China's SMIC sounds alarm on price wars from silicon surplus

Competition heats up while profits cool down

Chinese chipmaker Semiconductor Manufacturing International Corporation (SMIC) is the latest to warn of a potential oversupply in the global market, saying there is an increasingly fierce price war for less advanced silicon in its domestic arena.

The pure-play foundry outfit, often styled as China's TSMC, said that chipmakers in the country are ramping up capacity to counter US export restrictions, so it is coming under price pressure from domestic rivals, especially when producing commodity chips.

In its results [PDF] for calendar Q1 2024, SMIC saw revenues rise 19.7 percent year-on-year to $1.75 billion, but its net profits slid dramatically to $71.79 million, a decline of 68.9 percent compared with a year ago. The company said its profit margin has hit its lowest level since 2009 and will continue to fall this quarter.

SMIC's co-CEO, Zhao Haijun, blamed this on competition. "We do see our peers' new capacity for similar products going online, therefore it is likely we will see further price dips for some standardized chips."

This is different from other sectors of the semiconductor market, such as memory chips, where AI is driving up demand along with the revenues of the companies that make them.

Zhao talked of there being a "fashionable global trend" of having local chip production for local needs, likely referring to programs such as the European Chips Act and America's CHIPS and Science Act that are investing in new chip fabrication facilities.

This also applies to China, Zhao noted, and he forecast that this year and next will be the peak for the chip industry to expand capacity.

He warned it could take time for any new capacity to be taken up by the market, saying that if the industry were to grow by eight percent this year and there was 20 percent new capacity added, some capacity could end up underutilized.

One of the reasons for ramping up chip capacity is the ongoing and escalating chip wars between Beijing and Washington, which could see the US cut off supplies of chips from American companies at any time. Just this week it revoked licenses for Intel and Qualcomm to supply processors to Chinese tech giant Huawei.

Market intelligence outfit TrendForce issued its own warning earlier this year that China's chip manufacturing capacity may more than double within the next five to seven years, and this could spell trouble if it were to flood the global market.

China currently has 44 wafer fabrication plants, and a further 22 are already under construction, TrendForce said. Most will focus on making silicon with mature production node processes (typically 28nm or above) to churn out chips for sectors such as household appliances and the automotive industry. ®

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