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China’s top chipmaker SMIC cuts spending due to US export curbs

TAIPEI/HONG KONG — China’s top chipmaker Semiconductor Manufacturing International Co. confirmed on Thursday that it is cutting capital expenditure for the year by nearly 12% due to stricter U.S. export controls, despite logging robust third quarter earnings.

SMIC Chairman Zhou Zixue said “there are indeed impacts because of the U.S. export control regulations,” though he stressed that they are manageable and that the company is communicating with Washington over the issue.

The company announced late on Wednesday that it is lowering its planned capex for 2020 to $5.9 billion because of the “uncertainty of certain equipment deliveries from U.S. suppliers due to export restrictions” as well as logistics-related delays for moving equipment into facilities.

“In the area of advanced chip manufacturing, we still see a clear gap between SMIC and industry leading peers in segments of chip equipment, technology and talent,” the chairman added.

The biggest Chinese contract chipmaker had raised its planned spending for the second time this year in August, from an original $3.2 billion to $6.7 billion, which is twice the company’s annual revenue of $3.12 billion in 2019. Many market watchers at the time speculated that the increase would be used to buy more production tools and parts ahead of schedule, to counter a likely Washington crackdown.

That crackdown came on Sept. 25, when the U.S. Commerce Department sent a letter to suppliers warning that they would need a special license to continue shipping to the Chinese chip champion, citing the “unprecedented risk” posed by the company’s alleged links with Chinese military.

SMIC said in a stock exchange filing in early October that it was aware of the new restriction and was communicating with the U.S. government on the issue.

For the July-September period, SMIC’s revenue significantly beat its forecast, rising 32.6% on the year to $1.08 billion, thanks to efforts by Huawei Technologies to stockpile chips before tighter U.S. export controls took effect on Sept. 15. SMIC’s gross margin of 24.2% was an improvement from 20.8% a year ago.

However, the Chinese chipmaker, like other global suppliers using American technology, is no longer allowed to ship to Huawei without a license from the U.S. government. As a result, it predicts that its revenue will drop 10-12% quarter on quarter in the October-December period, while its gross margin will slip to around 16% to 18%.

Liang Mong-Song, SMIC’s co-CEO, said the company is working to mitigate the impact of Washington’s crackdown on its business. Read from source….