Chinese broker Huajing Securities downgraded its rating of Shanghai-based chipmaker SMIC to “sell,” citing US-China tensions and its inability to continue supplying Huawei.

Details: Huajing Securities analyst Zhao Bing lowered his rating for Semiconductor Manufacturing International Corp. (SMIC) shares trading on Shanghai’s STAR Market to “sell” from “buy.” He also lowered its target price to RMB 47.5 (around $7) from RMB 55.23 in a research report (in Chinese) published Tuesday.

  • Even though the chipmaker has seen the capacity of its 14-nanometer chips steadily increase, it will be difficult for the company to convert the increased capacity into profit because it had to stop supplying to Chinese telecommunications equipment and smartphone maker Huawei, according to Zhao’s report.
  • The report also cited a Reuters story which said that the company might be added to a US Entity List, which bans American companies from shipping technology or components to blacklisted firms. “If SMIC is added to the Entity List, its clients will dial down their interests in SMIC products out of concern for the company’s shipment continuity,” Zhao wrote (our translation).
  • SMIC did not respond to an emailed request for comment.

Context: The chipmaker said Tuesday that it had applied to the US government to continue supplying to Huawei. On the same day, a grace period for a US semiconductor ban against Huawei expired, meaning SMIC, which uses US technology and machinery to make chips, can no longer ship to Huawei.

Writing about semiconductors and telecommunications.