SMIC revenue tops $3 billion as AI demand lifts mature-node pricing

SMIC's quarterly revenue crossed $3 billion for the first time as AI demand spilled into mature process nodes, lifting gross margin to 25.3 percent.

SMIC's quarterly revenue crossed $3 billion for the first time as AI demand spilled from advanced nodes into mature process technology, lifting gross margin to 25.3 percent and capacity utilization to 93.7 percent.

"The industry momentum and spillover effects generated by artificial intelligence will continue, bringing broad-based demand for integrated circuit manufacturing," SMIC said in its earnings statement.

Revenue of $3.006 billion beat the $2.87 billion consensus compiled by Bloomberg, up 36.1 percent year-over-year and 20 percent sequentially. Profit attributable to shareholders reached $479 million, up 261.7 percent year-over-year, though roughly $257 million came from non-operating investment gains tied to associate fund portfolios. Wafer shipments rose 14.4 percent sequentially to 2.869 million 8-inch equivalents, with 12-inch wafers at 78.2 percent of output.

For the third quarter, SMIC guided revenue up 2 to 4 percent sequentially to $3.06-3.13 billion and gross margin of 26 to 28 percent, a third straight quarter of improvement. The company carries a market cap of HK$578.3 billion and trades at about 25 times 2027 estimated core earnings.

Mature-Node Pricing Lifts Margins as AI Demand Broadens

Average selling prices rose $49 per wafer sequentially while unit costs fell $15, driving the gross margin rebound from 20.1 percent in the first quarter. The company lifted pricing by more than 10 percent in certain mature-node areas, according to market checks cited by Dolphin Research. Price hikes are concentrated in BCD, analog, PMIC, and memory products, with expectations that the increases spread to more lines in the second half.

Industrial and automotive chips climbed to 16.5 percent of wafer revenue from 14.0 percent in the first quarter and 10.6 percent a year earlier, reflecting AI demand broadening beyond smartphones. Consumer electronics remained the largest category at 44.2 percent of revenue, while smartphone share fell to 16.9 percent from 25.2 percent a year ago. China accounted for more than 90 percent of revenue as domestic customers absorbed capacity.

The pricing upturn extends across the second tier of foundries. UMC has outlined 25 to 40 percent hikes on 8-inch wafers and 10 to 20 percent on parts of 12-inch, starting in the second half and broadening in 2027, while GlobalFoundries guided only selective increases. SMIC's third-quarter margin guidance shows the pricing effect is already visible in its own books.

Profit Quality and the Investment-Gain Caveat

The profit figure warrants scrutiny. Other income, net reached $276 million in the quarter, versus $7.5 million in the first quarter, including $194 million in share of profits from associates and joint ventures and $63.97 million in other net gains. The company said certain associates are investment funds whose portfolio fair values swung sharply during the quarter. Excluding those roughly $257 million in non-operating contributions, core profitability still grew strongly but by a more modest magnitude.

Cost discipline held even as investment accelerated. Operating expenses fell 11.5 percent sequentially to $226 million, while research and development rose 11.5 percent to $209 million. Operating cash flow reached $2.522 billion, net debt compressed to $162 million with a net debt-to-equity ratio of 0.4 percent, and EBITDA margin widened to 70.2 percent from 57.3 percent in the first quarter.

Capital expenditure reached $1.836 billion in the quarter, up 17.5 percent sequentially. With full-year capex guided near last year's $8.1 billion, the second half implies about $4.7 billion and a peak investment season. Monthly capacity expanded to 1.097 million 8-inch equivalents, up 13.6 percent sequentially, cementing SMIC's rank as the third-largest foundry.

SMIC's print is hard evidence that the traditional semiconductor cycle has turned, and the valuation math is shifting accordingly. The company trades at a price-to-book of 3.4 times, in line with UMC and above GlobalFoundries' 2.4 times but far below TSMC's 11 times. Beyond mature-node pricing, the upside case rests on advanced-node progress: SMIC's N+3 transistor density is roughly at TSMC's 6nm level, with next-generation N+4 approaching 5nm, and shipments of Huawei's Ascend 950DT and Kirin 9030 should lift advanced-node revenue in the second half. Peer Hua Hong also posted record quarterly revenue of $717.5 million, up 26.8 percent, with net profit up 385.9 percent to $38.6 million, confirming the breadth of the domestic AI-driven upcycle.

This article is for informational purposes only and does not constitute investment advice.