* SMIC shares plunge more than 23% in Hong Kong
* About HK$28 billion wiped off SMIC's market value
* SMIC "could go under" in few years if ban implemented -
analyst
By Josh Horwitz and Donny Kwok
SHANGHAI/HONG KONG, Sept 7 (Reuters) - China's biggest
chipmaker SMIC plunged a fifth on Monday in response
to news of potential U.S. sanctions against the company, wiping
about HK$28 billion ($3.61 billion) off its market value and
prompting analysts to predict doom if a ban is implemented.
On Friday, Reuters reported that the U.S. Department of
Defense might block American companies from providing goods and
services to the company, Semiconductor Manufacturing
International Corp (SMIC).
That could dash what some view as China's best hope to
develop a self-sufficient semiconductor industry via SMIC and
further escalate the Sino-U.S. spat that involves trade and
technology, analysts said.
"The company could go under within a few years," says Mark
Li, who tracks China's chip industry at Bernstein Research.
SMIC did not immediately reply to a request for comment.
SMIC trails rival Taiwan Semiconductor Manufacturing Co Ltd
(TSMC) in production volume, technology, and efficiency
despite state support since it was founded two decades ago.
It only recently introduced capacity for chips at the 14
nanometre process node, making it about two generations behind
that of TSMC.
Like TSMC and other fabs, SMIC relies on a number of
U.S.-based companies, such as Applied Materials , to
obtain key production equipment. Research firm Jefferies
estimates that roughly half of SMIC's suppliers are American.
Sources have told Reuters that the United States is
investigating alleged ties between SMIC and the People's
Liberation Army in China. SMIC says it has no relationship with
the Chinese military.
SMIC shares in Hong Kong fell more than 23% to HK$18.10 on
Monday, their lowest since June 12.
Its shares in Shanghai , where it raised $6.6
billion in a secondary listing in July, fell as much as 11%.
The potential sanctions echo those placed by the United
States on Huawei Technologies that bar U.S. companies
from selling products and technology to the Chinese smartphone
maker. The restrictions have muzzled Huawei's once-promising
chip division and is squeezing its overseas phone sales.
DEPENDENCY
U.S. sanctions could also impact supplies from non-American
vendors, analysts said, as chip equipment vendors from countries
such as Japan and the Netherlands, which have friendly ties with
the United States, could "shadow follow" the U.S. order.
A precedent for such a possibility exists.
In 2018, the Trump administration prevented Dutch machinery
maker ASML from shipping to SMIC a $150 million
chip-lithography machine that is needed to manufacture advanced
microprocessors.
Analysts said that while SMIC could potentially continue to
use its existing line of equipment in the face of a supplier
ban, its business would suffer because equipment providers would
no longer be able to service its production lines.
Losing this official support service would put SMIC in
"serious trouble", said Doug Fuller, who researches China's chip
industry at the City University of Hong Kong. "The machines need
to be tended to by suppliers every two to three months."
SMIC could potentially look to local companies, unaffiliated
with their official suppliers, to service their production
lines, he said. "But that will just compound SMIC's well-known
operational inefficiency."