Semiconductor Manufacturing International Corporation (SMIC), China’s leading contract chipmaker, saw its shares plummet nearly 7% on Friday following the release of its first-quarter earnings report. While the company reported a 28% year-over-year revenue increase, reaching $2.24 billion, and a staggering 162% surge in profit attributable to shareholders ($188 million), these figures fell short of both analyst expectations and SMIC’s own projections.
The shortfall, attributed to “production fluctuations” leading to lower average selling prices, is expected to continue into the second quarter. SMIC anticipates a 4% to 6% sequential revenue decline and a gross margin drop from 22.5% to 18%–20%. Despite this, wafer shipments saw a healthy 15% increase quarter-over-quarter and a 28% year-over-year jump, largely driven by increased domestic demand fueled by government policies and geopolitical shifts. This is reflected in the company’s impressive 89.6% capacity utilization rate, indicating strong domestic demand for semiconductors, particularly in the smartphone and consumer electronics sectors.
Tech analyst Ray Wang highlighted this positive aspect, emphasizing that the near 90% utilization rate reflects robust domestic demand. However, a significant decrease in research and development spending—from $217 million to $148.9 million— raises concerns. The need for SMIC to expand capacity, especially in advanced chip manufacturing, is crucial for future growth, according to Simon Chen, principal analyst at Informa Tech. Currently, SMIC’s revenue primarily comes from mature-node chips used in consumer electronics and industrial equipment.
SMIC’s role in China’s ambition to create a self-sufficient semiconductor supply chain is undeniable, with the government investing billions in this effort. Over 84% of SMIC’s first-quarter revenue originated from Chinese customers, reflecting the successful localization of the supply chain. Yet, limitations persist in producing advanced chips due to US-led export controls restricting access to cutting-edge equipment. Despite these limitations, SMIC’s chips have reportedly found their way into Huawei products, including the Mate 60 Pro smartphone and some AI processors, suggesting progress in this area.
Despite Friday’s share drop, SMIC’s Hong Kong-listed shares remain up over 32% year-to-date, indicating a generally positive long-term outlook. The company’s first-quarter results present a mixed picture: strong domestic demand and high capacity utilization are positive signs, but the revenue and profit misses, coupled with reduced R&D spending, raise questions about the company’s ability to navigate the challenges of the global semiconductor market and compete with international players in the long run.
