Entering text into the input field will update the search result below

SMIC: U.S. Sanctions Aimed At This Chinese Foundry Aren't Working


  • U.S. sanctions against China's SMIC haven't worked in the last 18 months as SMIC continues to exhibit strong revenue growth at the 14nm node and above.
  • As with the Russian sanctions, where Biden strongly stated "sanctions never deter," questions are raised about the impact of these sanctions.
  • The only company impacted is equipment supplier ASML, from The Netherlands, not China.
  • U.S. semiconductor equipment suppliers Applied Materials and Lam Research have had little to no impact.
  • This idea was discussed in more depth with members of my private investing community, Semiconductor Deep Dive. Learn More »

Made in China

Yakobchuk/iStock via Getty Images

The U.S. government seems to be leading from behind when it comes to imposing sanctions on Chinese foundry Semiconductor Manufacturing International Corporation (SMIIC) (OTCQX:SMICY). For example,

  • On July 17, 2020, prior to the U.S. sanctions, I published a Semiconductor Deep

This free article presents my analysis of this semiconductor equipment sector. A more detailed analysis is available on my Marketplace newsletter site Semiconductor Deep Dive. You can learn more about it here.

This article was written by

Robert Castellano profile picture

Dr. Robert N. Castellano, is president of The Information Network www.theinformationnet.com. Most of the data, as well as tables and charts I use in my articles, come from my market research reports. If you need additional information about any article, please go to my website.

I will soon be initiating an investor newsletter. Information to register will be online on my website.

I received a Ph.D. degree in chemistry from Oxford University (England) under Dr. John Goodenough, inventor of the lithium ion battery and 2019 Nobel Prize winner in Chemistry. I've had ten years experience in the field of wafer fabrication at AT&T Bell Laboratories and Stanford University.

I have been Editor-in-Chief of the peer-reviewed Journal of Active and Passive Electronic Devices since 2000. I authored the book "Technology Trends in VLSI Manufacturing" (Gordon and Breach), "Solar Panel Processing" (Old City Publishing), "Alternative Energy Technology" (Old City Publishing). Also in the solar area, I am CEO of SolarPA, which uses a proprietary nanomaterial to coat solar cells, increasing the efficiency by up to 10%. I recently published a fictional novel Blessed, available on Amazon and other sites.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (9)

I don't know how the sanction on semiconductor will play out in the future but in areas where US has imposed absolute sanctions like space technology, nuclear technology, aerospace technology, China has made its own inroad and developed its own industrial footprint that can stand on its own.

To China, it is matter of time and determination to develop a particular industry. EUV lithography is not an absolute barrier that China cannot overcome. It is just not economical to invest in this when the risk/reward ratio is not favorable.
@typecheck Almost certainly, Chinese manufacturers of DUV equipment are already looking at developing EUV. Only SMIC in China is at the point of becoming a potential buyer. At this point, more practical to perfect DUV machines which have a much larger market. A Chinese made EUV system would be expensive given that SMIC would be the only customer for the next few years. It is still perfecting 7nm. First want to get low defect DUV even with a lot of printing steps. Once this is perfected, can experiment with an EUV machine for a stretch. Companies using EUV generally started with a single machine until processes and supporting components work well. Takes a while to perfect pedicles and other accessories needed to work with EUV. Without the full ecosystem it is a just a very expensive toy. For Chinese equipment manufacturer, even priced at $200 million, first machine likely to be a loss leader to build business.

As an aside, the greatest weakness of China, at this point in time, if they are trying to become totally self-reliant, is their ability to manufacture blank wafers! Chinese wafers are not near good enough quality to print 28nm circuits without a huge defect rate! SMIC is still dependent on west for a variety of key components including wafers. China's push to require government entities to only use Chinese made computers and Chinese origin software in two years will cause a lot of progress. The big question is whether they are detail oriented to fill in all the details like high quality wafer production.
Robert Castellano profile picture
@zver11 Yes agree. They're looking at a lot of different methodologies, including Changchun Institute of Optics, fine Mechanics and Physics, Chinese Academy of Sciences(CIOMP).
Interesting point on wafers. Thank you.
rodness profile picture
Robert, the purpose of the sanctions against Russia isn't to deter. It's to cripple Russia's ability to wage war. The US honed sanctions as an economic tool after the first Gulf War and successfully (though ironically, given our invasion) neutered Saddam's ability to build WMD by 2003. The US has more or less moved away from using sanctions broadly to coerce civilian populations to overthrow their governments. Sanctions are now tailored to deny the adversary's capabilities.
My understanding is that sanctions against China are far far less comprehensive and are intended to prevent China from narrowing the technological gap with the West. So the question you should be answering is not whether sanctions have broken China's semiconductor industry or profits but rather whether they have hindered China's ability to build more sophisticated semiconductors.
Robert Castellano profile picture
@rodness This is a joke comment right? I see how the sanctions crippled Russia going into Ukraine.
The sanctions in China to prevent China from narrowing the technological gap with the West are a byproduct of the U.S. attempts to limit and restrict advanced chips going into military products.
rodness profile picture
@Robert Castellano As I stated, the purpose of the sanctions was *not* to deter. The sanctions undermined Russia's ability to modernize its military. Why do you think the Armata combat system has not yet entered into mass production?
While, I do not consider Chinese stocks a safe investment for a foreigner(political as much as economic issues), I expect SMIC to grow into a major world class foundry. China's 2025 goals of total domestic semiconductor supply chain probably will not catch up to TSMC top nodes by then, but it will be competitive for most products. Sanctions up the motivation for Chinese(and other sanctioned entities) to buy from Chinese suppliers and developing a home grown supply chain. Electronics sanctions have more disruptive effect on small economies such as Iran or Russia, but China is a large enough market that it can support its own semiconductor industry. The fact that most advanced countries have outsourced most of their manufacturing to China, strengthens the ability of Chinese foundries as they are near their customers and these customers are subject to both formal and informal government pressure to favor the Chinese sourced electronics over imports in all their manufacturing operations.
People don't want to believe this and have little inner knowledge but SMIC is advancing at a better and faster clip than their competitors... still a sleeper and dirt cheap of a stock, but of course with all the noisy risk factors swirling non stop, such as sanctions threat that has only served to push SMIC further and faster along.
For those that need product, sanctioning suppliers never works and is stupid to a fault. Both dems and repubs have been stupid enough to have imposed sanctions and wound up hurting their own far more. Yet still they do it. Insanity
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.