SMIC weighs more capacity as AI-related chip demand exceeds forecasts

Semiconductor Manufacturing International Corporation (SMIC), China's largest contract chipmaker, is considering expanding capacity in its factories after demand for mature-node chips used alongside AI processors surpassed initial forecasts. During an earnings call, co-CEO Zhao Haijun stated that customer orders had significantly exceeded expectations, driven by a global artificial intelligence infrastructure boom resulting in shortages of AI-related supporting chips.

Zhao mentioned that SMIC was adjusting its expansion plans and may install additional equipment at existing sites with available space.

The demand surge primarily impacted supporting chips in AI servers and data centres, including logic chips, power-management products, and optical module components. SMIC's orders for BCD (bipolar-CMOS-DMOS) power-management products were expected to remain strong through the end of 2027. Despite operating close to its practical capacity limit, SMIC's capacity utilization rate reached 93.7 percent in the second quarter, up from 93.1 percent in the previous quarter.

Wafer shipments increased by 14.4 percent quarter on quarter, and monthly production capacity expanded to the equivalent of about 1.1 million 8-inch wafers.

Zhao indicated that SMIC intended to maintain a utilization rate near 95 percent, reserving 5 percent of capacity for research and development. SMIC raised prices on some supply-constrained products after client negotiations earlier in the year, but these increases did not cover the entire product range. Price hikes were expected to continue as shortages persisted and clients sought to secure capacity for the upcoming year, particularly if smartphone and consumer electronics demand recovered.

For the quarter ending June 30, SMIC reported revenue of US$3.01 billion, a 20 percent increase sequentially and a 36.1 percent year-on-year growth. Gross margins expanded to 25.3 percent from 20.1 percent in the first quarter. SMIC anticipates a further 2 percent to 4 percent quarter-on-quarter revenue growth for the third quarter, with gross margins widening between 26 percent and 28 percent.

Domestic clients accounted for approximately 90 percent of SMIC's second-quarter revenue, with the US and Eurasia contributing 8 percent and 2 percent, respectively. Sales grew across all three geographic regions, with China experiencing the fastest growth at 22 percent sequentially, driven by AI-related chip demand, returning overseas orders, and ongoing supply-chain localization. SMIC's shares on the Shanghai and Hong Kong stock exchanges both rose by 1.04 percent and 1.92 percent, respectively, at midday on Friday.