Troubles rise for China’s biggest chipmaker SMIC

Semiconductor Manufacturing International Corporation (SMIC), China’s top chipmaker, is under mounting pressure as reports of its CEO’s looming departure and a potential U.S. sanction concern investors.

The U.S. Commerce Department is looking to add dozens of companies, mostly Chinese and including partially state-owned SMIC, to its trade blacklist, Reuters and The Wall Street Journal reported on Friday. The move will restrict SMIC from buying key components from U.S. suppliers by mandating U.S. exporters to apply for a license to sell to the Chinese firm.

The Commerce Department confirmed that its Bureau of Industry and Security has added SMIC to the so-called Entity List to “protect U.S. national security.” Sixty other entities, including China’s drone giant DJI, were added to the list for actions deemed contrary to the national security or foreign policy interest of the U.S.

“This action stems from China’s military-civil fusion doctrine and evidence of activities between SMIC and entities of concern in the Chinese military industrial complex,” the agent said in a statement.

Components used to produce semiconductors at top-class nodes — 10 nanometers or below — will be “subject to a presumption of denial to prevent such key enabling technology from supporting China’s military-civil fusion efforts.”

Last month, the U.S. government reportedly added SMIC to its defense blacklist, which would bar American investors from buying securities from the company.

SMIC cannot be immediately reached for comment.

The sanction arrived amid SMIC’s management shakeup and what appears to be internal politics at the chipmaking firm. SMIC recently appointed Chiang Shang-Yi, formerly a co-chief operating officer at Taiwan Semiconductor Manufacturing Co (TSMC), as vice-chairman. Days later an alleged resignation letter from Liang Mong Song circulated online; in it, the co-chief executive of SMIC said he was unaware of Chiang’s appointment and the hiring had prompted him to quit.

SMIC subsequently issued a statement saying it is “verifying” the executive’s intention to quit, sending the company’s shares plummeting.

The fate of SMIC and TSMC is tightly linked to that of Huawei. TSMC, once an important supplier to the telecoms equipment and smartphone-making giant, reportedly halted orders from the Chinese firm following new U.S. export controls. There were hopes that SMIC could be a TSMC replacement for Huawei, but industry observers have long argued that the Chinese chipmaker is years behind its Taiwanese rival on making state of the art chipsets for phones.

Huawei has been struggling with phone production after the Trump administration added it to the Entity List and cut off its chip supplies.

The article was updated on December 18, 2020 with statements from the U.S. Department of Commerce.