Chipmaker SMIC to benefit most from China's new semiconductor policy

Mainland's biggest maker of semiconductors expected to be main beneficiary of government move to speed up industry's development

PUBLISHED : Friday, 04 July, 2014, 1:41am
UPDATED : Friday, 04 July, 2014, 1:41am

Semiconductor Manufacturing International Corp (SMIC), the mainland's biggest contract chipmaker, could become the prime beneficiary of a new government policy that aims to accelerate the industry's development.

In a much-anticipated move last week, the State Council introduced the "Guidelines to Promote National IC Industry Development", which sets out central government targets and long-term support for domestic designers, developers and manufacturers of integrated circuits.

This high-level framework proposes the setting up of a National Industry Investment Fund, managed by professional investors and used to inject an unspecified amount of capital into the mainland's semiconductor industry. The financing will be used to expand manufacturing capacity, boost research and development, and push for market restructuring and consolidation.

"Although no company is singled out, we believe the announcement is positive for SMIC and Chinese [semiconductor] companies in general," Mark Li, a senior analyst at Bernstein Research, said in a report.

Li expects Shanghai-based SMIC to receive "a sizeable part" of the government-backed stimulus, which would help lower the company's capital expenditure and asset depreciation. "We believe it would be a primary beneficiary," he said.

SMIC in February named Gao Yonggang, a veteran of big state-owned enterprises, as its new chief financial officer. He replaced Gareth Kung, who now serves as executive vice-president of finance.

Li said the appointment of Gao, who has previously served as chief financial officer at the China Academy of Telecommunications Technology and chairman at Datang Telecom Group Finance, signalled a major endorsement from the government.

SMIC plans to boost capital spending to US$1.1 billion this year, up from US$880 million last year, after posting its eighth consecutive profitable quarter in the three months to March.

The 25 per cent increase in expenditure is needed to expand its foundry capacity to meet demand in the fast-growing consumer electronics and communications markets.

Its mainland customers consist of "fabless" semiconductor design companies, which outsource their fabrication to chip foundries such as SMIC. Multinational clients include Qualcomm, Texas Instruments and AMD.

According to the new industry guidelines, the near-term focus of the domestic chip design sector includes smartphones, media tablets, digital television, networking equipment and so-called "wearable" smart devices.

The Ministry of Industry and Information Technology said last week the semiconductor industry was vital to national development and information security. But the local sector remains too small to meet domestic demand, which is forecast to rise to 1.2 trillion yuan (HK$1.5 trillion) next year from 916 billion yuan last year.

The guidelines aim to help domestic industry sales to reach 350 billion yuan by next year, from an estimated 269 billion yuan last year, enabling more local firms to take business from foreign chip suppliers.