This looks really significant. Hopefully it is done properly and there are proper regulations to prevent theft of secrets.
Chinese Economics Thread
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Hendrik_2000
Lieutenant General
A lot of newbee here are polluting the semiconductor thread with their political tangent I am disappointed Anyway contrary to naysayer SMIC is doing very well in raising the capital and in stock market
Why Goldman Is Siding With China on This Huawei Play
Shuli Ren
June 16, 2020, 7:45 PM CDT
Why Goldman Is Siding With China on This Huawei Play
(Bloomberg Opinion) -- From Seoul to Taipei, large-cap companies are treated with reverence, boasting almost uniform buy recommendations from brokerage analysts. But in Hong Kong, a Chinese semiconductor foundry, which has gained over $7 billion in market cap this year, is stirring up controversy and splitting Wall Street titans.
I’m talking about Shanghai-based Semiconductor Manufacturing International Corp., which counts Huawei Technologies Co. as its largest client. Of the 33 sell-side analysts tracked by Bloomberg, only 14 have a buy rating, with the rest an outright sell or hold, which in the analyst world amounts to a polite no.
The negative sentiment is easy to justify. Shortly after May 15, when the U.S. placed further restrictions on Huawei, Credit Suisse Group AG promptly downgraded SMIC. The new rules require that any chip supplier using American technology get a license before selling to Huawei. So unless that’s granted, or this policy is withdrawn, foundries from Taiwan Semiconductor Manufacturing Co. to SMIC will have to stop doing business with the tech giant, the bank noted. Last year, Huawei accounted for 19% of sales at SMIC, and 14% at TSMC. The Taiwanese company has already halted new orders from Huawei, according to some reports.
Goldman Sachs Group Inc. disagrees. In a research note published this week, the bank reaffirmed its conviction, adding fuel to SMIC’s already meteoric run. The stock closed 11.9% higher Tuesday, bringing this year’s gain to a whopping 78.8%.
SMIC has become expensive by all traditional metrics. It’s now trading at 53 times 2021 earnings, versus TSMC’s 17.7 times. It’s cheaper on a price-to-book basis, but its return-on-equity is only 4.6%, well below the very profitable TSMC’s 23.4%. So what does Goldman see in SMIC?
China’s vast domestic demand. SMIC’s advanced-processing-nodes unit has the potential to mass produce at least three times as many smartphone chips as Huawei by 2025, the bank estimates. As long as SMIC gets some new business at home, U.S. sanctions on Huawei won’t move the needle.
This is a seductive narrative. SMIC fits nicely into President Xi Jinping’s Made in China 2025 initiative, which aims to produce 70% of chips domestically, versus about 20% currently.
Tsinghua Unigroup’s Unisoc, China’s second largest mobile chip designer after Huawei’s HiSilicon, could start using SMIC for mass production, Goldman mused. Both are backed by the state-owned China Integrated Circuit Industry Investment Fund, simply known as the Big Fund. As of 2019 year-end, the Big Fund owned close to 20% of SMIC.
On the financing front, SMIC sure behaves like a national champion already. Last year, it received $293 million in government funding, an 87% jump from 2018; subsidies accounted for a quarter of its Ebitda. On May 15, the day Huawei got slapped with further sanctions, SMIC said the Big Fund and a Shanghai municipal fund would invest about $2.5 billion into one of its wafer plants. It’s also on a fast track to raise at least 20 billion yuan ($2.8 billion) on the mainland’s Nasdaq-style Star market.
To be sure, the technology gap between SMIC and market leader TSMC will persist, which explains why the Taiwan rival is so much more profitable. But as long as SMIC is seen as a national champion — it’s China’s most advanced semiconductor foundry — cheap state money will keep rolling in and will help close the gap. The company’s return-on-equity could improve to 14% by 2025, says Goldman.
Mainland investors are certainly big believers. Last week, they bought a net $148 million worth of SMIC stock, the most hotly sought company on the southbound trade of the Hong Kong Stock Connect. Buying remains brisk this week.
Just like the rest of its economy, Hong Kong’s $4.8 trillion stock market is a busy battleground for cultural clashes, with U.S. fund managers’ dominance gradually giving way to aggressive mainland investors. While foreigners may see SMIC as collateral damage to Huawei’s sanctions; all the Chinese see is state support. This disconnect is being played out in analyst ratings. Goldman is just taking the Chinese view.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.
For more articles like this, please visit us at
Why Goldman Is Siding With China on This Huawei Play
Shuli Ren
June 16, 2020, 7:45 PM CDT
Why Goldman Is Siding With China on This Huawei Play
(Bloomberg Opinion) -- From Seoul to Taipei, large-cap companies are treated with reverence, boasting almost uniform buy recommendations from brokerage analysts. But in Hong Kong, a Chinese semiconductor foundry, which has gained over $7 billion in market cap this year, is stirring up controversy and splitting Wall Street titans.
I’m talking about Shanghai-based Semiconductor Manufacturing International Corp., which counts Huawei Technologies Co. as its largest client. Of the 33 sell-side analysts tracked by Bloomberg, only 14 have a buy rating, with the rest an outright sell or hold, which in the analyst world amounts to a polite no.
The negative sentiment is easy to justify. Shortly after May 15, when the U.S. placed further restrictions on Huawei, Credit Suisse Group AG promptly downgraded SMIC. The new rules require that any chip supplier using American technology get a license before selling to Huawei. So unless that’s granted, or this policy is withdrawn, foundries from Taiwan Semiconductor Manufacturing Co. to SMIC will have to stop doing business with the tech giant, the bank noted. Last year, Huawei accounted for 19% of sales at SMIC, and 14% at TSMC. The Taiwanese company has already halted new orders from Huawei, according to some reports.
Goldman Sachs Group Inc. disagrees. In a research note published this week, the bank reaffirmed its conviction, adding fuel to SMIC’s already meteoric run. The stock closed 11.9% higher Tuesday, bringing this year’s gain to a whopping 78.8%.
SMIC has become expensive by all traditional metrics. It’s now trading at 53 times 2021 earnings, versus TSMC’s 17.7 times. It’s cheaper on a price-to-book basis, but its return-on-equity is only 4.6%, well below the very profitable TSMC’s 23.4%. So what does Goldman see in SMIC?
China’s vast domestic demand. SMIC’s advanced-processing-nodes unit has the potential to mass produce at least three times as many smartphone chips as Huawei by 2025, the bank estimates. As long as SMIC gets some new business at home, U.S. sanctions on Huawei won’t move the needle.
This is a seductive narrative. SMIC fits nicely into President Xi Jinping’s Made in China 2025 initiative, which aims to produce 70% of chips domestically, versus about 20% currently.
Tsinghua Unigroup’s Unisoc, China’s second largest mobile chip designer after Huawei’s HiSilicon, could start using SMIC for mass production, Goldman mused. Both are backed by the state-owned China Integrated Circuit Industry Investment Fund, simply known as the Big Fund. As of 2019 year-end, the Big Fund owned close to 20% of SMIC.
On the financing front, SMIC sure behaves like a national champion already. Last year, it received $293 million in government funding, an 87% jump from 2018; subsidies accounted for a quarter of its Ebitda. On May 15, the day Huawei got slapped with further sanctions, SMIC said the Big Fund and a Shanghai municipal fund would invest about $2.5 billion into one of its wafer plants. It’s also on a fast track to raise at least 20 billion yuan ($2.8 billion) on the mainland’s Nasdaq-style Star market.
To be sure, the technology gap between SMIC and market leader TSMC will persist, which explains why the Taiwan rival is so much more profitable. But as long as SMIC is seen as a national champion — it’s China’s most advanced semiconductor foundry — cheap state money will keep rolling in and will help close the gap. The company’s return-on-equity could improve to 14% by 2025, says Goldman.
Mainland investors are certainly big believers. Last week, they bought a net $148 million worth of SMIC stock, the most hotly sought company on the southbound trade of the Hong Kong Stock Connect. Buying remains brisk this week.
Just like the rest of its economy, Hong Kong’s $4.8 trillion stock market is a busy battleground for cultural clashes, with U.S. fund managers’ dominance gradually giving way to aggressive mainland investors. While foreigners may see SMIC as collateral damage to Huawei’s sanctions; all the Chinese see is state support. This disconnect is being played out in analyst ratings. Goldman is just taking the Chinese view.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.
For more articles like this, please visit us at
A lot of newbee here are polluting the semiconductor thread with their political tangent I am disappointed Anyway contrary to naysayer SMIC is doing very well in raising the capital and in stock market
Why Goldman Is Siding With China on This Huawei Play
Shuli Ren
June 16, 2020, 7:45 PM CDT
Why Goldman Is Siding With China on This Huawei Play
(Bloomberg Opinion) -- From Seoul to Taipei, large-cap companies are treated with reverence, boasting almost uniform buy recommendations from brokerage analysts. But in Hong Kong, a Chinese semiconductor foundry, which has gained over $7 billion in market cap this year, is stirring up controversy and splitting Wall Street titans.
I’m talking about Shanghai-based Semiconductor Manufacturing International Corp., which counts Huawei Technologies Co. as its largest client. Of the 33 sell-side analysts tracked by Bloomberg, only 14 have a buy rating, with the rest an outright sell or hold, which in the analyst world amounts to a polite no.
The negative sentiment is easy to justify. Shortly after May 15, when the U.S. placed further restrictions on Huawei, Credit Suisse Group AG promptly downgraded SMIC. The new rules require that any chip supplier using American technology get a license before selling to Huawei. So unless that’s granted, or this policy is withdrawn, foundries from Taiwan Semiconductor Manufacturing Co. to SMIC will have to stop doing business with the tech giant, the bank noted. Last year, Huawei accounted for 19% of sales at SMIC, and 14% at TSMC. The Taiwanese company has already halted new orders from Huawei, according to some reports.
Goldman Sachs Group Inc. disagrees. In a research note published this week, the bank reaffirmed its conviction, adding fuel to SMIC’s already meteoric run. The stock closed 11.9% higher Tuesday, bringing this year’s gain to a whopping 78.8%.
SMIC has become expensive by all traditional metrics. It’s now trading at 53 times 2021 earnings, versus TSMC’s 17.7 times. It’s cheaper on a price-to-book basis, but its return-on-equity is only 4.6%, well below the very profitable TSMC’s 23.4%. So what does Goldman see in SMIC?
China’s vast domestic demand. SMIC’s advanced-processing-nodes unit has the potential to mass produce at least three times as many smartphone chips as Huawei by 2025, the bank estimates. As long as SMIC gets some new business at home, U.S. sanctions on Huawei won’t move the needle.
This is a seductive narrative. SMIC fits nicely into President Xi Jinping’s Made in China 2025 initiative, which aims to produce 70% of chips domestically, versus about 20% currently.
Tsinghua Unigroup’s Unisoc, China’s second largest mobile chip designer after Huawei’s HiSilicon, could start using SMIC for mass production, Goldman mused. Both are backed by the state-owned China Integrated Circuit Industry Investment Fund, simply known as the Big Fund. As of 2019 year-end, the Big Fund owned close to 20% of SMIC.
On the financing front, SMIC sure behaves like a national champion already. Last year, it received $293 million in government funding, an 87% jump from 2018; subsidies accounted for a quarter of its Ebitda. On May 15, the day Huawei got slapped with further sanctions, SMIC said the Big Fund and a Shanghai municipal fund would invest about $2.5 billion into one of its wafer plants. It’s also on a fast track to raise at least 20 billion yuan ($2.8 billion) on the mainland’s Nasdaq-style Star market.
To be sure, the technology gap between SMIC and market leader TSMC will persist, which explains why the Taiwan rival is so much more profitable. But as long as SMIC is seen as a national champion — it’s China’s most advanced semiconductor foundry — cheap state money will keep rolling in and will help close the gap. The company’s return-on-equity could improve to 14% by 2025, says Goldman.
Mainland investors are certainly big believers. Last week, they bought a net $148 million worth of SMIC stock, the most hotly sought company on the southbound trade of the Hong Kong Stock Connect. Buying remains brisk this week.
Just like the rest of its economy, Hong Kong’s $4.8 trillion stock market is a busy battleground for cultural clashes, with U.S. fund managers’ dominance gradually giving way to aggressive mainland investors. While foreigners may see SMIC as collateral damage to Huawei’s sanctions; all the Chinese see is state support. This disconnect is being played out in analyst ratings. Goldman is just taking the Chinese view.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.
For more articles like this, please visit us at
Hi Hendrik_2000
Everything is falling in place, The raising of fund for EXPANSION THIS YEAR, its 7nm project and the new 28NM SMEE LiTHOGRAPH. The 2020 maybe the worst year ever , but for the CHINESE SEMICONDUCTOR it maybe the start of its renaissance.
AssassinsMace
Lieutenant General
Bloomberg recently had an article claiming China wants Trump to win just like the logic Trump used charging that China wants Biden to win because he'll be softer on China. They think they're so clever using reverse psychology but what it really says they think Americans are dumb as nails that they think they can manipulate voters like this.
This is related to finance rather than economics, but I don't have anywhere else to put it. It seems like China is committing to it's Phase 1 trade deal condition to open up it's financial markets. Do you guys think this is a good idea? Or will JPMorgan's expertise be useful in helping China's banking sector develop.
I'm not sure about the former, but I've read that foreign companies are sometimes worried to invest in China due to it's opaque financial system. A western bank like JPMorgan may boost confidence. I'm not an expert though.
I'm not sure about the former, but I've read that foreign companies are sometimes worried to invest in China due to it's opaque financial system. A western bank like JPMorgan may boost confidence. I'm not an expert though.
More good news, hopefully this happens. It will boost foreign investment confidence to invest in China. Along with it's massive and growing market, FDI should greatly increase, even if transparency is not as good as it's neighbours'. Look at Singapore's transparent system and it's ability to attract foreign investment, despite it's tiny size. It will also help reduce the importance of Hong Kong.
AssassinsMace
Lieutenant General
Trump's threatening to completely break off relations with China again meaning Pompeo's meeting with the Chinese in Hawaii where he asked China to help Trump win the election got a no from the Chinese.
With all the violent riots in the country, even China cannot help him win the election.