- China’s largest chipmaker, SMIC, reported an 80% drop in profit on Thursday amid continued problems in the semiconductor sector.
- SMIC is China’s largest foundry, making semiconductor chips designed by other companies.
- “In the Chinese market, the problem of high product inventories that began in the third quarter of last year has been alleviated and inventories have declined to a relatively healthy level,” SMIC said on Friday.
BEIJING, CHINA – DECEMBER 04: A logo hangs on the Beijing branch building of Semiconductor Manufacturing International Corporation (SMIC) on December 4, 2020 in Beijing, China. (Photo by VCG/VCG via Getty Images)
VCG | Visual Group China | Getty Images
China’s largest chipmaker SMIC reported an 80% drop in third-quarter profit on Thursday as weak global demand hit foundries hard.
Net profit for the quarter ended September plunged 80% from a year ago, more than the 64% drop in the second quarter of 2019, according to company figures.
Here are the third quarter SMIC results compared to LSEG consensus estimates:
- Income: $1.621 billion, versus $1.625 billion expected
- Net revenue: $93.98 million, versus $165.1 million expected
SMIC, or Semiconductor Manufacturing International Co., reported revenue of $1.62 billion in the third quarter of the year, down 15% year-over-year. Net income for this period was $93.98 million, well below analysts’ expectations of $165.1 million.
SMIC is China’s largest foundry, making semiconductor chips designed by other companies. The company is seen as a key hope in Beijing’s ambitions to boost its domestic semiconductor industry and catch up with rivals such as Taiwan’s TSMC and South Korea’s Samsung – even as the United States continues to hold back the chip manufacturing technology and Chinese exports.
“In the Chinese market, the problem of high product inventories that began in the third quarter of last year has been alleviated and inventories have declined to a relatively healthy level,” SMIC said in its conference call. Friday morning.
“But U.S. and European customer inventories will remain at historically high levels,” the company said.
The continued decline in demand for certain chips used in consumer products, such as memory, has had a negative impact on SMIC, as well as its Asian rivals TSMC and Samsung.
Consumers cut back on purchases of consumer appliances as inflation soared. As a result, smartphone and PC makers have struggled with excess chip inventories and memory chip prices have fallen.
SMIC, which also makes automotive chips, said inventories of these chips are “now at a relatively high level after a three-year shortage,” leading major customers to “tighten their orders.”
“After more than a year of ups and downs in the market, customers have experienced a shift from aggressive expansion two years ago to defense this year,” SMIC said.
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Data from the Semiconductor Industry Association shows that global semiconductor sales for September rose 1.9% from the previous month, showing signs of chip recovery. Worldwide, September sales fell 4.5% from last year.
“Global semiconductor sales increased month-over-month for the seventh consecutive time in September, reinforcing the positive momentum the chip market experienced in the middle of this year,” said John Neuffer, chairman and CEO of the semiconductor industry. Association.
“The long-term outlook for semiconductor demand remains strong, with chips enabling countless products the world depends on and giving rise to transformative new technologies of the future,” Neuffer said.
SMIC has been in the spotlight for a “revolutionary” 5G chip in Chinese tech giant Huawei’s new smartphone, launched in September.
The United States imposed sanctions on Huawei and SMIC.
In 2019, Huawei was placed on the US trade blacklist, which prevents US companies from doing business with the Chinese company. The United States has also limited Huawei’s access to foreign-produced semiconductors made using U.S. technology, and has barred its agencies from obtaining Huawei equipment or services.
SMIC was also placed on a U.S. trade blacklist in 2020, limiting its ability to acquire certain U.S. technologies by requiring exporters to apply for a license to sell to the company.
In a blow to US sanctions, the teardown of Huawei’s latest Mate 60 Pro smartphone revealed a Kirin 9000 chip made by SMIC that appears to support 5G despite US attempts to remove Huawei from key technologies, including 5G chips.
The advanced 7-nanometer processor in Huawei’s new phone indicates that China is seeing early progress in building its scientific and technological autonomy, as it outpaces U.S. efforts to contain Beijing’s rise. Analysts had previously said that SMIC’s technology was several generations behind TSMC and Samsung.
Last year, Washington introduced drastic export restrictions aimed at cutting China off from access to advanced chip technology and equipment. These restrictions cut off the minimum wage from key chipmaking tools to make the most advanced semiconductors.
SMIC said it expects fourth-quarter revenue to increase 1% to 3% from the third quarter.