SMIC Signs Framework Agreement for New Fab in Shenzhen

SMIC Signs Framework Agreement for New Fab in Shenzhen
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​SMIC (688981.CH), China’s largest semiconductor fab, has signed a framework agreement with the Shenzhen government ot build a new 12” wafer fab.  Once final negotiations are completed for the $2.35b fab both parties will actively look for 3rd party investors for what would be a 22% stake in the new venture.  As it stands in the framework, SMIC will own 55% and the Shenzhen government will own no more than 23%.  The fab will focus on 28nm and larger nodes with a stated capacity of 40,000 wafers/m and is expected to begin production in 2022.  Given component shortages that are facing the CE space, it is no surprise that SMIC would push to expand capacity, and by focusing on larger nodes, will likely make it easier for equipment vendors to bypass US trade restrictions that would restrict SMIC’s purchase of 5nm or 7nm lithography equipment.  While production by the end of 2022 is an aggressive goal, we expect that the Central State government has already given its approval and the Shenzhen government will push through all of the necessary licenses and permits when 3rd party investors are found.