The inclusion into the U.S. Department of Commerce’s Entity List late last year has significantly handicapped SMIC’s advanced fabrication processes development, curtailing its ability to compete against larger rivals for lucrative orders. Yet, demand for older and more mature manufacturing technologies is still on the rise, so the company’s manufacturing capacities operate at a 95.5% utilization rate. To meet increasing demand, SMIC intends to build a yet another fab.
The new fab will be located near Shenzhen, and will process 300-mm wafers using 28 nm and larger process technologies. SMIC’s goal is to eventually achieve production capacity of around 40,000 wafer starts per month, however the company does not specify when this goal is projected to be attained. Meanwhile, SMIC does disclose that it expects to start production at the new fab sometimes in 2022.
Since SMIC is in the U.S. Department of Commerce’s Entity List, companies from the USA need to apply for an export license, which presumably would be subject to denial. TrendForce reported earlier this month that Applied Materials, Lam Research, KLA-Tencor, and Axcelis had applied for appropriate licenses earlier this year. Meanwhile, ASML, the largest producer of lithography tools, is based in the Netherlands and does not have to obtain a license from the U.S. government (though some of its products are subject to the Wassenaar Arrangement on export controls). If the licenses are granted, then SMIC will easily equip its new fab with new tools. Alternatively, it will have to seek them elsewhere, perhaps buying them from smaller Chinese chipmakers that ceased to receive aid from the Chinese government last year.
Mature nodes account for the lion’s share of SMIC’s revenue. Over 95% of SMIC’s sales in Q4 2020 were for wafers processed using 28 nm and larger fabrication technologies (see the table below the story). While modern PCs and smartphones rely on SoCs made using leading-edge nodes, they also use a wide variety of chips produced using quite older processes. Usually, such chips (e.g., power ICs, display drivers) have a very long lifecycle and are used for dozens of applications. To that end, it makes a great financial sense for SMIC to build a fab that will expand its 28 nm, 40/45 nm, 55/65/ nm and older nodes production capacity.
SMIC said that the estimated new investment for the project will total $2.35 billion. Meanwhile, the company’s capital expenditures in 2021 will decrease to $4.3 billion, down from $5.7 billion in 2020 and $5.9 billion in 2019.
As usual, SMIC will build and equip the new fab in partnership with local authorities, in this case the Shenzhen Municipal People’s Government and Shenzhen Major, an investment company controlled by Shenzhen Municipal. The foundry expects to own about 55% of the fab, 23% will be owned by Shenzhen Municipal and its investment company, whereas the remaining 22% will be owned by third-party investors.