SMIC Outpaces Rivals on Strong Local Demand

Article By : Alan Patterson

SMIC is the beneficiary of Chinese IC companies having few other places to go for foundry services.

Semiconductor Manufacturing International Corp. (SMIC), China’s largest chip maker, posted 39 percent growth in 2021 that led other foundries on strong domestic demand.

The company’s 2021 revenue of $5.4 billion rose 39 percent from the previous year, more than doubling the 18.5 percent growth of Taiwan Semiconductor Manufacturing Co. (TSMC) and other top-ranked foundries.

SMIC benefited from strong demand in China, the world’s largest and fastest-growing market for chips. China’s domestic electronics companies such as telecom giant Huawei are turning to local suppliers like SMIC after the U.S. blocked TSMC from selling advanced products to Huawei amid a tech war between the U.S. and China.

“The global shortage of chips and the strong demand for local and indigenous manufacturing brought the company a rare opportunity, while the restrictions of the Entity List set many obstacles to the Company’s development,” SMIC said in a press statement. “The company rose to the challenge, tackled difficulties precisely and achieved sound performance.”

The U.S. Commerce Department in August 2020 added 38 Huawei affiliates to its Entity List of companies required to obtain export licenses to purchase advanced U.S. chip technologies. The rules specifically targeted Huawei and its HiSilicon chip design unit that was TSMC’s second-largest customer in 2020. The U.S. also put SMIC on the Entity List later that year.

The U.S. has banned exports of key semiconductor technology to China and blacklisted Chinese companies suspected of using U.S. knowhow to develop the world’s first hypersonic missiles.

Growth drivers

Smartphones, smart home products and other consumer electronics were the three largest drivers of SMIC’s growth. The company’s most advanced process technology, 28-nm FinFET, accounted for 18.6 percent of SMIC’s sales in the fourth quarter of 2021.

The 28-nm tech lags several generations behind foundry leader TSMC, which In the fourth quarter of 2021 got half of its revenue from 7 nm and 5 nm products. TSMC is ramping up 4 nm production this year.

SMIC expects to spend $5 billion in 2022 to expand existing facilities and roll out three new fab projects.

By comparison, TSMC plans to boost capital expenditures this year to as much as $44 billion to meet demand the company believes could grow by up to 20 percent during the next few years.

While SMIC’s revenue growth leads TSMC, the Chinese foundry’s gross margin of 35 percent in the fourth quarter of 2021 was overshadowed by TSMC’s 53 percent margin during the same period.

SMIC has undergone several recent management shakeups. The company announced several board-level resignations last year even as business has soared.

Industry veteran Chiang Shang-Yi resigned as vice chairman last year. Liang Mong Song, previously executive director and co-CEO, resigned as executive director in order to focus on continuing his management role at the company. Both Chiang and Liang previously worked in top R&D positions for TSMC.

This article was originally published on EE Times.

Alan Patterson has worked as an electronics journalist in Asia for most of his career. In addition to EE Times, he has been a reporter and an editor for Bloomberg News and Dow Jones Newswires. He has lived for more than 30 years in Hong Kong and Taipei and has covered tech companies in the greater China region during that time.


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