Following the release of its third-quarter financial results, SMIC co-CEO Haijun Zhao expects price competition to persist and aims to capture one-ninth of global semiconductor orders.
After releasing earnings results for the third quarter of 2024 on November 7, Zhao addressed questions in the earnings call held on November 8.
On SMIC operation
Zhao noted some of SMIC's overseas orders were pulled forward to the second quarter. Consequently, the proportion of overseas revenue decreased by 6% in the third quarter.
Furthermore, SMIC sees that the revenue proportion of 8-inch wafers has dropped to 21.5% due to a portion of their shipments being pulled forward to the second quarter of 2024.
Meanwhile, 12-inch wafers are operating near full capacity, leading to their revenue proportion increasing to 78.5%. Looking at the platform level, the strong demand for BCD (Bipolar, CMOS, and DMOS) has brought in orders, driving up the utilization rate of 8-inch wafers.
The fourth quarter is typically a slower period for the semiconductor industry due to reduced customer demand. To address this seasonal challenge, Zhao said SMIC is implementing various strategies.
The company plans to add approximately 30,000 12-inch wafer equivalent per month in the fourth quarter. However, as the verification process continues, the ramp-up of new capacity will take time, leading to a slight decline in overall capacity utilization and shipments.
To offset the potential decline in shipments and maintain revenue, SMIC will focus on optimizing its product mix to improve average selling prices (ASP).
Based on the first three quarters' performance and the fourth quarter guidance, SMIC expects full-year revenue to reach around US$8 billion, with year-over-year growth outpacing the industry average. The full-year gross margin is projected to be around 17%.
Macroeconomy
According to Zhao, the global semiconductor market is expected to perform better in 2025 compared to 2024, with AI-related semiconductors projected to grow by over 10%. Excluding AI semiconductors, US dollar-denominated revenue growth is anticipated to range between 4% and 9%.
While new production capacities are coming online, supply shortages persist, though increased capacity may lead to some price softening. This could result in double-digit growth in wafer shipments, but revenue growth may remain in the single digits.
The industrial and automotive sectors have yet to fully recover, and in China, the market is expected to improve once the inventory of solar panels and batteries is cleared.
According to Zhao, the new wafer fab construction hype has slowed, and many orders placed last year have been fulfilled this year, with fewer remaining orders for 2025. Therefore, 2024 is likely to see a peak in growth, with continued growth next year, but it will not be as high as this year.
For 2024, the average capacity utilization rate for SMIC and its comparable peers is expected to be around 70%, which indicates that there is still significant overcapacity. This situation is unlikely to improve significantly next year.
SMIC's target for China-for-China
Zhao said SMIC has not announced any new projects in 2024. However, they have increased capacity significantly, adding more than 60,000 12-inch wafers of capacity, while the increase last year was comparatively smaller. Averaging over the two years, this represents an incremental growth of around 50,000 wafers per year.
Currently, SMIC's goal is to capture about one-third of the semiconductor manufacturing orders transferred to China. This means that if suppliers decide to have one-third of their production in China, SMIC aims to handle one-third of that.
Each SMIC wafer fab is expected to handle at least three process nodes, and the company aims to equip these platforms to produce a wide range of products. This includes standard logic ICs, ultra-low power chips, RF, analog, RCD drivers, CMOS, specialty memory, MCUs, and more.
With approximately 1,000 design companies based in China, or even thousands more when including branches, the customer base is quite diverse, and SMIC is working to ensure its platforms can accommodate the broad needs of these varied customers.
AI benefits every foundry, advanced or mature
The rise of AI is seen as a boon for the semiconductor industry and is expected to bring new business opportunities and years of prosperity. As AI takes up a significant portion of the capacity at advanced semiconductor fabs, even older, more mature fabs will benefit from the overflow of orders.
SMIC has been working with BCD (Bipolar-CMOS-DMOS) technology for over a decade, particularly with major clients and industry leaders. The company has accumulated substantial expertise in quality platforms and product development, positioning itself as competitive with any other company in the industry.
The demand for BCD is expected to grow due to the increasing need for power supply, energy management, and voltage regulation in sectors like AI data centers, automotive, and energy storage.
