SMIC, China’s semiconductor manufacturer, faces tough chip competition and falls short of profit expectations

SMIC Warns of Intense Competition in Chip Industry

Semiconductor Manufacturing International Corporation (SMIC) recently issued a warning about the intense competition in the chip industry after its first-quarter profit missed expectations. The company stated during its earnings call that competition in the industry has been increasingly fierce, and pricing for commodity products follows market trends.

Despite the challenges, SMIC remains committed to constructing quality technology platforms to leap ahead in mainland China by one to two generations. As China’s biggest contract chip manufacturer, SMIC plays a crucial role in Beijing’s efforts to reduce foreign reliance in the domestic semiconductor industry, especially as the U.S. continues to restrict China’s tech power.

However, SMIC still lags behind industry giants like TSMC and Samsung Electronics. The company’s first-quarter net income plunged by 68.9% from the previous year, falling short of analysts’ estimates. Additionally, the gross margin dropped to 13.7% in the quarter, the lowest level recorded in nearly 12 years.

Despite these challenges, SMIC reported revenue of $1.75 billion for the first quarter, a 19.7% increase compared to the previous year. The company attributed the revenue growth to customers stocking up on chips.

Looking ahead, SMIC anticipates second-quarter revenue to increase by 5% to 7% from the first quarter due to strong demand. However, the gross margin is expected to decline further to between 9% and 11% as capacity scale and depreciation costs rise.

To enhance competitiveness and increase market share, SMIC is prioritizing capacity construction and R&D activities for investments. The company also announced that it will not pay dividends for the year 2023 to maintain its leading position in the market.

Despite the challenges posed by fierce competition, SMIC remains optimistic about its future growth prospects. By focusing on technology and capacity readiness, the company believes it can emerge bigger, better, and stronger in the face of competition.

https://www.cnbc.com/2024/05/10/chinas-smic-warns-of-fierce-chip-competition-as-it-misses-profit-estimates.html

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