Impacts of U.S. Tariff Policy on SMIC Production Capacity
China’s leading foundry company SMIC stated that the U.S. tariff policy did not cause the hard landing initially anticipated, with strong domestic demand maintaining tight production capacity until October.
During a recent post-earnings call, Co-CEO Zhao Haijun mentioned the company’s non-engagement with customers regarding the 100% tariff proposal by U.S. President Donald Trump for chip imports. He expected a lesser impact due to contingency measures following the April tariffs.
Zhao expressed that recent months have seen sufficient inventory stocking for this and the next year, or a shift to alternative suppliers, leading to a decreased impact. Previous tariff rounds resulted in less than a 10% cost increase for international clients. China raised additional duties on U.S. goods to 125% in April after Trump raised tariffs on Chinese goods to 145%. Trump’s latest tariff declaration of about 100% on semiconductor imports exempted U.S.-based manufacturers or those committed to U.S. production.
SMIC, not having U.S. manufacturing operations, was blacklisted by the U.S. commerce department in 2020. The company’s major market is China, contributing 84% of second-quarter revenue, with the U.S. share slightly increasing to 12.9%.
Second-quarter revenue of SMIC surged by 16.2% year-on-year to $2.2 billion, although the profit declined to $132.5 million, missing analyst expectations. The company shipped 2.4 million eight-inch wafers in Q2, a 4.3% rise from the prior quarter.
Due to strong domestic demand for various chip types, including analog, WiFi, ethernet, and memory chips, SMIC’s production capacity remains insufficient, sustaining tightness until October. The monthly production capacity increased by 1.85% quarter-on-quarter to 991,000 wafers, with utilization rates climbing to 92.5%.
However, Zhao noted that the fourth quarter is typically slower for the industry, expecting deceleration in rush orders and early shipments. SMIC anticipates third-quarter revenue to grow by 5% to 7% from Q2, despite a more than 5% decline in its Hong Kong-traded shares on Friday.
