the issue of SMIC being sanctioned by the US, foreign ministry spokesman Zhao Lijian said that China has repeatedly expressed its solemn position on the issue of the US sides groundless suppression of Chinese enterprises. For some time, the United States, without any concrete evidence, has generalized the concept of national security, abused state power, and adopted various restrictive measures against Chinese enterprises. This is a naked act of hegemony. China firmly opposes this.

Multiple measures to deal with potential impact

Will US sanctions bring SMIC into a desperate situation or even stop? The answer is clearly no, according to the study. If the United States sanctions SMIC, SMICs business will be greatly affected, but SMIC will not be suspended. First of all, SMIC has been in operation for 20 years, with complete sets of equipment, mature processes, various technologies and diversified suppliers with a production capacity of several hundred thousand pieces per month.

Secondly, after the Huawei incident, SMIC has strengthened its bottom line thinking and made two-hand preparations for upstream and downstream industrial chains including equipment, spare parts, raw materials and international customers. For example, the reserve of raw materials is sufficient; the proportion of North American customers revenue is greatly reduced, and the proportion of domestic customers revenue is increased; the scientific and technological innovation board is listed, with more than 100 billion yuan of cash, which provides comprehensive logistics support for the winter and protracted war.

SMIC International announced on March 23 that the company signed an equipment purchase agreement with Fanlin group, with a total purchase price of 397 million US dollars. According to the announcement on March 2, SMIC and applied materials have reached an equipment procurement agreement with a total purchase price of 543 million US dollars. It is worth mentioning that after SMICs first quarter report announced that it would increase the planned capital expenditure of this year from about US $3.2 billion disclosed in the annual report of 2019 to about US $4.3 billion, the companys second quarterly report raised the capital expenditure plan again, from about $4.3 billion to about $6.7 billion. The increased capital expenditure is mainly for the expansion of machinery and equipment.

According to the financial report, SMICs revenue from mainland China and Hong Kong accounted for 66.1% in the second quarter, up 4.5% month on month; the revenue from companies headquartered in the United States accounted for 21.6%, down 3.9% month on month.

Benefited from the recovery of industrial chain, SMIC International Performance soared. According to international financial reporting standards, in the first half of the year, the companys operating revenue was about 1.843 billion US dollars, a record high, with a year-on-year increase of 26.3%; the net profit attributable to the parent company also reached a record high of US $202 million, with a year-on-year increase of 556.0%. Looking forward to the whole year, SMICs goal is to achieve double-digit revenue growth of 15% to 19%.

Self control is imperative

From another point of view, the sanctions imposed on SMIC will undoubtedly accelerate the process of independent control, and domestic semiconductor equipment and material manufacturers are expected to get more opportunities to enter SMIC international production line verification. However, both the public and the market should be aware that it is difficult to get rid of the dependence on overseas manufacturers in a short period of time due to the influence of multiple factors, such as late start, patent barrier and insufficient attention in the past. Although domestic equipment has been developed that can be partially replaced, some key parts used by some equipment manufacturers still rely on foreign suppliers.

At the second quarter conference call, Zhao Haijun, the joint chief executive of SMIC, said that local manufacturers of equipment, accessories and materials in China have been striving to develop, but the scale is still relatively small. Im glad to see that all the major companies have been listed on the stock market. They have got a lot of financial support and are also doing research and development. SMIC is optimistic about the future. They can build this integrated circuit system through close integration with customers and development, but it takes time and requires us to make a lot of innovation in R & D. What SMIC is doing now is to innovate with the industry. We will try to use domestic products, but SMIC is an international company. We dont have much tendency. We must only use Zhang San instead of Li Si. We just want to develop healthily in this industry. Industry followers can not replace the leaders in one day. We welcome foreign leading enterprises to set up factories and establish supply chains in local areas. This is an opportunity for all of us.

At present, China has a layout in major semiconductor equipment fields, such as photolithography, etching machine, film deposition equipment, ion implantation equipment, heat treatment equipment, cleaning machine, polishing machine and other major semiconductor equipment fields in China. The manufacturers include Shanghai microelectronics, North Huachuang, Shenyang tuojing (a joint venture of Zhongwei company), kaishitong (holding subsidiary of Wanye enterprise), Zhongkexin (a unit of electrical equipment), and Shanghai Shengmei semiconductor, Huahai Qingke, etc.

SMIC responds to us export restrictions