Semiconductor Manufacturing International Corp (SMIC, 中芯) warned that a hoped-for smartphone market recovery is another year out, and that geopolitical tensions are fomenting a serious glut in global chipmaking capacity.
That outlook clashes with more upbeat comments from Samsung Electronics Co and Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) about mobile demand bottoming soon. China’s largest chipmaker on Thursday reported its third consecutive fall in quarterly revenue, reflecting the depth of the downturn as well as Washington’s broadening campaign to curb China’s tech sector. That result disappointed investors who had hoped the surprise popularity of Huawei Technologies Co’s (華為) latest smartphones would help offset lost sales.
SMIC is one of the highest-profile companies at the heart of Beijing’s ambitions to build a world-class tech sector that is less reliant on US innovations. It helped Huawei build the 7-nanometer processor for the Mate 60 Pro, regarded as a breakthrough for two companies the US blacklisted years ago over national security concerns. Riding nationalist fervor, the device sold out rapidly, taking business away from Apple Inc’s iPhone.
Photo: Bloomberg
SMIC executives spoke about how political tensions had spurred a global build-up of domestic chipmaking capacity. They did not name any countries, but the US, China, Japan and Europe are among those shelling out incentives to attract local manufacturers.
“From a global perspective, capacity will be excessive. It will take a lot of time to digest the new capacities built in recent years,” SMIC co-CEO Zhao Haijun (趙海軍) told analysts in a conference call.
SMIC’s shares slid as much as 6.6 percent on Friday, their most in two months, after reporting a larger-than-projected 15 percent fall in revenue to US$1.62 billion in the September quarter. Net income plunged 80 percent, also missing estimates.
Meanwhile, executives said SMIC continues to grapple with uncertainty in China’s smartphone market. Smartphone shipments fell 5 percent in the third quarter and none of the top five players sold more phones than a year ago, research firm Canalys said. Major Chinese smartphone makers rely on chips from Qualcomm Inc and MediaTek Inc (聯發科), but those two firms also outsource manufacturing to overseas contractors such as TSMC and Globalfoundries Inc.
“The current smartphone replacement cycle wasn’t because of new innovations,” Zhao told analysts. “The overall smartphone shipment for next year should be on par with this year.”
Longer-term, it remains to be seen whether Beijing’s overt support for SMIC and chip-related firms would prop up the bottom line.
SMIC is raising its full-year capital expenditure to US$7.5 billion from an earlier guidance of roughly US$6.35 billion, suggesting that it too is ramping up capacity. The company expects to take delivery of some machinery earlier than scheduled after suppliers were quicker to secure shipping licenses, Zhao said.
“China’s drive toward semiconductor self-sufficiency appears to buffer SMIC against anticipated 3Q headwinds in sales and profit margins, despite broader market challenges from stagnant smartphone and consumer-electronics recoveries,” Bloomberg Intelligence analyst Charles Shum (沈明) wrote in a note ahead of the results release.
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