The most notable point from China's leading foundry SMIC's Q3 conference recently was its counter-trend upward revision of the 2023 capital expenditure to a substantial $7.5 billion. This adjustment is primarily attributed to geopolitical influences rather than anticipating future demand for increased capacity. SMIC stated that the total capital expenditure for the first three quarters of 2023 reached $5.1 billion.
This implicitly suggests that SMIC's Q4 capital expenditure is expected to reach up to $2.4 billion. According to the disclosed financial appendix, the actual amount is approximately $2.374 billion, three times the $869 million capital expenditure in Q1 2022.
In contrast, Joint CEO Zhao Haijun said in the same event that looking ahead to 2024, despite the current market appearing to stabilize, there is still no significant momentum or bright spots in the fundamental growth for the coming year. Ultimately, it depends on when the global economy experiences a major recovery.
The South China Morning Post cited Chinese customs import data, reporting that Chinese companies are rushing to purchase photolithography equipment before the enforcement of the US ban. In September 2023, China's import of ASML DUV lithography equipment from the Netherlands increased by 1,850%, reaching $1.3 billion. The growth rates for August and July were 343% and 1,677%, respectively.
The aforementioned Chinese customs import data, with equipment procurement exceeding $1 billion in a single month, also highlights the substantial increase in demand for SMIC's Q4 capital expenditure.
According to Zhao Haijun's statements during the conference, approximately 75% of SMIC's $7.5 billion capital expenditure is allocated to procuring semiconductor equipment, estimated at around $5.6 billion.
Zhao Haijun emphasized that due to the complex impact of geopolitical factors on the delivery cycle of semiconductor equipment, SMIC anticipates increasing challenges. To ensure the smooth implementation of the expansion plan for the four major semiconductor fabrication plants in China, SMIC plans to significantly increase the number of equipment deliveries by the end of 2023 compared to the initial predictions.
Zhao Haijun emphasized that SMIC's long-term perspective in building plants is not affected by the current seasonality. However, due to policy reasons, many semiconductor equipment acquisitions require approval from the US or European governments. Therefore, SMIC chose to apply for approvals in advance and will gradually deliver the equipment as the overall environment improves.
ASML's China country manager Shen Bo disclosed that the total number of ASML deep ultraviolet (DUV) lithography and metrology machines currently installed in China is around 1,400 during the China International Import Expo.
It's worth noting that during the conference, SMIC revealed, through questions from institutional investors, that in the current global semiconductor downturn and delays in equipment delivery by various countries, SMIC took advantage of this opportunity to request equipment suppliers to 'deliver in advance.' Combined with the current improvement in the delivery cycle of the global semiconductor equipment supply chain due to the economic downturn, it has become an opportune time for SMIC to significantly increase equipment installations."
