SMIC Q2 2025 Earnings and Commentary

[KevinK]

Semiconductor Manufacturing International Corporation (SMIC) reported its Q2 2025 earnings with a mixed performance driven by ongoing global semiconductor market challenges and US-China trade tensions.

Key financial highlights for Q2 2025:
- Revenue increased 16.2% year-over-year to $2.2 billion, though this was a 1.7% decline sequentially from the previous quarter.
- Net profit fell 19.5% year-over-year to $132.5 million, missing analyst estimates of about $183 million.
- Gross margin was 20.4%, slightly above market expectations, but a decrease of about 2.1 percentage points sequentially from the first quarter.
- Capital expenditure was significant at $1.89 billion, up from $1.42 billion last quarter.
- Research and development expenses were $181.9 million, below projections.

Operational insights and commentary:
- SMIC's co-CEO Zhao Haijun downplayed the impact of US tariffs, stating the company avoided the "hard landing" initially feared. Strong domestic demand and contingency plans helped mitigate tariff effects.
- SMIC's production capacity utilization rose to approximately 92.5%, indicating near-full capacity and ongoing tight supply conditions expected through October 2025.
- The company reported 84.1% of its revenue originated from the Chinese market, with the US contributing around 12.9%.
- Customers reportedly have stocked up inventory or sought alternative suppliers, which minimized tariff disruptions.
- Despite the earnings miss, Zhao expressed optimism about the third quarter, forecasting 5% to 7% revenue growth compared to Q2.
- Market reaction was negative initially, with SMIC shares declining over 5% following the announcement.

Operational Highlights:
- Yields and 7nm Technology: SMIC continues advancing its 7nm node technology (also referred to as N+2), which is comparable in density and performance to Samsung’s 7nm process but slightly behind leaders like TSMC. The 7nm process has good yields, with reports indicating stable parametric yields despite some earlier yield fluctuations caused by rushed equipment installation and limited external maintenance due to U.S. restrictions. SMIC's 7nm capacity ramp is robust, with potential output rumored to be around 30,000 wafers per month, supporting high-volume production despite challenges from the lack of EUV lithography tools mandated by U.S. and Dutch export controls.
- Depreciation: Depreciation costs are a significant factor affecting SMIC's profitability, accounting for roughly 35.6% of the average wafer price, which tightens profit margins.
- Utilization: SMIC reported a strong wafer fab utilization rate of approximately 92.5% in Q2 2025, up about 2.9 percentage points quarter-over-quarter. The high utilization reflects ongoing tight supply conditions supported by strong domestic demand, especially from China, which made up about 84% of SMIC's revenue.

In summary, SMIC's Q2 2025 earnings reflect strong revenue growth amid challenging market and geopolitical conditions, with profit under pressure due to costs and tariffs. The company's resilience is supported by robust domestic demand, high capacity utilization, and strategic preparation for tariff impacts, although investor sentiment remains wary given the profit shortfall and ongoing trade tensions. SMIC projects continued modest growth in the near term, leveraging surging demand for Chinese-made chips and production tightness through the second half of 2025.

 

[Barnsley]

Semiconductor Manufacturing International Corporation (SMIC) reported its Q2 2025 earnings with a mixed performance driven by ongoing global semiconductor market challenges and US-China trade tensions.

Key financial highlights for Q2 2025:
- Revenue increased 16.2% year-over-year to $2.2 billion, though this was a 1.7% decline sequentially from the previous quarter.
- Net profit fell 19.5% year-over-year to $132.5 million, missing analyst estimates of about $183 million.
- Gross margin was 20.4%, slightly above market expectations, but a decrease of about 2.1 percentage points sequentially from the first quarter.
- Capital expenditure was significant at $1.89 billion, up from $1.42 billion last quarter.
- Research and development expenses were $181.9 million, below projections.

Operational insights and commentary:
- SMIC's co-CEO Zhao Haijun downplayed the impact of US tariffs, stating the company avoided the "hard landing" initially feared. Strong domestic demand and contingency plans helped mitigate tariff effects.
- SMIC's production capacity utilization rose to approximately 92.5%, indicating near-full capacity and ongoing tight supply conditions expected through October 2025.
- The company reported 84.1% of its revenue originated from the Chinese market, with the US contributing around 12.9%.
- Customers reportedly have stocked up inventory or sought alternative suppliers, which minimized tariff disruptions.
- Despite the earnings miss, Zhao expressed optimism about the third quarter, forecasting 5% to 7% revenue growth compared to Q2.
- Market reaction was negative initially, with SMIC shares declining over 5% following the announcement.

Operational Highlights:
- Yields and 7nm Technology: SMIC continues advancing its 7nm node technology (also referred to as N+2), which is comparable in density and performance to Samsung’s 7nm process but slightly behind leaders like TSMC. The 7nm process has good yields, with reports indicating stable parametric yields despite some earlier yield fluctuations caused by rushed equipment installation and limited external maintenance due to U.S. restrictions. SMIC's 7nm capacity ramp is robust, with potential output rumored to be around 30,000 wafers per month, supporting high-volume production despite challenges from the lack of EUV lithography tools mandated by U.S. and Dutch export controls.
- Depreciation: Depreciation costs are a significant factor affecting SMIC's profitability, accounting for roughly 35.6% of the average wafer price, which tightens profit margins.
- Utilization: SMIC reported a strong wafer fab utilization rate of approximately 92.5% in Q2 2025, up about 2.9 percentage points quarter-over-quarter. The high utilization reflects ongoing tight supply conditions supported by strong domestic demand, especially from China, which made up about 84% of SMIC's revenue.

In summary, SMIC's Q2 2025 earnings reflect strong revenue growth amid challenging market and geopolitical conditions, with profit under pressure due to costs and tariffs. The company's resilience is supported by robust domestic demand, high capacity utilization, and strategic preparation for tariff impacts, although investor sentiment remains wary given the profit shortfall and ongoing trade tensions. SMIC projects continued modest growth in the near term, leveraging surging demand for Chinese-made chips and production tightness through the second half of 2025.

Its tough sledding out here for a lot of Companies.

Not everyone is TSMC & ASML

The outlier COVID years set some very high expectations that that was the new normal.

 

[Fred Chen]

The presentation material is here: https://www.smics.com/uploads/689467a2/Q2_2025 Financials Presentation.pdf

 

[Fred Chen]

This looks like another AI investment research summary: https://www.ainvest.com/news/smic-r...ade-pressures-strategic-investment-case-2508/

On technological self-reliance vs. international collaboration

Advocates for SMIC argue that its 5nm technology development through 193nm immersion lithography and domestic R&D teams demonstrates strategic adaptability. They emphasize that 84% domestic revenue and partnerships with Huawei align with China's self-reliance goals, mitigating U.S. sanctions through localization.

Critics from the U.S. perspective contend that SMIC's 5nm process is effectively '5.5nm' with yields below 50%, lagging behind TSMC's 67.6% market share. They argue that U.S. and Dutch restrictions on EUV lithography are necessary to prevent technology transfer and maintain global semiconductor leadership.

On market expansion strategy

SMIC's regional expansion in Vietnam, Malaysia, and Germany is framed as a strategic advantage to bypass U.S. tariffs while tapping into growing Asian and European demand. Domestic government subsidies and AI/consumer electronics growth are cited as drivers for 92.5% wafer utilization and 16.2% Q2 revenue growth.

U.S. policymakers view SMIC's 12.9% U.S. market share as a risk, with 100% tariff threats forcing customers to accelerate inventory builds. They argue this creates unsustainable demand spikes and limits SMIC's ability to compete with TSMC and Samsung in high-margin international markets.

On valuation and risk assessment

Supporters highlight SMIC's 15x P/E ratio as undervalued compared to TSMC's 25-30x, citing 20.4% gross margins and 5-7% Q3 revenue growth guidance. They argue its DCF valuation should account for 5nm scaling potential and Southeast Asia/Europe expansion, with 16.2% Q2 revenue growth demonstrating operational resilience.

Skeptics emphasize geopolitical risks including U.S. sanctions escalation and yield instability at 5nm. They argue SMIC's heavy China dependency (84% Q2 revenue) exposes it to policy shifts and economic slowdowns, justifying its valuation discount relative to global peers.

 

[Daniel Nenni]

Chip Maker SMIC Sees Limited Impact of Trump’s Tariffs​

China’s largest chip maker, Semiconductor Manufacturing International Corp., said the U.S. tariffs should continue to have a limited impact as demand from domestic clients is increasing sharply and overseas clients are better prepared for the headwinds.

“At least until around October this year, SMIC’s production capacity will still be in short supply” as the expected hard landing of tariffs didn’t happen, SMIC co-chief executive Zhao Haijun said Friday in a post-earnings call.

Domestic clients are growing quickly, and a larger portion of SMIC’s production capacity is being taken up by them. Zhao noted that some Chinese customers, particularly in power-related semiconductors, earlier ordered only about 2,000 8-inch wafers a month from the foundry. This has surged tenfold to 20,000 wafers a month within two years, he said.

Zhao expects SMIC’s domestic smartphone clients to place more orders as they continue to gain market share. Demand for industrial and auto chips should also rise thanks to the continuous momentum of these sectors, he said.

Domestic market accounted for 84% of SMIC’s revenue in the second quarter, while the U.S. accounted for 12.9%, down from 16% a year earlier.

For its overseas clients, the company estimates that the cost could increase by 10% at the peak of the U.S. reciprocal tariffs on China. The impact could be “even smaller” now, Zhao said, referring to Trump’s latest 100% tariffs on semiconductor imports, as clients are better prepared for the tariffs and have stocked up enough inventory for this year and the next.

“The shipment unit and blended average selling price are both expected to increase” in the third quarter, management said. While depreciation cost is expected to continue to rise, it will be mitigated by more output, it added.

MSN

 

[Paul2]

Only a microscopic portion of wafers and packaged chips arrive to USA not as a part of an assembled product.

USA may or may not use packaging location for ICs place of origin for customs purposes, largely dependent on most minute legal details, that can be easily changed.

 

[Daniel Nenni]

Only a microscopic portion of wafers and packaged chips arrive to USA not as a part of an assembled product.

USA may or may not use packaging location for ICs place of origin for customs purposes, largely dependent on most minute legal details, that can be easily changed.

China is the largest semiconductor market and it is SMIC's to lose.

 

[samwilde]

Capacity increased by 154k wpm in a year. 8" wafers yardstick. That is pretty significant.

That is like 68k wpm of 12" wafers.

 

[Fred Chen]

View attachment 3469

Chip Maker SMIC Sees Limited Impact of Trump’s Tariffs​

China’s largest chip maker, Semiconductor Manufacturing International Corp., said the U.S. tariffs should continue to have a limited impact as demand from domestic clients is increasing sharply and overseas clients are better prepared for the headwinds.

For its overseas clients, the company estimates that the cost could increase by 10% at the peak of the U.S. reciprocal tariffs on China. The impact could be “even smaller” now, Zhao said, referring to Trump’s latest 100% tariffs on semiconductor imports, as clients are better prepared for the tariffs and have stocked up enough inventory for this year and the next.

This still means overseas orders could drop since they have the inventory. Domestic orders would have to pick up the slack.

 

[samwilde]

This still means overseas orders could drop since they have the inventory. Domestic orders would have to pick up the slack.

They are growing a lot in the automotive segment. The EVs use a lot more and higher end chips than older automobiles.
A lot of companies want to have the supply chain in China, to prevent any supply shocks, so they are reducing automotive chip imports.