The Financial Times (February 11) said that China’s biggest chipmaker may lack leading-edge
technology and be under the yoke of strict US sanctions, but Semiconductor Manufacturing
International Corporation (SMIC)'s record sales last year hint at what to expect this year. Profit
from operations quadrupled to $1.4bn in 2021 over the year as its top line rose 39 per cent to a
record $5.4bn. It said SMIC has what the market needs most: the older, low-tech chips widely
used in cars, mobile network gear and smartphone cameras. Globally, carmakers themselves
cannot make enough cars to meet surging demand. Couple that with a boom in electric car sales
in China, up 160 per cent last year, and Beijing’s push to triple its 5G network coverage in the
next three years. All of that has kept the global supply of chips as tight as ever. Even so, risks
remain. US sanctions mean SMIC bears the constant risk of component supply disruptions. It
could lose important suppliers and clients such as US chip designer Qualcomm, which uses
SMIC to fabricate some of its chips. These US obstacles could also slow SMIC’s development
and production of any advanced chips. It relies heavily on ASML Holding, the Dutch maker of
crucial chipmaking equipment. ASML has previously had difficulties securing approval to
export to SMIC, reportedly due to US influence. SMIC will want to pump out all the chips it
can. Operating margins soared in 2021 to 25 per cent, treble that of the previous year. Three
new fabrication plants opening this year should keep that trend up. As pricier contract
chipmakers such as Taiwan Semiconductor Manufacturing Company are overwhelmed with
orders, clients once wary of US-China political crossfire may well turn back to SMIC.
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