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The logo of Semiconductor Manufacturing International Co is seen at the company’s main factory in Shanghai on September 7, 2020. Photo: EPA-EFE

US-China tech war: Suppliers to SMIC said to be struggling to get export licences

  • The Trump administration placed SMIC on an entity list that requires US suppliers to obtain licenses to sell to the Chinese chip giant
  • Sources say approvals from the US government have been slow to come

The US government has been slow to approve licences for American companies like Lam Research Corp and Applied Materials to sell chip production equipment to Chinese foundry Semiconductor Manufacturing International Co (SMIC), sources said, as the impact of a global chip shortage spreads.

Many licences for US suppliers to ship an estimated US$5 billion dollars’ worth of equipment and materials have not come through, according to more than half a dozen industry sources, though numerous companies submitted applications soon after the Chinese company was blacklisted in December. Certain licences have been granted, including for small numbers of expensive equipment in recent days.

As policy shifts under President Joe Biden, who took over from Donald Trump in January, US government agencies led by new appointees still have not completely decided what should be sold to SMIC, which produces chips for Qualcomm and other American companies.

The Trump administration placed SMIC on the US Department of Commerce’s Entity List over concerns that the company was aiding China’s military.

The listing, which requires US suppliers to obtain a licence before shipping goods to SMIC, is unusual because it says most products should be granted on a case-by-case basis. However, equipment that can be used to make only the most advanced, 10-nanometre and smaller chips is likely to be denied licenses.

Why semiconductors are important in the US-China tech war

The Biden administration is supposed to make decisions on licence applications within a month, but follow-up questions stop the clock.

“Lam Research is still in the application process and has not yet received a response,” a spokeswoman for the Fremont, California-based company said on Wednesday.

Applied Materials’ chief financial officer said in a February 18 earnings call that its forecast did not assume licences would come through. A spokesman for the Santa Clara, California-based company declined further comment on the licenses this week.

SMIC did not respond to requests for comment, but the company has said it provides services solely for civilian and commercial end users and that it has no ties to the Chinese military.

Decisions on licences have been held up, as officials ask follow-up questions about applications in part to determine whether the parts or components could be diverted for use in producing items 10nm or smaller, sources said.

Washington trade lawyer Giovanna Cinelli said many licence applications have resulted in “a lot of back and forth, which has elongated the period of review”.

In a statement, a Commerce Department official dismissed the possibility that curbs on SMIC could contribute to the chip shortage. It said the shortfall was tied to older technologies, while SMIC restrictions relate to leading-edge technology. The statement did not address the potential impact of delays in licences for older technology.

Hopes rise for Washington to ease restrictions on SMIC amid chip shortage

SMIC, the largest chip foundry in mainland China, is an important player in the global semiconductor supply chain, which is under pressure as pandemic lockdowns drive up demand for electronics such as laptops and smartphones. Last month, SMIC said it could not meet customer demands for certain technologies and its plants have been running “fully loaded” for several quarters.

SMIC’s technological capabilities lag far behind cutting-edge foundries like industry leader Taiwan Semiconductor Manufacturing Co, according to industry sources.

Companies like Applied Materials and Lam Research, two key suppliers of production equipment, submitted numerous licence applications to sell to SMIC. The bulk have not yet been acted on, industry sources said.

A spokeswoman for Entegris, an advanced materials supplier, said the Massachusetts-based company had submitted 10 applications to sell to SMIC and received its first licence in the past week.

The main gate of Semiconductor Manufacturing International Co’s headquarters in Shanghai. Photo: EPA-EFE

Other companies that ship to SMIC include California’s KLA Corp and Massachusetts-based Axcelis Technologies. A KLA spokeswoman declined to comment on any licences and, while Axcelis’ chief executive spoke of “uncertainty” related to its licences on February 11, a company spokeswoman declined to provide an update.

Cymer, a San Diego-based company that makes deep ultraviolet light sources, is also among suppliers that need licenses to send parts to SMIC. A spokeswoman for ASML, the Dutch chip equipment maker that owns Cymer, declined to comment on the licences, saying she could not discuss customer-specific information.

Qualcomm, which uses the Chinese foundry to produce chips with decades-old technology, put in applications for tools SMIC needs to produce the chips, just in case equipment makers do not get their licenses for the tools, an industry source said. But they have not come through yet, the source added.

In September, SEMI, a worldwide semiconductor industry trade group, said in a draft letter seen by Reuters that SMIC accounts for as much as US$5 billion in annual US sales.