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

China's second-largest contract chipmaker, Hua Hong Grace Semiconductor, is doubling down on silicon photonics in anticipation of the booming artificial intelligence infrastructure market. During an earnings call, the company's chairman and president Bai Peng revealed plans to significantly expand their footprint in this critical technology during their next major capacity expansion in 2027.

Bai expressed the company's intent to participate in all silicon-based devices within optical modules, alongside power management chips. The company's ambitious strategy stems from the AI hardware boom, driven by soaring wafer prices and shipments, which resulted in impressive earnings for Hua Hong during the third quarter. For the quarter ending September 30, net profits soared 147% year-on-year to US$123.4 million, with total revenue reaching a record US$987.1 million, a 20% increase year-on-year.

This growth can be credited to the integration of its newly acquired subsidiary Huali Microelectronics, which bolsters the firm's advanced manufacturing capacity. Bai attributed this surge to the AI boom, likening the current infrastructure buildout to the early days of the internet, and calling semiconductor chips "the new oil of the industrial age."

Hua Hong forecasts a continued rise in demand and prices, underscoring their commitment to addressing production capacity shortages as they ramp up their Fab 9B facility in Wuxi. Despite anticipating ongoing supply constraints, the company expects its overall fab utilization to remain at 100% or slightly higher. As of the third quarter, Hua Hong's total production capacity utilization rate stood at 102.9%, according to its latest filing.

The company's stock, trading at HK$67.3 in Hong Kong, saw a 2.04% drop ahead of the earnings release.