SMIC has potential to be a major player in the global semiconductor industry

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SMIC requests trade licensee to resume selling semiconductors to Huawei
Image: SMIC

Even though it recently encountered some challenges, Semiconductor Manufacturing International Corporation (SMIC) could become a major player in the global electronic components industry.

Last month, the U.S. government reportedly limited the firm’s access to certain American-made technology. However, Seeking Alpha recently pointed out the Chinese company could potentially source its production tools from a non-U.S. vendor.

With access to proper equipment, China’s largest contract chipmaker has significant growth potential.

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Export Restrictions

In late September, Reuters reported the U.S. Department of Commerce mandated that American firms obtain a license before selling the company semiconductor manufacturing equipment.

As of this writing, the Commerce Department has not officially commented on the matter.  But the contract manufacturer recently noted it had engaged the U.S. government in “preliminary exchanges” regarding its trade status.

America is home to many of the world’s most advanced semiconductor production equipment and software vendors. Without access to the country’s technology, some market watchers began to doubt SMIC’s potential.

Seeking Alpha contends the corporation could move forward by sourcing its component making tools for non-American vendors. The site noted Peter Wennick, CEO of chipmaking equipment manufacturer ASML, addressed the topic directly in a recent earnings call. The executive explained Chinese firms with limited access to U.S. tools could do business with European, Japanese, and Singaporean suppliers.

The corporation may not need to expand its supply chain to acquire crucial manufacturing tools and software. Reuters noted in its initial piece about SMIC’s trade status that it has not been “blacklisted.” That distinction suggests the company and its U.S. vendors could obtain the necessary permissions to continue their business dealings

SMIC’s Possible Way Forward

Outside of its procurement issues, SMIC has everything it needs to become a world-class chipmaker.

Recently, Tom’s Hardware reported Innosilicon, a Chinese contract component designer, successfully taped out a 7nm chip using SMIC’s N+1 process. The blog states the breakthrough indicates the manufacturer has developed technology comparable to some of Samsung, GlobalFoundries, and TSMC’s 7nm nodes.

Conceivably, the advancement could enable SMIC to grow its domestic market share. At present, no other Chinese electronic components firm has reached that level of production sophistication. A recent IC Insights study showed the Chinese market has a strong demand for pure-play foundry services. However, the corporation would need to develop 5nm-like nodes to keep up with the rest of the global market.

Provided SMIC can acquire or build cutting-edge tools, it has the resources to facilitate further technological progression. This July, the corporation raised $7.57 billion via a listing on the Hong Kong Stock Exchange. Months later, it announced plans to construct a new 12-inch wafer fab in Beijing to bolster its production capacity.

Right now, SMIC’s future is an open question. But its ingenuity, negotiation latitude, and funding indicate it will be a chipmaker to watch in 2021.

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