Demand for PC and smartphone chips drops 'like a rock' says CEO of China’s top chipmaker

Markets outside China are doing better, but at home vendors have huge component stockpiles

Demand for chips needed to make smartphones and PCs has dropped "like a rock" – but mostly in China, according to Zhao Haijun, the CEO of China's largest chipmaker Semiconductor Manufacturing International Corporation (SMIC).

Speaking on the company's Q1 2022 earnings call last Friday, Zhao said smartphone makers currently have five months inventory to hand, so are working through that stockpile before ordering new product. Sales of PCs, consumer electronics and appliances are also in trouble, the CEO said, leaving some markets oversupplied with product for now. But unmet demand remains for silicon used for Wi-Fi 6, power conversion, green energy products, and analog-to-digital conversion.

The CEO's "like a rock" comment came in the Q&A section of the call, after previous scripted remarks mentioned a "destocking phase" among SMIC clients.

Zhao partly attributed sales slumps to the Ukraine war which has made the Russian market off limits to many vendors and effectively taken Ukraine's 44 million citizens out of the global market for non-essential purchases.

But the CEO added that the demand slump is worse in China than elsewhere. He explained that US and European markets have experienced a "very quick recovery" but China's buyers have closed their wallets – a response to strict and sweeping COVID-19 lockdowns across the country. Between the war and China's troubles, Zhao said smartphone sales will slip by 200 million this year.

Lockdowns in China have also impacted SMIC, as the company's foundries have not been able to work at maximum production capacity. Zhao said five or six days were lost in Q1, but the company has plans to make up for lost time and will deliver outstanding orders by the end of Q2.

Zhao expressed optimism about SMIC's prospects, saying that its diverse international clientele means it is in a better position than Chinese chipmaking rivals that focus solely on the domestic market.

SMIC's Q1 results were strong – revenue of $1.84 billion was up 67 percent year on year, with $447 million profit a $288 million year on year jump, although an $87 million drop from Q4 2021.

Gross margin was 40.7 percent, up 5.7 per cent thanks largely to a change in product mix – which brings us back to that smartphone slump. Zhao said around 40 percent of SMIC's business used to be products destined for use in smartphones. That figure is now closer to 30 percent – which cushions somewhat that rocky drop in demand. ®