Chip oversupply forces China SMIC to rethink growth plans

Amid a prolonged global chip glut, China’s largest chipmaker, SMIC, is adjusting its growth strategy, marking a shift after years of rapid expansion driven by heightened trade tensions with the US.
China's semiconductor sector recorded 31 M&A deals in 2024, with most activity concentrated on analog chips and materials.

China’s top chipmaker, Semiconductor Manufacturing International Corp (SMIC), is adopting a more cautious approach to growth due to a prolonged oversupply of mature-node chips. Despite recent production expansions, the company now anticipates overcapacity issues in the semiconductor industry to continue into 2025, with utilisation rates for many manufacturers sitting below optimal levels. This has pressured SMIC to halt new projects and reevaluate expansion plans.

SMIC reported a 34% rise in revenue for the September quarter, reaching $2.17B, largely driven by China’s push for localised production amid trade tensions with the US. However, co-CEO Zhao Haijun noted that this domestic substitution trend is slowing as local suppliers have captured much of the available market share, dampening SMIC’s outlook for further growth in this area.

In response to market conditions, SMIC’s capital expenditure surged to $7.3B in 2023, a significant increase from $4.5B in 2021, though the company signaled that future investments will likely be more conservative. Despite these challenges, SMIC’s stock rose by 3.7% in early trading in Hong Kong following the earnings announcement, reflecting continued investor interest.