Chinese Foundries Increase Prices Amid Rising AI Demand

As the demand for artificial intelligence technologies continues to escalate, China's semiconductor foundries are responding by raising prices and adjusting their operational strategies. Major players like SMIC (Semiconductor Manufacturing International Corporation) and Hua Hong Semiconductor have reported increased orders and improved margins, marking a significant moment for the industry.

Rising Prices and Capacity Utilization

A recent report by Securities Times indicates that about 80% of companies in the Shenwan semiconductor industry experienced higher operating costs in the first quarter of 2026, primarily due to rising wafer foundry prices. During its earnings call for the first quarter, SMIC noted that it has successfully negotiated price hikes for products facing supply shortages. This proactive strategy has not only boosted revenue but also created a substantial order backlog, as customers concerned about supply chain disruptions have begun placing orders in advance.

The company expects gross margins in the second quarter of 2026 to be between 20% and 22%, a significant rise compared to previous quarters. This optimism is fueled by several factors, including steady demand for power management semiconductors and a surge in orders from international markets looking to utilize China's production capabilities.

Hua Hong's Strategic Price Increases

Hua Hong has taken a similar path, steadily raising prices throughout 2025 and planning further increases in its 12-inch product segment for 2026. Executives at the company have noted substantial growth in power management segments, particularly in microcontrollers (MCUs), standalone flash memory, and integrated bipolar-CMOS-DMOS (BCD) power chips. This growth mirrors a broader industry trend as companies adjust to the rising demands of AI-driven applications.

Market Shifts and New Opportunities

The evolving semiconductor manufacturing environment is presenting new opportunities for Chinese foundries. As industry leaders like TSMC and Samsung Electronics shift their focus toward higher-margin, advanced nodes, they are scaling back on mature-node and smaller wafer production. This shift allows Chinese foundries to attract new clients, especially for 90nm-and-above 12-inch wafers, which are experiencing increased demand.

Industry analysts observe that this transition, noticeable since the second half of 2025, has led customers in high-voltage (HV) processes and CIS (CMOS image sensor) applications to seek more stable pricing and capacity options from Chinese manufacturers. This shift signifies a broader realignment in the semiconductor market, with the balance of power gradually changing.

Strategic Expansion Through Acquisitions

To seize emerging opportunities, Chinese foundries are also ramping up their acquisition strategies. SMIC's recent approval for a RMB 40.6 billion acquisition of a 49% stake in SMIC North highlights this trend. Gaining full ownership of this venture will significantly enhance its 12-inch foundry capabilities. Similarly, Hua Hong is moving forward with a share issuance plan aimed at acquiring Hua Li Microelectronics, valued at RMB 8.268 billion.

These strategic actions reflect confidence in the growth of AI-related markets and signal a critical phase for the Chinese semiconductor industry as it aims to consolidate and expand its presence in the global supply chain.

With the ongoing rise in demand for AI technology, the ramifications of these price increases and strategic shifts are likely to reverberate throughout the semiconductor market, affecting pricing, supply chain dynamics, and the space in the coming months and years.