As market demand changes, chipmakers are under pressure from declining orders and declining profits. SMIC, one of China's largest chipmakers, is not immune. In the third quarter of 2023 results, SMIC made a staggering profit of 78%. The transformation of the chip industry has slowed down the growth of orders in the field of consumer electronics, and even shown a downward trend. However, the industry remains confident about the future, believing that demand in the consumer electronics and smart car sectors will be in the coming years**.
The boom and bust of the consumer electronics industry has a significant impact on the demand for the chip market. At the time of the chip shortage, major chip manufacturers obtained a large number of orders, and their revenue and profits were substantial. However, with the decline in market demand, orders have plummeted, leading to the problem of overcapacity of chips. TSMC, as the world's largest chip foundry, has experienced a decline in performance for many consecutive quarters. Although it still accounts for more than half of the global market, its downward trend has become apparent. SMIC's results also point to the same problem, although the final quarter's earnings figures are not yet available. From last year to this year, the demand for chips has changed dramatically, which can be seen from SMIC's performance.
SMIC achieved significant growth last year, with revenue of 4951.6 billion yuan, a year-on-year increase of 39%. Net profit reached 1213.3 billion yuan, a year-on-year increase of 13%. However, in the first half of this year, SMIC's performance declined, with revenue of 2131.8 billion yuan, a year-on-year decrease of 133%, with a net profit of 299.7 billion yuan, a year-on-year decrease of 521%。Broken down further into the third quarter, SMIC's profit was only 67.8 billion yuan, a year-on-year increase of 78%. Comparing last year's performance with this year's performance, although the data for the fourth quarter has not yet been released, the outlook is not optimistic. The drastic changes in the demand for chips have led to a slowdown in order growth in the consumer electronics sector, which is a huge challenge for SMIC.
SMIC focuses on mature chip manufacturing, and its 12-inch fabs in Shanghai, Beijing, Shenzhen and Tianjin mainly produce mature chips in 28nm to 180nm processes for mainstream industries such as consumer electronics and smart cars. The development of smart cars requires a large number of chips to realize functions such as autonomous driving, Internet of Vehicles, and intelligent perception. Mature chips are able to provide high-performance processing power, and the mature chip market is expected to usher in significant growth opportunities. According to a report by market research agency Trendforce, the proportion of mature chip production capacity in Chinese mainland is expected to increase to 39% by 2027. As a result, SMIC is expected to have more opportunities to get orders in the mature chip market.
Although SMIC is facing the challenge of declining performance at this stage, the development prospects of the chip industry are still promising. Not only SMIC, but also TSMC, Samsung Electronics, UMC and other giants are also actively laying out the mature chip market. Compared with high-end chips, mature chips have a higher demand in the market, more stable production capacity, and more mature technology. Therefore, whoever can seize more shares in the mature chip market will be able to get more order opportunities. Although SMIC is currently in a difficult situation, it is still expected to find opportunities in the future market recovery and return to the growth track.
In general, the development of the chip industry is closely related to market demand. With the advancement of technology and the continuous expansion of the global consumer electronics and smart car markets, the demand for chips will continue to grow. As one of the largest chipmakers in China, SMIC faces tremendous opportunities and challenges. Only by constantly innovating and adapting to changes in market demand can we develop steadily in the fiercely competitive chip industry.
1. ""Cloud Finance, November 10, 2023.
2."SMIC's third-quarter results show that profit is 78%, and the transformation of chip demand is unexpected", Times.com, October 26, 2023.