This extension of the trade blacklist would come after administration of President Trump has effectively cut Chinese communications equipment company Huawei off from its sources of ICs by including the company on its “entity list.” (see US government reinforces Huawei chip embargo).

Reuters cited a spokeswoman at the Department of Defense as its source. Such a move would force US and other suppliers to seek a special license before supplying goods and services to the company.

Although SMIC cannot yet supply leading-edge ICs, with its highest performance chips being at about the 14nm FinFET node, it is China’s best hope of moving towards self-sufficiency in leading-edge semiconductors in the long term.

Many US companies are key providers of semiconductor manufacturing equipment and no leading-edge wafer fab can operate without these. US company Applied Materials is the world’s largest semiconductor manufacturing equipment supplier. Also at the leading-edge ASML Holding NV (Bilthoven, The Netherlands) is a monopoly supplier of the extreme ultra violet (EUV) lithography equipment required to make chips at 5nm and below.

ASML and most other companies in the west are operating in line with US requirements on supplying China (see China warns Netherlands over blocked ASML export).

Applying the licensing requirement to SMIC would bring China’s move towards self-sufficiency and global significance in semiconductors under tight US control.

Next: SMIC responds

Although such an embargo would not cause the immediate closure of SMIC, a lack of on-going support and spares for equipment would have an impact on productivity. In the medium to longer term it could cause SMIC to change its methods of manufacturing and what it is able to make.

The news caused SMIC’s share price to fall by 20 percent when it opened Monday September 7. However, due to the strong run on the shares after they opened on the Shanghai stock market the price has only fallen back to where it was on June 1.]

In a statement SMIC said: “Any assumptions of the company’s ties with the Chinese military are untrue statements and false accusations. The company is in complete shock and perplexity to the news. Nevertheless, SMIC is open to sincere and transparent communication with the U.S. Government agencies in hope of resolving potential misunderstandings.”

Related links and articles:

US government reinforces Huawei chip embargo

China warns Netherlands over blocked ASML export

SMIC looks to raise $3 billion in Shanghai

Huawei is hurrying to build a wafer fab

US embargo causes Huawei to run out of Kirin processors

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