SMIC Reports Q2 Revenue Decline Amidst Ongoing Challenges

Semiconductor Manufacturing International Corp. (SMIC) has announced its second-quarter earnings, revealing a drop in revenue as it contends with persistent U.S. sanctions and a gradual recovery in global chip demand.

In Q2, SMIC’s revenue reached $1.56 billion, marking an 18% decrease compared to the $1.9 billion reported during the same period last year. The net income for the quarter was $402.76 million, reflecting a 21.7% decrease from the $514.33 million recorded in Q2 of 2022.

As China’s largest foundry, SMIC is responsible for producing semiconductor chips designed by other companies. Despite competition from prominent players like Taiwan’s TSMC and South Korea’s Samsung, industry experts note that SMIC’s technology lags behind by several generations.

Since 2020, SMIC has been under U.S. sanctions, including placement on a U.S. trade blacklist that restricts its access to essential foreign technology required for cost-effective advanced chip production. The company’s inability to acquire extreme ultraviolet lithography machines, currently produced solely by Dutch firm ASML, hinders its capacity to manufacture advanced chips on a significant scale at lower costs.

Additionally, a sustained decrease in demand for certain chips utilized in consumer products, such as memory chips, has negatively impacted SMIC, as well as its competitors TSMC and Samsung.

According to the Semiconductor Industry Association, global semiconductor sales reached $124.5 billion in Q2 2023, indicating a 4.7% increase from Q1 but still 17.3% lower than Q2 2022.

Recovery Progress in Q2 2023, SMIC experienced a 6.7% quarter-on-quarter increase in revenues, achieving a gross margin of 20.3%. This performance aligns with the company’s forecasted revenue growth of 5-7% and a gross margin range of 19-21%.

SMIC attributed the quarterly revenue increase to the robust operational capacity of its 12-inch wafer fabs, the facilities responsible for semiconductor production. Although customer demand for 8-inch wafers was weaker, SMIC reported that the utilization rate for these wafers still exceeded industry averages.

With a positive outlook, SMIC anticipates further shipment growth in the third quarter. The company projects a sequential revenue growth of 3%-5% for Q3, accompanied by a gross margin range of 18%-20%.

For the latter half of the year, SMIC envisions improved revenue compared to the first half. The company is determined to fortify its technology research and development efforts, swiftly validate new products, allocate supporting capacity promptly, and thoroughly prepare for the next phase of growth.