China’s Leading Chipmaker SMIC Reports Profit Margin Slump

China’s Semiconductor Manufacturing International Corporation (SMIC) has announced a significant decline in its profit margin, reaching its lowest level since 2009, amidst escalating U.S. export controls and efforts to enhance domestic chip production.

For the first quarter of 2024, SMIC reported a 19.7% increase in revenue to $1.75 billion. However, its profit plummeted by 68.9% compared to the previous year, reaching $71.7 million. The company’s gross margin stood at 13.7%, marking its lowest point since the last quarter of 2009 during the global financial crisis.

Anticipating further challenges, SMIC expects its gross margin to decline further to approximately 9% to 11% for the April to June quarter. This decline is attributed to increased depreciation of equipment as the company expands its production capacity. Despite this, SMIC noted an uptick in revenue, driven by clients’ heightened efforts to build up inventory.

Industry executives emphasize that SMIC’s primary objective now is to bolster China’s semiconductor supply amid tightened U.S. export controls aimed at impeding Beijing’s technological advancement. Notably, SMIC has been collaborating with Huawei, a key client, to manufacture essential 5G mobile chipsets. In the first quarter of 2024, SMIC’s Chinese clients contributed 81.6% of its quarterly revenue, marking a notable increase from 75.5% during the same period the previous year.

The recent revocation of export licenses for Intel and Qualcomm to supply Huawei by the U.S. government underscores the critical role SMIC plays in Huawei’s chip supply chain. Huawei, in response, has initiated partnerships to establish multiple chipmaking facilities in China, as reported by Nikkei Asia.

SMIC’s challenges and its pivotal position in China’s semiconductor industry reflect the intensifying competition and geopolitical tensions surrounding the global chip market.