China’s largest chipmaker, SMIC, plunged a fifth on Monday in response to the announcement of potential US sanctions on the company, wiping around $ 28 billion from its market value and prompting analysts to predict disaster if a ban is implemented.
Reuters reported on Friday that the US Department of Defense may block US companies from supplying goods and services to Semiconductor Manufacturing International Corp (SMIC).
It could shatter what some see as China’s best hope of developing a self-sustaining semiconductor industry through the minimum wage and further aggravate the China-U.S. Conflict that involves trade and technology, analysts said.
“The company could go bankrupt within a few years,” says Mark Li, who follows the Chinese chip industry to Bernstein Research.
The SMIC did not immediately respond to a request for comment.
The minimum wage follows the same level as Taiwan Semiconductor Manufacturing Co Ltd (TSMC) in terms of production volume, technology and efficiency despite state support since its establishment two decades ago.
It only recently introduced a capability for chips at the 14 nanometer process node, making it about two generations behind TSMC.
Like TSMC and other factories, SMIC relies on a number of US-based companies, such as Applied Materials, to obtain key production equipment. Research firm Jefferies estimates that about half of the minimum wage providers are American.
Sources told Reuters that the United States is investigating suspected links between the SMIC and the People’s Liberation Army in China. The SMIC says it has no connection with the Chinese military.
Hong Kong minimum wage shares fell more than 23% to HK $ 18.10 on Monday, their lowest since June 12.
Its shares in Shanghai, where it raised $ 6.6 billion in a secondary listing in July, fell 11%.
The potential sanctions echo those imposed by the United States on Huawei technologies that prohibit American companies from selling products and technologies to the Chinese smartphone maker. The restrictions have muzzled Huawei’s once-promising chip division and restrict its overseas phone sales.
US sanctions could also impact supplies from non-US suppliers, analysts said, as chip suppliers from countries like Japan and the Netherlands, which have friendly ties to the United States, could ” follow “the US order.
There is precedent for such a possibility.
In 2018, the Trump administration blocked Dutch machine maker ASML from shipping a $ 150 million chip lithography machine needed to manufacture advanced microprocessors to the minimum wage.
Analysts said that while the SMIC could potentially continue to use its existing equipment line in the face of a supplier ban, its business would suffer as equipment suppliers would no longer be able to service its production lines.
Losing that official support service would put the minimum wage in “serious trouble,” said Doug Fuller, who studies the Chinese chip industry at City University in Hong Kong. “Machines should be serviced by suppliers every two to three months.”
The SMIC could potentially turn to local businesses, not affiliated with their official suppliers, to maintain their production lines, he said. “But that will only aggravate the well-known operational inefficiency of the SMIC.”