SMIC Q2 2023 earnings report

Semiconductor Manufacturing International Corp. posted on Thursday a drop in second-quarter revenue against a backdrop of ongoing U.S. sanctions and a sluggish recovery in global chip demand.

Here are SMIC’s second-quarter results versus Refinitiv consensus estimates:

• Revenue: $1.56 billion, vs. $1.55 billion expected
• Net income: $402.76 million, vs. $184.2 million expected

SMIC said that second-quarter revenue totaled $1.56 billion, down 18% from the $1.9 billion logged in the same period of last year. Net income was $402.76 million, down by 21.7% from the $514.33 million recorded in the second quarter of 2022.

SMIC is China’s biggest foundry, manufacturing semiconductor chips that other firms design. The Chinese firm competes with the likes of Taiwan’s TSMC and South Korea’s Samsung, but analysts say its technology is several generations behind.

The Chinese foundry has been the target of U.S. sanctions since 2020. It was placed on an U.S. trade blacklist that restricts its access to key foreign technology, which would allow it to produce cost-efficient advanced chips.

SMIC has not been able to obtain extreme ultraviolet lithography machines, which only Dutch firm ASML is currently capable of making. Without EUV machines, SMIC is unable to produce advanced chips on a large scale at lower costs.

An ongoing slump in demand for certain chips that go into consumer products, such as memory, has also badly impacted SMIC, as well as the likes of TSMC and Samsung.

The Semiconductor Industry Association said that global sales of semiconductors totaled $124.5 billion during the second quarter of 2023. This represents a 4.7% increase from the first quarter but is 17.3% below the second quarter of 2022.

In the second quarter of 2023, SMIC revenues increased by 6.7% quarter-on-quarter and logged a gross margin of 20.3% — in line with the company’s guidance of a 5-7% revenue hike and a 19-21% gross margin range.

SMIC said quarterly revenue increased because its 12-inch wafer fabs — processing facilities responsible for producing semiconductors — met “relatively full” capacity.

“The capacity demand of 12-inch were relatively full, while the customer demand of 8-inch were weak. The utilization rate for 8-inch was lower than 12-inch, but still better than the industry average,” SMIC said on Thursday.

The Chinese firm expects shipments to increase further in the third quarter.

“Third quarter’s revenue is expected to grow by 3%-5% sequentially, and gross margin is expected to be in the range of 18%-20%,” it added.

The company expects its revenue in the second half of the year will be “better than that in the first half” and aims to “strengthen our technology R&D and platform development, verify new products quickly, arrange the supporting capacity as soon as possible, and fully prepare for the next round of growth cycle.”