China's largest chipmaker, Semiconductor Manufacturing International Corporation (SMIC), has warned about the possible impact of new US restrictions on key technology on its operations.
In a filing with the Hong Kong Stock Exchange on Sunday, SMIC warned that the US Commerce Department has issued letters to its American suppliers regarding restrictions on dealing with the Chinese firm.
According to the SMIC, US export regulations state that "accessories and raw materials to SMIC will be subject to further restrictions" and suppliers will need to apply for an export license prior to selling to SMIC.
Prior to this, the US government has prohibited the chipmaker from supplying troubled tech company Huawei as part of its campaign against the Chinese tech giant's global business.
Similar to other global chipmakers, SMIC is dependent on US software, machinery and technology in its semiconductor design and manufacturing process. According to analysts at brokerage firm Jefferies, an estimated 40% to 50% of SMIC's equipment comes from the US.
SMIC shares plummeting on US sanction threat
Last month, the shares of Semiconductor Manufacturing International Corp. (SMIC) fell by almost 23% in Hong Kong due to a possible US sanction on exports to the firm.
SMIC shares dramatically decline following news that the US Department of Defense and other agencies are considering a sanction on exports to the Chinese chipmaker. The decline resulted to a loss of 31 billion Hong Kong dollars from its market value.
According to a Reuters report, SMIC, the biggest semiconductor manufacturer in China, is currently being scrutinized for its relationship with the Chinese military.
The firm could be added to a list of companies the US government considers to be a threat to American interests. Firms included in the list would find it difficult to purchase vital technology because US firms are banned from selling to them without first obtaining a license to do so.
Last year, Chinese tech firm Huawei was added to the list, resulting to challenges to its global business.
In response to the report, SMIC said it was “in complete shock” and emphasized that it "manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses."
"We have no relationship with the Chinese military," the firm argued.
SMIC also mentioned that it is "open to sincere and transparent communication" with US government agencies “in hope of resolving potential misunderstandings."
The recent news caused its shares to fall by almost 5% in Hong Kong on Monday and the firm's stock has fallen by almost 60% from a July peak of 41.95 Hong Kong dollars or $5.40.
Uncertain future
Last week, a Department of Commerce spokesman said the department cannot comment on the situation of SMIC but noted that it "is constantly monitoring and assessing any potential threats to US national security and foreign policy interests ... [and] will take appropriate action as warranted."
Jefferies analyst Edison Lee wrote in a research note that the letter from the commerce department could have been a simple reminder to SMIC's business partners that the US agency's definition of "military end-users" includes private companies that supply products to the military.
Lee wrote: "It does not mean a blanket ban on SMIC."
