China’s high chip maker, SMIC, might be a giant winner from the worldwide semiconductor scarcity
A close-up of a CPU socket and motherboard lying on the table.
Narumon Bowonkitwanchai | Moment | Getty Images
GUANGZHOU, China – Chinese chipmaker SMIC could capitalize on global chip scarcity and give the company a break from some of the negative effects of US sanctions, according to an analyst.
The shortage of chips started when consumer electronics demand spiked as countries closed to fight the coronavirus pandemic. This demand for products that require advanced semiconductors has created bottlenecks in other industries such as automotive.
Chips are made by companies known as foundries that do the actual manufacturing. The top two are Taiwan’s TSMC and South Korean tech giant Samsung. That said, there are very few companies capable of making state-of-the-art semiconductors.
But not all products, especially in the auto industry, require the most modern chips. In fact, they need a lot of semiconductors based on older technologies. China’s SMIC could step in here.
What is SMIC?
SMIC can currently manufacture semiconductors based on older technologies. And that could work to its advantage, since cars and other products don’t need cutting-edge chips right now.
“Cars don’t ask for many high-end chips. Many are still on peripheral chips … which are based on legacy nodes,” said Sze Ho Ng, an analyst at China Renaissance.
These include, for example, chips that are used for power management to regulate the battery consumption of a device.
The node refers to a semiconductor manufacturing process. The most advanced process is known as the 5 nanometer process. However, SMIC cannot produce this type of chip. Instead, the company is looking at 28 nanometers and up, which are much older technologies but are good enough for many industries outside of consumer electronics.
Ng said SMIC has also raised prices for its customers, which should benefit the company. Last month, SMIC announced that its revenue target for 2021 is “mid to high single-digit percentage growth”. Ng said he saw “head” on it.
The analyst has a buy rating and a target price of 43 Hong Kong dollars on SMIC shares listed in the city. If that were to happen it would be a 60% increase from Hong Kong’s $ 26.75 close on Monday.