The United States vetoes China’s largest chipmaker and the impact could be greater than that of the Huawei veto

The United States continues to tighten the circle around the Chinese tech industry. In a new move by the Department of Commerce, the technology of SMIC, China’s largest semiconductor supplier, as described by Reuters. New sanctions hitting a key player in the Chinese government’s plan to create a robust chip industry independent of the US.

According to CNBC data, only 16% of the chips used in China are produced by themselves. Far from the 70% target they had set for 2025. A new US blockade that goes even beyond Huawei, since it affects not only the production of commercial processors, but also the development of semiconductors.

Slashing the wings of the great Chinese chipmaker

Those companies that work with the ‘Semiconductor Manufacturing International Corporation’ (SMIC) will need a license to export their products. Previously, SMIC was already affected by the blockade of Huawei, its largest customer and responsible for 20% of its revenue.

The Kirin 710 chipset was Huawei’s first mobile processor designed, manufactured and fully tested in China, thanks to SMIC. But it is not the only large company to be affected. Another of the manufacturers most affected by the measure will be Qualcomm, American, who takes advantage of SMIC semiconductors to manufacture some of its processors.

SMIC is the largest chipmaker in China and high hopes were pinned on it. At the beginning of this 2020, the Chinese smelter expected to raise up to 6.7 billion euros in its Shanghai IPO. Last August, SMIC announced its partnership with the Beijing Economic and Technological Development Area (BDAC) Management Committee to manufacture 12-nanometer wafers and help other Chinese manufacturers to cope with US restrictions. For this they had an investment of 7.6 billion dollars.

The goal of the US Department of Commerce is to isolate SMIC from US technology, necessary in many cases for the development of its technology. This is the case of Lam Research, with whom SMIC maintains a large part of the team and as a result the shares have started to decline as soon as the decision is known. The United States is the country with the most SMIC providers, according to SCMP.

But the influence of the US wants to go further. They are aware that the rest of the world is trading with China and in recent months they have been pressing to avoid possible agreements that would benefit the Chinese technology industry. The great example is the Dutch company ASML, the world’s leading supplier of photolithography machines.

The intention was to license its extreme ultraviolet (EUV) lithography technology to China to make semiconductors, but Secretary of State Mike Pompeo interceded to convince the Netherlands not to sell that technology, according to Bloomberg.

Without access to American suppliers, China will have a hard time being in the forefront

From SMIC they reiterate that the company “manufactures semiconductors only for civil and commercial end users and end uses. The company has no relationship with the Chinese military and does not manufacture for any end user or military end uses.

SMIC also informs that it has not been notified of the commercial blockade. Despite this, SMIC’s shares on the Shanghai Stock Exchange fell more than 6%.

The Chinese industry sees the US attack again with restrictions on SMIC, the large Chinese semiconductor manufacturer and rival of companies such as TSMC and Samsung Electronics. Also Asian factories, but of Taiwanese and South Korean origin respectively.

The US blockade will further widen the huge gap between TSMC or Samsung and SMIC, the great Chinese alternative in the manufacture of semiconductors that until 2021 does not plan to start its production of 7 nanometer semiconductors.