China’s top chipmaker says the country’s push to localize semiconductor supplies has boosted orders and improved pricing in recent months and will continue to provide a tailwind for the company for the rest of the year.
Semiconductor Manufacturing International (SMIC) said geopolitical uncertainties were fueling the rush to onshore production.
“Due to the disruption and changes in a supply chain broken by geopolitics, some customers had the opportunity to penetrate into the industrial [value] chain,” co-CEO Zhao Haijun told investors on August 9. “This brought incremental demand to the company in response to the changing market.”
China’s largest contract chipmaker said it has received some “rush orders” and requests to make some shipments earlier than planned, the CEO added. Zhao said the push for localization has also boosted demand from some overseas chip developers seeking to tap the Chinese market and maintain their market share.
“Some overseas customers need to build up inventory so as to stabilize their market share and hedge against the market risks,” Zhao said. “We do expect this localization push will last till the end of this year,” he added.
But visibility for the final quarter of 2024 was still unclear, he added, as many tech companies are reviewing their demand levels, with some requesting adjustments to their order for the period. “We have received requests to adjust orders downward a bit for chips used in televisions, smart speakers, and smartphones,” Zhao said. “That’s because they always book a bit more in the first half and adjust according to real demand.”
Demand for certain industrial and automotive-related chips has not yet recovered from its downturn, he added.
SMIC’s revenue in the April-June quarter grew 21.8% on the year to USD 1.9 billion. However, gross margin contracted to 13.9% from 20.3% due to intensifying price competition in certain less-advanced chips and increased investment in cutting-edge chip production. Net profit fell 59.1% year-on-year to USD 164.5 million.
From a quarterly perspective, SMIC’s revenue and gross margin both improved better than the company’s guidance. Its production utilization rate also improved to 85.2% in the second quarter from 80.2% in the first quarter.
For the current quarter, the CEO said SMIC forecasts its revenue will grow 13–15% quarterly and its gross margin will improve to between 18–20%.
Zhao said SMIC’s 12-inch wafer capacity has been in short supply and prices are trending up due to demand for localization. Its newly added capacity, he said, has been “effectively utilized.”
“Our 12-inch wafer capacity has been nearly fully loaded … Since the second quarter of this year, the price is only going up, not down,” he said.
SMIC is accelerating its capacity expansion to meet this robust localization demand, Zhao said. “Our speed for construction and our requests to our suppliers are all as soon as possible. We estimate our 12-inch capacity will increase by 60,000 wafers by the end of this year, which is faster than our usual annual 30,000–50,000 wafer expansion plans.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.