China’s biggest chipmaker warns of delays due to US sanctions

Semiconductor Manufacturing International Corporation, China’s biggest chipmaker, warned on Thursday that its business was suffering delays and uncertainty due to US export restrictions introduced in September, even as it reported a 32 per cent rise in third-quarter revenue to $1.08bn.

SMIC, regarded as China’s most promising hope for breaking the country’s dependence on foreign manufacturers, acknowledged it was facing “extended or uncertain delivery lead times” for some US equipment as well as logistics delays due to the restrictions.

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

As a result of the delays, the chipmaker said it would cut its capital expenditure for the year by 12 per cent to $5.9bn from $6.7bn, even as its revenue for the third quarter beat forecasts. SMIC has benefited from stockpiling by Huawei, another large Chinese technology champion and SMIC customer affected by US sanctions.

In September, the US Department of Commerce said there was an “unacceptable risk” that SMIC-made products could be used by China’s military. Depending on how strictly the Trump administration implements the sanctions, the company could be cut off from US software and equipment critical to its operations.

SMIC insists that it does not have any relationship with the People’s Liberation Army and does not manufacture products for it.

“Although the export restrictions will have an impact on us, in the near-term we believe it is manageable,” co-chief executives Zhao Haijun and Liang Mong Song said in a statement. Mr Liang added that the company was working to secure all necessary licences for US machinery, components and materials.

While US controls will hinder SMIC’s ability to catch up to leading-edge foundries such as TSMC and Samsung, Eugene Hsiao, analyst at Haitong International, said the company can capitalise on booming demand for chips.

“SMIC can still grow due to the broad-based demand for semiconductors both domestically and abroad from end markets like autos, industrial, infrastructure and consumer devices,” he said.

Some investors are hoping that US president-elect Joe Biden could ease some of the restrictions on Chinese technology companies after he is inaugurated in January. “Biden’s trade advisers may look to pull back from the current blanket policies of US content restrictions,” Mr Hsiao said.

The company’s shares in Hong Kong rose as high as 3.5 per cent on Thursday.

SMIC reported its third-quarter results just hours before a potential new escalation in US-China technology battles. Beijing-based ByteDance faces a Thursday deadline, set by the Committee on Foreign Investments in the US, to divest from the American operations of its highly popular TikTok video app.

Earlier this week ByteDance, which has secured injunctions delaying similar executive orders, asked a court to push back the Cfius deadline by 30 days. On Wednesday, China’s foreign ministry accused the Trump administration of “overstretching the concept of national security and abusing national power to oppress certain foreign businesses”.

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