China’s chip champion SMIC reports slump in revenue, income for 2023 amid weak market, stiff competition

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Semiconductor Manufacturing International Corp (SMIC), China’s top contract chip maker, reported declines in revenue and net income for 2023 amid weakening global demand, stiff competition and high inventory levels.

SMIC’s revenue for the full year was US$6.32 billion, compared with US$7.27 billion in 2022. Net income for the latest year fell 50.4 per cent to US$902.5 million, according to results the company reported on Tuesday.

The Shanghai-based chip maker attributed the slump to weak demand in the global market, rising industry inventory levels compounded by a slower pace of inventory reduction, as well as fierce competition in the semiconductor sector.

Revenue for the fourth quarter of 2023 was an exception – up 3.5 per cent year on year to US$1.68 billion – driven partly by the strong demand for Huawei Technologies’ Mate 60 series 5G smartphones powered by a processor manufactured by SMIC.

Total capital expenditure for 2023 was US$7.47 billion, and it expects capex for 2024 to remain roughly flat.

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The company, which was placed on a US trade blacklist in 2020 as a potential national security risk, ranks as the world’s fifth-largest foundry after Taiwan Semiconductor Manufacturing Corp, South Korea’s Samsung Electronics, Taiwan-based United Microelectronics and GlobalFoundries of the US, according to market-intelligence firm TrendForce.

For 2024, the company estimated that revenue growth will be in line with the industry average, although it is not expecting a strong rebound in growth.

“Driven by gradual improvement on client inventory levels and rising demand for smartphone and internet [services], the company achieved stable growth,” SMIC’s co-CEO Zhao Haijun told analysts during a post-earnings call on Wednesday.

But he cautioned that “the strength of the resurgent demand is not sufficient to undergird a full, strong rebound in the semiconductor [sector]”.

In the fourth quarter, China accounted for 80.8 per cent of SMIC’s total revenue, down from 84 per cent in the third quarter. Revenue from the US bucked the geopolitical headwinds, accounting for 15.7 per cent of the total, up from 12.9 per cent in the previous quarter.

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According to the company’s breakdown of revenue by applications, smartphone, computer and tablet devices remain the company’s largest revenue source, accounting for a combined 60.8 per cent of the total in the fourth quarter. Consumer electronics contributed to 22.8 per cent, a slight drop from third quarter’s 24.1 per cent, weighed down by slow demand.

The smartphone segment led the growth with nearly 5 per cent quarter-on-quarter growth, owing mainly to Huawei’s popular Mate 60 line launched in late August, which saw a boom in demand from patriotic Chinese buyers after it was revealed that the processor was made with advanced 7-nanometre technology in spite of US sanctions designed to curb the company’s ability at the high-end smartphone segment.

Sales of Huawei’s new 5G smartphones have been surging, with about 2.5 million units sold by early November, according to market research firm Canalys.

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