Semiconductor Manufacturing International Corporation (SMIC) recently issued a warning regarding the intense competition in the chip industry after its first-quarter profit fell below expectations. The company stated that competition in the industry has been increasingly fierce, with pricing for commodity products following market trends. Despite efforts to maintain a long-term view through constructing quality technology platforms, SMIC acknowledged challenges in the industry.
SMIC, known as China’s largest contract chip manufacturer, plays a vital role in Beijing’s ambitions to reduce foreign reliance in the domestic semiconductor industry. However, analysts have noted that SMIC lags behind competitors like Taiwan’s TSMC and South Korea’s Samsung Electronics. The company’s first-quarter net income dropped significantly, missing analysts’ average estimates.
During the first quarter, SMIC reported a 68.9% decrease in net income compared to the previous year, reaching $71.79 million. The gross margin also declined to 13.7%, the lowest recorded by the firm in nearly 12 years. Despite this, revenue for the quarter saw a 19.7% increase from the previous year, exceeding estimates.
SMIC highlighted that more than 80% of its revenue in the first quarter came from customers in China. The company’s chips are used in various applications, including automobiles, smartphones, computers, and IoT technologies. As customers build up inventory to withstand competition and meet market demand, SMIC acknowledged challenges in fulfilling rush orders in the first quarter.
To enhance competitiveness and increase market share, SMIC emphasized priorities such as capacity construction and research and development activities for investments. The company announced plans not to pay dividends for the year 2023 to ensure that it maintains a leading position in the market and protects investor interests. Despite fierce competition, SMIC believes that demand, technology, and capacity readiness will drive growth.
Looking ahead, SMIC expects second-quarter revenue to increase by 5% to 7% from the first quarter due to strong demand. However, the gross margin could further decline to between 9% and 11% as capacity scales up, increasing depreciation costs. The company also faces challenges due to being placed on a U.S. trade blacklist in 2020, limiting its access to certain technologies.
SMIC’s warning of intense competition in the semiconductor industry reflects the challenges faced by the company in maintaining market position and profitability. As the chip industry evolves and competition intensifies, SMIC will need to adapt and innovate to stay ahead in the market. Despite the hurdles, SMIC remains optimistic about its ability to grow and succeed in the face of fierce competition.