China’s largest semiconductor manufacturing company, Semiconductor Manufacturing International Co. (SMIC), has reported a decline in quarterly revenue for the first time in over three years due to a glut in chips and lack of demand. SMIC posted revenue of $1.46 billion in Q1 2021, a 20.6% YoY decrease. The company’s net profit also fell to $231.1 million, a 48% YoY decline. The last time SMIC recorded a decrease in sales was in Q3 2019.
SMIC is considered China’s most important chip-making company and is seen as key to Beijing’s ambitions to boost its domestic semiconductor industry and catch up with rivals like Taiwan’s TSMC and South Korea’s Samsung. However, SMIC’s technology is still years behind leading companies. In 2020, the US trade blacklisted SMIC with the Entity List, and last year, Washington introduced export restrictions aimed at cutting China off from advanced chip tech and equipment. These curbs have cut SMIC off from the key tools required to make more advanced chips.
Difficult Chip Market Affected SMIC’s Revenue
Over 50% of SMIC’s revenue comes from making chips that go into smartphones and other consumer electronics. However, both smartphone and PC shipments declined in Q1, contributing to SMIC’s revenue decline. Samsung, the world’s largest maker of memory chips, also saw its profit plunge in Q1. Despite the headwinds, SMIC posted record revenue for the whole of 2020.
SMIC forecasts a second-quarter revenue recovery, with a predicted rise between 5% and 7% quarter-on-quarter. Many other chipmakers have similarly forecast a recovery in the second half of the year. Although SMIC’s recent decline may be cause for concern, a potential recovery in the second half of the year could signal a positive turn for the company and the industry as a whole.
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