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.
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.