Asia Pacific Technology Semiconductors -Foundry:Mr.Chiang to join SMIC;foundry demand under pressure in 1Q17

Mr. Chiang (and reportedly Mr. Liang) to join SMIC

On December 21, SMIC announced that Mr. Shang-Yi Chiang will joinSMIC’s board as a non-executive director. Mr. Chiang was the CTO and Co-COO of TSMC before he retired from TSMC in 2013. Mr. Chiang first joinedTSMC in 1997 and led TSMC’s R&D team before he left TSMC in 2006. In2009, Mr. Chiang rejoined TSMC to lead R&D for 28nm, 28nm HKMG (high-K Metal Gate, two new materials for semiconductor manufacturing), and16nm. According to Digitimes, Mr. Chiang was instrumental in planning thepathfinding, organizing the R&D team, and managing the milestones ofTSMC’s successful 28nm and 16nm. Separately, on December 26, mediaincluding EE China reported that Mr. Mengsong Liang has joined SMIC –though not confirmed by the firm. Mr. Liang was a senior director at TSMCand a project leader of 13nm R&D development. Mr. Liang resigned fromTSMC in 2009 and became a professor at a Korean university. We believethat Messrs. Chiang and Liang could help to boost SMIC’s R&D leadershipand execution given their experience and previous roles at TSMC, andhence view these appointments as incrementally positive to SMIC in thelong term. We believe SMIC’s slow progress at 28nm may be an indicationthat its 28nm fundamental transistor design is problematic and redesign ofthe transistor could take at least a year based on industry practice.

Therefore, we expect SMIC to launch its next R&D milestone, 28nm HKMGin 2018.