Semiconductor Manufacturing International Corp. (SMIC), China's largest foundry, is considering expanding capacity to meet rising demand for artificial intelligence (AI) chips. With its plant utilization nearing 94%, it also hinted at the possibility of further price hikes due to supply shortages.
On the 14th, according to the South China Morning Post (SCMP) in Hong Kong, SMIC Co-CEO Zhao Haijun said on an earnings conference call that "wafer output is far exceeding initial expectations," and noted the company is considering expansion by adding equipment to existing fabs where there is room.
It did not disclose the specific size or timing of the investment. Zhao said the company will disclose the plan through future filings or briefings once it is finalized.
SMIC is weighing expansion because orders for related chips are rising rapidly as the AI server and data center markets grow. It said shortages are deepening for semiconductors needed for AI infrastructure, including logic chips, power management ICs (PMICs), and components for optical modules. Zhao projected that strong orders for some products based on the BCD (bipolar, CMOS, DMOS) process will continue through the end of 2027.
SMIC's production facilities are effectively running near full tilt. According to an earnings report released the previous day, second-quarter plant utilization was 93.7%, up 0.6 percentage points from the prior quarter's 93.1%. Wafer shipments rose 14.4% quarter over quarter, and monthly capacity increased to 1.1 million 8-inch wafer equivalents.
Instead of running fabs at full capacity, SMIC plans to cap utilization at about 95%. It will use the remaining roughly 5% of capacity for research and development (R&D).
Amid supply shortages, it also raised the possibility of additional wafer price hikes. In its first-quarter earnings release, SMIC said it had negotiated price increases with customers and that the higher prices would be reflected starting in second-quarter results.
On this conference call, Zhao said additional price increases are possible for third-quarter production volumes. "We believe our technology in the relevant fields has reached industry-leading standards," Zhao said, adding, "There is still a large gap between the wafer prices of the industry leaders and SMIC, so we need to negotiate with customers for more reasonable pricing."
Helped by growing AI demand, results are improving. SMIC's second-quarter revenue was $3.01 billion (about 4.2 trillion won), up 20% from the previous quarter and 36.1% from a year earlier. The gross margin rose to 25.3% in the second quarter from 20.1% in the first quarter.
SMIC projected third-quarter revenue will rise 2%–4% from the previous quarter, with a gross margin of 26%–28%.
Chinese customers accounted for about 90% of second-quarter revenue. U.S. customers made up 8%, and other regions such as Europe and Asia were 2%. Revenue from China rose 22% from the prior quarter, the highest growth rate by region.
Zhao said revenue growth is being driven by rising demand for AI-related chips, a recovery in overseas orders, and the Chinese government's push to localize the semiconductor supply chain.