Semiconductor Manufacturing International Corp (SMIC), mainland China’s biggest contract chip maker, has become the world’s third-largest integrated circuit (IC) foundry by sales for the first time on the back of strong domestic demand, despite rigid sanctions imposed by the United States government.
SMIC’s sales are expected to record double-digit growth in the current quarter amid a recovery in domestic demand for image sensors, power-management chips and display driver ICs, according to Counterpoint.
The company’s latest ranking reflects how the strategic pivot to serve clients in its home market has helped reduce the impact of US tech sanctions and managed to overcome the global semiconductor market’s typical seasonal sales slowdown in the first quarter.
A Kirin 9000s chip, fabricated by Semiconductor Manufacturing International Corp, is taken from Huawei Technologies’ Mate 60 Pro 5G smartphone in Ottawa, Ontario, Canada, on September 3, 2023. Photo: Bloomberg
SMIC generated 82 per cent of its total US$1.75 billion first-quarter revenue from mainland clients, up from 75.5 per cent in the same period a year earlier and 80 per cent in the December quarter, according to the Chinese chip maker’s latest financial results published earlier this month.
SMIC’s Hong Kong-listed shares closed 2.99 per cent lower to HK$15.60 on Wednesday.
Semiconductor Manufacturing International Corp in February reported total 2023 revenue of US$6.32 billion, down 13.1 per cent from a year earlier, owing to weak global demand. Photo: Shutterstock
Counterpoint’s latest foundry tracker report said the sector had a 5 per cent quarter-on-quarter revenue decline in the first three months of the year because of a slower recovery in demand for non-artificial intelligence (AI) semiconductors, such as those used on smartphones, Internet-of-Things devices, and automotive and industrial applications.
“We’ve observed more evidence to support that the AI demand is real, with increasing [capital expenditure] by cloud service providers adopting AI hardware first and followed by enterprises,” Counterpoint analyst Adam Chang said.
The demand for AI chips is predicted to remain strong this year and is likely to extend to 2025, while non-AI semiconductor demand remains sluggish, he said.
Global AI chip market leader Nvidia, for example, said its revenue from supplying graphics processing units (GPUs) to data centres jumped more than 400 per cent to US$22.6 billion in the quarter ended April 28, according to the US firm’s latest financial results published on Wednesday.
Nvidia has more than 80 per cent share of the world’s AI accelerator chip market, according to a separate report from Taiwan IC research firm TrendForce. It projected TSMC to raise its total monthly advanced packaging capacity by 150 per cent at the end of this year to accommodate Nvidia’s next-generation Blackwell line of GPUs – the B100, B200 and GB200.
An ASML assembly line engineer works on a Twinscan deep ultraviolet lithography system at the company’s headquarters in Veldhoven, the Netherlands, on June 16, 2023. Photo: Reuters
On the impact to SMIC of being potentially cut off from services by Dutch chip-making equipment supplier ASML, Counterpoint associate director Brady Wang said: “Although this is a hypothetical scenario, the impact will be tangible.”
“The extent and duration of this impact will hinge significantly on the available inventory of repair parts,” Wang said. “If the inventory levels are high, the negative effects might be mitigated more swiftly, whereas lower inventory could prolong and intensify these effects, potentially leading to more significant disruptions in service or operations.”
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