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DJ China's SMIC Says It's Missing Out on the Chip Boom Due to U.S. Restrictions

· 02/05/2021 06:56
By Dan Strumpf

HONG KONG--China's largest maker of computing chips said restrictions placed by the Trump administration would crimp its pace of growth, despite the booming demand for semiconductors creating a global shortage.

Semiconductor Manufacturing International Corp. in its first earnings report since it was added to a U.S. export blacklist on Dec. 18 on Friday said its revenue rose 17% to $981 million in the fourth quarter from a year earlier. The Shanghai-based company said it expects growth in revenue to slow to single-digit percentage points in the coming year.

SMIC executives lamented that if it weren't for the U.S. restrictions, the company could have better capitalized on the global chip shortage that has benefited other manufacturers.

"After 20 years of independent technology development, market expansion, capacity building and the talent training, the company could have seized this year's rare market opportunity and achieved rapid growth," said Haijun Zhao, the company's co-chief executive. If not for the U.S. actions and other risks, "SMIC could have maintained last year's rapid growth momentum," he said.

SMIC is one of China's champions in the chip sector, an area in which Beijing has prioritized greater self-sufficiency. U.S. officials targeted the state-backed company with a raft of actions during the waning months of the Trump administration, alleging links to the Chinese military. SMIC has repeatedly denied military links.

Though the particulars of President Biden's policy toward China are being ironed out, officials have suggested that they have little appetite to immediately walk back former President Donald Trump's tough actions on China. A number of Congressional Republicans have pressed the new administration to maintain a tough stance.

SMIC's addition to the Commerce Department's export blacklist requires U.S. firms to apply for licenses before selling machinery to the Chinese company. SMIC, like virtually all chip manufacturers, is a major customer of the handful of U.S. companies that specialize in building the complex equipment used to etch the chips that power modern electronics.

Mr. Zhao told investors Friday the company was working very hard with its suppliers to make sure they get licenses to continue providing the company with chip-making equipment.

"The suppliers are working very, very closely with SMIC and the U.S. government," Mr. Zhao said.

U.S. companies that sell technology to China have lobbied intensely against many of the Trump administration's measures. Last week, the industry group SEMI, which represents manufacturers of chip-making equipment, in a letter urged Commerce Department Secretary Gina Raimondo to conduct a review of the Trump administration's approach to export controls on Chinese companies.

"The prior administration implemented broad, ambiguous unilateral controls on semiconductor-related items through a highly unusual process, " the industry group said.

The U.S. restriction on SMIC only covers the sale of equipment used by the Chinese manufacturer to build highly advanced chips at the 10-nanometer level or smaller. Some industry watchers pointed out after the blacklisting that the restriction appeared to be riddled with loopholes that would mitigate its impact.

Mark Li, a chip industry analyst at Bernstein, said in a research note that SMIC's $4.3 billion plans to expand its manufacturing capacity this year could face hurdles due to needed approvals.

SMIC executives noted tight capacity globally due to chip shortages, and said it was running at full capacity on production lines for its less-advanced chips.

The company also noted a shift in its customers, a possible reference to the loss of business from Huawei Technologies Co., the Chinese telecommunications powerhouse. U.S. restrictions placed last year on Huawei mean that the company can't buy chips made using American technology--even if the supplier itself isn't American.

In addition to its export blacklisting, SMIC was also added last year to a U.S. Defense Department list of companies deemed to have ties to the Chinese military. That list requires U.S. investors to divest any SMIC holdings and blocks them from future investments. On Friday, SMIC said it had completed the termination of its American depositary receipts program.

Write to Dan Strumpf at daniel.strumpf@wsj.com

(END) Dow Jones Newswires

February 05, 2021 06:56 ET (11:56 GMT)

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