China’s largest chipmaker SMIC is forecasting an upbeat year for the global semiconductor industry but also warned that demand recovery would be modest in 2024.
While Semiconductor Manufacturing International Corp (SMIC) started receiving a surge in orders from the likes of smartphone and personal computer manufacturers late last year, it was cautious over whether this was sustainable, co-CEO Zhao Haijun told analysts on a conference call.
“We’re worried that it is a case of ‘eating away next year’s food in advance’,” he said, using a Chinese phrase.
“We are worried that there will be a decline in the second half of the year because all the orders for the second half of the year would have been shipped in the first half, so we are still quite cautious.”
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Shares in the company have fallen 18% over the last month and that was followed by a report of a 55% fall in fourth-quarter profit after the firm missed analyst expectations.
The global semiconductor industry entered a slump last year after a pandemic-driven shortage of chips turned into a glut as the economy slowed and demand for these products fell.
Optimism has been growing that the industry could recover in the coming year due to increased demand for products that use semiconductors, such as smartphones and other consumer electronics, in markets such as China.
SMIC entered the international spotlight last year when analysts said that the company had assisted Huawei in developing one of the most advanced chips ever manufactured domestically in China.
SMIC has also grabbed attention for its rapid capacity expansion. Through 2023, capital expenditure stood at $7.47 billion, 17.6% higher than in 2022. The company late on Tuesday said it expects capital expenditure to be roughly flat this year versus last year.
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Hemmed in by US technology export restrictions, SMIC has mainly focused on building factories to make mature technology chips, widely used in sectors such as autos and weapons, and hence has not benefited from the surge in artificial intelligence applications that some of its overseas rivals have.
Asked about the possibility of overcapacity, Zhao said SMIC believed it would remain competitive as its plans were based on long-term cooperation with customers, and that it still had scope for growth as its facilities only accounted for 5% of global production capacity.
SMIC said late on Tuesday fourth-quarter net income was $174.68 million, down from $385.53 million in the quarter a year ago and missing the average estimate of $277 million in an LSEG poll of analysts.
Revenue for the quarter rose 3.5% to $1.68 billion, slightly above the average revenue estimate of 1.66 billion yuan in the poll. Nearly 81% of that revenue came from the Chinese market.
SMIC expects a gross margin of between 9%-11% in the first quarter of this year, compared with 16.4% in the fourth quarter of 2023.
- Reuters with additional editing by Sean O’Meara
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