In a notable demonstration of resilience, Semiconductor Manufacturing International Corporation (SMIC) has reported first-quarter revenues of $2.505 billion, reflecting an 11% increase year-on-year. This performance aligns with the expectations set by China International Capital Corporation (CICC), which has maintained an 'Outperform' rating on the company’s stock, targeting a price of HK$100.
Q1 Performance Review
SMIC's gross margin stood at 20.1%, slightly improving by 0.9 percentage points from the previous quarter. Analysts had expected stable quarter-on-quarter performance, making this growth particularly encouraging. The chipmaker also reported a capital expenditure of $1.56 billion for the quarter, while depreciation and amortization rose by 25.7% year-on-year to $1.088 billion. Despite these increased costs, the gross margin remained steady, largely due to high capacity utilization, reported at 93.1%, although it did experience a slight dip compared to the previous quarter.
Second Quarter Outlook
Looking ahead, SMIC's guidance for the second quarter is optimistic, with expected revenue growth of 14-16% quarter-on-quarter and a gross margin projected between 20-22%. CICC attributes this anticipated growth to improved capacity utilization and an increase in average selling prices (ASP). These factors indicate a positive trajectory for the semiconductor manufacturer as it responds to market demands.
Shifting Market Dynamics
The report highlights a significant shift in SMIC's customer base, with revenue contributions from consumer electronics and smartphones declining to 18.9% and 46.2%, respectively. In contrast, the segments for computers and tablets, as well as industrial and automotive applications, saw increases to 13.6% and 14%, respectively. This change underscores a broader industry trend where AI-driven supply constraints are prompting a move towards local production demand, reshaping supply and demand dynamics for mature processes.
The Role of AI in Future Growth
CICC's analysis suggests that the ongoing evolution of the semiconductor market, particularly with peripheral AI components, is significantly influencing this transformation. As production needs shift away from traditional consumer electronics, SMIC stands to gain from the growing emphasis on AI technologies. Looking towards 2026, CICC expects that SMIC will experience accelerated revenue growth despite ongoing pressures from depreciation.
SMIC's recent performance and outlook highlight the challenges and opportunities facing the semiconductor industry amid technological advancements and changing consumer demands. The company's strategic focus on AI-related production appears to be a key driver for its future success.
