China’s top chip maker SMIC sees revenue grow as state subsidies surge amid trade war

State subsidies for the semiconductor industry have surged more than 20 per cent from 2017, according to the company’s CFO

PUBLISHED : Friday, 10 August, 2018, 11:49am
UPDATED : Friday, 10 August, 2018, 12:23pm

China’s biggest contract chip maker, SMIC, announced solid revenue growth for the second quarter as state subsidies soar amid the escalating trade war.

Semiconductor Manufacturing International Corp (SMIC), which is listed in Hong Kong and the US, said its revenue for the second three months of the year reached US$890.7 million, up by 7.2 per cent from the previous quarter and 18.6 per cent year on year.

Profit for the second quarter declined 5 per cent from a year ago to US$31.7 million, or 5 cents per share.

“SMIC is in a period of transition and preparation,” said Zhao Haijun, co-chief executive officer of the company, in a conference call on Friday morning.

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State subsidies have surged since the beginning of the year, rising by more than 20 per cent from 2017, said Gao Yonggang, the company’s chief financial officer.

“The company received research and development subsidies worth about US$19 million from the state in the second quarter. For the whole year, the subsidies are expected to reach US$100 million,” he added.

The executives said they have achieved significant progress in developing 14 nanometre FinFET technology – similar to the 16nm processing technology produced by the Taiwanese chip maker TSMC, which Apple adopted for its iPhone 7 core processor chips in 2016.

“The first version of the products is ready for circuit evaluation by customers,” Zhao said.

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The trade war between the US and China has so far had a “limited” impact, even though the firm relies heavily on equipment and wafers – thin slices of semiconductor material – from American suppliers.

“We have limited exposure on the end products, but we have been closely observing progress,” Zhao said.

The Trump administration on Tuesday finalised plans to impose new tariffs on US$16 billion worth of Chinese imports, mainly chemicals and electronic parts, which will bring the total value of products covered by the duties to US$50 billion by the end of the month.

“The tariff impact has still been relatively modest for the semiconductor industry as both sides are still avoiding directly targeting areas that both countries’ suppliers have high exposure to, including PCs, servers and smartphones, which account for a sizeable portion of chip demand,” said Randy Abrams, an analyst with Credit Suisse in Taipei.

He said Chinese chip makers still have an opportunity to benefit from domestic policy aimed at supporting the industry and building up a local ecosystem to enable better self-sufficiency.

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“For SMIC, there is still a wide gap in resources, scale and dollars – even with the government support – to match the leader TSMC, so it will take time, even with the broader support.

“The risk here is if foreign governments put more export controls on critical technology, though, to limit this progress,” he said.

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After the first batch of tariffs kicked off on July 6, only about 10 per cent of China’s tech exports to the US would come under the tariffs, according to a report issued by Credit Suisse.

“The latest US$200 billion tariff amount announced from the US and subject to a review in the next few months still largely spared direct technology categories, although it did add TVs and covers a number of consumer products (appliances, home products, tools, and seafood),” said the report issued in mid July.