The South China Morning Post reported Sunday that China has injected a hefty sum of money into Semiconductor Manufacturing International Corporation (SMIC), the country's largest domestic chipmaker. The $2.2 billion investment comes on the heels of Nikkei Asian Review reporting that Taiwan Semiconductor Manufacturing Company (TSMC) isn't taking any new orders from Huawei.
On Friday, the U.S. Department of Commerce announced restrictions that limit "Huawei’s ability to use U.S. technology and software to design and manufacture its semiconductors abroad" and "cuts off Huawei’s efforts to undermine U.S. export controls."
Given the ongoing tension between the U.S. and China, this wasn't too surprising. Huawei had already reportedly put in significant 14nm orders with SMIC. Citing a source familiar with the matter, Nikkei Asian Review reported that orders placed before the ban shouldn't be affected, and TSMC will ship those orders before the middle of September.
As per the U.S. Commerce Department's announcement, non-U.S. chipmakers that rely on U.S. manufacturing equipment, IP or design software must apply for an export license to sell to Huawei or its 114 subsidiaries. TSMC recently announced its plans to build and operate a state-of-the-art 5nm fab in Arizona. However, the plant probably won't be enough to persuade the U.S. to grant TSMC a license.
Halting business between Huawei and TSMC could ultimately end up severing the relationship between the two companies. Huawei is TSMC's second biggest customer behind Apple. According to numbers from Bernstein Research, Huawei represented 15-20% of TSMC's annual revenue. TSMC will likely survive without Huawei since the foundry has many A-list clients; however, the foundry's revenue will almost certainly take a hit.
TSMC's shoes won't be easy to fill either. The foundry manufactured a lot of products for Huawei, including mobile processors, AI processors and networking chips. But as the saying goes, one man's loss is another man's gain, and it looks like it's time for SMIC to step up.
Bernstein Research estimated that up to 20% of SMIC's revenue already comes from Huawei. We can expect Huawei's piece of the pie to increase significantly. The Chinese fab currently produces 6,000 14nm wafers a month but plans to get that number up to 35,000.