SMIC Struggles with Intense Industry Competition, Earnings Fall Short

SMIC, China's largest contract chip maker, is seen as critical to Beijing's ambitions to reduce foreign reliance in its domestic semiconductor industry as the United States continues to rein in China's technological might

by Sededin Dedovic
SMIC Struggles with Intense Industry Competition, Earnings Fall Short
© CGTN / Youtube channel

Semiconductor Manufacturing International Corporation (SMIC) warned on Friday of intense competition in the chip industry after first-quarter earnings fell short of expectations. "Competition in the industry is becoming increasingly fierce, and the prices of goods essentially follow market trends," SMIC said Friday during the company's earnings call.

"The company fulfills its long-term vision through the construction of high-quality technological platforms that leapfrog here in mainland China by one to two generations," SMIC said. SMIC, China's largest contract chipmaker, is considered critical to Beijing's ambitions to reduce reliance on foreign suppliers in the domestic semiconductor industry as the US continues to curb China's technological prowess.

SMIC lags behind Taiwan's TSMC and South Korea's Samsung, according to analysts. The company's net income in the first quarter fell 68.9% year-on-year to $71.79 million, compared with the LSEG analysts' average estimate of $80.49 million.

Gross margin fell to 13.7% in the quarter— the lowest rate ever recorded by the company in almost 12 years—according to LSEG data. First-quarter revenue was $1.75 billion, up 19.7% year-on-year, as customers stocked up on chips, SMIC said.

This easily exceeded the LSEG estimate of $1.69 billion. As we know, the US administration has restricted China's import of advanced lithography machines (EUV). Despite the restrictions, SMIC has developed a 7nm chip for the Huawei Mate 60 series and their Kirin 9000s.

Given that Huawei recently introduced the Kirin 9006c, which is produced in 5nm, the question is whether the next step is 3nm. Analysts believe that SMIC is capable of that step, despite not owning EUV machines. This is an extremely demanding task, as only this year TSMC and Samsung have begun mass production of 3nm chips.

So far, the only company using 3nm chips is Apple. But regardless of all the successes of this company, it is evident that the US sanctions are having their effect, and it is enough to look at the difference in income in the first quarter of this year and last year to be convinced of that.

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