China Invests $2.25 Billion In Local Semiconductor Fab SMIC

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Chinese chip maker Semiconductor Manufacturing International Corp (SMIC) has secured an investment worth $2.25 billion from the nation's state-backed investors as the Trump administration tightens trade restrictions on the country.

The China National Integrated Circuit Industry Investment Fund would invest $1.7 billion into one of SMIC's wafer plants, the company announced on Friday. The firm has secured another $750 million worth of investment from the Shanghai Integrated Circuit Industry Investment Fund.

SMIC's registered capital jumped from $3.5 billion to $6.5 billion after the latest capital injection. The Shanghai-based company's ownership stake in the plant, meanwhile, will drop from 50.1 percent to 38.5 percent post the investment. The national fund and the Shanghai-based fund will respectively own 23.08 percent and 11.54 percent stake of the plant.

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SMIC is the largest semiconductor foundry company in China. The firm has a production capacity of 6,000 14-nanometre wafers in a month. It now plans to increase that to 35,000 a month.

SMIC is also planning to float as many as 1.69 billion new shares on Shanghai's STAR Market (China's Nasdaq-like tech board) and raise more than $3 billion. It's unclear if this government investment brings about any changes to that plan.

SMIC secures big investment from China government funds

SMIC's announcement came on the same day the US announced new trade restrictions on Huawei. The Chinese phone maker can no longer source chips from any foundry that uses American chipmaking equipment. So it'll now have to move away from TSMC for its in-house Kirin chips' production.

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Huawei still has a 120-day window, effective last Friday, to receive chips made from wafers already in production. However, that's only a short-term solution and the company is already looking for alternatives.

SMIC, which produces chips using equipment that fall entirely under the Chinese intellectual property, could be its long-term partner now.

However, there's a problem here as well. SMIC still only produces 14nm chips when several other biggies, such as Qualcomm, Samsung, and TSMC are moving to 5nm technology. The company only began mass production of 14nm chips late last year.

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Now, this big government-backed investment from China could help SMIC catch up to the competition rather quickly. Expect the company to begin production of 10nm and 7nm chips soon.

Huawei has already started moving to SMIC for some chip production for its mid-range phones.

Those chips will be obviously based on 14nm process nodes. It now remains to be seen if the Chinese phone maker can secure enough 5nm or 7nm chips within its 120-day window to continue making high-end phones until SMIC perfects the newer technology.

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