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SMIC Reports Record $3 Billion Quarter and Hikes Wafer Prices Amid Strong Chinese AI Demand
Key points
- SMIC's Q2 revenue reached $3.01 billion, up 36.1% year-on-year.
- Net profit nearly tripled to $479.2 million.
- Wafer prices will increase for Q3 due to high demand and utilization.
- Growth is fueled by Chinese AI chip demand, not GPUs.
Record Financial Performance
SMIC reported its highest-ever quarterly revenue, reaching $3.01 billion, marking a 36.1% increase compared to the previous year. Net profit also saw significant growth, nearly tripling to $479.2 million. The company exceeded its own guidance for sequential revenue growth and gross margin, achieving 20% growth and a 25.3% margin, up from 20.1% in Q1.
Wafer Price Increases and High Utilization
Following price negotiations, SMIC will implement higher wafer prices for the third quarter. The foundry's utilization rate reached 93.7%, indicating demand that SMIC cannot fully meet. Co-CEO Zhao Haijun stated that there is a significant gap between industry-leading wafer prices and SMIC's current prices, necessitating negotiations for fairer pricing.
Demand Driven by Chinese AI Market
The surge in demand for SMIC's services is primarily attributed to Chinese AI data center buildouts. US export controls have restricted China's access to leading-edge foundries like TSMC and Samsung for AI accelerators, directing this demand towards domestic suppliers like SMIC. The growth is mainly from AI chips other than CPUs and GPUs, including logic ICs, BCD power-management parts, and optical transceiver components, all experiencing shortages. China accounted for 90% of SMIC's revenue.
Shift from Overcapacity to Price Hikes
SMIC's current boom contrasts with its situation in 2023 and early 2024, when it faced overcapacity and discounted prices. Utilization rates were as low as 68.1% in Q1 2023, and net profit fell over 60%. The company has since transitioned to raising prices, with increases implemented in December and February, and another round for Q3 wafers, reflecting a significant market shift.
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Reporting from
SMIC achieved its first $3 billion revenue quarter, with a 36.1% year-on-year increase and nearly tripled net profit, and will raise wafer prices for Q3. This growth is driven by Chinese AI data center buildouts, which are cut off from leading-edge foundries like TSMC and Samsung due to US export controls, creating a captive market for SMIC.