Positive for SEC and TSMC

The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.

 

The media is reporting that the US government is reviewing potential sanctions against Chinese foundry SMIC. If such sanctions materialize, it would be a negative development for Chinese semiconductor companies such as SMIC, YMTC, and CXMT. Sanctions against SMIC would also be negative for semiconductor equipment players. However, sanctions would be beneficial for competitors such as TSMC and SEC.

US government reportedly considering sanctions on SMIC

On Sep 5, media outlets reported that the US government is considering sanctions against Chinese foundry SMIC due to concerns over the relationship between SMIC and the Chinese military. Should SMIC become subject to sanctions, US companies would need to obtain prior approval from the US government when doing business with SMIC.

SMIC is the world’s fifth-largest foundry player and the only company in China capable of mass production below 14nm. In June, due to sanctions against Huawei by the US government, transactions between Huawei and TSMC were cut off. Through this development, SMIC has emerged as the largest beneficiary. The Chinese government is strengthening support for SMIC in order to beef up the firm’s microprocessing capabilities, which are currently lagging behind those of TSMC and Samsung Electronics (SEC).

Negative for equipment industry; Positive for SEC, TSMC

If sanctions against SMIC are put into place, the export of equipment from US semicon equipment companies such as Lam Research and Applied Materials will become all but impossible. As well as being a negative for the semicon equipment industry, such developments would be unfavorable for fabless players and chipmakers in China such as YMTC and CXMT.

On the other hand, in the long run, Chinese semicon companies such as SMIC would face delays in securing technology, which in turn would benefit rival foundries such as TSMC and SEC. At the beginning of this year, TSMC began mass production at the 5nm scale, and SEC is planning to see mass production at its 5nm process in 2H20. Noting that SEC recently won an 8nm next-gen graphics card processor order from Nvidia, we believe that the technological gap between such firms and Chinese companies will remain in play.

 

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution