Chinese chipmaker SMIC jumps 10% as chip shortage hits sales

Chinese chipmaker SMIC jumps 10% as chip shortage hits sales

- Semiconductor Manufacturing International Corp. jumped as much as 10% in Hong Kong after raising its annual sales outlook, as a global chip shortage drove up price of chipsets.

Revenue at China's biggest chip foundry in June rose 43% to $1.34 billion from a year earlier, beating the $1.3 billion average of analysts estimates. Gross income almost quintupled to $687.8 million. The company raised its targets for gross revenue growth and an annual margin to 30%.

Shanghai SMIC is China's best hope for gaining clout in advanced chips used in phones to base stations. Its capacity and technical know-how are crucial to helping Beijing overcome the American - led effort to curb its tech ambitions. However, the company has been unable to get key machinery and materials to keep advancing its technology, after China placed it under sanctions on national security grounds last year.

The U.S. Government has delayed some of SMIC's procurement requests for important 14-nanometer and 28 nanometer machines, CIO Zhao Haijun said on an earnings call today without giving reasons. 'SMIC will be able to get approvals on certain nodes. Notre job is to make it happen, he said, adding the company is also exploring alternative suppliers.

Shares of SMIC were up 5% at noon in Hong Kong. They have rallied about a third this year as investors bet that semiconductor firms will benefit from state largesse even as Beijing pursues a wider crackdown in the tech sector that's embroiled the likes of Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

Potential for more price increases and hopes for higher capacity expansion in 4 Q may make SMIC's guidance conservative. The company's new sales growth guidance of 30% implies a sequential decline of at least 5% in 4 Q sales. This is not unlikely from our scenario analysis. Global semiconductor-supply tightness, especially in mature-node chips, looks likely to increase to 2022. This would allow another round of price increases in 2H 21.

Achieving self-reliance in chipmaking is a top priority for China, which sees tech self-sufficiency as key to fending off growing threats from the U.S. Chinese President Xi Jinping tapped one of his most-trusted lieutenants, Vice-Premier Liu He, to oversee an initiative aimed at helping domestic chipmakers overcome American sanctions, Bloomberg has reported

The inability to acquire machinery and materials from key overseas suppliers has been a thorny issue for SMIC since the Trump-era blacklisting. In April, Lam Research Corp. informed analysts it was waiting to hear back from the U.S. government about its application for export license to SMIC. However, non-U.S. equipment vendors aren't similarly restricted. In March, SMIC said its contract with Chinese supplier ASML Holding NV extended to December 31, although the latter still hasn't obtained a license to make advanced extreme ultraviolet systems required to build cutting-edge chips to Holland.

The firm is currently able to manufacture chips using 14-nm technology - still generations behind industry leader Taiwan Semiconductor Manufacturing Co.'s ability to expand into advanced Nodes has limited its ability to manufacture chips. Instead, SMIC is trying to improve its packaging technology, to help beef up the performance of chips made by mature technologies.

SMIC's plants are operating at full capacity if chip shortages spread from electrical vehicles to electronic equipment including servers and smartphones. In March, the foundry announced a plan to build a $2.35 billion factory in Shenzhen, south China to be able to make as many as 40,000 12 inch wafers per month. The project will be partially funded by the local government.