SMIC Shares Reverse Losses As Company Seemingly Retains Disgruntled CEO

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Shares of China's Semiconductor Manufacturing International Corporation (SMIC) gained during trading today in Hong Kong after closing slightly lower over Friday's price. The shifts came as the company announced on Thursday that its Co-CEO Mr. Liang Mong Song was still performing duties under his role at the company. Mr. Liang's surprise resignation announcement in December had caused SMIC's shares to spiral downwards, as the decision came in the wake of the United States government's decision to add the company to the Department of Commerce's Entity list - a move aimed towards limiting China's access to American technologies for manufacturing high-end semiconductors.

SMIC Shares Rally As Company Hopes To Maintain Semblance Of Normalcy Following Latest American Sanctions

The chipmaker's stock price began its downward movement on Tuesday, December 15th, 2020 when copies of Mr. Liang's letter began to make rounds in the Chinese media. SMIC, which had closed at HK$ 22.1/share on Monday, started to slide downwards as it closed on HK$ 20.2 by the end of Thursday's trading. The shares then climbed up slightly the following day but once the new sanctions were announced, they lost this momentum once again and closed at a near three-month low of HK$ 18.22 on Tuesday last week.

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However, following this, the stock started to appreciate once again. It peaked on Thursday, closing at HK$ 22.1 - the value prior to Mr. Liang's resignation announcement, and after the market closed, SMIC put out a notice listing its current directors, their roles and their functions.

In this list, Mr. Liang was present as the company's co-chief executive officer, and he was joined by Mr. Chiang Shang-Yi as the company's vice-chairman. Mr. Chiang's appointment had been the one that caused Mr. Liang's surprise resignation, and based on the notice, it appears as if the pair will work together to navigate their company in the wake of debilitating American sanctions.

After rising to HK$ 23.20 during the day's trading, Semiconductor Manufacturing International Corporation's (SMIC) shares closed 2.49% lower during trading today, with rumors also suggesting that its supply chain for mature chip nodes had been approved.

In its press release, the Commerce Department had specifically mentioned countering SMIC's ability to manufacture semiconductors on the 10nm and lower process nodes, but the release did not contain another key aspect of the latest sanctions. A process node is collectively used to refer to the physical dimensions of a single transistor or circuit that is part of a larger chip manufactured through the node, and in the chip arena, smaller nodes represent technological gains and manufacturing complexities.

In its final rules, posted on the Federal Register in late December, not only did the DoC limit SMIC and its ten related entities' ability to secure access to technologies required for 10nm and smaller chips but in the fine print, it also restricted their ability to secure extreme ultraviolet (EUV) lithography technology.

Specifically, in the DoC's words, all of the entities will face a:

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Presumption of denial for items uniquely required for production of semi- conductors at advanced technology nodes (10 nanometers and below, including extreme ultra- violet technology)[EMPHASIS ADDED]; Case by case for all other items.

EUV is thought to be critical when it comes to reducing transistor size owing to the vastly smaller wavelength of ultraviolet light, which reduces the steps that are required for further reducing this wavelength to print the circuits on a prepared piece of silicon.

In his time at SMIC, Mr. Liang has been responsible for developing advanced chip nodes for the company. More importantly, in his resignation letter, the executive had stated that SMIC's development of both the 5nm and 3nm process nodes was contingent on the company's ability to secure access to EUV machines.

With the latest sanctions, these efforts will face new hurdles that will limit the company's ability to emerge as a global player in the chip industry to compete with the Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronic's chip arm Samsung Foundry.

Yet they come at a time when renewed tensions between the U.S. and China has injected fresh rigor in the latter's attempts to create a domestic chip supply chain - efforts which led to 60,000 new chip-related firms being set up in the country last year amidst a $1.4 trillion state-backed program aimed towards not only manufacturing chips but also low Earth orbit (LEO) satellites.

The author has no position in any of the stocks mentioned. NewAgeAds LLC has a disclosure and ethics policy.
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