SMIC Flags Chip Oversupply Risk Can China's Largest Chipmaker Revolutionize Activists in 2025?

Title SMIC Flags Chip Oversupply Risk Can China's Largest Chipmaker Revolutionize Activists in 2025?

As China's largest chipmaker, Semiconductor Manufacturing International Corp. (SMIC) has been instrumental in driving the country's semiconductor industry forward. However, its latest earnings report highlights concerns about the chip oversupply risk by the second half of 2025, tempering optimism about recovery from the post-pandemic slump.

The Oversupply Concern

SMIC's Co-CEO Zhao Haijun identified two key factors contributing to the anticipated oversupply a decline in order volume as demand is pulled forward to the first half of the year, and intensified price competition triggered by new production capacity across the industry.

Growth Drivers Take Center Stage

Despite these concerns, SMIC reported a strong fourth-quarter performance, with revenue increasing 31.5 percent on-year to $2.2 billion. This growth was driven by consumer stimulus measures in China, which boosted sales of electronic products such as televisions and smartphones that utilize SMIC's chips. Additionally, customers' increased localization efforts, driven in part by geopolitical tension, contributed to the company's revenue growth.

Capital Expenditure A Key Factor

SMIC has been investing heavily to expand production capacity and strengthen China's domestic semiconductor capability. 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 forecasts capital expenditure of around $7.5 billion in 2025.

Profitability Under Pressure

However, profitability remains under pressure due to rising depreciation costs driven by capital expenditure. Gross profit margin improved to 22.6 percent in October-December compared to 16.4 percent in the year-earlier period. Nevertheless, it is expected to remain under pressure in 2025, with depreciation costs rising by 20 percent.

The Impact on Activists

The oversupply risk and pressure on profitability could have significant implications for activists looking to make a difference in China's semiconductor industry. As SMIC's largest shareholder, they may need to re-evaluate their strategy to maximize returns in an environment of intense competition and declining demand.

Conclusion

In conclusion, while SMIC's latest earnings report revealed concerns about the chip oversupply risk, it also highlighted the company's strong growth drivers. As China's largest chipmaker, SMIC will continue to play a crucial role in shaping the country's semiconductor industry. Whether activists can capitalize on this trend remains to be seen, but one thing is certain – the stakes have never been higher.

Keywords Semiconductor Manufacturing International Corp., SMIC, chip oversupply risk, mature-node chips, China's semiconductor industry, capital expenditure, profitability, depreciation costs, activists.

Edward Lance Arellano Lorilla

CEO / Co-Founder

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