SMIC reports Q4 revenue up 2.6% YoY to $1.6B, net profit down 26% YoY to $425.5M; 2022 revenue grew 34% YoY to $7.27B and it expects Q1 revenue to fall by 12%
Che Pan / South China Morning Post : Tweets: @pstasiatech Tweets: Paul Triolo / @pstasiatech : China's biggest foundry SMIC sees profits fall by one-fourth on waning demand for electronic gadgets SMIC reported full-year sales growth of 34%, but it expects the global chip industry to remain at the bottom of the cycle in the first half of 2023 https://www.scmp.com/...
Context & Ripple Effects
SMIC closed out a record year by confirming the turn: after guiding for a Q4 decline alongside Q3 results that cited US sanctions, it posted $1.6B in quarterly revenue — barely up year-over-year — with profit falling 26% as demand for electronic gadgets waned.
The full-year picture masks the inflection: 34% growth for 2022 was earned mostly before the second half, and management now expects the industry to sit at the bottom of the cycle through the first half of 2023, with the subsequent 21% Q1 revenue drop validating that call. Meanwhile Beijing keeps building around the downturn — state-backed hard-tech funds and rules pushing domestically made fab equipment.
First-order effects
- SMIC's own guidance of a 12% Q1 revenue decline puts its wafer customers on notice that pricing and utilization will stay soft into mid-2023, compressing margins further after the 26% profit drop.
- The company enters the trough from a position of scale — $7.27B in annual revenue — giving it more room than smaller Chinese foundries to absorb a half-year of falling orders.
Second-order effects
- A sanctioned foundry spending through the bottom shifts the competitive math for Western toolmakers: China's reported requirement that new capacity use at least 50% domestically made equipment, plus retrofitting of older ASML DUV machines, channels the downturn into import substitution.
- SMIC's plan to buy out the remaining 49% of its 12-inch wafer unit SMNC for about $5.8B signals consolidation of advanced-capacity assets under full control while rivals retrench.
Third-order effects
- If the pattern holds — record-cycle earnings funding counter-cyclical expansion under sanctions — the global foundry market splits into two partially self-sufficient ecosystems, with Chinese capacity increasingly insulated by domestic equipment mandates rather than exposed to export controls.
- For the broader industry, a top Chinese foundry calling the first-half 2023 bottom becomes a reference point other chip suppliers will price their own recoveries against.
The trend: The contracted semiconductor cycle is bottoming unevenly, with sanctioned Chinese foundries using peak-era profits to expand capacity behind domestic-equipment walls while gadget demand recovers.