Profits fall for China's top chipmaker as sanctions bite

Profits fall for China's top chipmaker as sanctions bite
by AFP Staff Writers
Shanghai (AFP) Mar 28, 2024

China's top chipmaker posted on Thursday a fall in annual profits last year, the first since the United States imposed sanctions on it in 2020 as technological rivalry between Beijing and Washington intensified.

Semiconductors are an indispensable part of the modern economy, used in everything from kitchen appliances and mobile phones to cars and weapons.

The chips industry is increasingly caught in the crossfire as the United States and China vie for technological supremacy, with relations between the world's two largest economies deteriorating in recent years.

Washington has sought to cut Chinese companies off from supply chains that give access to advanced US technology, tightening export restrictions on chips.

Semiconductor Manufacturing International Corporation (SMIC), China's leading chipmaker, was targeted by US sanctions in 2020 over concerns about its military ties.

SMIC, listed in Hong Kong and its home city Shanghai, reported profits of $902 million for 2023, down 50.1 percent from the previous year.

Revenue for the year was $6.3 billion, down 13.1 percent.

The latest figures compare to a profit of $1.7 billion in 2022 and revenue of $7.2 billion.

"In 2023, the semiconductor industry went into a downward cycle due to global economic weakness, soft market demand and other factors," SMIC said.

Beijing is seeking self-sufficiency in semiconductor manufacturing, directing billions of dollars in state funds in recent years in a bid to catch up with foreign competitors.

SMIC is "at the core of China's semiconductor dream", said Gary Ng, a senior economist at Natixis who specialises in the global chip trade.

"With state-led domestication and subsidies, the Chinese flagship chipmaker is actively adding manufacturing capacity and has made some progress in advanced nodes," Ng told AFP.

Experts say SMIC has managed to produce a seven-nanometre chip -- likely impossible without access to foreign technology -- calling into question the effect of US sanctions.

- Huawei smartphone -

Chinese tech giant Huawei, which has also grappled with severe US restrictions, unveiled its new Mate 60 Pro smartphone last year powered by just such an advanced chip.

Bloomberg reported this month that SMIC and Huawei used technology from the United States to develop the chip in 2023, using machinery obtained before Washington banned such sales to China a year earlier.

US Under Secretary of Commerce for Industry and Security Alan Estevez said last week that SMIC "potentially" violated US laws in making the processor for Huawei.

The United States has also urged allies, including the Netherlands and Japan, to restrict the flow of advanced technology to SMIC and other Chinese chip firms.

Dutch Prime Minister Mark Rutte said in Beijing on Wednesday he couldn't share details of what he had discussed with Chinese President Xi Jinping about semiconductors during a two-day visit.

The Netherlands is home to ASML, a world-leading manufacturer of machines used by companies around the world -- including SMIC -- to make state-of-the-art semiconductors.

- Xi defiant -

Rutte was accompanied by Dutch Trade Minister Geoffrey van Leeuwen, who discussed the export of advanced lithography machines during a meeting with his Chinese counterpart, Wang Wentao, on Wednesday.

ASML announced this year it had been blocked from exporting "a small number" of its advanced machines to China, amid reports of US pressure.

A defiant Xi told Rutte that China's technological progress could not be held back.

"The Chinese people also have legitimate development rights, and no force can stop the pace of China's scientific and technological progress," Xi told Rutte, according to state news agency Xinhua.