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China’s SMIC Warns of ‘Rapid Freeze’ as Smartphone Demand Skids

Daniel Nenni

Admin
Staff member
(Bloomberg) -- Semiconductor Manufacturing International Corp. warned that clients in sectors such as smartphones were freezing orders, underscoring how a downturn in consumer electronics demand is hurting the chip sector.

Waning demand from makers of smartphones and TV components is forcing SMIC to readjust its manufacturing plans, co-CEO Zhao Haijun told analysts on Friday. The economic downturn and inventory adjustments have spurred “rapid freeze and urgent order halts” as some clients hold off on placing new orders, he said on a conference call. SMIC fell as much as 3.1% in Hong Kong.

Investors fear the notoriously cyclical chip industry is hurtling toward a prolonged slump after years of shortages led to heavy investments in capacity. SMIC is among a raft of semiconductor manufacturers now grappling with rapidly crumbling global electronics demand, as consumers leave a pandemic-era boom behind. It’s also contending with steadily tightening US export restrictions as Washington tries to contain Beijing’s technological rise.

China’s largest chipmaker reported revenue rose 42% to $1.9 billion in the second quarter, generally in line with expectations. It posted net income of $514.3 million in the second quarter, surpassing the $469.5 million average estimate.

What Bloomberg Intelligence Says

Semiconductor Manufacturing International’s return on equity is on track to hit a new high in 2022 despite disruptions to production and capacity expansions due to stricter US export-licensing requirements and China’s Covid-19 lockdowns. The company’s chip foundries will run at high utilization rates over the next two years amid a rapid increase in local fabless chipmaker numbers and increasing silicon content in consumer appliances and automobiles. Its shift toward higher-margin specialty chips -- less exposed to sanctions risk -- may help to offset soaring depreciation and staff costs.

- Charles Shum, analyst

SMIC is at the vanguard of China’s long-term ambition to produce chips sophisticated enough to replace American silicon, which comprise the majority of the country’s annual $155 billion in semiconductor consumption.

It remains a technological leader in a giant domestic industry now gripped by a series of corruption probes, as senior officials frustrated with the nation’s lack of progress in semiconductors begin to hold executives accountable. The outcome of the widening dragnet and its impact on local players remain unclear.

US sanctions have played a central role in curbing the country’s chip ambitions. The Trump administration blacklisted SMIC about two years ago on national security concerns, citing the company’s ties with the Chinese military, an allegation the chipmaker has denied. Washington is now also pressing allies into the effort, so that key suppliers like the Netherlands’ ASML Holding NV and Japan’s Nikon Corp. join its technology blockade.

In response, homegrown firms have attempted to develop alternatives to American silicon. The Shanghai-based contract chipmaker has succeeded in advancing its production technology two generations this year to 7-nanometers, though industry experts caution that may not be based on the same standards employed by far larger rivals like Taiwan Semiconductor Manufacturing Co.

SMIC has said sanctions hurt its ability to develop more sophisticated technologies. The company’s capability is severely curbed by its lack of access for instance to ASML Holding NV’s extreme ultraviolet lithography systems, which are required to make the most advanced chips.

The company said in a separate filing that Tudor Brown, the former president of Arm Ltd., has resigned from the board, confirming an earlier Bloomberg report. Zhao also resigned as an executive director, according to the company.

 

hist78

Well-known member
SMIC's guidance on the current quarter (Q3 2022) revenue is 0 ~ 2% growth, QoQ. I believe the foundry market for the mature node semiconductor products is facing a serious slowdown.

 

Daniel Nenni

Admin
Staff member
SMIC's guidance on the current quarter (Q3 2022) revenue is 0 ~ 2% growth, QoQ. I believe the foundry market for the mature node semiconductor products is facing a serious slowdown.


Were you surprised by GF's quarter?

Revenue climbed 23% from last year to reach nearly $2B. The company also issued an upbeat forecast for Q3. The firm predicted adjusted EPS of $0.59-$0.65, above the current analyst consensus of $0.44. Similarly, GFS said its revenue would hit a range between $2.035B and $2.065B. Analysts had targeted a figure around $2B.

 

hskuo

Active member
My opinions:
1. Foundry is build-to-order business. Customers might cancel the order with penalty or postpone order( not wafer start yet). For Work-In-Process wafers, customers will instruct foundry to bank on stages which is process-wise safe to keep wafers, but with time limitation(This will be foundry's inventory). This explain: “rapid freeze and urgent order halts”.
2. Cycle time(from wafer start to wafer finish) might take 1~2 months(or longer in advanced nodes) in current foundry practice, which you might foresee your revenue for WIP wafers. For Q 3 revenue(Jul to Sep) at mid-Aug. timeframe, I would expect the revenue forecast could have >90% confidence to reach the target, unless customer "freeze" the wafers immediately. But foundry might push customers to release put-on-hold wafers or scrapped it by paying per ratio of processes also. Foundry inventory(DOI) is key index to be monitored.
 

Barnsley

Member
Slowdown isnt across the board though is it?
Those who are feeding from overflow from the leading players are the ones who are going to feel a slowdown most no?
TSMC are surely always going to be full or close to it no?
 
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