On February 7, 2024, China's largest semiconductor manufacturer SMIC (SMIC) announced its financial results for the fourth quarter and full year of 2023, showing that its revenue, gross margin and net profit have all declined significantly, and it also expects revenue to decline further in the first quarter of 2024. Zhao Haijun, co-CEO of SMIC, admitted at the ** conference that the company is facing huge challenges and pressures to accelerate technological innovation and enhance competitiveness.
According to SMIC's financial report, in the fourth quarter of 2023, its revenue was 12900 million US dollars, down 88, down 157％；Gross margin was 101, down 17 year-on-year6 percentage points, down 119 percentage points; Net profit was 170738580029295012US$800 million, down 1200 million US dollars, down 3$100 million. For the full year, its revenue was 59900 million US dollars, an increase of 181％；Gross margin was 194, down 7 percent year-on-year9 percentage points; Net profit was 3100 million US dollars, down 664％。
In addition to the cyclical fluctuations in the global semiconductor industry, weak market demand, high inventories and peer competition, SMIC's poor performance is due to the fact that its progress in process technology is not as expected. According to TrendForce's analysis report, SMIC's wafer shipments in 2023 will account for 63 percent of low-end processes under 8 inches5, while the high-end process of 28nm and below accounts for only 165, much lower than TSMC's 764 and Samsung's 678％。This means that SMIC's product structure is low-end, the profit margin is small, and it is vulnerable to the impact of the best competition.
In order to improve its technology level and market share, SMIC has been increasing its R&D and investment in high-end processes, especially in the two key nodes of 7nm and 5nm, and has worked closely with Huawei. It is reported that SMIC is building a production line in Shanghai specifically for the production of 5nm chips for Huawei, which is expected to be put into mass production in the second half of 2024, mainly for Huawei's flagship smartphones and artificial intelligence chips. In addition, SMIC is also building a 7nm production line in Beijing, which will also serve Huawei's needs.
The cooperation between SMIC and Huawei is both an opportunity and a challenge for both parties. For SMIC, Huawei is one of its largest customers and one of its most important partners, providing stable orders and technical support to help it achieve breakthroughs and improvements in its processes. However, SMIC is also facing huge technical difficulties and cost pressures, and needs to catch up with the international advanced level in a short period of time, while ensuring yield and efficiency, otherwise it will be difficult to meet Huawei's needs and expectations. For Huawei, SMIC is one of its most reliable domestic suppliers and one of its last hopes to provide it with chips based on its own design to help it cope with US sanctions and bans. However, Huawei is also facing changes in the market and fierce competition, and needs to continue to lead in product performance and innovation, while controlling costs and risks, otherwise it will be difficult to maintain its advantage and position in the field of smartphones and artificial intelligence.
According to a number of foreign media reports, SMIC's 5nm process is 40-50 higher than TSMC's 5nm process, ** or cost, while the yield is less than 1 3. This means that the production efficiency and cost performance of SMIC's 5nm chips are much lower than TSMC's 5nm chips, which has brought huge economic burden and market pressure to SMIC and Huawei. It is rumored that SMIC is about to deliver the first batch of 5nm chips to Huawei and give *** to alleviate the dilemma of both parties. Of course, none of these claims have been officially confirmed, and there may be exaggerated or misleading elements, but they also reflect the difficulties and efforts of SMIC and Huawei on the 5nm process.
Although there are still many uncertainties and shortcomings in SMIC's 5nm process, it cannot deny the progress and achievements it has made in process innovation. As the largest semiconductor manufacturer in China, SMIC has basically mastered the most advanced process technology, becoming the only company in China capable of producing 7nm and 5nm chips, and also provides more possibilities and options for chip design and application in China. SMIC's process battle is also a process battle for China's semiconductor industry, a process battle for China's scientific and technological strength, and a process battle for development and development. SMIC's technological journey is difficult and tortuous, but it is also full of hope and opportunities, and as long as we persevere, we will be able to go wider and farther.
In addition, SMIC co-CEO Zhao Haijun also revealed some positive signals at the earnings conference, saying that in the third quarter of 2023, the mobile device industry chain such as smartphones will be updated, and some innovative product companies will get the opportunity to start urgent orders and begin to stabilize and rebound. This statement has sparked speculation from the outside world, with some people believing that the innovative product company Zhao Haijun is referring to is Huawei, and the urgent order referred to is Huawei's Kirin 9000S processor, which is an epoch-making product suddenly released by Huawei in the third quarter of 2023, providing powerful performance and features for its Mate 60 series smartphones, and also bringing new orders and revenue to SMIC.
The Kirin 9000S processor is a major breakthrough for Huawei under US sanctions, it uses a 5nm process, integrates more than 15 billion transistors, has 16 super large cores, 8 large cores and 4 small core CPUs, as well as 24 core GPUs and 2 neural network processing units (NPU), supports 5G network and WiFi 6+, and also has powerful image processing, ** codec, audio processing, security encryption and other functions, It is currently one of the most advanced mobile phone chips in the world. According to Yu Chengdong, CEO of Huawei's consumer business, the performance of the Kirin 9000S processor is 50 higher than Apple's A14 chip and 100 more than Samsung's Exynos 2100 chip, which is Huawei's pinnacle in the chip field.
The release of the Kirin 9000S processor also adds highlights to Huawei's Mate 60 series smartphones, which are Huawei's flagship launched in the third quarter of 2023 and boast 67-inch OLED curved screen, support 120Hz refresh rate and HDR10+, rear quad camera, including 50 million pixel main camera, 12 million pixel telephoto camera, 20 million pixel ultra wide-angle camera and 8 million pixel macro camera, support 10x optical zoom and 100x digital zoom, as well as laser focus and optical image stabilization, front 32 million pixel ** camera, support 3D face recognition and under-screen fingerprint recognition, battery capacity of 5000mAh, It supports 66W wired fast charging and 50W wireless fast charging, as well as reverse wireless charging and wireless desktop projection, runs the EMUI 12 system based on Android 11, and supports Huawei App Store and HarmonyOS ecosystem, which is another masterpiece of Huawei in the field of smartphones.
The release of the Kirin 9000S processor and the Mate 60 series of smartphones has also brought new opportunities to SMIC, which is reported to have produced millions of 5nm chips for Huawei, most of which are used in the Mate 60 series smartphones, and there are many more orders waiting in the queue. These orders not only brought significant revenue to SMIC, but also improved the yield and efficiency of the 5nm process, and also accumulated more experience and technology in the 5nm process, laying a solid foundation for its future development. The cooperation between SMIC and Huawei has also set an example for China's semiconductor industry and technological development, demonstrated China's innovation and competitiveness in the chip field, and brought new hope and confidence to China's semiconductor industry and technological development. SMIC's fourth-quarter earnings declined