SMIC Posts Record $1.08bn Q3 Profits But May Face Obstacles Due To US Chip Restrictions, Report Says

Despite the high earnings, the company is projected to battle a series of trade restrictions imposed by Washington in September, which could affect key components with US technologies in the future, reports revealed on Thursday.

Chinese chipmaker Semiconductor Manufacturing International Corp (SMIC) earned $1.08bn from July to September, up 32.6 percent from 2019 and a record high for the firm, the company wrote in a quarterly earnings report.

Profits for China's largest chipmaker reached record levels due to higher consumer spending on smartphones and smart home products, it said, but added US trade restrictions had delayed key components from the US.

The trade restrictions on US-based components may hit capital spending and the firm's ability to expand capacity, it wrote.

“The first impact [of US export controls] is on our scheduled capacity expansion,” Zhao Haijun, SMIC co-chief executive said in a phone conversation with analysts on Thursday as quoted by the South China Morning Post.

According to Zhao, the company was still "in the process of application" for licences of machines to produce wafers from 4Q 2020 up to 1Q 2021, leading to a "two-month delay" on some parts.

Demand for key technology platforms was still strong with "significant growth" from power management, RF signal processors, fingerprint and image signal processor applications, he explained.

"Our FinFET technology addresses a diverse range of applications, and the yield of our first-generation FinFET technology has achieved industry standards, while our second-generation FinFET technology is entering small-volume risk production," he concluded in a statement.

SMIC had been in talks with Washington and numerous US suppliers to receive licences for components, but export restrictions may affect production of its 8 and 12-inch wafers, among others, Zhao added.

The news comes after the US Department of Commerce ordered US firms to apply for licences to buy and sell with the Shanghai-based chipmaker, citing alleged security risks and the potential for Beijing's military to use the technologies.

The restrictions have also forced SMIC to cease production of Kirin series chipsets for Huawei Technologies. Further potential troubles for the firm's capacity to produce 14nm and 7nm chipsets could take place as a result of the restrictions.

Washington targeted Huawei, ZTE, SMIC, TikTok's ByteDance and WeChat's Tencent in recent months, namely after the former two were placed on a blacklist along with dozens of Chinese tech firms, citing national security risks.

The companies and Chinese government have sharply and repeatedly denied the accusations.

The Chinese State Council revealed in its Five-Year-Plan in October that the nation would invest roughly $1.4tn to build tech self-sufficiency amid the ongoing trade war with the US.

Mainland tech firms, including Huawei, ZTE, Tencent Holdings, Alibaba Holdings Group, and others will boost development of key technologies in artificial intelligence, 5G, internet of things (IoT), green energy, infrastructure and smart city applications.