Rising geopolitical tension, high inflation, and a cyclical downturn in chip demand have triggered panic in the chip industry, Semiconductor Manufacturing International Corp CEO Zhao Haijun said to Financial Times.
His comments came shortly after a week of Chinese military exercises near Taiwan. It led to a swift freeze reaction in some parts of the supply chain," with customers abruptly canceling orders.
Recently, former Softbank Group Corp SFTBY Arm chief Tudor Brown resigned from the SMIC board, saying that "the international divide has further widened."
Analysts said Haijun's remark highlights the risk geopolitical tension poses to an industry already shaken by the impact of the Ukraine war.
China's military disclosed that its exercises around Taiwan in retaliation to U.S. diplomat Nancy Pelosi's Taiwan visit were complete but added that it would continue regular patrols in the area.
The U.S. - China tensions continue to gather momentum as the former strive to restrict the latter's access to cutting-edge semiconductor techs, including targetting its chipmakers.
Additionally, U.S. Chips Act also forbids companies from acquiring funding to restrict their production of advanced chips in China. Analysts believe that a further escalation in tensions could disrupt global chip supply chains.
Taiwan Semiconductor Manufacturing Company Ltd TSM accounts for more than half of the world's made-to-order chips and 90% of the global supply of the most advanced chips. The rising conflict would also increase the likelihood of Washington further toughening sanctions against Chinese technology companies.
In December 2020, the U.S. Department of Commerce added SMIC to its "entity list" after months of regulatory scrutiny of the chipmaker.
Haijun said demand had slowed the most for smartphones and consumer electronics chips. Chinese smartphone vendor sales dropped by half in the first six months of the year, he said.
He added that demand for chips used in industrial controllers, automotive applications, and high-end connectivity remained solid and stable, and supply shortages in these segments persisted.
SMIC clocked a 3.3% growth quarter-on-quarter in revenue to $1.8 billion in the second quarter. It noted a 15% jump in net earnings to $447 million.
SMIC's growth will likely slow to 1% in the current quarter. However, the gross margin, now at 39.4%, would not be significantly affected. Mark Li, a Bernstein analyst, said the semiconductor market correction was doing less damage to SMIC than feared.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.