China Semiconductor Company SMIC Says Market Downturn Is Far From Over as US Chip Curbs Continue

Chinese companies are now wary of the stifling effects of such restrictions as US chip export controls continue to curtail China's semiconductor industry. Leading Chinese chipmaker Semiconductor Manufacturing International Corp. (SMIC) recently issued a warning to investors concerning the impacts of US export restrictions.

SMIC Revenue Report

SMIC stated on Friday, Nov. 11, that American clients are hesitant to work with the company due to the ongoing strict US export controls. The chip company also claims that the current downturn in the chip industry has not yet come to an end because of the curbs.

This statement follows SMIC's Thursday third-quarter revenue report, which showed a 34.7% increase. According to multiple reports, this figure fell short of the company's projections.

The foundry's revenue for the quarter increased to $1.91 billion from $1.42 billion in the same period a year earlier, but it fell short of analyst expectations of $1.94 billion.

Nikkei Asia reports that SMIC has increased its projected capital expenditure for 2022 from $5 billion to $6.6 billion, citing the need to place pre-orders for chipmaking machinery in order to maintain its plans for expansion.

SMIC Warns Investors

As per SMIC co-CEO Zhao Haijun, clients from the United States are currently balking at placing orders with the contract chip manufacturer. This is crucial for the business since 20% of SMIC's revenue for the quarter between July and September comes from North American customers like Qualcomm.

Zhao also stated that there is no sign of recovery for the chip industry, which is experiencing a sharp drop in demand, and that the "correction" period will likely last beyond the first half of 2023.

Reuters reports that SMIC is China's best chance to overtake the current market leader, Taiwan Semiconductor Manufacturing Corporation (TSMC), as a global chip manufacturing powerhouse. Given that the company is supported by funding from the Chinese government, there could be some glaring pressure.

Despite its domestic dominance, SMIC remains a minor player in the global chip manufacturing space controlled by TSMC.

Tight Restrictions

According to Techmonitor, SMIC has been expanding its foundry capacity and appeared to achieve a breakthrough earlier this year when it was said to have created its first chips using the 7nm process nodes, one of the more sophisticated chipmaking technologies.

But with US chip curbs continuing to hobble the Chinese chip industry, would these companies be able to recover, let alone cut dependence on the US market?

It is clear from the US trade policy programs that the Biden administration is willing to go to any length to prevent Chinese technological advancements from gaining an advantage.

"We're in a competition with China and other countries to win the 21st century," Joe Biden remarked in his opening presidential speech to Congress in April 2021.

According to the South China Morning Post, China could respond by placing US companies on its Unreliable Entity List or punishing US companies in accordance with Chinese anti-sanctions law. However, there is currently no indication that Beijing intends to retaliate this way.