The gap between TSMC and SMIC stock quotations reaches its highest since 2005

In the global market for contract chip manufacturing, Taiwan Semiconductor Manufacturing Company (TSMC) has the leading edge, while Semiconductor Manufacturing International Corporation (SMIC) remains the star of China’s semiconductor industry. The gap in stock prices between the two companies, the largest since 2005, mirrors investor uncertainty about SMIC’s ability to rival TSMC not only technologically but also financially.

According to a report from Bloomberg, TSMC’s shares have spiked by 48 % since the beginning of the year while SMIC’s stocks have decreased by 7.5 %, marking the most significant gap between the two companies in nearly two decades. This widening disparity persists despite the constitution of China’s ‘Big Fund,’ which intends to direct nearly 50 billion dollars to bolster the national semiconductor industry.

Representatives from the Peking investment bank Chanson & Co stress that even substantial finances can’t suddenly upgrade technological development. It’s worth noting that SMIC’s current capabilities allow for the production of 7-nanometer chips, trailing TSMC by at least two lithographic technology generations. Ideally, SMIC wishes to master the 5-nanometer process. In contrast, TSMC employs an extremely rigid ultraviolet lithography (EUV) for the production of 3-nanometer products, an equipment that SMIC can’t access due to sanctions imposed by Western countries since 2019.

Estimates by Bloomberg Intelligence analysts suggest that even if SMIC manages to produce 5-nanometer chips, the cost will be at least ten times greater than TSMC’s. Such technical progress at this price could prove overwhelming for SMIC’s Chinese clientele, although market bigwigs like Huawei might offset such costs due to their diverse operations. Resources from the ‘Big Fund’s’ third phase are expected to bridge this technology gap in China’s semiconductor industry. Besides capital equipment and materials for chip manufacturing, subsidies from the Chinese government will help foster the artificial intelligence sector, according to experts.

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