SMIC’s profit beats estimates on strong demand for Huawei phones

SEMICONDUCTOR Manufacturing International Corp (SMIC) posted better-than-expected quarterly profit thanks to robust demand for Huawei Technologies’ marquee smartphones powered by components made by the Shanghai-based chipmaker.

Net income reached US$174.7 million in the three months ended in December, compared to the average analyst estimate of US$139.1 million. Revenue totalled US$1.68 billion, the company said on Tuesday (Feb 6), versus analysts’ projection of US$1.66 billion.

As China’s top contract chipmaker, SMIC is capable of making advanced 7-nanometre (nm) chips that can power smartphones and laptops, though its technology is still years behind industry leader Taiwan Semiconductor Manufacturing Co.

The Chinese chipmaker was instrumental in Huawei’s surprise comeback last year as it produced 7nm processors for the Mate 60 Pro smartphones. With help from SMIC, Huawei was able to return to the 5G handset market after years of US sanctions that restricted its access to advanced chips and stifled its smartphone business.

Shipments of Huawei-branded phones surged 36 per cent in the December quarter. The Shenzhen-based company became the No 4 smartphone vendor in China and was the only major brand to gain market share in the past quarter, according to research firm IDC.

Huawei was the top-selling smartphone maker in China for the first two weeks of 2024, Counterpoint Research said earlier this week.

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However, SMIC’s shares have shed about 25 per cent in Hong Kong since the start of the year amid ongoing routs in the financial hub and mainland China.

The majority of SMIC’s business still comes from making less sophisticated semiconductors used in a wide range of devices including home appliances and electric vehicles. Sluggish demand for those components is putting pressure on its margins, according to Bloomberg Intelligence analyst Charles Shum.

“The core challenge lies in stagnant demand for mature node chips within China, a reflection of a subdued consumer electronics market and a sluggish rebound in local smartphone sales,” Bloomberg Intelligence analyst Charles Shum said.

“Compounding this issue is SMIC’s strategic shift towards filling capacity with lower-margin, commodity-type chips, typically characterized by smaller order volumes. This shift not only reduces average selling prices, but also exacerbates gross margin challenges.” BLOOMBERG