Semiconductor Manufacturing International Corporation (SMIC) has applied to the U.S. Department of Commerce for a license to sell electronic components to Huawei. The Shanghai, China-based chipmaker previously made an estimated 20 percent of its annual revenue from the telecom.
However, Washington enacted a regulation preventing companies from selling semiconductor products derived from American technology to Huawei earlier this month.
Why SMIC Wants to Resume its Business Relationship with Huawei
SMIC told the Beijing News it applied for a trade license following recently issued U.S. export controls. The firm took action because Huawei is a major part of its current financial picture and growth plans.
Initially, the Commerce Department’s new export controls looked to a growth driver for SMIC.
After Huawei lost access to primary chip fabricator Taiwanese Semiconductor Manufacturing Company (TSMC), SMIC and Shanghai Microelectronics reportedly stepped in to fill the void. The two Chinese companies wanted to combine resources to supply the telecom with smartphone microprocessors. As foreign chip vendors, the Commerce Department’s new mandates did not impact their business decisions.
But last month, Washington extended its export controls to include non-U.S. companies selling off-the-shelf electronic components, which undercuts SMIC’s deal with Huawei.
Eager to preserve a lucrative business arrangement, the Sino chipmaker has asked the Commerce Department for an export control exemption.
Why SMIC’s Trade License Request is a Smart Move
Although U.S.-China relations are at a low point, SMIC’s trade license application is a smart move on the company’s part.
The Commerce Department first restricted Huawei’s access to American technology last May by putting the firm on its Entity List. The U.S. government tightened its restrictions this year in response to the telecom’s alleged efforts to get around its ban. By making an official request for a trade license, SMIC shows it will not break the rules to make a profit.
In turn, Washington might reward the manufacturer’s respectful appeal and observance of its mandates by approving its application. After all, the government agency authorized companies like Intel, Micron, and Xilinx to sell components to Huawei.
SMIC’s upfront business practices might also keep it from winding up on the Entity List.
Last week, Reuters reported the Commerce Department is considering revoking the chipmaker’s right to use American semiconductor tech. SMIC’s recent conduct could have a positive impact on those deliberations.
In addition, 10 of SMIC’s top vendors are US-based. Washington probably does not want to negatively impact the financial performance of several domestic semiconductor firms unless absolutely necessary. Though somewhat unlikely, SMIC could exit 2020 with all of its most important business relationships intact.