- Tram Ho
The chip crisis began when demand from manufacturers of consumer electronics increased amid countries adopting social distancing measures to avert the Covid-19 pandemic. Immediately, it caused a chain reaction and led to shortages in other industries, such as the automobile.
Chips are manufactured by special companies. The two leading names are TSMC of Taiwan island and South Korean technology giant Samsung. In fact, the high technical requirements make it possible for very few companies to create state-of-the-art chips. However, not all sectors require the most advanced chips.
The auto industry is one example. In fact, automakers only need chips made using older technology instead of pioneering technologies. This is exactly where companies like China’s SMIC can come in as they find it difficult to pursue cutting-edge chip technology due to U.S. sanctions imposed by the Donald Trump administration.
What is SMIC?
It is the largest chip company in China. They make chips designed by other companies. In fact, SMIC’s technologies are far behind leading competitors like TSMC or Samsung. However, this is still part of China’s ambitions to boost China’s domestic chip industry as well as provide semiconductor autonomy in the world’s second-largest economy.
In December 2020, the US Government added SMIC to the export blacklist. This makes it impossible for SMIC to access American technologies or to have American elements, a move that will seriously damage the ability of Chinese enterprises to produce state-of-the-art chips.
The semiconductor production and supply chain process is complex. While TSMC, Samsung and SMIC manufacture chips, they still have to rely on the software and machines of American and European companies to do so. If SMIC is unable to access those tools, it will be extremely difficult to catch up with competitors in this industry.
Advantage from old technology
At present, SMIC can still manufacture semiconductors based on older technologies. This suddenly became ideal because of the global shortage of chips. Household products or cars … do not need the most advanced chips to handle simple tasks.
“Cars do not require the most advanced chips. A lot of them use older chips that are already able to fulfill the demand,” said Sze Ho Ng, an analyst at China Renaissance. . The chips used to manage power, for example, to regulate the battery usage of a device clearly don’t need to be too advanced.
The most advanced processes are called 5 nanometers. Lack of technology makes SMIC unable to manufacture these chips. Instead, they can only produce 28 nanometers or so. Although the technology is old, these chips are still good enough for many industries other than consumer electronics.
Sze Ho Ng said that SMIC has also increased selling prices to customers to maximize profits. Last month, the company said its revenue target for 2021 was between 5-9%. However, Ng thinks the actual number may be higher.
In Hong Kong, analysts recommended buying SMIC shares for HK $ 43. If this forecast is correct, it would be up 60% from the March 1 close of HK $ 26.75.
The continued growth in the face of US sanctions allows SMIC more time to respond. Currently, China is also investing heavily in the semiconductor industry hoping to master this field. However, experts predict that Beijing will find it difficult to achieve this goal in the short term.
The global auto industry is struggling with a shortage of chips, causing about 670,000 vehicles to decline in the first quarter of 2021. From high-end car manufacturers such as Porsche, Mercedes or vehicle manufacturers popular vehicles such as Volkswagen, General Motors, Nissan and Honda are still struggling to find the solution to this problem.
One problem made the shortage of chips worse and the car sales soared compared to manufacturers’ expectations, despite the Covid-19 epidemic showing no signs of cooling off. Besides, the supply chain of the auto industry also does not appreciate storing inventories, which leaves them stuck when the global chip supply is interrupted.
Not only are they trying to push chipmakers to increase production, but carmakers are also seriously reconsidering their supply chains to prevent possible shortages in the future.
Source : Genk