On the one hand, the management of the Chinese company SMIC, which is under sanctions, speaks of an impending overproduction of chips using old technical processes. On the other hand, without access to advanced lithography, the company still expects to benefit from the boom in artificial intelligence systems, since some of the orders will still fall to it.
Image Source: SMIC
At the very least, as the South China Morning Post notes, describing the results of the fiscal quarter, SMIC CEO Zhao Haijun mentioned factors contributing to attracting new orders to the company’s pipeline in light of the boom in related technologies. “AI is a blessing for semiconductor manufacturing and can power our business growth for many years to come,” the SMIC CEO said at its quarterly earnings call.
As he explained, technological limitations prevent the company from producing highly competitive components such as GPUs, but it can produce other products that are somehow related to the AI segment, such as power electronics or analog components. An increase in the number of orders is already observed. While foreign competitors are loading up their facilities with cutting-edge chips that are profitable for them, customers who need related components of a more mature generation are increasingly turning to SMIC for services.
Zhao Haijun estimates that the semiconductor industry as a whole will grow by 10% next year, taking into account the boom in artificial intelligence, and if this factor is excluded, growth will be limited to 4%. Last quarter, SMIC expanded its customer base in China, increasing its monthly volume of 300mm silicon wafers processed by 21,000 pieces per month. The European and American auto industries are still characterized by weak demand in the global semiconductor industry, while in China the weak links are the solar energy and battery markets. Because of this, the industry’s pipeline utilization rate does not exceed 70%, according to the head of SMIC, and the figure is unlikely to improve significantly next year. By the end of this year, the company expects to increase revenue by 27% to $8 billion.
The trend of import substitution in the component base in the Chinese market, according to Zhao Haijun, has its limits. As a rule, if a Chinese manufacturer obtains up to a third of its components domestically, it still prefers to maintain external sources of components for the purpose of diversification.