Introduction
China’s leading contract chipmaker, Semiconductor Manufacturing International Corp. (SMIC), reported a sharp decline in Q4 profit despite strong revenue growth.
The company’s net profit fell 38.4% year-on-year to $107.6 million, significantly missing analyst expectations of $193.45 million.
Meanwhile, SMIC Q4 revenue surged 31.5%, driven by strong demand for mature-node chips.
However, ongoing U.S. sanctions and supply chain disruptions continue to pose significant challenges for China’s semiconductor sector.
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Key Highlights:
Profit Decline: SMIC’s Q4 profit dropped 38.4% year-on-year to $107.6 million, well below analyst expectations of $193.45 million.
Revenue Growth: The company’s revenue surged 31.5%, showing strong demand for mature-node chips.
Market Challenges: U.S. sanctions and supply chain disruptions continue to pressure China’s chip sector.
Consumer Electronics Recovery: SMIC predicts a rebound in consumer electronics demand in 2025.
Competitive Landscape: Rival Chinese firms and global semiconductor giants are intensifying competition.
Background on SMIC
Founded in 2000, SMIC is China’s largest and most advanced semiconductor foundry.
The company specializes in manufacturing mature-node chips, which are widely used in consumer electronics, automotive, and industrial applications. In the fourth quarter of 2024, Semiconductor Manufacturing International Corporation (SMIC) reported a net profit of $107.6 million, marking a 38% decline from the same period in the previous year.
This performance fell short of analysts’ expectations, which had projected a net profit of $191.5 million.
Despite the profit downturn, SMIC’s revenue increased by 31.5% year-over-year, reaching $2.21 billion, surpassing the anticipated $2.19 billion. The gross margin stood at 22.6%, exceeding the company’s guidance of 18%-20%.
In contrast, the third quarter of 2024 saw SMIC achieving a record revenue of $2.17 billion, a 14% sequential increase from the second quarter. The gross margin improved to 20.5% from 13.9% in the previous quarter.
The sequential decline in profit from Q3 to Q4 2024 is attributed to higher costs impacting the profit margin, despite the increase in revenue.
SMIC anticipates a 6%-8% revenue rise in the current quarter and expects its annual revenue growth to outperform the industry average.
In recent years, SMIC has been at the forefront of China’s semiconductor independence strategy.
increasing trade restrictions imposed by the U.S., the company has been forced to focus on self-reliance, prioritizing investments in domestic supply chains and R&D to reduce dependency on Western technology.
Financial Performance
SMIC Q4 2024 revenue rose 31.5% year-on-year, reflecting increased orders for mature-node chips used in consumer electronics and home appliances.
However, the company’s profit fell significantly to $107.6 million, missing market estimates by a wide margin. Analysts had projected a profit of $193.45 million, based on LSEG data.
The drop in profitability can be attributed to higher production costs, supply chain constraints, and ongoing trade restrictions.
Despite the revenue increase, rising operational expenses and geopolitical headwinds continue to weigh on SMIC’s bottom line.
Impact of U.S. Sanctions
SMIC remains at the center of the U.S.-China tech war, facing restrictions that limit its access to advanced chip manufacturing equipment.
The U.S. government has placed SMIC on a trade blacklist, preventing it from acquiring cutting-edge lithography tools necessary for producing advanced semiconductors.
As a result, the company has focused on mature-node technologies, which still have strong demand but face pricing pressures.
Growth Amid Challenges
Despite external pressures, SMIC has maintained strong revenue growth by capitalizing on China’s push for self-sufficiency in semiconductor manufacturing.
The company is benefiting from government support, as Beijing aims to strengthen domestic chip production to reduce reliance on foreign suppliers.
Future Outlook
SMIC expects a rebound in the consumer electronics sector in 2025, which could boost demand for its chips.
However, global economic uncertainties, U.S. trade policies, and competition from domestic and international rivals will continue to pose challenges.
Industry experts suggest that for SMIC to sustain growth, it must invest in innovation, enhance production efficiency, and navigate geopolitical tensions strategically.
The company’s ability to expand its technology portfolio while working within trade restrictions will be critical in determining its long-term success.
Conclusion
SMIC’s latest financial results highlight the mixed landscape of China’s semiconductor industry.
While revenue growth indicates strong demand, profit declines underscore the impact of geopolitical tensions and operational challenges.
As China continues its semiconductor expansion efforts, SMIC’s ability to adapt and innovate will be crucial in shaping its future trajectory.
