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Recently, SMIC, China’s largest foundry, may shock the semiconductor industry with news that the US government has included sanctions. The reason is that after Huawei was sanctioned by the US government sales ban, foundry leader TSMC has been unable to manufacture OEMs for the Kirin series processors developed by Huawei HiSilicon, and the companies of Processors like MediaTek and Qualcomm can no longer When the processor is sold to Huawei, it has almost cut the lifespan of Huawei mobile phones. To prevent this situation from happening again, the Chinese government actively supports SMIC, hoping to shine a light on independent processor production. Today, SMIC may also follow in Huawei’s footsteps and become subject to sanctions by US embargo order.In addition to using hard-earned money to support former SMIC A-share shareholders who have returned to shares A, they won’t cry. Once the US confirms the sanctions, it can bring China’s semiconductor production almost back to its original shape in the future.
According to the announcement on SMIC’s official website, the company is currently able to provide casting and technical services on different technology nodes from 0.35 microns to 14 nanometers. SMIC is headquartered in Shanghai and has a 12-inch wafer factory, an 8-inch wafer factory, and a 12-inch advanced process wafer factory in Shanghai. In addition, there is also a 12-inch wafer factory and a 12-inch advanced process wafer factory in Beijing. As for, each has an 8-inch wafer factory in Tianjin and Shenzhen, and a 12-inch protrusion processing joint venture in Jiangyin. SMIC has also established marketing offices in the United States, Europe, Japan and Taiwan to provide customer service, and has also established a representative office in Hong Kong.
According to the financial report for the second quarter of 2020 announced by SMIC a few days ago, consolidated revenues reached US $ 938 million, an increase of 3.7% compared to the first quarter and an increase of 18.7% compared to the same period of 2019. The profit attributable to the company was US $ 138 million, an increase of more than 644% during the same period in 2019, and the adjusted profit for a single quarter was US $ 126 million. However, it is worth mentioning that the financial report specifically noted that in the second quarter of 2020, the other changes in SMIC’s operating income, the funds provided by major governments in the second quarter of 2020 were US $ 40, 5 million, compared to 2020. There was also $ 59.2 million in the first quarter. And if this subsidy from the Chinese government is removed, the profit in the second quarter is only 85 million US dollars, and the first quarter is in a state of loss.
Based on analysis of SMIC’s revenue contribution from various products, the 0.15 / 0.18 micron and 55/65 nanometer processes each account for 30%, and the 14/28 nanometers account for 9.1% of the incomes. In other words, SMIC’s current advanced manufacturing process has little effect on the overall contribution to revenue. Therefore, this is also the main reason why SMIC has extended its 28 nanometer manufacturing process to maintain stable operation. When analyzing the revenue contribution of the various SMIC products, we can also find that the company’s financial report for the second quarter of 2020 has integrated the revenue contribution of 14/28 nanometers, rather than the contribution of 14 / 28 nanometers as shown in the first quarter of 2020. The nanometer accounted for 1.4%, 28nm accounted for 28%. Therefore, it is impossible to know how much the 14nm node, which is the key to the future development of advanced SMIC processes, has now contributed to the company, and then one can speculate on its amount of mass production and its status of performance.
Although the current development of SMIC’s advanced manufacturing process cannot be found in its latest financial report, the Chinese government continues to support SMIC development due to the impact of the US-China trade war. In addition to the above, the continued use of government funds for financing has opened the door to fundraising and tax concessions, which is to help SMIC “crush” a state-of-the-art wafer manufacturing through of fund assistance. plant. Among them, SMIC’s recent return to A shares is impressive. On June 1, 2020, SMIC submitted the draft application to the Shanghai Stock Exchange and approved several inquiries before listing three days later, with the meeting running smoothly on June 10. Therefore, from application to formal review and approval, SMIC has set a record for the shortest 18 days for Chinese companies to go public.
Furthermore, after the SMIC A-share listing on July 16, 2020, the opening price increased by 246% to RMB 95 per share. As of the 16th, the closing price was RMB 82.92, an increase of 201.97% from the issue price of RMB 27.46. , The total market value has also increased to RMB 613.757 billion, securing its position as the “one brother” in the Science and Technology Innovation Board. After the exercise of the allotment right, the share capital issued by SMIC increased to 1.938 million shares and the total amount of funds raised reached 53.23 billion yuan, which also set a record for science and technology. However, many investors followed the “patriotism” of the Chinese government and invested hard-earned money in SMIC. As a result, after returning to the A-share market and hitting a high stock price on the first day of trading, they never saw a major advance in the stock price. It has completely fallen. By the time the listing is about to expire two months, the closing price on the 7th has reached a price of 58.8 yuan, which has fallen more than 40% from the highest point at the time of the previous quote.
In addition to the Chinese government’s assistance in listing SMIC on the A-share market in order to raise more capital for development, in terms of tax incentives, the State Council of China recently announced policies on the integrated circuit industry and the software industry, that is, the production of integrated circuits (Companies with a processor or chip line width of less than 28 nm are exempt from corporate income tax for the first 10 years. Companies that produce circuits embedded within 65 nanometers are exempt from tax for 5 years, and income tax can be halved over the next 5 years. However, among local wafer factories in China, only SMIC and Shanghai Huahong Semiconductor Wafer mills are currently starting mass production with a 28nm process. In the 14nm process, only SMIC currently contributes to the prod mass production, making this China State Council industrial policy tailor-made for SMIC.
In fact, while the Chinese government fully supports the development of SMIC, it hopes to become a leader in China’s semiconductor manufacturing and push forward China’s plan for semiconductor autonomy. However, from the behavior of the share price, it can be said that investors have no confidence. Even Bernstein Research, a foreign brokerage firm previously noted that while SMIC’s A share price is a good thing, it is also a curse. Because SMIC has to raise the money to compete with TSMC. But the opponent is very strong and has a better reputation than SMIC, which makes it difficult for investors to earn investment income by investing in SMIC. These observations show the bottleneck SMIC faces and the current situation for investors.
At present, in addition to technical efforts compared to other competitors, the threat of sanctions from the US government looms, which may make the development of SMIC even lower. In fact, when the US government tightened its sanctions against Huawei, SMIC also noted that SMIC will no longer be able to supply certain customers due to the restrictions imposed by the ban. Although Huawei was not named by name, market rumors immediately spiked and SMIC’s share price at the time had already plummeted. Now, the news that the United States may sanction the SMIC again has caused the closing price of the SMIC on the 7th to plummet by more than 11%, indicating that investors are concerned about the future of the SMIC.
Foreign media have reported that once SMIC is actually included in the US sanctions, and Huawei is blacklisted, there will be no relevant supply restrictions, which will benefit the development of both parties. However, market participants emphasized that unless SMIC no longer develops advanced manufacturing processes in the future, then progress from Chinese suppliers may connect to allow SMIC to develop production lines outside of the US, And Huawei will only be able to sell low-end mobile phones in the future. Then this approach will be partly beneficial to both parties. Therefore, for China, the sanctions against SMIC will shake the local semiconductor industry, and follow-up development also deserves continued attention.
(Source of the first image: SMIC)
New knowledge of science and technology, updated from time to time
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