US imposes new restrictions on SMIC, China’s biggest chipmaker

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

Tensions between the U.S. and China continue to run high and the semiconductor industry is often caught in the crossfire. That became true once again on Saturday when the U.S. imposed new restrictions on SMIC.

China’s largest chipmaker will face new roadblocks when trying to import materials. U.S. officials say that there is an “unacceptable risk” that SMIC could use the equipment it is supplied with for military purposes.

Moving forward, some of the company’s suppliers will need to apply for individual licenses to continue selling to it. That’s similar (albeit less strict) to the way the U.S. government is handling trade with Huawei, another Chinese tech giant.

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Shifting Opinion

According to a Reuters report citing “people familiar with the matter” the latest restrictions are a departure from U.S. policy earlier this year. SMIC’s suppliers weren’t previously required to seek “military end user” licenses.

However, the new restrictions shouldn’t be entirely surprising. The Pentagon said earlier this month that it was considering adding SMIC to the entity list.

The move is likely in response to a report from U.S. defense contractor SOS International that claims researchers at Chinese universities that have ties to the country’s military are using SMIC equipment.

Of course, the chipmaker has refuted these connections. In a statement, it said, “SMIC reiterates that it manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses. The company has no relationship with the Chinese military and does not manufacture for any military end-users or end-uses.”

To be clear, SMIC isn’t being blacklisted. That is a much stronger designation that would make it all-but-impossible to get licenses approved. The new restrictions will ensure that SMIC products are reviewed more thoroughly.

Impact of the New Restrictions

At this point, it’s impossible to know for sure what sort of impact the restrictions will have on SMIC and its suppliers. Companies who work with SMIC reportedly received a letter on Friday to inform them of the new guidelines.

According to Jefferies, an investment bank, about 50 percent of SMIC’s equipment is supplied by U.S. companies. That could make it very difficult for the chipmaker to upgrade and enhance its processes. Meanwhile, U.S. firms could take a hit from losing another major buyer while still reeling from the sanctions levied against Huawei.

Qualcomm is one of the chipmaker’s largest suppliers. It will be interesting to see if the firm is granted a license to keep selling to SMIC or if it will be cut off.

Interestingly, SMIC is still years behind competitors like TSMC and Samsung in terms of manufacturing technology. The firm is currently limited since it can’t produce chips with small enough transistors for today’s top-tier smartphones and other gadgets.

Without the ability to rely on U.S. technology, SMIC could struggle not only to catch up but to stay in business at all.

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