Shares in China's largest computer-chip maker, Semiconductor Manufacturing International Corp. (HK:0981) (SIUIF) , plunged in Hong Kong trading on Monday after the U.S. government slapped it with export restrictions.
Separately, a Toshiba (TOSBF) spinoff on Monday pulled the plug on its initial public offering in Tokyo. The listing for Kioxia Holdings, the world's second-biggest maker of flash memory chips, was set to be the biggest IPO in Japan this year.
Both companies have fallen victim to the increasing pressure that the United States is placing on the computer-chip industry.
SMIC ended down 3.9% on Monday in Hong Kong, having opened down 7.5%. It was the first chance for investors to respond after the U.S. Commerce Department on Friday imposed export restrictions on the company, citing potential use of its chips by the Chinese military. Although SMIC voluntarily delisted from the New York Stock Exchange in 2019, it still has a U.S. ADR and trades in Hong Kong under the ticker HK:0981.
U.S. companies must now apply to get an individual license for each time they export goods to SMIC. The Commerce Department said in a letter than the Chinese company "may pose an unacceptable risk of diversion to a military end use in the People's Republic of China."
SMIC, China's leading chipmaker, is central to China's efforts to create a domestic chip industry. That effort has gathered pace due to U.S. efforts that appear targeted to hampering the development of Chinese tech companies.
The company denies that it has ties to the Chinese military, although its chips would almost certainly be necessary for military purposes since shipments from non-Chinese chipmakers are all but cut off. SMIC uses U.S. software and other technology to make its products.
It's unclear how the new restrictions will affect companies such as Qualcomm (QCOM) , a major customer of SMIC. San Diego-based Qualcomm also has a minority stake in SMIC's research subsidiary.
The United States in May said that its sanctions on the Chinese telecom Huawei Technologies would extend to the world's largest chipmakers such as Taiwan Semiconductor Manufacturing Co. (TSM) , so long as they are making chips using U.S. technology. That's true even if their factories are outside the United States.
Taiwan-based TSMC, the world's largest contract-chip manufacturer, gets 10% to 15% of its revenues from sales to Huawei and its affiliates. But it has now stopped those shipments. Essentially, all chipmakers use U.S. technology at some stage in the manufacturing process. Korean chipmakers such as SK Hynix are also affected.
SMIC has its primary listing in Hong Kong, but it floated a secondary offering on the STAR Market in Shanghai in July, raising US$6.6 billion. It said it would use that money to expand production of advanced chipsets.
Kioxia Holdings intended to list in Tokyo under the ticker T:6600. It spun out of Toshiba two years ago, with Toshiba retaining 40.2% ownership. Bain Capital is now its largest shareholder, having spent US$18 billion for a 49.9% stake.
The offering would have valued the company at around US$20 billion. The Japanese company was looking to raise US$3.2 billion with a Tokyo share offering. It has withdrawn that on Monday, citing "market volatility and ongoing concerns about a second wave of the pandemic." But U.S.-China trade tensions undoubtedly served as a negative undertow pulling against any sale of shares.
Kioxia still plans an IPO eventually. "While we received significant interest from many investors, the lead underwriters and Kioxia do not believe it is in the best interest of current or prospective shareholders to proceed with the IPO at this time," Kioxia CEO Nobuo Hayasaka said in a statement. "We are not in a rush."
Toshiba shares closed down 3.2% in Tokyo on Monday, having traded as much as 8.6% lower during the day. Kioxia intended to return the bulk of the proceeds from the share sale to existing shareholders.