Shares in Semiconductor Manufacturing International Corp. dropped Monday in Hong Kong after the company warned of adverse effects from new US export restrictions, which are part of the countries’ growing decoupling on technology.
China’s top chip producer fell nearly 8% at one point to a roughly four-month low. The stock ended the session down 4.6% at HKD 17.28 (USD 2.23).
In a Sunday filing to the Hong Kong Stock Exchange, SMIC announced that the US Commerce Department sent letters to some of its US suppliers saying they will need to obtain prior approval before exporting items to SMIC.
The restriction “may have potential material adverse effects on the company’s future production and operations,” SMIC said.
The content of the Commerce Department’s letter was first reported in late September. SMIC at the time said it had not received any official notice regarding the matter.
SMIC uses technology from Applied Materials and other US companies to produce semiconductors. It could face difficulties constructing and expanding plants if the Commerce Department bars exports from such suppliers, which in the long run could impact production as a whole.
China’s greater chipmaking sector could suffer as well. Chinese President Xi Jinping aims to boost the country’s self-sufficiency in chips under his “Made in China 2025” initiative. SMIC is a key part of this push as the leading player in the industry, and counts state-owned funds and companies among its major shareholders.
The export curbs against SMIC are also a setback for Huawei Technologies, which in mid-September was barred from buying chips built using US technology.
Huawei was expected to lean more on SMIC’s chip production instead. But with that company now also facing restrictions, it may be forced to seek new, alternative suppliers. A major chip supply disruption would hinder production of Huawei’s mainstay products such as smartphones and telecommunications equipment.
SMIC is believed to have been stocking up on foreign parts and manufacturing equipment since the beginning of this year in preparation for a US crackdown. The company also said Sunday that it began preliminary talks with the Commerce Department. But the US government remains wary of China’s rise in high tech fields, and is unlikely to lift the export curbs.
The Chinese company is reportedly working to build a supply chain that does not rely on US technology, but the effort is expected to take some time to bear fruit.
This article first appeared on Nikkei Asia. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei.