Chinese chipmaker SMIC increases prices on strong AI demand

China's leading chipmaker, Semiconductor Manufacturing International Corp (SMIC), announced a price increase on its most in-demand wafer capacity, driven by a surge in artificial intelligence-related orders. Co-CEO Zhao Haijun stated that negotiations with customers prompted the price adjustments in the first quarter, with further hikes anticipated for the third quarter.

Zhao emphasized SMIC's commitment to meeting top-tier industry standards for wafer prices, noting the significant disparity between current prices and industry-leading rates. SMIC, the sole Chinese foundry capable of producing logic chips like CPUs and GPUs using a 7-nanometre process, reported revenue surpassing $3 billion in the second quarter, a first in the company's history.

This revenue surge was fueled by robust AI demand, leading to a tripling of profit attributable to shareholders to $479.2 million. The company delivered 2.9 million 8-inch-equivalent wafers in the second quarter, marking a 14% increase from the previous quarter. The average selling price of wafers rose by 5.7%, underscoring tightness in semiconductor supply chains worldwide.

Zhao attributed the rise in shipments to surging AI-fuelled demand from Chinese customers, as well as earlier-than-expected orders. CFO Wu Junfeng highlighted a one-time gain from a subsidiary as contributing to the sharp increase in net profit in the second quarter. SMIC's earnings were further bolstered by a 1.7% quarter-on-quarter rise in monthly production capacity to 1.1 million 8-inch-equivalent wafers, with utilization reaching 93.7%, slightly up from the first quarter.

The company added 8,000 wafers of monthly 12-inch capacity during the second quarter. First-half amortisation totaled $2.3 billion, with SMIC anticipating full-year amortisation of around $5 billion, a 30% increase year-on-year. China accounted for 90% of SMIC's second-quarter revenue, while the U.S. contributed 8%. The company expects third-quarter revenue to rise by 2% to 4% from the second quarter, with wafer shipments continuing to increase. SMIC shares rose 5% following the earnings call, though they remain down 0.21% for the year.