Chip maker warns on negative impact from US export controls

Semiconductor International Manufacturing Corp (SMIC) said it is assessing in more detail the impact from the latest US export control measures on its operations, after China’s top foundry reported flat revenue in the third quarter.

SMIC, which is already on a US export control list, said in a corporate filing late on Thursday that the new export controls imposed by Washington, along with weak demand, would weigh on business this quarter.

“Sluggish demand in the smartphone and consumer electronics sectors, coupled with the need for some customers to take time to interpret new US export control regulations, [means that] fourth-quarter revenue is expected to decline 13 per cent to 15 per cent,” SMIC said.

This is the first time that SMIC, China’s best hope to achieve greater self-sufficiency in advanced chip manufacturing, has provided an initial assessment of the impact from the new US Bureau of Industry and Security rules released last month.

SMIC said the new regulations would have a negative impact on its production and operations, and it is trying to clarify certain definitions in the latest US rules.

SMIC is “generations” behind advanced fabs such as Taiwan Semiconductor Manufacturing Corporation (TSMC) and Samsung Electronics in terms of chip-making technology, but the Shanghai-based company has benefited from strong demand for chips at home that can be produced with mature node technologies.

Third quarter revenue rose 0.2 per cent to US$1.91 billion from the second quarter, but was up a hefty 34.7 per cent from $1.42 billion in the same period a year earlier. Net profit jumped 54.1 per cent from a year ago to $574.4 million in the third quarter, the company said in its filing.

The company upped capital expenditure plans for the year to US$6.6 billion from US$5 billion.

SMIC, which is the only Chinese foundry able to make 14-nanometre node in scaled production, was added to the US entity list in December 2020, which prevented SMIC from technology development below the crucial 10-nm threshold – which is commonly used for producing advanced chips for smartphones and tablets.

There were media reports earlier this year that SMIC had gained the ability to manufacture a special chip with an advanced 7-nm process, which SMIC never publicly denied or confirmed.

SMIC’s third-quarter gross profit margin came in at 38.9 per cent, down o.5 of a percentage point from the second quarter, according to its filing. South China Morning Post