Commentary on Political Economy

Tuesday 15 December 2020



China’s Top Chipmaker Plunges After Co-CEO Abruptly Quits

Bloomberg News
Updated on 
  • SMIC says it’s looking into the reports on online media
  • The company lies at the heart of China’s chipmaking ambitions

Semiconductor Manufacturing International Corp. plunged almost 10% after news emerged about the surprise resignation of a top executive who spearheaded the rapid technological ascent of China’s largest chipmaker.

SMIC is trying to reach co-Chief Executive Officer Liang Mong Song after online media circulated a resignation letter they said originated with the industry veteran. Liang quit after SMIC appointed a vice chairman without consulting him, according to the reports. The company is attempting to clarify his intentions, it said in an exchange filing without elaborating. Liang couldn’t immediately be reached for comment.

SMIC’s shares tanked more than 9.7% in Shanghai and Hong Kong, underscoring the executive’s pivotal role within a state-backed national champion trying to navigate a volatile U.S.-Chinese relationship. Liang handed in his resignation after learning about the appointment of Chiang Shang-yi -- a former senior executive at larger rival Taiwan Semiconductor Manufacturing Co. -- to the board, media including Digitimes reported. Liang, a fellow TSMC alumnus, was considered integral to SMIC’s efforts to become a major player in the business of fabricating wafers for global giants. The corporation has long relied on a cohort of Taiwanese executives including Liang to narrow the gap with TSMC and Samsung Electronics Co.

“SMIC’s recent technology progress was directly attributable to Liang,” Bernstein analysts including Mark Li wrote. “Though the addition of Chiang is a positive, as the vice chairman his role is advisory. Liang, however, has been personally leading SMIC’s technology development and his contribution directly resulted in the mass production of 14nm, for example. Considering them both, we believe Liang’s departure will have a bigger effect, and SMIC’s future technology progress may see a setback.”

SMIC's Hong Kong stock has been on a roller-coaster all year

Liang was instrumental in leading a 2,000-strong engineering team and helping SMIC migrate to cutting-edge 7nm process technology, slated to go into production in April. It’s unclear if his exit was directly linked to the appointment of Chiang, who left SMIC’s board in 2019 to take charge of another signature Chinese project, memory chipmaker Wuhan Hongxin. That company has since been taken over by the local Hubei government after encountering funding shortages.

SMIC in contrast has roughly doubled its market value in 2020 despite the risk of U.S. sanctions, aided by a mega sale of stock in Shanghai and, more broadly, ballooning demand for chips as China’s economy emerges from Covid-19. The Shanghai-based firm, a supplier to Qualcomm Inc. and Broadcom Inc., lies at the heart of Beijing’s intention to build a world-class semiconductor industry and wean itself off a reliance on American technology.

But it’s now also among a plethora of Chinese corporations Washington has labeled a national security threat, a designation that threatens to cripple its longer-term ambitions by denying it access to crucial gear and circuitry. Companies including Huawei Technologies Co. have been caught in the middle of worsening tensions between the world’s two largest economies, which have clashed on issues from trade to the pandemic.

In response to the widening U.S. crackdown, China is planning to provide broad support for so-called third-generation semiconductors in its next five-year plan to increase domestic self-sufficiency in chip manufacturing, people with knowledge of the matter have said. SMIC, backed by the China Integrated Circuit Industry Investment Fund as well as Singapore’s sovereign fund GIC Pte and the Abu Dhabi Investment Authority, is expected to play a central role in that overall effort.

“Being a national champion with huge governmental investments, SMIC inevitably has some considerations that professional managers may not share,” Bernstein wrote. “Building a team that collaborates together toward a common goal is essential, but is something that money alone can’t buy.”

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