SMIC co-CEO predicts revenue above $12bn in 2025 on AI-driven chip cycle extension

The quarterly figures and annual projection strengthen the view that AI demand is expanding beyond cutting-edge chips into older technology nodes. That is beneficial for China's semiconductor ecosystem and could help stabilise sentiment towards SMIC's Hong Kong-listed stock after a sharp decline. The co-CEO's caution about equipment supply delays signals robust demand for manufacturing tools, a favourable indicator for chip equipment producers and consistent with Applied Materials' optimistic forecast this week. The fourth-quarter margin forecast falling short of the third quarter's 29.9% will dampen some enthusiasm. So will persistent uncertainty about how quickly AI investments yield returns, which may limit any recovery across Asian chip equities.

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SMIC's co-CEO anticipates AI will prolong the semiconductor upturn and that annual revenue will exceed $12bn. His caution that equipment shortages could hinder spending highlights how strained the supply chain has become.

Summary:

• Co-CEO Zhao Haijun forecasts annual revenue surpassing $12bn, an increase of nearly 30%, and gross margin of about 26%, roughly 5 percentage points above last year's level
• He states that AI demand could lengthen the semiconductor upcycle, alongside the continued localisation of China's chip supply chain
• Restricted global equipment availability and extended lead times may affect full-year capital expenditure, though this year's capacity additions remain on track
• Third-quarter revenue grew 34% to a record $3.19bn, while net profit more than doubled to around $428m, exceeding estimates of about $397m
• Third-quarter gross margin of 29.9% surpassed guidance; fourth-quarter guidance calls for revenue growth of 4% to 6% sequentially and margin between 26% and 28%
• SMIC's Hong Kong shares dropped 32% in the third quarter and have fallen roughly another 20% so far in the current quarter

SMIC co-chief executive Zhao Haijun stated that the company projects full-year revenue exceeding $12 billion, representing a near 30% rise from the prior year. He contended that artificial intelligence demand could prolong the ongoing semiconductor upcycle. During the company's third-quarter earnings call, he also cautioned that constrained global availability of chipmaking tools could disrupt the schedule for its capital outlays.

Semiconductor Manufacturing International Corp, commonly referred to as SMIC, is China's largest contract chipmaker. Established in 2000 and headquartered in Shanghai, it operates as a foundry similar to Taiwan's TSMC: it manufactures chips designed by other companies rather than selling its own branded products. The bulk of its output consists of mature-node chips, the older but still widely used technology found in power management, connectivity, automotive and consumer electronics applications. SMIC is listed in Hong Kong and on Shanghai's STAR Market, and it plays a central role in Beijing's drive for semiconductor self-sufficiency. The United States added it to the Entity List in 2020, limiting its access to American technology, including the most advanced chipmaking equipment. This makes SMIC a closely watched indicator of how far China's chip industry can progress under those restrictions.

Zhao indicated that gross margin for the year should be approximately 26%, roughly 5 percentage points higher than the previous year, even as total depreciation rises by about 30%. He outlined two near-term certainties for the industry. The first is that AI demand will extend the cycle and alter the way growth occurs. The second is the large-scale, ongoing localisation of China's chip supply chain. SMIC intends to leverage its relationships with Chinese clients, add capacity according to their needs and give priority to higher-value products to safeguard cash flow through the cycle.

The equipment warning constitutes the main concern. Zhao noted that supply chains for chipmaking tools are generally stretched, with extended lead times and uncertainty about when certain machines will be delivered. He said this will not affect this year's capacity expansion, but it could disrupt how capital expenditure is executed over the full year.

His remarks followed another record quarter. Revenue increased 34% year on year to approximately $3.19 billion, after exceeding $3 billion for the first time in the second quarter. Net profit more than doubled to around $428 million, surpassing analysts' estimates of about $397 million. Gross margin reached 29.9%, above the company's own forecast of 26% to 28%, driven by higher wafer prices and a more profitable product mix. The factories operated at roughly 97% utilisation.

SMIC benefits from AI indirectly. Leading foundries are allocating more capacity to advanced AI chips, prompting customers both in China and overseas to turn to China for mature-node chips. These chips serve power management, connectivity and other supporting roles in data centres and consumer electronics. According to TrendForce data, SMIC's global foundry market share rose to 5.4% in the second quarter, approaching Samsung's 5.9%, though both remain far behind TSMC.

For the fourth quarter, SMIC guided for sequential revenue growth of 4% to 6% and gross margin of 26% to 28%. The results now face a sceptical market. The company's Hong Kong shares fell 32% in the third quarter and have lost roughly another 20% this quarter, as investors question how soon heavy AI spending will yield returns.