Over the past month, rumors about SMIC being sanctioned by the US have stirred up the market "nerves", and now the boots have landed. SMIC announced last night that after several days of consultation and discussion with suppliers, SMIC learned that the Bureau of industry and security of the U.S. Department of Commerce has sent letters to some suppliers in accordance with the US export control regulations. As for some US equipment, accessories and raw materials exported to SMIC will be further restricted by the US export control regulations, it is necessary to apply for export license in advance, In order to continue to supply SMIC.
As of press release, the United States Department of Commerce website did not disclose the above restrictions.
SMIC said that the company and the U.S. industrial and security administration have conducted preliminary exchanges on export control, and the company will continue to actively communicate with relevant U.S. government departments. The company reiterated that it has always adhered to the compliance operation and abided by the relevant laws and regulations of the place of operation.
Analysts believe that export control will bring three impacts to SMIC. Firstly, SMIC will encounter obstacles in purchasing equipment materials and spare parts from the United States and some international companies, and even run out of stock; secondly, the cooperation between SMIC and American customers and some international customers will be seriously affected; thirdly, the cooperation between SMIC and the United States and some international partners will be hindered.
Affected by the news, SMIC Hong Kong shares opened at HK $17.60, down 2.87%. As of press release, it was down more than 7% in the session.
SMIC: assessing impact
It is understood that the integrated circuit wafer foundry industry has high requirements for raw materials and equipment, and the number of qualified suppliers of some important raw materials and core equipment in the world is small, and most of them come from outside China, especially the United States.
For example, integrated circuit manufacturing "four big pieces". In terms of lithography, ASML, a Dutch manufacturer, has a global market share of over 70%. In terms of etching machine, pan forest group, Tokyo electronics, applied materials and other international enterprises occupy the main global market share. In terms of film deposition equipment, PVD field is mainly monopolized by applied materials, evatec and avatech, of which application materials account for about 85%; global main suppliers of CVD field are applied materials, Tokyo electronics and Fanlin group, of which application materials account for about 30%. In the field of IC ion implanter, applied materials and Axcelis have gained most of the global market share, of which application materials account for more than 50% of the market share.
Fanlin group and applied materials are both American manufacturers and important suppliers of SMIC. In addition, many parts of ASML will also be imported from the United States, which may also be affected by export controls.
Equipment value accounts for more than 75% of the total investment in a production line to manufacture advanced semiconductor products. Therefore, affected by export control, SMIC's international mature process capacity expansion plan and SMIC Southern phase II, which undertakes advanced process business, may be hindered. According to the announcement, SMIC and the Management Committee of Beijing Development Zone jointly signed and signed the cooperation framework agreement on July 31. The two sides will establish a joint venture to engage in development and operation, focusing on the production of 28nm and above integrated circuit projects. The first phase of the project is planned to invest 7.6 billion US dollars, about 53.1 billion yuan.
Export control ≠ entity list
It should be emphasized that SMIC is not directly included in the "entity list", but "export control". If you enter the "list of entities", it means that you can no longer trade with US companies, while "export control" leaves the possibility of continuing transactions.
According to xinmou research, if it is included in the "export control", the US supplier should apply for a special license in accordance with ear 744.21 (b) of the US export control regulations when supplying to SMIC.
It is worth mentioning that in early September, in response to the issue of SMIC being sanctioned by the US, foreign ministry spokesman Zhao Lijian said that China has repeatedly expressed its solemn position on the issue of the US side's groundless suppression of Chinese enterprises. For some time, the United States, without any concrete evidence, has generalized the concept of national security, abused state power, and adopted various restrictive measures against Chinese enterprises. This is a naked act of hegemony. China firmly opposes this.
Multiple measures to deal with potential impact
Will US sanctions bring SMIC into a desperate situation or even stop? The answer is clearly no, according to the study. If the United States sanctions SMIC, SMIC's business will be greatly affected, but SMIC will not be suspended. First of all, SMIC has been in operation for 20 years, with complete sets of equipment, mature processes, various technologies and diversified suppliers with a production capacity of several hundred thousand pieces per month.
Secondly, after the Huawei incident, SMIC has strengthened its bottom line thinking and made two-hand preparations for upstream and downstream industrial chains including equipment, spare parts, raw materials and international customers. For example, the reserve of raw materials is sufficient; the proportion of North American customers' revenue is greatly reduced, and the proportion of domestic customers' revenue is increased; the scientific and technological innovation board is listed, with more than 100 billion yuan of cash, which provides comprehensive logistics support for the winter and protracted war.
SMIC International announced on March 23 that the company signed an equipment purchase agreement with Fanlin group, with a total purchase price of 397 million US dollars. According to the announcement on March 2, SMIC and applied materials have reached an equipment procurement agreement with a total purchase price of 543 million US dollars. It is worth mentioning that after SMIC's first quarter report announced that it would increase the planned capital expenditure of this year from about US $3.2 billion disclosed in the annual report of 2019 to about US $4.3 billion, the company's second quarterly report raised the capital expenditure plan again, from about $4.3 billion to about $6.7 billion. The increased capital expenditure is mainly for the expansion of machinery and equipment.
According to the financial report, SMIC's revenue from mainland China and Hong Kong accounted for 66.1% in the second quarter, up 4.5% month on month; the revenue from companies headquartered in the United States accounted for 21.6%, down 3.9% month on month.
Benefited from the recovery of industrial chain, SMIC International Performance soared. According to international financial reporting standards, in the first half of the year, the company's operating revenue was about 1.843 billion US dollars, a record high, with a year-on-year increase of 26.3%; the net profit attributable to the parent company also reached a record high of US $202 million, with a year-on-year increase of 556.0%. Looking forward to the whole year, SMIC's goal is to achieve double-digit revenue growth of 15% to 19%.
Self control is imperative
After the Huawei incident, there have been calls for the establishment of an "independent and controllable" IC industry chain, especially in the links of equipment and materials. Now, the most advanced Fab in China is also being eyed by the US side, which will undoubtedly strengthen this call.
From another point of view, the sanctions imposed on SMIC will undoubtedly accelerate the process of "independent control", and domestic semiconductor equipment and material manufacturers are expected to get more opportunities to enter SMIC international production line verification. However, both the public and the market should be aware that it is difficult to get rid of the dependence on overseas manufacturers in a short period of time due to the influence of multiple factors, such as late start, patent barrier and insufficient attention in the past. Although domestic equipment has been developed that can be partially replaced, some key parts used by some equipment manufacturers still rely on foreign suppliers.
At the second quarter conference call, Zhao Haijun, the joint chief executive of SMIC, said that local manufacturers of equipment, accessories and materials in China have been striving to develop, but the scale is still relatively small. I'm glad to see that all the major companies have been listed on the stock market. They have got a lot of financial support and are also doing research and development. SMIC is optimistic about the future. They can build this integrated circuit system through close integration with customers and development, but it takes time and requires us to make a lot of innovation in R & D. What SMIC is doing now is to innovate with the industry. We will try to use domestic products, but SMIC is an international company. "We don't have much tendency. We must only use Zhang San instead of Li Si. We just want to develop healthily in this industry. Industry followers can not replace the leaders in one day. We welcome foreign leading enterprises to set up factories and establish supply chains in local areas. This is an opportunity for all of us. "
At present, China has a layout in major semiconductor equipment fields, such as photolithography, etching machine, film deposition equipment, ion implantation equipment, heat treatment equipment, cleaning machine, polishing machine and other major semiconductor equipment fields in China. The manufacturers include Shanghai microelectronics, North Huachuang, Shenyang tuojing (a joint venture of Zhongwei company), kaishitong (holding subsidiary of Wanye enterprise), Zhongkexin (a unit of electrical equipment), and Shanghai Shengmei semiconductor, Huahai Qingke, etc.
At this extraordinary time, the semiconductor industry, as an extraordinary industry, should have the thinking of entering a quasi wartime state, while the modern industry, as the mainstay of the industry, should be prepared for danger in times of safety to adapt to changes.