AI frenzy has powered a rally in global semiconductor shares. Investors who overlooked Chinese chip-related stocks due to US export controls may be missing out. There is room for upside here.
US restrictions on chips sold to China have already cut off the country’s access to the most advanced chips. Export curbs on the tools that make the chips, most notably from the Netherlands, go into effect next Friday. It is home to ASML, the only maker of gear that can make the most advanced chips. So it is understandable that Chinese imports of semiconductor equipment have surged to record highs in recent months.
China is running out of options when it comes to buying and making advanced chips. That makes it all the more important for the country to maximise production of the lower-tech chips it is still able to produce. In some cases, a large number of lower-tech chips can get complicated processing jobs done.
Shanghai Micro Electronics Equipment is China’s only producer of lithography machines used in semiconductor manufacturing. It currently makes machines capable of mass-producing 90 nanometre chips. These are used in power management and radio frequency.
Local peer Naura Technology’s most advanced etching machine can be used for 55nm and 28nm chipmaking technology. These chips were used in electronic devices in 2015 but are now well behind the curve when it comes to the needs of current devices.
The export bans mean that China’s only option is to create more chipmaking gear of its own. It has one advantage. It has been supplying components for all kinds of industries, including chipmaker gear, for years.
Shares of Naura Technology are up a tenth this year, while peer Advanced Micro-Fabrication Equipment Inc. China is up a third this year. These companies, along with countless start-ups, have access to state-led funds. They are unlikely to become serious rivals to ASML. But they will continue to grow.
Source: Economy - ft.com
