Increased localization initiatives in China are driving up demand for semiconductors, according to SMIC.

Semiconductor Manufacturing International (SMIC) Reports Q2 Results and Future Outlook

Semiconductor Manufacturing International Corporation (SMIC), a leading semiconductor foundry in China, has reported its financial results for the April-June quarter and shared insights about its future plans.

The company's revenue for the quarter reached USD 1.9 billion, marking a 21.8% year-on-year increase. However, the net profit saw a significant drop, falling 59.1% year-on-year to USD 164.5 million. The gross margin contracted to 13.9% from 20.3% due to price competition and increased investment.

Despite the contraction in the gross margin, SMIC has seen an increase in orders and improved pricing due to China's push to localize semiconductor supplies. This push has boosted demand from some overseas chip developers seeking to tap the Chinese market and maintain their market share.

Zhao Haijun, co-CEO of SMIC, stated that some customers have penetrated into the industrial value chain, bringing incremental demand to the company. He expects this localization push to last till the end of 2023.

The company's production utilization rate improved to 85.2% in the second quarter from 80.2% in the first quarter. SMIC's newly added 12-inch capacity has been "effectively utilized."

In response to the increased demand, SMIC is accelerating its capacity expansion to meet localization demand, aiming for a 60,000 wafer increase by the end of the year. This is faster than SMIC's usual annual 30,000-50,000 wafer expansion plans.

The push for localization has also led to rush orders and requests to make some shipments earlier than planned. Some overseas customers are building up inventory to stabilize their market share and hedge against market risks.

The demand for certain industrial and automotive-related chips has not yet recovered from its downturn. However, requests for adjustments to orders have been received for chips used in televisions, smart speakers, and smartphones.

Looking ahead, SMIC expects its gross margin for the current quarter to improve to between 18-20%. The company also forecasts its revenue for the current quarter to grow 13-15% quarterly.

The planning to increase capacity at SMIC for the rest of the year was initiated by the company itself as part of its expansion strategy; no specific external initiators were mentioned in the search results. Geopolitical uncertainties are fueling the rush to onshore production in China.

The 12-inch wafer capacity has been in short supply, with prices trending up due to localization demand. Despite the challenges, SMIC remains optimistic about its future prospects.

In conclusion, SMIC's Q2 results reflect the ongoing push for localization in the semiconductor industry, with the company accelerating its capacity expansion to meet the growing demand. The company expects its gross margin and revenue to improve in the current quarter, signaling a positive outlook for the rest of the year.

Increased localization initiatives in China are driving up demand for semiconductors, according to SMIC.