Future in Chips: SMIC’s High-Stakes Game in a World of Tech Titans

Future in Chips: SMIC’s High-Stakes Game in a World of Tech Titans

A cura di Alberto Soncini

Semiconductor Manufacturing International Corp. (SMIC), China’s largest chipmaker, has indicated that the anticipated recovery in the smartphone market is likely delayed by another year. This outlook contrasts with the more optimistic views from Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co., who expect mobile demand to stabilize soon. SMIC’s recent financial report showed its third consecutive quarterly revenue decline, highlighting the severity of the downturn and the impact of the U.S.’s expanding efforts to limit China’s tech industry. This decline in revenue disappointed investors, despite the unexpected success of Huawei Technologies Co.’s latest smartphones.

SMIC, a key player in China’s goal to develop a world-class tech sector less dependent on American technology, collaborated with Huawei in creating the 7-nanometer processor for the Mate 60 Pro. This was a significant achievement for both companies, which have been blacklisted by the U.S. over national security concerns. The Mate 60 Pro, riding on nationalist support, quickly sold out, challenging Apple Inc.’s iPhone in the market.

During a recent briefing, SMIC executives discussed how geopolitical tensions have led to a global increase in domestic chipmaking capacities, without specifying any countries. However, nations like the U.S., China, Japan, and Europe are known to be incentivizing local chip production.

SMIC’s shares dropped significantly after it reported a 15% decrease in revenue to $1.62 billion for the September quarter, with net income falling by 80%. Hua Hong Semiconductor Ltd., a smaller competitor, also experienced a significant share price drop after forecasting a weak fourth quarter.

SMIC co-CEO Zhao Haijun commented that the global chipmaking capacity is currently excessive and it will take time to absorb the newly built capacities. Despite these challenges, SMIC’s shares had risen by about 40% since the launch of the Huawei Mate 60 Pro in late August.

Huawei is showing signs of recovery from the setbacks caused by U.S. sanctions. SMIC’s future growth in the peak December quarter may depend on potential further U.S. sanctions, as U.S. lawmakers have advocated for more restrictions following Huawei’s recent success.

The Chinese smartphone market, the largest globally, continues to face challenges with intense competition and a lack of significant innovation driving the current replacement cycle. Major Chinese smartphone manufacturers depend on chips from Qualcomm Inc. and MediaTek Inc., which are manufactured by companies like TSMC and Globalfoundries Inc. overseas.

SMIC is increasing its annual capital expenditure to $7.5 billion, up from the previously estimated $6.35 billion, indicating an expansion in capacity. Despite the broader market challenges, SMIC’s commitment to semiconductor self-sufficiency seems to provide some buffer against the anticipated headwinds in sales and profit margins.

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