Science & Technology

China’s Largest Chipmaker SMIC Reports Drop in Profit

The largest Chinese manufacturer of chips SMIC last Thursday, November 9, reported that at the end of the third quarter of this year, its profit indicator showed a significant drop.

China’s Largest Chipmaker SMIC Reports Drop in Profit

The negative result of this company for the period from July to September is due, among other things, to objective external factors, including such an unfavorable circumstance that has a large-scale impact as a weakening of global demand, which has become a kind of blow to foundries from the point of view of their financial efficiency.

According to the results of the third quarter, the net profit of the mentioned Chinese chip manufacturer was fixed at $93.98 million. This indicator is 80% lower than the result for the same period last year. Experts predicted that the company’s net profit from July to September would amount to $165.1 million. In this case, reality turned out to be too cruel concerning expectations. The previous significant drop in the company’s net profit was recorded in the second quarter of 2019. That time the drop in the indicator was 64%.

SMIC’s revenue from July to September is $1.621 billion. This indicator showed a decrease of 15% year-on-year. Experts predicted that the revenue would be equal to 1.625 billion dollars. In this case, the gap between reality and expectations turned out to be less critical.

SMIC is currently the largest foundry foundry in China, which specializes in the production of chips developed by other companies. The said firm is currently considered one of the main drivers of the development of the semiconductor industry in this country. These aspirations are particularly significant for Beijing, which intends to achieve technological sovereignty, which is so necessary in the face of tensions in relations with Washington, which has already caused restrictions on Chinese companies’ access to advanced chips and equipment for their making.

The SMIC profit and loss report indicates that in China, the problem with large stocks of products, which began in the third quarter of 2022, has been successfully resolved. The company notes that the corresponding indicator has decreased to a relatively healthy level. Separately, this report indicates that American and European customers have historically large stocks.

The decline in demand for certain chips used in consumer products has become a factor of negative impact for SMIC and its Asian competitors, including TSMC and Samsung. Due to a sharp increase in inflation, the dynamic of purchasing activity in the electronics market has slowed down. As a result of this trend, manufacturers of smartphones and personal computers are faced with the problem of an oversupply of chip stocks. At the same time, the cost of memory microcircuits has dropped.

SMIC also specializes in making chips for the automotive industry. The company reported that microcircuit data stocks are currently at a relatively high level after a three-year shortage.

Data from the Semiconductor Industry Association indicate that global chip sales in September showed an increase of 1.9% relative to the figure recorded a month earlier. This dynamic confirms the recovery of microcircuit production. At the same time, September chip sales fell by 4.5% compared to a year ago.

John Neuffer, president and chief executive Officer of the Semiconductor Industry Association, says that the increase in sales of microcircuits is recorded for the seventh month in a row. He also stated that the long-term prospects for demand for these products remain high. According to him, this vision of future trends is justified by the fact that chips allow to creation of many products on which the world depends, and are a kind of base for new technologies with the potential for transformative influence.

SMIC has been in the spotlight because of the advanced microcircuit 5G in the new smartphone of Chinese tech giant Huawei, released this year. The United States has imposed sanctions on both of these companies. Huawei was added to the US trade blacklist back in 2019. Firms from the United States are prohibited from cooperating with this company. Washington also restricted Huawei’s access to chips made using American technologies. SMIC was placed on the US trade blacklist in 2020.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.