BEIJING – Shares of Semiconductor Manufacturing International Corp (SMIC) fell by their most since November on Feb 7, after executives warned of further pressure on its profitability.
The Shanghai-based chipmaker, already constrained by US sanctions, said on Feb 7 that economic and geopolitical uncertainties could further erode margins, after posting better-than-expected earnings the day before. Shares in Hong Kong fell as much as 7.4 per cent, adding to a significant slump since the start of the year amid ongoing routs in the financial hub and mainland China.
The majority of SMIC’s business still comes from making less sophisticated semiconductors used in a wide range of devices, including home appliances and electric vehicles. Sluggish demand for those components is putting pressure on its margins, according to Bloomberg Intelligence analyst Charles Shum.
As China’s top contract chipmaker, SMIC is capable of making advanced 7-nanometre chips that can power smartphones and laptops, though its technology is still years behind industry leader Taiwan Semiconductor Manufacturing Company.
But SMIC’s technological advance is limited by its inability to acquire the most cutting-edge chipmaking machines because of a US-led, multinational campaign to foil China’s technological rise.
It is planning to make more powerful 5-nanometre chips in 2024, the Financial Times reported. However, company executives did not mention any detail on Feb 7 about SMIC’s efforts to advance its technology and instead said that its new capacity being built is all dedicated to less sophisticated semiconductors.
Co-chief executive Zhao Haijun added that the smartphone recovery could fade away later in 2024, as some clients may have placed orders for the whole year early, which could offset growth in the second half.
SMIC posted quarterly profit that exceeded estimates, possibly because of robust demand for Huawei Technologies’ marquee smartphones powered by components made by the chipmaker.
Net income reached US$174.7 million (S$234.5 million) in the three months that ended in December, compared with the average analyst estimate of US$139.1 million. Revenue totalled US$1.68 billion, the company said on Feb 6, versus analysts’ projection of US$1.66 billion.
The Chinese chipmaker was instrumental in Huawei’s surprise comeback in 2023 as it produced 7-nanometre processors for the Mate 60 Pro smartphones. With help from SMIC, Huawei was able to return to the 5G handset market after years of US sanctions that restricted its access to advanced chips and stifled its smartphone business.
Shipments of Huawei-branded phones surged 36 per cent in the December quarter. Huawei became the No. 4 smartphone vendor in China and was the only major brand to gain market share in the past quarter, according to research firm IDC. Huawei was also the top-selling smartphone maker in China for the first two weeks of 2024, Counterpoint Research said earlier this week. BLOOMBERG
