On December 18, the U.S. Department of Commerce put China’s largest chipmaker SMIC on its entity list, but only three days before it happened, SMIC’s top personnel had just undergone a major shakeup when its co-chief executive officer Meng-Song Liang handed in his resignation letter to SMIC. Facing both internal and external problems at the same time, how big of an impact did this have on SMIC?
This time, the U.S. Department of Commerce is specifically targeting chips below 10 nanometers and does not want SMIC to use U.S. technology to support China’s civil-military integration projects. In a report, Bloomberg quoted U.S. Department of Commerce officials as saying that U.S. equipment and materials needed to manufacture 10-nanometer or more advanced chips would be difficult to export through approval, while export applications for equipment and materials needed to manufacture more mature chips above 10 nanometers would be reviewed on a case-by-case basis.
However, sub-10nm products are not SMIC’s main source of revenue at this stage. SMIC’s more advanced 28nm and 14nm chips currently account for less than 15% of total revenue in the third quarter of this year. In his resignation statement released on the 15th, SMIC’s joint CEO Meng-Song Liang also revealed that SMIC’s more advanced 7nm technology development has been completed, but has not yet entered mass production.
Listed entities: Short-term preparation, long-term development is a hidden worry
Chen Huiming, a former senior foreign analyst and managing partner of Core Capital who has long observed the semiconductor industry, told Voice of America.
“SMIC probably won’t have much of a problem in two or three years, but there is definitely a very big shadow over long-term development. I’ve always felt that SMIC’s impact on China’s semiconductors is no less than huawei‘s event.”
Chen Huiming said that SMIC’s capital expenditure this year is very large, and it is estimated that the company has long purchased many equipment that will be needed to manufacture 14nm and 12nm chips in the next one or two years, and its operation will not have big problems in the short term. This year, SMIC’s capital expenditure is about $5.9 billion, although the company’s volume is not as large as Taiwan‘s second largest chip maker UMC, capital expenditure is nearly six times that of UMC, which shows that SMIC has not been soft in purchasing equipment this year.
However, after the U.S. put SMIC on its list of entities, its foreign customers may have to take greater risks when placing orders with SMIC. Voice of America previously reported that some Taiwan chipmakers received new orders because of the U.S. sanctions against SMIC. Chen Huiming said that Qualcomm, one of SMIC’s largest customers, has moved some of its orders to Taiwan for production by UMC, and “foreign manufacturers are less likely to go to SMIC (to place orders), simply because (the customer) is going to do a medium- to long-term plan.”
However, Chen Huiming believes that the Chinese government will still find a way to negotiate with the U.S. government in the next two or three years, and this restriction may not last forever, “the U.S. government’s action is the key.”
Internal personnel strife: former TSMC comrades, today SMIC is not working together
In addition to the external impact, SMIC has to take into account the internal disturbances.
SMIC’s joint CEO Meng-Song Liang issued a resignation statement at the company’s interim board meeting on the 15th, saying that he was “dismayed and puzzled” by SMIC’s board of directors’ appointment of Shang-Yi Jiang as vice chairman, and Meng-Song Liang even said, “At present, SMIC is facing all kinds of suppression from the United States, resulting in a serious threat to the development of advanced The development of advanced technology is under serious threat. I believe that this personnel proposal today will certainly affect the company’s future.”
Chiang Shang-Yi, 74, from Taiwan, who was TSMC’s co-chief operating officer, was once Liang Meng-Song’s boss when he served as TSMC’s vice president of R&D. A Taiwan semiconductor industry source, who asked not to be named, told VOA that Liang later left TSMC in anger because he was not promoted after Chiang retired from TSMC in 2006.
In 2017, Meng-Song Liang joined SMIC and completed the development of technology from 28nm to 7nm for SMIC in just three years. He said in a statement that this was an achievement that would normally take a company more than 10 years to achieve, and that he almost never took a leave of absence and worked hard for the company, but the company wanted to hire Shang-Yi Chiang as vice director without informing him in advance, making him feel disrespected and distrusted, so he resigned.
The above-mentioned informed industry insiders observed that Liang Meng-song is very serious and has a very strong executive force. The departure of Liang Meng-song for Jiang Shangyi is the biggest drawback for SMIC: there is one less person who has the confidence to continue to develop more advanced processes.
“Meng-Song Liang is definitely the most important person inside SMIC.” Chen Huiming said, “(SMIC) should use a lot of soft and hard ways to talk to him, I don’t think SMIC will want to let him go.”
However, the aforementioned industry insiders also said that the bottleneck SMIC encountered now is that it does not have the EUV (extreme ultraviolet) machines needed to make more advanced 5nm chips, and the addition of Jiang Shangyi may also allow SMIC to stop burying its head in the development of the most advanced processes restricted by the U.S. and think about other possible strategies, such as the small chiplet technology he had mentioned with the media.
SMIC issued a news release on the 16th, stating that it is still verifying with Meng-Song Liang the true resignation of his will, and the company has not yet made any further announcement.
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