TAIPEI -- China's top contract chipmaker Semiconductor Manufacturing International Co. will increase capital investment by nearly 20% this year, despite the severe industry slowdown caused by the ongoing U.S.-China trade war.
Total capital expenditure will reach $2.2 billion in 2019, up 18.7% from $1.85 billion from last year, the state-backed company's co-CEO Zhao Haijun told an investors' conference on Friday.
SMIC's planned investment is further evidence of the way Chinese companies are being mobilized to build a competitive chip industry.
Reducing Chinese tech companies' reliance on foreign manufacturers has become a vital national security issue for Beijing, with the American crackdown threatening to cut them off from key suppliers.
The announcement comes as industry leaders like Taiwan Semiconductor Manufacturing Co. and Samsung Electronics adjust spending to reflect the falling demand brought about by the trade tensions.
Total global capital expenditure in the semiconductor industry is expected to drop by 9% year-on-year in 2019, according to estimates from industry association SEMI.
"Our capex will mainly be used to build up advanced facilities ... our joint-venture facility in Shanghai is targeting to have a mini [production] line in the second half of this year," said Zhao.
An SMIC plant currently being constructed will be China's first to use 14-nanometer production technology, and is aimed at better serving local players like Huawei Technologies' chip unit Hisilicon, Xiaomi's Pinecone, state-backed chipmaker UNISOC.
Currently, these companies can only access such advanced production technology by placing orders with SMIC's bigger rivals, such as TSMC, Taiwan's United Microelectronics, Globalfoundries of the U.S. or Samsung's foundry unit.
"The Chinese government will subsidize local developers if they can place orders at local contract chipmakers to help them try the new production technology instead of going to those industry big names like TSMC," said Jane Yeh, an analyst at Market Intelligence & Consulting Institute.
"Local semiconductor developers will ultimately hope to produce chips with companies that have local production sites to avoid any geopolitical uncertainties," she added.
In 2018, China-based customers accounted for roughly 60% of SMIC's revenue of $3.36 billion, up from 47.3% the previous year.
For the January-March period, SMIC shared the industry view that it would suffer from slowing demand across all segment as the market digests surplus inventories, and sees the quarter as the bottom of the year.
The company projects revenue remaining flat or growing very slightly over the year, given for macroeconomic uncertainties.
"2019 is the year of uncertainty, and also the year of opportunity," said Zhao.
