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

Semiconductor Manufacturing International Corporation (SMIC), China's largest contract chipmaker, is considering expanding its manufacturing capacity as demand for AI-related chips outpaced initial projections, according to company officials. During an earnings call, co-CEO Zhao Haijun stated that customer orders exceeded expectations, fueled by the global AI infrastructure boom and resulting chip shortages.

Zhao noted that SMIC's wafer starts were surpassing previous forecasts, prompting the company to adjust its expansion plans. Management mentioned that SMIC could install additional equipment at existing facilities with available space, details to be revealed in future announcements.

SMIC's capacity utilization rate reached 93.7 percent in the second quarter, up from 93.1 percent in the previous quarter, according to the earnings report. Wafer shipments increased 14.4 percent quarter on quarter, with monthly production capacity expanding to approximately 1.1 million 8-inch wafers. Zhao indicated that SMIC planned to maintain capacity utilization at around 95 percent, reserving approximately 5 percent of capacity for research and development activities.

The surge in demand was particularly notable for supporting chips used in AI servers and data centers, including logic chips, power-management products, and optical module components. Zhao added that orders for bipolar-CMOS-DMOS (BCD) power-management products were visible until the end of 2027. SMIC had raised prices on some supply-constrained products earlier in the year, though the increases did not apply to all products, as smartphone chips and display-driver integrated circuits were not affected due to weakened consumer electronics demand.

Price hikes are expected to continue as shortages persist and customers scramble to secure capacity for the following year. SMIC forecasted a 2 to 4 percent quarter-on-quarter revenue growth in the third quarter, with gross margins expanding to between 26 percent and 28 percent.

Domestic clients continued to dominate SMIC's business, accounting for about 90 percent of second-quarter revenue. The US and Eurasia contributed 8 percent and 2 percent, respectively. While sales expanded across all three regions, China posted 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 Shanghai and Hong Kong markets rose 1.04 percent and 1.92 percent, respectively, by midday on Friday.