SMIC’s management’s hopes for a consistent revenue growth of up to 15% in the third quarter are not out of nowhere. In the context of tightening US sanctions, the Chinese semiconductor industry is growing at an accelerated pace, and the company is ready to increase production capacity faster than it initially planned to meet demand.
Recall that in the second quarter, SMIC’s revenue grew by 22% to $1.9 billion, and net profit, although it fell by 59% to $165 million, still exceeded market expectations. Moreover, SMIC’s net profit consistently grew by 129%. As one of the two general directors of the company, Zhao Haijun, noted, “due to supply chain disruptions caused by geopolitical issues, some customers decided to start developing the industrial components market,” which led to an increase in demand for the company’s services. Combined with other statements, a favorable effect was achieved: SMIC’s stock price rose by 5.3% after the publication of the quarterly report.
In the second quarter, as noted South China Morning PostSMIC was able to increase its monthly processing capacity of 200mm equivalent silicon wafers to 837,000 pieces. The conveyor utilisation rate increased consistently from 81% to 85%, the highest level since Q3 2022. Notably, Chinese customers have accounted for more than 80% of the company’s total revenue for five consecutive quarters. However, last quarter, the share of revenue from customers in America and Eurasia increased to 16% and 3.7%, respectively. As the head of SMIC explained, even some of the company’s overseas customers are forced to stock up on products, fearing further negative impact of geopolitical factors on product supplies from China. In addition, more and more products from overseas customers are finding their way into the domestic market of China. Some of the customers even postponed the release of some products from the second half of the year to the first.
Increased demand from SMIC’s Chinese customers is causing a shortage of capacity for processing 300mm silicon wafers. The company is aware of the market needs and is planning to increase its core capacity ahead of schedule. Previously, it planned to add no more than 50,000 silicon wafers per month by December, but now it is ready to increase capacity by the equivalent of 60,000 wafers per month. Prices for a number of SMIC’s services are also growing, reflecting the trend of increasing demand. According to the results of the first half of the year, the company incurred capital expenditures of $4.5 billion, which is significantly more than last year’s $3.8 billion. Now SMIC’s management is accelerating the construction of new factories and requiring contractors to keep up with the new schedule.
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