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Semiconductor Manufacturing International Corporation (SMIC) has seen its revenue fall according to its latest quarterly figures. On Friday, the Chinese chipmaking giant posted revenue of $1.46 billion for Q1 2023 amid challenging macroeconomic parameters. In addition to being down 20.6% year-on-year (YoY), SMIC’s latest revenue haul represents the first income deficit in over three years. The last time the Shanghai-based semiconductor maker experienced a sales decline was in Q3 2019.
SMIC’s revenue fall also extended to its net profit, which plunged 48% YoY to $231.1 million. As mainland China’s largest contract chip maker, SMIC hopes to eventually catch up with regional rivals, especially Taiwan Semiconductor Manufacturing Company (TSMC). However, SMIC’s ambitions to boost China’s domestic semiconductor industry suffered a setback when the company incurred US sanctions in 2020. At the time, Washington placed SMIC on a trade blacklist called Entity List, effectively cutting the leading East Asian chipmaker off from essential production resources. As a result, SMIC has struggled to manufacture more advanced, cutting-edge semiconductors competitively.
Despite production trailing TSMC and Samsung, as well as constraints posed by US sanctions, SMIC posted record revenue throughout last year. In February, the company reported a full-year 2022 revenue of $7.2 billion, representing a 34% increase from last year. Furthermore, SMIC saw a gross margin of 38%, its second year of sales growth above 30%.
SMIC executives attributed the latest income drop to waning demand due to the sustained chip shortage. On an earnings call, the company’s co-chief executive Zhao Haijun admitted that prospects for recovery in the year’s second half remained unclear. SMIC’s declining earnings also came amid business and operational outlook revisions by other leading chip manufacturers such as TSMC and Samsung.
The impact of the global chip glut saw TSMC recently update its 2023 revenue forecast from slight growth to a lower single-digit decline. Meanwhile, US semiconductor powerhouse Intel (NASDAQ: INTC) anticipates a loss of 4 cents a share in Q2 2023. Intel’s grim outlook came after the Santa Clara-based company reported its most significant quarterly deficit last month. However, Intel CEO Pat Gelsinger remained optimistic at the time by focusing on bright spots in the chipmaker’s agenda. Emphasizing that Intel’s bleak first-quarter financial outing alluded to the company’s steady transformational progress, Gelsinger explained:
“While we remain cautious on the macroeconomic outlook, we are focused on what we can control as we deliver on IDM 2.0: driving consistent execution across process and product roadmaps and advancing our foundry business to best position us to capitalize on the $1 trillion market opportunity ahead.”
Intel’s chief financial officer David Zinsner also assessed its performance, explaining that it surpassed top and bottom line expectations. Furthermore, at the time, the CFO added that Intel remained committed to exercising discipline in expense management. Zinsner said the tech giant would continue driving efficiencies and cost savings.
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The revenue posted by SMIC is arguably one of the biggest signs of recovery for the Chinese economy.
Semiconductor Manufacturing International Ord Shs (HKG: 0981) the largest chipmaker in China has posted better-than-expected revenue for the 2022 financial year. As reported by CNBC citing the company’s published financials, it said its revenue came in at $7.2 billion, up 34% year-on-year.
The company’s earnings surprised analysts considering the fact that it has been placed under sanctions by the United States Government since 2020. As part of the Entity List, SMIC as it is called cannot do any active business with American suppliers or even customers. These sanctions, alongside the major strain in the broader chip industry over the past 2 years gave SMIC a significant headwind over the past year.
Amidst the obvious woes, the company said its gross margin came in at 38%. The 2022 fiscal year performance now stands as the second time the company will be recording a sales growth above 30%.
Despite its performance, the company is projecting a more conservative record across its top and bottom lines over the coming quarter. SMIC said it expects its revenue for the first quarter of this year to slump by 10 to 12%.
“Looking forward to 2023, in the first half of the year, the industry cycle is still at the bottom, the impact of external uncertainties is still complex,” the company said in a statement.
The company has maintained a dedicated client base despite its technology lagging behind its top competitors including Taiwan Semiconductor Mfg. Co. Ltd (TPE: 2330) and Samsung Electronics Co Ltd (KRX: 005930). The company’s inclusion on the Entity List has prevented it from accessing the latest chip technologies to compete globally.
Though not so pronounced, there was a subtle reduction in the demand for SMIC’s products and services, evidence of the reduced spending capacity from consumers as a whole.
The revenue posted by SMIC is arguably one of the biggest signs of recovery for the Chinese economy which has also been bedeviled by other inconsistencies including the series of new COVID-19 waves.
The earnings and the forecasts model the general sentiment in the broader chip ecosystem. With reduced consumer demand for smartphones and other high-end devices that utilize semiconductors, the number of other key players around the world have reduced capital injection into research and development in a bid to cut costs and stay afloat.
Only Samsung has maintained its research allocation according to an earlier report by Coinspeaker. The fund allocation is such that it can position itself right to gain its competitor’s market share when the much-anticipated recovery finally comes into being.
For SMIC, it projects its capital expenditures to stay the same for the year at $6.35 billion. As part of the aftermath of the uncertainty it is facing, the company plans to extend, by at least a quarter, the timeline for the launch of SMIC Jincheng, its new mass production plant.
Benjamin Godfrey is a blockchain enthusiast and journalists who relish writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desires to educate people about cryptocurrencies inspires his contributions to renowned blockchain based media and sites. Benjamin Godfrey is a lover of sports and agriculture.