US reportedly suspends permission for materials shipping to SMIC

Amidst Semiconductor Manufacturing International Corporation's (SMIC) growing capacity to produce advanced chips despite sanctions from the US, a report indicates that the US government has intensified pressure by halting the shipment of specialty materials to SMIC.

Reuters, citing three unnamed sources, reported that towards the end of last year, the US Commerce Department sent numerous letters to US suppliers of SMIC, halting permission to sell to SMIC's most advanced plant, SMIC South.

According to the report, millions of dollars worth of chipmaking materials and parts from at least one supplier, Entegris, were halted to SMIC South, with many other companies already stopping selling to the SMIC entity.

Although the US has been targeting China-based tech companies by stopping advanced technologies from flowing into China, the pressure intensified as Huawei, leveraging SMIC's technologies, launched the Mate 60 Pro powered with an advanced chip, Kirin 9000, in August, leading to calls from the US for imposing more measures.

Reuters quoted a spokesperson for the Chinese embassy in Washington accusing it of out-and-out economic bullying, which will inevitably backfire.

According to Entegris' annual report, revenue generated in China has increased from US$364 million in 2021 to US$566.90 million in 2023, accounting for about 16% of the chemical maker's sales.

At the latest earnings call held in early February, SMIC said the company plans to continue advancing the construction plans for the 300mm factory and capacity announced in recent years in 2024, with capital expenditures expected to remain roughly flat compared to the previous year. SMIC added that the company pays great attention to its supply chain's security, reliability, and robustness, sparing no effort to promote diversification and indigenization.

Amid the US sanctions, the indigenization in the chip ecosystem in China has accelerated. According to data from the China Electronic Production Equipment Industry Association (CEPEA), in 2021, locally produced semiconductor equipment sales accounted for 20.02% of the total semiconductor equipment sales in China. In October 2023, South Korean media Ddaily quoted industry sources saying that China has doubled its localization rate to over 40%, with the localization rate of PVD and oxidation equipment over 50%.

Regarding semiconductor materials, Fong Li, deputy director at the Shanghai Industrial Technology Research Institute, said the localization rate in the semiconductor materials in China was about 25%, adding that the bulk gases and target materials have higher localization rates than resistors, masks, and reticles, reports Security Times China.

Source: Entegris, February 2024

Source: Bloomberg, February 2024