Amidst the US trade sanctions and restrictions on technology exports, China's leading foundry SMIC (Semiconductor Manufacturing International Corporation) has not only been significantly unaffected in revenue. However, it is actively expanding its 12-inch wafer production lines to meet the production needs of Huawei's 7nm and upcoming 5nm chips, supported by government industrial policies and large customer orders from Huawei.
Robert Castellano, President of The Information Network, stated that SMIC and Huawei have become important participants in Beijing's counter-strategy against US sanctions and are the biggest beneficiaries of local semiconductor industry subsidy policies. Projects, such as the expansion of Huawei's Shanghai Qingpu R&D base and SMIC's 12-inch wafer fab, have been listed as key investment projects.
Reviewing SMIC's revenue from the first quarter of 2021 to the fourth quarter of 2023, apart from consecutive quarter-on-quarter revenue declines in the fourth quarter of 2022 and the first quarter of 2023 due to factors such as industry cyclicality, weak global market demand, excessive inventory, and intensified market competition, revenue for the remaining quarters showed quarter-on-quarter growth.
Furthermore, SMIC estimates a 2% quarter-on-quarter revenue increase for the first quarter of 2024, reaching approximately US$1.71 billion, surpassing the market expectation of US$1.67 billion. This suggests that the US sanctions have not severely impacted the company's revenue.
Moreover, the proportion of revenue from SMIC's 12-inch wafer production has increased from 64.4% in the fourth quarter of 2022 to 74.2% in the same period of 2023, an increase of nearly 10%.
This is likely related to the company securing numerous orders for advanced process chips, especially from the mobile phone sector. Without these high-profit orders, the company might face significant declines in revenue and profit.
In terms of production capacity, calculated on 8-inch wafers, SMIC's monthly wafer production capacity has increased from 714,000 wafers in the fourth quarter of 2022 to 805,500 wafers in the same period of 2023 (an 11.4% year-on-year increase). However, the capacity utilization rate has remained below 80% during the same period.
Analysts suggest this is mainly because the company is expanding its production capacity as part of its strategy to counter-cyclical downturns.
What surprises outsiders the most is SMIC's breakthrough in process technology despite US technology blockades. SMIC has invested heavily to advance its process technology to the 7-nanometer node and is moving towards 5-nanometer and even 3-nanometer technology.
Some research institutions estimate that SMIC's 7-nanometer process, which adopts multi-patterning technology, has a yield rate of less than 50%, far below the industry standard of 90% or higher, resulting in limited output. However, Castellano stated that such a low yield rate is not significant for SMIC because yields can continue to improve, especially with government subsidies available to offset the high cost of production.
With high-end AI chips prohibited from being exported to China, Huawei's Ascend 910B has emerged as the most competitive product in the Chinese AI chip market. Sources indicate that in terms of specifications, the Ascend 910B seems to outperform the Nvidia H20 AI GPU tailored for the Chinese market.
Huawei is rumored to be developing the Kirin 9100 and Ascend 920 chips using the 5-nanometer process, and they will also be produced by SMIC. One of the reasons SMIC is actively expanding its 12-inch wafer production lines is to meet the high demand for advanced chips needed by Huawei.
With orders from Huawei and subsidies from the Chinese government, SMIC's revenue is expected to grow in the coming years.
