Chinese chipmaker Hua Hong bets big on silicon photonics amid AI boom

China's second-largest contract chipmaker, Hua Hong Grace Semiconductor, is aggressively investing in silicon photonics technology as part of its strategy to capitalize on the growing artificial intelligence (AI) infrastructure boom, according to figures released in its quarterly earnings report. At an earnings call, Hua Hong's chairman and president Bai Peng revealed the company's intention to significantly expand its silicon photonics footprint during its next major capacity expansion in 2027, recognizing the technology's critical role in AI optical modules.

This investment comes alongside the company's focus on power management chips, emphasizing its ambition to capture the broader AI hardware trend. For the three months ending September 30, Hua Hong's net profit surged by 147% year-on-year to US$123.4 million, while total revenue reached a record US$987.1 million – a 20% increase year-on-year.

This growth can be attributed, in part, to the integration of its newly acquired subsidiary Huali Microelectronics, which aims to enhance its advanced manufacturing capabilities. The company attributes this earnings spike to the AI boom, which has created a significant imbalance between chip supply and demand. Bai likened the current AI infrastructure buildout to the early internet, describing semiconductor chips as the "new oil of the industrial age".

The company expects the trend of rising demand and prices to persist for some time, and is accelerating the construction of its new Fab 9B facility in Wuxi to meet burgeoning demand. Despite this expansion, Hua Hong anticipates continuing supply constraints as local foundries, particularly its larger rival SMIC, operate at full capacity, as tech giants and startups vie for computing power.

As of the third quarter, the company's overall fab utilization rate reached 102.9%, indicating that nearly all its production capacity is currently in use.