Recent news suggests that it’s a boom time for the Chinese tech industry. And indeed, the momentum continues. SMIC, the only semiconductor factory in China capable of producing 7-nm-equivalent chips, posted first-quarter revenue of $3 billion. This performance far exceeded its own forecasts, with revenue growth of 36.1% compared to the previous year and net income nearly tripling to $479.2 million. The factory’s utilization rate reached 93.7%, exceeding customer demand.
SMIC Revises Its Pricing Strategy in a Market Where Others Are Profiting
Co-CEO Zhao Haijun told analysts that the Shanghai plant would raise prices for processed wafers in the third quarter, following price negotiations concluded in the first quarter. “Since there is still a significant gap between the prices of leading-edge wafers and SMIC’s current prices, we need to negotiate with customers to secure more equitable rates,” Zhao said during the call. This increase comes amid a trend in which demand for wafers rose 14% quarter-over-quarter, reaching 2.9 million 8-inch equivalents.
The growth is not driven by GPUs, but primarily by AI chips other than CPUs and GPUs, such as logic circuits, BCD power management components, and other components—all of which are currently in short supply. This segment of SMIC’s AI-focused production is expected to grow by approximately 40% for the quarter, while industrial and automotive chips accounted for 16.5% of wafer revenue, up from 10.6% a year earlier. Orders from China’s domestic industry account for 90% of the company’s revenue.
The Impact of U.S. Export Controls
U.S. export controls have played a major role in redirecting Chinese demand for AI accelerators toward local suppliers, preventing access to TSMC and Samsung for cutting-edge technologies. The Chinese government aims to have 70% of silicon wafers sourced locally this year. A Bloomberg Intelligence survey conducted in June of 60 Chinese technical executives revealed that companies plan to spend 46% of their AI accelerator budgets on domestic chips over the next 12 months, up from 30% currently.
SMIC is the only Chinese fab mass-producing 7-nm-class chips, making it the sole domestic supplier for Huawei’s Ascend series and Cambricon’s accelerators.
However, SMIC is not without its flaws. Industry sources cited by the Financial Times estimate that SMIC’s prices for etching using the most advanced processes are 40% to 50% higher than TSMC’s, with yields less than one-third as high, due to the use of multi-patterned DUV on nodes designed for EUV. But the company appears to be “making up for it” with more mature processes.
SMIC’s record profit therefore stems primarily from the government’s desire to ensure that the vast majority of work goes to its local industry.
