China's biggest chip maker misses profit estimates due to sting of sanctions

China’s biggest chip maker misses profit estimates due to sting of sanctions

The semiconductor manufacturer’s earnings missed expectations, reflecting a global dip in spending on hardware and computers.

The semiconductor manufacturer’s earnings missed expectations, reflecting a global dip in spending on hardware and computers.

China’s largest chip maker reported $470.8 million in net income for the third quarter, up 47% from a year earlier, versus an average estimate of $489.7 million. Revenue of $1.91 billion followed expectations of $1.93 billion.

The results underscore how SMIC is subject to US sanctions that have isolated it from critical US technology just as the market is slowing sharply.

Washington in October imposed its most sweeping restrictions yet to try to counter China’s tech ambitions, hurting the country’s tech companies more broadly in the long run. At the same time, sales electronics From smart phones To computers fade away as consumers cut back on spending to counteract a potential economic downturn.

In its earnings statement, SMIC indicated weak demand in cell phone And the consumer market combined with US export control rules regarding its forecast that revenue will decline by up to 15 percent sequentially in the fourth quarter.

Some players in the industry are doing better with their technological edge. Thursday, Taiwan The semiconductor manufacturer — the most advanced chip maker — reported a 56% increase in sales for the month of October. SMIC’s Hong Kong Shares are down more than 10% of their value this year as of Thursday’s close, while their Shanghai-listed shares are down more than 20%.

Washington in October unveiled a series of restrictions on the way chip companies do business with China’s technology industry, a series of restrictions that together represent some of the strongest measures taken so far to contain the rise of a geopolitical rival.

The measures, which have angered Beijing and prompted accusations of unfair targeting, threaten to disrupt a global economy already grappling with a potential recession, spiraling inflation and a slowdown in supplies. Some analysts warn that it could deal another blow to companies from Nvidia Corp and TSMC to Applied Materials Inc, as well as a group of Chinese start-ups that support the $550 billion chip industry.

Depending on how broad Washington’s application of the restrictions is, the impact could extend beyond semiconductors and into industries that rely on edge computing, from electric cars and aerospace to gadgets like smartphones.

On a personal level, the restrictions may force US SMIC employees to reconsider their employment. Theodore Brown, former Chairman of Arm Ltd., resigned. , in August after nine years on the SMIC Board of Directors.

SMIC is among a group of Chinese semiconductor manufacturers facing strict restrictions on US exports as Washington tries to contain Beijing’s technological rise. This is on top of rapidly declining global demand for electronics, as consumers leave behind a pandemic-era boom.

In response, domestic companies have tried to develop alternatives to American silicone. The Shanghai-based chipmaker has successfully upgraded its production technology over two generations this year to 7nm, although industry experts warn that it may not be based on the same standards as much larger competitors such as TSMC.

Also, those earlier restrictions of Washington, which are expected to lead to greater losses in the technology industry in China.

SMIC is critical to China’s ability to domestically produce chips such as we He is trying to undermine the technological progress in the country. Beijing may be willing to support losses in domestic competitors such as SMIC – fearing that its companies will not have access to key components.

But being blacklisted is detrimental to its ability to develop cutting-edge technologies. The company’s capacity is severely constrained by its lack of access to ASML Holding NV’s extreme ultraviolet (EUV) lithography systems, which are required to make the most advanced chips. The Dutch company has not shipped a single EUV machine to mainland China due to US pressure on the Dutch government.

The Trump administration blacklisted SMIC about two years ago over national security concerns, citing the company’s ties to the Chinese military, an allegation the chip maker denied.

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