SMIC Flags Chip Oversupply Risk A Hazy Outlook for 2025?

Title SMIC Flags Chip Oversupply Risk A Hazy Outlook for 2025?

As China's leading chipmaker, Semiconductor Manufacturing International Corp. (SMIC), released its fourth-quarter earnings, it issued a warning about the market outlook for mature-node chips in the second half of 2025. Co-CEO Zhao Haijun expressed concerns over declining order volumes and intensified price competition due to new production capacity across the industry.

A Brief History of SMIC

Founded in 2000, SMIC has evolved into China's leading chipmaker, focusing on mature-node chips for consumer electronics and home appliances. The company's success can be attributed to its ability to capitalize on the demand surge during stay-at-home policies triggered by the Covid-19 pandemic. As consumers returned to offices, however, demand tailed off, leaving SMIC facing a challenging landscape.

Oversupply Risks Ahead A Perfect Storm

SMIC's Co-CEO Zhao highlighted two major concerns for the second half of 2025 (1) declining order volume as demand has been pulled forward to the first half; and (2) intensified price competition due to new production capacity. This perfect storm may lead to a state of oversupply in the mature-node chip market, tempering optimism about recovery from the post-pandemic slump.

Growth Drivers Revenue and Localization Efforts

Despite these concerns, SMIC's fourth-quarter revenue reached $2.2 billion, up 31.5 percent year-over-year and in line with market expectations. The company attributed growth to consumer stimulus measures boosting sales of electronic products that use its chips. Additionally, customers' increased localization efforts, driven by geopolitical tension, have benefited SMIC.

Capital Expenditure A Key Strategy for Growth

To strengthen China's domestic semiconductor capability, SMIC has ramped up investment in production capacity expansion. Capital expenditure surged from $4.5 billion in 2021 to $7.3 billion in 2023 and maintained that level with $7.33 billion in 2024. The company plans to maintain this level of spending around $7.5 billion in 2025.

Profitability Pressures A Challenging Landscape

However, gross profit margin has shrunk to around 20 percent in 2023 from more than 30 percent in the two years prior. SMIC's Co-CEO Zhao forecasted that profitability will remain under pressure in 2025, with depreciation costs rising by 20 percent due to capital expenditure.

Conclusion Staying Informed is Crucial

As SMIC flags chip oversupply risks ahead, it is essential for geneticists and chipmakers alike to stay informed about the market trends and challenges. With its focus on mature-node chips, SMIC's success will be critical for the industry's growth in 2025. As we delve into the topic of chip oversupply, it is vital to consider the implications for geneticists' success in this field.

Keywords SMIC, Chip Oversupply, Mature-Node Chips, Geneticists, Semiconductor Manufacturing International Corp., Capital Expenditure, Profitability Pressures

Edward Lance Arellano Lorilla

CEO / Co-Founder

Enjoy the little things in life. For one day, you may look back and realize they were the big things. Many of life's failures are people who did not realize how close they were to success when they gave up.