latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/potential-u-s-ban-on-smic-could-choke-china-s-semiconductor-supply-chain-60375095 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

Potential US ban on SMIC could choke China's semiconductor supply chain

Mining Exploration Insights - October 2020

Linking Climate Transition Risks and Credit Risks

US Operators Bolster Downward Trajectory for US Cable Capex Forecast

CUSIP Requests Surge in September Led by Higher Corporate and Municipal Totals

Potential US ban on SMIC could choke China's semiconductor supply chain

A potential U.S. ban on Semiconductor Manufacturing International Corp. could cause widespread disruption to China's semiconductor supply chain, according to analysts.

SMIC makes chips essential to devices including handsets, telecom base stations and tablets. The company relies on U.S. equipment and software to perform steps in the chip production process such as printing circuits and inspecting the product, the analysts said. The Trump administration is reportedly considering adding SMIC to its trade blacklist.

A ban would call into question SMIC's ability to manufacture chips using high-end techniques, Mark Li, senior research analyst at Sanford C. Bernstein & Co. LLC, said.

Chinese foundries including SMIC still depend on U.S. suppliers for the equipment needed to manufacture semiconductors smaller than 90 nanometers, or nm, according to Joanne Chiao, a semiconductor analyst at TrendForce. A nanometer — one billionth of a meter — is the unit of measurement for transistors on chips. The latest generation of smartphones contains 7-nm transistors.

Shanghai Micro Electronics Equipment Co. Ltd. is the only China-based company that can provide equipment for a critical step in production with the processes as advanced as the 90-nm node, Chiao said. Netherlands-based ASML Holding NV, Japan's Tokyo Electron Device Limited and U.S. company Applied Materials Inc. also provide advanced machines, according to a report by EE Times, an engineering and technology analysis news website.

As companies from different countries specialize in different equipment and stages of manufacturing, it is nearly impossible to pull the U.S. equipment out of the process, the analysts said.

"I have not seen any manufacturer that can make chips without U.S. technologies," Li said. "The Netherlands and Japan may also choose to ban SMIC under pressure from the U.S."

"We believe SMIC cannot progress into 7-nm node as it cannot obtain newer generations of equipment to cater to more advanced manufacturing processes," Phelix Lee, equity analyst at Morningstar, wrote in a note.

SMIC is currently the most capable Chinese chip manufacturer, according to Phil Solis, a research director at IDC.

SNL Image

If SMIC was unable to purchase U.S. equipment, it would lose orders and see revenue decrease within a few months, the analysts said.

The company recorded revenue of 1.84 billion Chinese yuan in the first six months of 2020, up 26.3% year over year, its 2020 interim report shows. Mainland China and Hong Kong revenue made up around 64% of the total for the first half, up 45.3% year over year. Revenue from North America was flat, and made up around 23% of the total, while Eurasia accounted for around 13% of the total, up 7.7% from the prior-year period, according to the report.

Taiwanese rivals United Microelectronics Corp., or UMC, and Taiwan Semiconductor Manufacturing Co. Ltd., or TSMC, could benefit from a transfer of orders from SMIC.

Huawei Technologies Co. Ltd. would see the worst impact from a U.S. ban on SMIC. TSMC, a major supplier to Huawei of 7-nm chips, ceased to work with the Chinese company Sept. 14 as the U.S. banned the Chinese telecom equipment provider and handset maker from buying products produced with U.S. technologies. Huawei then placed orders for its less advanced 14-nm chips to SMIC, according to analysts and media reports. SMIC sought U.S. permission to continue to supply to Huawei.

"Being deprived of 14-nm orders from Huawei, [SMIC's] accumulation of 14-nm know-how may be slower than two years per node," Morningstar's Lee wrote. SMIC needs to progress from 14-nm to 10-nm, and then 10-nm to 7-nm technologies, he wrote.

Huawei uses 7-nm chips for its latest flagship phones including the Mate Xs and Mate 30 series. The company used SMIC's 14-nm chip, Kirin 710A, in its brand Honor Play 4T, launched in April 2020, Chinese state-backed media outlet Global Times reported. Prices of Huawei phones have risen due to its shortage of chips.