SMIC's $7.6 billion share sale reveals China's ambitious plan for technological self-sufficiency

nanoguy

Posts: 518   +7
Staff member
Bottom line: China is currently able to produce 20 percent of the chips it needs for the local tech industry, with plans to cover 70 percent of its needs by 2025. If anything, it looks like both the Chinese government and private investors are willing to pay as much as it takes to make it happen, contributing to SMIC's meteoric rise.

With the trade war between the US and China raging on, the latter country is working hard to reduce its dependence on American chips and intellectual property related to semiconductors. Last year, the Chinese government poured no less than $29 billion into local tech companies to accelerate the development of CPUs, GPUs, network chipsets, and modems, among other things.

This is, of course, part of the now-famous "3-5-2" policy to replace all hardware and software solutions used in public institutions with homegrown alternatives -- a measure designed to sever supply chains between the two countries that will severely impact big American suppliers like Microsoft, Dell, and HP.

At the heart of China's ambitious plan to become technologically self-sufficient is the Semiconductor Manufacturing International Company (SMIC). Despite having offices in several countries and being the largest semiconductor foundry in China, SMIC has been a relatively low-profile entity -- that is until June this year when it decided to delist from the New York Stock exchange and make a public offering on Shanghai's STAR Market.

According to Bloomberg analysts, the company looks set to raise as much as $7.6 billion -- over two times its total revenue from 2019. This, along with a generous $2 billion cash injection from China's National Integrated Circuit Industry Investment Fund would go towards an expansion in manufacturing capacity, as well as achieving the more advanced capabilities needed for making 7nm and 5nm chips.

The Chinese government has high hopes that SMIC will help achieve its "Made in China 2025" plan of producing 70 percent of the semiconductors used by the country by 2025. To put things in context, China in 2019 imported $306 billion worth of chips for its local tech industry.

SMIC may be the country's largest chipmaker but it still trails competitors like TSMC and Samsung in several departments. For one, SMIC is only able to produce 14nm chips as of writing, with plans to start 7nm chips by the end of the year -- provided there are no more lockdown-related delays.

That's a far cry from the advanced capabilities of other foundries -- TSMC has been making 7nm chips since 2018 and is on track to start production of 5nm chips later this year. Samsung, too, has been honoring 7nm orders for the past two years and is confident it can get a head start on 5nm chip production by the end of summer.

To put things in perspective, it could take 5 to 10 years for SMIC to catch up with its rivals. According to Professor Zhou Zhiping from the Peking University of Beijing -- a man with decades of experience in the local semiconductor industry -- China will have to contend with the rising costs of developing and manufacturing chips on smaller process nodes.

The problems don't even stop there, as Huawei recently found after a new set of US sanctions severed its ties with TSMC, who is using American hardware and software in its manufacturing. This forced the Chinese tech giant to enter new partnerships with Shanghai Microelectronics, MediaTek, and SMIC, on top of spending billions on a two-year stockpile of American chips.

Huawei is easily one of SMIC's biggest clients, accounting for one fifth of the foundry's chip sales in 2019. However, SMIC is currently only able to manufacture lower-end chips like the Kirin 710A, which are based on a 14nm FinFET process, while using American software tools at every stage of the supply chain.

The Chinese foundry has been exploring domestic alternatives, but it's not clear if that obstacle will be completely overcome in the near future. SMIC will most likely be required to obtain a US export license, or else it risks losing access to essential equipment and software from American suppliers.

One thing is clear -- the Chinese government and private investors are flocking to buy as much SMIC stock as they can to help it close the technological gap between it and the competition. Furthermore, the company made a sensible decision and hired Bai Nong, who is the former general manager of GlobalFoundries, the world's third-largest semiconductor foundry after TSMC and Samsung.

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Uncle Al

Posts: 7,203   +5,588
China continues to put itself in a position to be able to thumb it's nose at the rest of the world. After stealing away so many American jobs they are in the position of being able to do it all and America is left in turmoil. At this point the smartest move America could make is to re-establish itself in manufacturing, engineering, scientific research, and digital technology and lock the door on China, forever. Anything less than that will leave us as a 2nd and eventually 3rd world country in the eyes of the rest of the world.
 

VariableSpike

Posts: 19   +18
By 2025, the world will be mostly invested into ARM + Quantum computing. And nobody will want the Chinese CPU-s, including China.
We won't though, one uses RISC, which means more instructions required per cycle to execute the same function as CISC, along with the fact that a translation layer will definetely be required - ARM excels in small mobile devices where battery performance etc. are optimal, and performance doesn't need to be insane, however the only wya to get a massive amount of performance is to lump cores upon cores like they did with the latest top500 ARM supercomputer, but because of that it has way higher power and heat dissipation demands. Quantum computing will cover this in some aspects and enable new paths in terms of exploring different types of algorithms that classical computers struggle with so we can get more data, however it sucks at some normal functions due to its nature, and is never intended to be a direct replacement to standard PC's/ servers / supercomputers, and more so a supplement.
 

Ben1978

Posts: 53   +51
China continues to put itself in a position to be able to thumb it's nose at the rest of the world. After stealing away so many American jobs they are in the position of being able to do it all and America is left in turmoil. At this point the smartest move America could make is to re-establish itself in manufacturing, engineering, scientific research, and digital technology and lock the door on China, forever. Anything less than that will leave us as a 2nd and eventually 3rd world country in the eyes of the rest of the world.
Did they really steal American jobs, or did American companies decide to take advantage of lower production costs in China?
 

candle_86

Posts: 403   +300
China continues to put itself in a position to be able to thumb it's nose at the rest of the world. After stealing away so many American jobs they are in the position of being able to do it all and America is left in turmoil. At this point the smartest move America could make is to re-establish itself in manufacturing, engineering, scientific research, and digital technology and lock the door on China, forever. Anything less than that will leave us as a 2nd and eventually 3rd world country in the eyes of the rest of the world.
Agreed the smart move is for American companies going forward to reinvest at home,and current international workers either be sponsored for citizenship or told to train their replacements. I'd also step in and ask Google, Microsoft, ECT to block software updates to China going forward, all they are doing anyway is cloning the code, might aswell block their access to said code. Once our manufacturing is running here in the states again I'd put an import ban on Chinese products kicking them 100% out of the market. I'd also do a forced sale of any Chinese owned companies operating in America to American owned companies with or without the agreement of China. I'd also like to see Chinese investors block on the American stock exchange and any current interest capped at no more than 7% total for any Chinese investment in any company traded on our stock exchange.
 

Vulcanproject

Posts: 1,159   +1,921
China won't and doesn't need the highest end chips. A couple years behind would serve the vast majority of their interests just fine. Their domestic market will be so big in 5 years.

It'll hit American tech interests hardest, particularly as Chinese companies are still likely to just breach intellectual property law til kingdom come knowing they have full governmental backing and protection.
 

Nobonita Barua

Posts: 49   +48
China continues to put itself in a position to be able to thumb it's nose at the rest of the world. After stealing away so many American jobs they are in the position of being able to do it all and America is left in turmoil. At this point the smartest move America could make is to re-establish itself in manufacturing, engineering, scientific research, and digital technology and lock the door on China, forever. Anything less than that will leave us as a 2nd and eventually 3rd world country in the eyes of the rest of the world.
It cant. It never was established in manufacturing, engineering, scientific research, and digital technology.
It was WW2 that gave it the chance to be what it was never prepared to be. All the talent from globe went there because all other countries were in ruin. They had chance to do something great. They did choose to do what their forefathers "emperors" did, only at far worse scale.

We thank(not) them for their service. They are no longer required/wanted by world.
 

Nobonita Barua

Posts: 49   +48
Great. With South Korea already there, we should start re-routing our chip/PC supply to Asia.
Time to shut the door on west permanently. I don't think there should be a problem because they started to "decoupling" first. We should make sure it's completed.
 

Nobonita Barua

Posts: 49   +48
By 2025, the world will be mostly invested into ARM + Quantum computing. And nobody will want the Chinese CPU-s, including China.
Quantum computing by 2025 when still people has no clue what's the real time application of quantum computing at the end of 2020?
BTW it has nothing to do with SMIC. Its a foundry.
Any commercial cpu is going to use silicon for foreseeable future unless there is breakthrough in other raw materials based ICs
 
Great. With South Korea already there, we should start re-routing our chip/PC supply to Asia.
Time to shut the door on west permanently. I don't think there should be a problem because they started to "decoupling" first. We should make sure it's completed.
Why would any country shut out the west because china is facing issues? China isn't exactly well liked or trusted by it's neighbors.
 

Angga B

Posts: 72   +73
They never think so far ahead, the ccp and its swarm of huge corporation minions. They keep making bad, rush, impulsive decision, for example: that 2 year stockpile of chips which is too much and will obsolete or outclassed sooner too.
If you think the country financial data is sketchy how can you be so sure its minions's financial report also accurate? They are not that healthy even in the best of time, now that the economy is tanking they will reap every bad decision they collectively and individually made, soon.
Any sane and looking far ahead country should try it's best to decouple from such tragedy, since yesterday.
 
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m3tavision

Posts: 529   +307
Steal everything you can, replicate yourself using child/slave labor and sell it to your citizens cheap... not letting them know they are living on other nations Property.

Communist Way...
 

poohbear

Posts: 455   +334
Good luck China. If you want to be self sufficient you won't be able to rely on copying and IP theft forever. The day will come when you have to innovate on your own. Is your education system set up to foster that? Do your laws facilitate the growth of free thought & contrarian thinking which is essential to innovation and thinking differently? When your Steve Jobs & Elon Musks emerge and propose something as ridiculous as a "phone computer" or a "smart electric car", will your society laugh at him for being different or applaud him?

To be self sufficient and not rely on the west, you will have to change your education system and cultural outlook from the ground up...that's not going to happen in 5 years. lol

Until then, your relegated to producing 3rd & 4th tier products because you're not a society of free thinkers or innovators. Being a manufacturing/factory hub is a far cry from being innovators. Your institutions & education system is not setup for that and it's laughable to think it'll happen in 5 -10 years, especially with a totalitarian government that stifles free thinking.
 
Good luck China. If you want to be self sufficient you won't be able to rely on copying and IP theft forever. The day will come when you have to innovate on your own. Is your education system set up to foster that? Do your laws facilitate the growth of free thought & contrarian thinking which is essential to innovation and thinking differently? When your Steve Jobs & Elon Musks emerge and propose something as ridiculous as a "phone computer" or a "smart electric car", will your society laugh at him for being different or applaud him?

To be self sufficient and not rely on the west, you will have to change your education system and cultural outlook from the ground up...that's not going to happen in 5 years. lol

Until then, your relegated to producing 3rd & 4th tier products because you're not a society of free thinkers or innovators. Being a manufacturing/factory hub is a far cry from being innovators. Your institutions & education system is not setup for that and it's laughable to think it'll happen in 5 -10 years, especially with a totalitarian government that stifles free thinking.
Education system? In a country where 35% of the population does not believe in Climate Change. Steve Jobs did not complete college. Elon did his schooling from South Africa. I will agree with you on many points, but our schooling is in the dumps right now.
 

m3tavision

Posts: 529   +307
Education system? In a country where 35% of the population does not believe in Climate Change. Steve Jobs did not complete college. Elon did his schooling from South Africa. I will agree with you on many points, but our schooling is in the dumps right now.
No, everyone believes in climate change. It's proven. We have had Ice age and age of lush green world with roaming dinos...


What not everyone agree upon, is how much humans effect climate change. As one eruption does more "damage" to the climate, than humans do over a long time period.
 

poohbear

Posts: 455   +334
Education system? In a country where 35% of the population does not believe in Climate Change. Steve Jobs did not complete college. Elon did his schooling from South Africa. I will agree with you on many points, but our schooling is in the dumps right now.
Education system meaning elementary school and high school. In China they are institutionalized and educationally socialized to obey from elementary school. Steve Job's thinking was shaped and educationally socialized in a western education system (again, elementary and high school, not talking about colleges necessarily) that encouraged free thought.
 
No, everyone believes in climate change. It's proven. We have had Ice age and age of lush green world with roaming dinos...


What not everyone agree upon, is how much humans effect climate change. As one eruption does more "damage" to the climate, than humans do over a long time period.
Thank you. My point exactly. Amazing!!
 
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m3tavision

Posts: 529   +307
Who said anything about China? Go ask every country around here. No one wants west anymore.
China is the reason so many Asian countries are getting pushed around. Everyone wants to do fair trade.. not fake trade, like Communist China deals. Where they steal import IP.

Communist China is nobody's friend... that is why the wumao are out.