China’s top chip maker SMIC warns of lower production from Shanghai lockdown as electronics demand ‘drops like a rock’

  • The Shanghai lockdown could reduce production by 5 per cent this quarter, SMIC said, warning of a collapse in demand for gadgets like smartphones and computers
  • Company revenue grew 67 per cent in the first quarter despite sanctions from the US

Semiconductor Manufacturing International Corporation (SMIC), China‘s top chip maker, said the Shanghai lockdown could reduce production by 5 per cent this quarter, while domestic smartphone makers could see as many as 200 million fewer shipments this year.

SMIC co-CEO Zhao Haijun said production has been affected despite efforts to maintain operations in a “closed-loop” mode that keeps workers living and working on site. “We are trying to make up for the production losses before the end of June using our factories outside Shanghai, but the losses may not be compensated,” Zhao said on an earnings conference call on Friday.

Demand from downstream sectors such as smartphones, consumer products and personal computers has “dropped like a rock”, Zhao said. “Chinese smartphone vendors could reduce shipments by 200 million units this year. Many orders [from smartphone makers] were cancelled,” he added.

SMIC chairman Gao Yonggang said the company has taken measures to offset the impact of the Shanghai lockdown and inflationary pressures in raw materials. “We expect a 5 per cent production loss during the second quarter,” he said.

China’s top wafer foundry generated US$1.84 billion in first-quarter revenue, according to results posted on Thursday, up 66.9 per cent year on year, and 16.6 per cent ahead of the previous quarter.

First-quarter net profits came in at US$447.2 million, a 182 per cent jump from the same period last year, but down from US$533.7 million in the previous quarter.

Gao said quarter-on-quarter revenue growth may slow to 3 per cent in the second quarter.

SMIC reported a gross margin of more than 40 per cent, compared with 22.7 per cent last year and 35 per cent in the previous quarter.

SMIC also changed its method of reporting wafer revenue, which was previously categorised by processing nodes, but is now measured in terms of wafer diameter.

In the first quarter, it generated 66.5 per cent of wafer revenue from 12-inch wafers and 33.5 per cent from its 8-inch lines, without providing a revenue breakdown for its 14-nanometre FinFet and 28nm technology platforms.

Its revenue share from the more advanced 14nm FinFet node had been a closely-watched proxy for customer confidence in SMIC’s technological prowess.

SMIC is also still dealing with delays in equipment shipments for some of its foundries currently under construction, according to the chip maker, a result of robust demand for semiconductor tools and backed up supply chains.

SMIC is building 28nm fabrication plants in Shenzhen, Shanghai, and Beijing. Zhao said equipment for the Shenzhen foundry was installed in December and risk production is expected to start at the end of this year.

SMIC spent US$869 million in capital in the first quarter, accounting for 17 per cent of the US$5 billion in total capital expenditure that it has budgeted for the year. In addition to launching the three new fabs, SMIC is seeking to expand the ones it already operates.

US sanctions remain another challenge for the Chinese chip giant. It was added to the US Commerce Department’s so-called entity list in December 2020, hindering development of advanced processing nodes below 10nm.

SMIC did not comment on reports of US plans for additional sanctions that could further restrict its access to advanced chip-making equipment.

Author: Che Pan, SCMP

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