China’s largest chipmaker SMIC’s quarterly profit, stock fall off a cliff despite Huawei's boost

Semiconductor Manufacturing International Co. (SMIC), China’s largest chip manufacturer, reported a staggering 80 per cent decline in its third-quarter profit due to the adverse impact of weakened global demand on the foundry industry. The company’s net income for the third quarter plummeted by 80 per cent compared to the same period last year, a more significant decline than the 64 per cent drop experienced in the second quarter of 2019, according to company data. SMIC’s third-quarter revenue compared to consensus estimates from the London Stock Exchange Group (LSEG) was at $1.621 billion, slightly below the expected $1.625 billion, whereas net income was at $93.98 million, significantly lower than the expected $165.1 million. SMIC, often referred to as China’s leading foundry, disclosed that it generated $1.62 billion in revenue during the third quarter, marking a 15 per cent year-on-year decline. This sharp reduction was mirrored in its net income, which fell to $93.98 million, well below the $165.1 million anticipated by analysts. As China’s largest foundry, SMIC plays a pivotal role in Beijing’s ambitions to bolster the domestic semiconductor industry and compete with global leaders like Taiwan’s TSMC and South Korea’s Samsung. However, ongoing restrictions imposed by the United States on China’s chipmaking technology and exports have added to the challenges faced by SMIC. SMIC acknowledged that in the Chinese market, the inventory issues that began in the third quarter of the previous year have eased, and inventory levels have reached a relatively healthy state. However, the company expressed concern that American and European customers’ inventories remain historically high. The continued drop in demand for certain chips used in consumer products, such as memory chips, has had a significant impact on SMIC, as well as on its Asian counterparts TSMC and Samsung. Reduced consumer spending on electronic devices due to rising inflation has led to excess chip inventories, resulting in declining memory chip prices. SMIC also manufactures automotive chips, and it highlighted that inventories for such chips are currently at a relatively high level following three years of short supply, prompting major customers to reduce their orders. Data from China’s Semiconductor Industry Association indicated that global semiconductor sales in September increased by 1.9 per cent compared to the previous month, indicating signs of a chip market recovery. However, on a year-on-year basis, global sales for September fell by 4.5 per cent. SMIC recently gained attention for its role in providing a “breakthrough” 5G chip for Chinese tech giant Huawei’s new smartphone, launched in September. Despite US sanctions on Huawei, which limited the company’s access to key technologies and semiconductor supplies, SMIC’s involvement in the project was a significant development. Despite its challenges, SMIC expressed optimism about the fourth quarter, forecasting a revenue increase of 1 per cent to 3 per cent compared to the third quarter. (With input from agencies)