Chip Glut Crisis: Huawei’s Chipmaker Sounds the Alarm!
Semiconductor Manufacturing International Corp. has cautioned that the anticipated revival of the smartphone market will be delayed by another year. Additionally, the company highlighted that geopolitical tensions are exacerbating an already significant surplus in global chipmaking capacity.
The outlook contrasts with more positive comments from Samsung Electronics Co and Taiwan Semiconductor Manufacturing Co that mobile demand will soon bottom out. China’s largest chipmaker reported its third straight quarterly revenue decline on Thursday, reflecting the depth of the recession and Washington’s widening campaign to rein in China’s technology sector. That result disappointed investors who had hoped the surprise popularity of Huawei Technologies Co’s latest smartphones would offset the loss in sales.
SMIC is one of the most prominent companies in Beijing’s effort to build a world-class technology industry that is less dependent on American innovation. It helped Huawei build a 7-nanometer processor for the Mate 60 Pro, considered a breakthrough for two companies that were blacklisted by the US years ago for national security reasons. Thanks to nationalistic fervor, the device quickly sold out, taking business away from Apple Inc.’s iPhone.
No analysts cited Huawei at Friday’s post-results press conference. Instead, SMIC executives talked about how political tensions had fueled global growth in domestic chipmaking capacity. They did not name any countries, but the United States, China, Japan and Europe are among those seeking incentives to attract local manufacturing.
“From a global perspective, the capacity will be too much. It will take a lot of time to digest the new capacity built in recent years,” SMIC CEO Zhao Haijun told analysts on a conference call.
SMIC shares fell as much as 6.6% on Friday, the most in two months, after it reported a bigger-than-expected 15% drop in revenue to $1.62 billion in the September quarter. Net profit fell by 80%, estimates were also missing.
Still, SMIC shares had risen about 40% since Huawei introduced the $900-plus Mate 60 Pro in late August — just as US Commerce Secretary Gina Raimondo — whose department oversees the chip’s complex network of restrictions — visited China.
Huawei itself is showing signs of resuming growth that was derailed by Washington’s sanctions. State-backed SMIC is forecast to return to growth in the top quarter of December, but its outlook could hinge on whether the United States, which last month expanded existing restrictions on China’s chip sector, considers new sanctions. US lawmakers have called for more restrictions, seizing on Huawei’s unexpected breakthrough.
Meanwhile, executives said SMIC continues to struggle with uncertainty in China’s smartphone market, the world’s largest.
Competition is heating up in an arena already crowded with players from Xiaomi Corp. to Oppo struggling to recover from the Covid-era slump.
According to research firm Canalys, smartphone shipments fell 5% in the third quarter, and none of the top five players sold more phones than a year ago. Major Chinese smartphone makers rely on chips from Qualcomm Inc and MediaTek Inc, but the two companies also outsource manufacturing to foreign contractors such as TSMC and Globalfoundries Inc.
“The current smartphone replacement cycle was not driven by new innovations,” Zhao told analysts. “Next year’s smartphone shipments should be on par with this year’s.”
In the longer term, it remains to be seen whether Beijing’s open support for SMIC and chip-related companies will support the bottom line.
SMIC will raise its full-year capital expenditure to $7.5 billion from about $6.35 billion previously, also suggesting it will increase capacity. The company expects to take delivery of some of the machines earlier than planned after suppliers received transportation licenses more quickly, Zhao said.
“China’s push for semiconductor self-sufficiency appears to be buffering SMIC’s expected third-quarter sales and profit margin headwinds, despite broader market challenges from a stalled recovery in smartphones and consumer electronics,” Bloomberg Intelligence analyst Charles Shum wrote in a note ahead of the earnings release. .
