Brite Semiconductor, in which SMIC is the second largest shareholder, officially debuted on the Sci-Tech Innovation Board, with its stock soaring, leading to the gradual recovery of SMIC's investments.
In late March, SMIC announced through its indirect wholly-owned subsidiary the complete transfer of its 12.79% stake in JCET (Jiangsu Changjiang Electronics Technology Co., Ltd.) to BANDS Financial, a subsidiary controlled by China Resources Company. Subsequently, SMIC stated that it would "no longer hold" any shares of JCET.
Prior to this, SMIC had been associated with JCET for 9 years. Given the high level of cooperation between SMIC and JCET, the sudden withdrawal of SMIC from JCET puzzled many, especially considering the recent push for the IPO of Brite Semiconductor. It has left observers uncertain about SMIC's investment strategy – whether it is about holding or letting go.
JCET is renowned as a leading Chinese player in semiconductor packaging and testing. Its advancement in packaging technology is comparable to top-tier Taiwanese companies like ASE Technology. The pivotal moment in JCET's transformation came in 2015.
JCET's international expansion, including the acquisition of STATS ChipPAC which was roughly twice its size, and the establishment of production bases worldwide including South Korea and Singapore, brought it closer to international customers. At that time, SMIC was one of the key investors in the acquisition. Subsequently, the two companies gradually became important partners in the supply chain, with SMIC consistently holding about 15% of JCET's shares. In 2019, SMIC's management team also began to take over JCET.
Why has such a close relationship undergone a sudden change? There have been widespread rumors in the Chinese industry that JCET is concerned about being implicated by SMIC and becoming a potential target for export controls by the United States after 2024. Hence, this divestment occurred.
Under SMIC's strategic focus on expanding scale and increasing production capacity, it undoubtedly needs to maintain more funds and resources. Exiting JCET helps concentrate efforts on advancing its own development strategy. Despite recent external investments in SMIC, it is striving to maintain profitability to avoid losses. The downturn in the semiconductor industry cycle has also led the fab utilization rate to drop from the previous high of 95% to below 80%.
Insufficient orders to support fab operation, coupled with SMIC's ongoing expansion at its four major bases in China, with quarterly capital expenditures ranging from US$1.6 billion to US$2.2 billion, has put pressure on SMIC's finances.
Another Chinese industry insider believes that SMIC's sale of its stake in JCET at this time is a good opportunity. For SMIC, JCET is no longer a worthwhile asset to hold. Timely divestment to China Resources, a business with linkage to JCET, is a better decision. SMIC emphasizes its focus on core business development, expecting revenue of about CNY1.245 billion.
Meanwhile, SMIC is still pushing forward with the IPO of Brite Semiconductor. Industry insiders believe the semiconductor industry has high technological and financial barriers, involving various stages such as research and development, design, manufacturing, packaging, and testing. It cannot be supported by just one or two companies; an ecosystem needs to be formed. Brite Semiconductor's investment is part of SMIC's group strategy.
