Semiconductor Manufacturing International Corporation (SMIC) has received regulatory approval to take full control of its Beijing-based manufacturing unit, SMNC, in a deal valued at 40.6 billion yuan (approximately $5.97 billion). This transaction marks the largest merger and restructuring on Shanghai’s Star Market to date, underscoring the growing competition in the semiconductor sector.
Acquisition Details
According to the terms of the agreement, SMIC will issue 547.2 million new A-shares priced at 74.20 yuan each (around $10.91) to acquire the remaining 49% stake in SMNC. SMIC previously held a 51% share, and this buyout will make SMNC a wholly owned subsidiary. The sellers are required to hold onto their shares for one year before selling, indicating a commitment to the company’s long-term prospects.
The path to this acquisition began in August when SMIC first proposed the buyout. After several rounds of regulatory reviews, the final transaction price was confirmed in December. The deal received clearance from the Star Market in February and passed through the exchange’s review board in May.
Strategic Implications
With this acquisition, SMIC will obtain significant stakes from prominent state-backed investment groups, including the "Big Fund," which will receive 357.3 million of the new A-shares. This consolidation is expected to bolster SMIC's financial strength amid rising demand for semiconductors, particularly mature-node chips, driven by a global supply shortage and strong demand from local electronics manufacturers.
Established in 2013, SMNC primarily produces 12-inch wafers, essential for various semiconductor applications. While SMIC claims its core business will remain unchanged, the acquisition is expected to enhance its financial performance. Estimates suggest that if the buyout had been completed earlier, SMIC’s basic earnings per share could have risen from 0.49 yuan to 0.55 yuan for the period from January to August 2025.
Market Environment and Future Outlook
The timing of this acquisition is particularly favorable. The Chinese semiconductor sector is currently flourishing, driven by high demand for chips and a shift toward local foundries amid ongoing global supply challenges. SMIC's recent financial results reflect this positive trend, with Q1 revenues reaching $2.51 billion, an 11.5% increase from the previous year. Net profits soared to $197 million, accompanied by a wafer utilization rate of 93.1%.
Co-CEO Zhao Haijun has highlighted the growing significance of AI applications, noting that the demand for legacy components like power management chips is diminishing. This trend is expected to keep SMIC’s production facilities running at full capacity. Looking ahead, SMIC anticipates revenue growth of 14% to 16% for Q2, with gross margins projected between 20% and 22%.
As SMIC strengthens its position in the semiconductor market, the impact of this acquisition extends beyond financial figures. The company will play a more key role in the global semiconductor supply chain, especially in AI and other advanced technologies, marking a significant moment in the industry's evolution.
