Money & Banking

China’s largest chipmaker sinks after US imposes restrictions

Bloomberg September 28 | Updated on September 28, 2020 Published on September 28, 2020

Shares slump 7.9% per cent on Monday, adding to their 25% loss for the month

Semiconductor Manufacturing International Corp (SMIC) retreated to a four-month low in Hong Kong after the US imposed export restrictions on China’s largest chipmaker.

The shares slumped as much as 7.9 per cent on Monday, adding to their 25 per cent loss for the month. Also listed in Shanghai, SMIC’s stock there retreated as much as 5.8 per cent to the lowest level since its July debut. US firms must now apply for a licence to export certain products to the chipmaker, the Commerce Dept said in a letter dated September 25, reviewed by Bloomberg News. SMIC and its subsidiaries present an unacceptable risk of diversion to a military end use, the department’s Bureau of Industry and Security wrote.

The US stopped short of placing SMIC on the so-called entity list, which means the restrictions are not yet as severe as those imposed on China’s Huawei Technologies Co. Still, the ruling against the chipmaker marks a further escalation in the tensions between the world’s two most powerful countries that have already ensnared other Chinese tech companies, including ByteDance Ltd and Tencent Holdings Ltd.

The restriction, once implemented, will severely damage SMIC’s existing and future manufacturing capabilities, and customer trust, Bernstein analysts led by Mark Li wrote in a note. Without steady supply and service from the US, the yield and quality of SMIC’s capacity will degrade, as early as in a few months for more advanced nodes.

No official note

SMIC has not received an official notice of the sanctions, has no relationship with the Chinese armed forces and does not manufacture goods for any military end-users or uses, the Shanghai-based company said in an emailed statement over the weekend. The Chinese Foreign Ministry in Beijing didnt immediate respond Monday to a request for comment on the latest US export restrictions.

The SMIC ruling was a compromise between the Departments of Defense and Commerce and moderates in the Trump administration, according to one person familiar with the negotiations. The US has reportedly said it was mulling a more severe blacklisting on SMIC – akin to the ones imposed on Huawei – that would affect exports from a broader set of companies.

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Published on September 28, 2020
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