Guangzhou- According to an analyst, Chinese chipmaker SMIC is believed to be a beneficiary at the time of global chip shortage. This is giving the firm relief from the pessimistic effects of U.S. sanctions.
Due to pandemic lockdown, there was a huge demand for consumer electronics which lead to the shortage of chips. For meeting the demand for the products there were progressive semiconductors which led to a shortage in other industries like automobiles.
However, the chips are prepared by a company called foundries which does the actual manufacturing. There are hardly a few companies that are capable of crafting leading-edge semiconductors. Two well-known and leading ones are Taiwan’s TSMC and South Korean technology giant Samsung.
In the auto industry, for every product, there is no need for cutting-edge chips, but they need a lot of semiconductors created out of older technology. This where China’s SMIC made a bigger entry.
SMIC has made its place in the market as China’s largest contract semiconductor manufacturer. It creates Chips which the other companies design. However, its technology is far behind the likes of TSMC and Samsung. But it won’t be able to manufacture the most cutting-edge components.
SMIC is playing a key part in the country’s ambitions to boost its domestic industry and fetches some self-reliance in semi-conductors. In December, the U.S. government mentioned SMIC as an export blacklist called the Entity List. This restricted American firms from exporting technology to SMIC. This move may hurt the Chinese firm’s capability of manufacturing advanced chips.
Notably, the semiconductor supply chain and process of manufacturing are quite complex. TSMC, Samsung, and SMIC are known for manufacturing chips but they highly depend on software and machinery from U.S. and European firms to do so. If SMIC’s are not permitted to access those tools, then it might become difficult for them to compete with the rivals.
SMIC is capable of producing semiconductors based on older technology. This can work as an advantage as cars and other products don’t need cutting-edge chips at this moment.
“Autos are not demanding a lot of leading-edge chips. A lot are still on peripheral chips … built on legacy nodes,” Sze Ho Ng, an analyst at China Renaissance said.
For example, these chips are mostly used for power management to regulate the battery use of devices.
Node is referred to as a semiconductor manufacturing process. This is also called a 5nanometer process. SMIC is not capable of producing these kinds of chips. Now the company is looking at 28 nanometers and above that is very much older. These are good enough for most of the industries which are beyond consumer electronics.
As per NG, SMIC is increasing the price for its consumers which will benefit the firm. Last month, SMIC mentioned, its revenue target in 2021 is “mid-to-high single-digit percentage growth.” Also, Ng said he sees “upside” to that.
The analyst needs to avail rating and a 43 Hong Kong dollar price target on shares of SMI that is listed in in the city. From Monday, it assumed that there will be a 60% rise which will close to 26.75 Hong Kong Dollars.