Share crashes: possible US embargo hits chip company SMIC

The US government maintains a blacklist intended to sanction foreign companies. For reasons that are still unknown, the Chinese chip manufacturer SMIC could end up there. Although official confirmation is still pending, the media report is already having negative consequences.

The considerations of the US government to make business with the Chinese chip company Semiconductor Manufacturing Shanghai (SMIC) much more difficult have frightened investors. In Hong Kong the paper collapsed almost 20 percent, while the minus in Shanghai was around nine percent.

On Friday it became known that the administration of US President Donald Trump had targeted SMIC. A Defense Ministry spokeswoman said the contract manufacturer and semiconductor manufacturer would be considered to be blacklisted. She did not give a reason for the procedure. US suppliers would then have to deal with a difficult-to-obtain license to supply SMIC.

SMIC said they were completely in shock. They are ready to work with the US government to clear up misunderstandings. SMIC is the largest chip manufacturer in the People's Republic, but does not come close to the market leader TSMC from Taiwan.

Embargo could herald doom

The embargo would have dramatic consequences for the chip manufacturer. "The company could go under in a few years," said Bernstein Research analyst Mark Li. SMIC relies on a number of US-based companies, such as Applied Materials, to maintain vital manufacturing facilities. Research firm Jefferies estimates that about half of SMIC suppliers are US companies.

The US government often uses the blacklist to target Chinese industries. There are now more than 275 companies based in China. The measures against the network providers Huawei and ZTE made for a particularly large number of headlines. SMIC also manufactures for Huawei.

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