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SMIC spending $9 bn to build China’s most-advanced wafer plant

Shares in Chinese chipmakers and tech giants fell on Monday, after US export control measures announced late last week.
Shares of SMIC, which is China's largest chipmaker, were down 4% at the close of trading in Hong Kong on Monday. Reuters file image.

(ATF) The sub-14-nanometer wafer plant that Semiconductor Manufacturing International Co (SMIC) is spending $9.06 billion to build has been identified by the local government as a key project for 2021, as the country bids to boost its semiconductor supply chain amid ongoing US sanctions in the tech sector.

Analysts say the facility, once up and running, will be able to make about 10% of the world’s 14nm chips. More advanced processes such as 12nm, N+1, and N+2 will also be produced at the new plant, according to plans previously revealed by the company.

N+1 and N+2 are internally developed technologies that the Chinese chipmaker uses to manufacture 7nm chips without an advanced photolithography machine. The nodes are reportedly comparable in stability but weaker in performance, compared to 7nm chips made by TSMC, which is already able to produce 5nm chips (and has 3nm chips in R&D stage). N+2 is an upgrade from N+1 and uses improved methodologies to render better performance on 7nm.

SMIC’s new 12-inch wafer plant in Shanghai was one of about a dozen computer chip projects included in a key project list for 2021 released by the Shanghai Municipal and Development Reform Commission on Sunday.

The list includes 166 projects in total in various sectors such as technological innovation, advanced manufacturing, education, public health, energy, and transportation.

Also on the list are a Huawei research and development (R&D) centre and Phase I of Tesla’s mega-factory.


In the meantime, Beijing Economic-Technological Development Area (BDA) last week announced the construction kickoff of another SMIC plant in the Chinese capital, with planned investment of $7.6 billion. The Beijing facility, slated to be China’s largest 12-inch wafer plant, will be focused on more mature technologies – 28 nanometer and above. It has a planned capacity of 100,000 per month.  

The SMIC Beijing plant was among 129 key projects totaling 400 billion yuan ($62.2 billion) of investment that made the BDA their new home. 

While the Shanghai plant fits well into SMIC’s strategy to move into more advanced manufacturing nodes to catch up to the competition, the Beijing plant will help expand the chipmaker’s capacity in mature nodes to keep up with customer demand.


SMIC revealed last week as it announced the fourth-quarter (Q4) financial results that it will allocate the majority of its $4.3 billion capital expenditure (capex) for 2021 to expand mature technologies, as US sanctions have squeezed revenues from advanced processes and eroded margins. 

The former US president Trump last year signed orders that prohibited semiconductor companies using American technology from supplying chips to Huawei, and SMIC was one of them. The former Trump administration subsequently added SMIC to an export control blacklist, cutting it off from obtaining chip equipment from American companies.  

To handicap SMIC’s capability in advanced technologies, the US Department of Commerce imposed a stricter review policy for products or technologies used at 10nm and below. 

US sanctions have already affected SMIC’s bottom line. Its share of revenue from the 14 nanometre (14nm) and 28nm processes – the most advanced chips – has decreased from 14.6% in Q3 to 5% in Q4. Several analysts say this is probably because SMIC has lost orders from Huawei, one of its biggest customers, since September. 

The company’s gross margin has decreased to 18% in Q4, compared with 23.8% in the previous quarter and 24.2% a year earlier.


SMIC’s Shanghai wafer plant, being constructed by its wholly-owned subsidiary Semiconductor Manufacturing South China Corporation (SMSC), is China’s first production line capable of so-called fin field-effect transistor (FinFET) manufacturing. FinFET semiconductors are denser and more efficient than non-FinFET chips. 

SMIC revealed in May last year that the total investment planned for the Shanghai wafer plant was $9.06 billion with the government-backed China Integrated Circuit Industry Investment Fund and Shanghai Integrated Circuit Industry Investment Fund providing part of the funding and owning 37.6% and 23.8% stakes in the joint venture respectively. The remainder of the funding will come from SMIC’s own financing channels.

In August of last year, SMIC said it would use 18 billion yuan ($2.8 billion) out of the 45.6 billion yuan ($7.1 billion) raised from its initial public offering (IPO) on the Shanghai Stock Exchange STAR Market to fund the 12-inch wafer plant project. 

As of May last year, SMSC was capable of making 6,000 14-nm wafers per month, but it wants to reach a manufacturing capacity of 35,000 units per month for 14-nm and below wafers, according to a filing by the Hong Kong-listed company. 

“SCMC’s planned capacity of 35,000 per month is about 10% of the world’s 14nm manufacturing capacity,” Geng Chen, an analyst from Hua Chuang Securities, said.

According to the research and analysis of Hua Chuang Securities, the plant’s manufacturing capacity was estimated to have reached 15,000 per month at the end last year. It started to generate sales last year and accounted for about 1.3% of the company’s revenue from wafer manufacturing in Q1 of 2020. 

Besides 14nm, SMIC’s more advanced nodes, 12nm and N+1, have also started mass production, as revealed by co-chief executive Liang Mong-Song in December. Liang said the company had finished developing the 7nm process and planned for trial mass-production in April 2021, plus development of 5nm and 3nm production in the future.

“SMIC’s development of the N+1 and N+2 processes is facing challenges in the short term brought by US’s restriction on equipment exports. The company reduced its 2020 capital expenditure from $6.7 billion to $5.9 billion in the third quarter. We can see that SMIC has slowed its development of advanced-node technologies. However, in the long run it still has very high potential,” Geng said.

Hua Chuang Securities expects SMIC to outperform peers such as UMC and Vanguard International Semiconductor Corporation in terms of profitability, citing China’s fast-growing demand for electronics and SMIC’s well-established connections with its mainland Chinese customers.

“US-China trade disputes and the sanctions on Huawei have also pushed Chinese fabless companies to be more aware of localisation. The chip designer SG Micro Corp, for example, is now shifting their orders to domestic foundries such as SMIC,” Geng said.

 In Q4, SMIC reported sales of $981 million, up 16.9% year-on-year, but down 9.4% quarter-on-quarter. The company expects revenue growth to slow in 2021, at a “mid-to-high” single-digit pace. 


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Iris Hong

Iris Hong is a senior reporter for the China desk, and has special interests in fintech, e-commerce, AI, and electric vehicles. She began her career in 2006 and worked for Interfax News Agency and for PayPal before joining Asia Financial in July 2020. You can reach out to Iris on Twitter at @Iris23360981


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