SMIC, China's largest semiconductor manufacturer, faces intense competition and declining profits, with a significant 68.9% drop in net income and a decrease in revenue from $7.27 billion in 2022 to $6.32 billion in 2023. Amidst U.S. restrictions on advanced technology exports, SMIC’s progress to make advanced chips lags behind leaders like TSMC, affecting its competitiveness in the global market. Despite these challenges, SMIC continues efforts to innovate, marked by its production of a 7-nanometer chip for Huawei, although still behind the more advanced 3-nanometer chips produced by competitors.
Semiconductor Manufacturing International Corporation ("SMIC"), China's largest semiconductor manufacturer, warned of "fierce" competition as its net income ratcheted down 68.9% from a year earlier. Gross margins slid to 13.7%, the lowest ever for the firm.
“Competition in the industry has been increasingly fierce and the pricing for commodity products basically follows the market trends,” SMIC said on Friday during the firm’s earnings call.
SMIC didn't have the best 2023 either. For the full year of 2023, SMIC reported a 13% decrease in revenue, totaling $6.32 billion, down from $7.27 billion the previous year. Their profit also saw a substantial drop of about 50% compared to 2022.
The Chinese foundry ranked fifth in 2023 among semiconductor foundries globally in terms of revenues. TSMC led with a 60% market share, followed by Samsung with around 12.4% share. GlobalFoundaries and UMC were ranked third and fourth, respectively.
SMIC Is Critical For China's Semiconductor Self-Reliance
So long as China is dependent on other countries for the semiconductors that go into electronics it assembles and ships to the world, it is vulnerable.
Washington D.C. has its eye on not letting the gains of the new semiconductor innovations accrue to China. President Donald Trump began the pushback and President Biden has continued to put up more hurdles for China which have included critical technology export bans to China, and the funding of deep pools of capital to incentivize the semiconductor industry to relocate and remain in the United States.
Related Articles:
SMIC produces larger processing chips, such as those 28 nanometers and above, which are less valuable and don't require advanced technology to produce. These are the chips put in simple smart devices, air conditioners, and other not-so-complicated electronic devices. TSMC is the leader in the chips that are the most coveted, the ones smaller than 10 nanometers.
The smaller the chip the more processing power, and exponentially greater the complexity exists to create.
China's Semiconductor Struggles Will Continue
For SMIC to make advanced processing chips (i.e., under 5 nanometers) it needs cutting-edge extreme ultraviolet lithography tools, but the sale of this technology is now restricted to China. The alternatives for SMIC are older and less reliable and more costly to operate with lower efficiencies.
Due to SMIC's use of older technology, its chips between 5 and 7 nanometers are reportedly 40% to 50% more expensive than TSMC's.
Technology in this space continues to advance rapidly and there are a handful of pivotal technological advances on the horizon that will change the game. China will not have access to these technologies and isn't positioned to make the innovations on its own.
There is some good news for SMIC. China's version of Apple, Huawei, launched a phone recently containing a 7-nanometer chip made by SMIC.
However, TSMC and Samsung produced those sized chips starting in 2018 and are now well beyond that producing 3-nanometer chips.
SMIC is attempting to learn to make advanced processing chips, but the experts mostly agree that it will not succeed. Not only is it too far behind, but its competitors are also now putting up moats, and the next wave of semiconductor advancements will soon make most of what is hot today look like old news.
As China continues to push for semiconductor independence through companies like SMIC, the dual challenges of technological catch-up and geopolitical hurdles underscore a complex path ahead. Despite recent advancements, such as Huawei's adoption of SMIC's 7-nanometer chips, the rapid pace of global innovation and restrictive international policies may limit SMIC’s growth prospects in the high-stakes semiconductor race.
Comments