China’s largest contract chipmaker SMIC released its annual report this week, reporting a 27% increase in revenue for the period to a record $8 billion, but a 45.4% drop in net profit to $493 million. That sent SMIC’s stock down 3.4% in early trading on Friday.
Image Source: SMIC
Rival Hua Hong Semiconductor’s losses were even more pronounced, with its annual revenue falling 12.3% to $2 billion and net profit falling 79.2% to $58 million. Its shares fell 3.3% against this backdrop. Both Chinese chipmakers are facing increased competition in the domestic market while sanctions pressure from outside continues, which explains the negative profit dynamics.
At the same time, Taiwan’s TSMC reported a 40% increase in its net profit for 2024 to a record $35 billion. In fact, TSMC’s profit is 70 times greater than SMIC’s, and the revenue gap between them is 12 times. In its annual report, SMIC emphasizes the likelihood of negative impact of US import tariffs on its business, and also mentions other possible trade barriers.
SMIC’s revenue is increasingly concentrated in the domestic Chinese market. Last year, 85% of the company’s revenue was generated in China, although the year before its share did not exceed 80%. However, even under tough sanctions, SMIC manages to receive up to 12% of its revenue from orders from customers in the United States, although in 2023 their share reached 16%.
Last year, the consumer electronics segment became SMIC’s main source of revenue (38%), overtaking the smartphone and computer segments. The company has stopped publishing statistics on the technological processes it uses. South Korean analysts from Kiwoom Securities believe that SMIC expects to develop a 5-nm chip manufacturing technology this year, but the cost of the corresponding products will be 50% higher than that of TSMC.