China's Largest Chipmaker SMIC Warns Of Rapid Freeze As Smartphone Demand Wanes

According to investors, the cyclical chip industry is hurtling towards a prolonged slump after years of shortages led to heavy investments in capacity

China’s largest chipmaker, Semiconductor Manufacturing International Corp. (SMIC), warned that smartphone makers were freezing orders on account of a slump in consumer electronics demand is hurting the chip sector, the Bloomberg said.

According to the report, falling demand from smartphone and TV makers is forcing SMIC to readjust its manufacturing plans, Zhao Haijun, co-CEO of SMIC said on Friday. He said that the economic slowdown and inventory adjustments have spurred “rapid freeze and urgent order halts” as some clients hold off on placing new orders.

In Hong Kong, SMIC dipped as much as 3.1 per cent on Friday.

According to investors, the cyclical chip industry is hurtling towards a prolonged slump after years of shortages led to heavy investments in capacity.

SMIC is among a raft of semiconductor manufacturers now grappling with rapidly crumbling global electronics demand, as consumers leave a pandemic-era boom behind. It’s also contending with steadily tightening US export curbs as Washington tries to contain Beijing’s technological rise.

The chipmaker’s revenue jumped 42 per cent to $1.9 billion in the second quarter, as per estimates. It reported net income of $514.3 million in the second quarter, surpassing the $469.5 million average forecast.

SMIC is at the vanguard of China’s long-term ambition to produce chips sophisticated enough to replace American silicon, which comprise the majority of the country’s annual $155 billion in semiconductor consumption. It remains a technological leader in a giant domestic industry now gripped by a series of corruption probes, as senior officials frustrated with the nation’s lack of progress in semiconductors begin to hold executives accountable. 

US sanctions have played a central role in curbing the country’s chip ambitions. The Trump administration blacklisted SMIC about two years ago on national security concerns, citing the company’s ties with the Chinese military, an allegation the chipmaker has denied.

Washington is now also pressing allies into the effort, so that key suppliers like the Netherlands’ ASML Holding NV and Japan’s Nikon Corp. join its technology blockade.

The Shanghai-based contract chipmaker has succeeded in advancing its production technology two generations this year to 7-nanometers, though industry experts caution that may not be based on the same standards employed by far larger rivals like Taiwan Semiconductor Manufacturing Company.

SMIC has said sanctions hurt its ability to develop more sophisticated technologies. The company’s capability is severely curbed by its lack of access for instance to ASML Holding NV’s extreme ultraviolet lithography systems, which are required to make the most advanced chips.