China's largest chip maker warns of delays due to US sanctions

China’s largest chip maker warns of delays due to US sanctions

Semiconductor Manufacturing International Corporation, China’s largest chip maker, warned Thursday that its business was suffering from delays and uncertainties due to U.S. export restrictions introduced in September, although sales rose 32 percent to $ 1.08 billion in the third quarter.

SMIC, seen as China’s most promising hope of breaking the country’s reliance on overseas manufacturers, admitted that the restrictions had “extended or unsafe delivery times” for some US equipment, as well as logistical delays.

However, the company’s executives insisted that the situation was “manageable”.

As a result of the delays, the chipmaker announced that it would cut its capital expenditures 12 percent for the year from $ 6.7 billion to $ 5.9 billion, even though third-quarter revenues exceeded forecasts. SMIC has benefited from stockpiling by Huawei, another major Chinese technology champion and SMIC customer affected by US sanctions.

SMIC can continue to grow due to the broad demand for semiconductors

In September, the US Department of Commerce said there was an “unacceptable risk” that products made by SMIC could be used by the Chinese military. Depending on how strictly the Trump administration enforces the sanctions, the company could be cut off from U.S. software and equipment that are vital to its operations.

SMIC insists that it has no relationship with and does not manufacture products for the People’s Liberation Army.

“Although the export restrictions will affect us, we believe they are manageable in the short term,” said two managing directors Zhao Haijun and Liang Mong Song in a statement. Mr. Liang added that the company is working to obtain all necessary licenses for machines, components and materials in the United States.

While US controls will hamper SMIC’s ability to catch up with leading foundries like TSMC and Samsung, Eugene Hsiao, an analyst at Haitong International, said the company can benefit from booming demand for chips.

“SMIC can still grow due to widespread demand for semiconductors domestically and internationally from end markets such as automobiles, industrial, infrastructure and consumer devices,” he said.

Some investors are hoping that after his inauguration in January, US President-elect Joe Biden could ease some of the restrictions on Chinese tech companies. “Biden’s trading advisors could try to back off the current blanket guidelines for US content restrictions,” said Hsiao.

The company’s shares in Hong Kong rose 3.5 percent on Thursday.

SMIC reported its third quarter results just hours before a possible new escalation in US-China technology battles. Beijing-based ByteDance is due on Thursday to meet a deadline set by the U.S. Foreign Investment Committee on Thursday to part ways with American operations on its hugely popular TikTok video app.

Earlier this week, ByteDance, which has issued injunctions delaying similar executive orders, asked a court to postpone the Cfius deadline by 30 days. On Wednesday, the Chinese State Department accused the Trump administration of “overstretching the concept of national security and abusing national power to suppress certain foreign companies.”

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