SMIC Dodges US Tariffs, Eyes Strong Domestic Demand

Chip Giant Reports Robust Capacity Needs Amidst Shifting Trade Landscape

BEIJING – Chinese chip manufacturer SMIC revealed Friday that escalating U.S. tariff policies have not delivered the severe blow the company initially feared. Strong domestic demand is projected to maintain a tight production capacity well into October.

Contingency Plans Buffer Tariff Impact

SMIC’s Co-CEO, **Zhao Haijun**, stated during a post-earnings call that the company is not currently engaged in discussions with clients regarding U.S. President **Donald Trump’s** proposed 100% tariff on chip imports. He anticipates a lessened impact due to preparedness measures enacted after earlier tariff rounds implemented in April.

“After these past few months, everyone has either stocked up enough inventory for this year and next year, or found other suppliers,” **Zhao** said, “So I think the impact will become even smaller.”

—Zhao Haijun, Co-CEO, SMIC

Previous tariff increases resulted in cost hikes below 10% for international customers, **Zhao** noted. These measures followed China’s retaliatory duties of 125% on specific U.S. goods, a response to President Trump’s earlier tariff hikes on Chinese products reaching 145%.

Domestic Market Dominance Fuels SMIC’s Outlook

The United States Commerce Department blacklisted SMIC in 2020, a move that has not derailed its operations, particularly given China’s pivotal role as its primary market. China accounted for 84% of SMIC’s second-quarter revenue, a figure unchanged from the previous quarter. U.S. revenue saw a slight increase, contributing 12.9% compared to 12.6% earlier.

SMIC’s financial performance showed a 16.2% year-over-year revenue increase, reaching US$2.2 billion in the second quarter. However, profit attributable to owners saw a 19.5% decrease, settling at US$132.5 million, falling short of analyst expectations of US$183.35 million.

Capacity Constraints Persist Amidst Surging Demand

The company shipped 2.4 million eight-inch equivalent wafers in the second quarter, marking a 4.3% increase from the preceding quarter. **Zhao** highlighted that production capacity remains insufficient due to robust demand for domestic replacements of analog chips, WiFi, Ethernet, and memory controller chips.

SMIC’s monthly production capacity expanded by 18.5% quarter-over-quarter to 991,000 wafers. Utilization rates climbed to 92.5% from 89.6% in the March quarter. However, **Zhao** cautioned that the fourth quarter typically sees a slowdown in the industry, with accelerated orders and early shipments expected to decrease.

SMIC anticipates its third-quarter revenue to grow between 5% and 7% compared to the second quarter. Despite these positive operational outlooks, SMIC’s shares traded in Hong Kong experienced a decline of over 5% on Friday.

Global semiconductor shortages continue to impact the industry, with lead times for some chips extending to over a year. For instance, demand for advanced packaging services remains exceptionally high, contributing to extended delivery schedules. (Source: Reuters)