China’s SMIC ranks as world’s third-largest chip foundry by sales in first quarter on back of strong domestic demand

SMIC accounted for 6 per cent of global chip foundry sales in the first quarter, behind TSMC’s 62 per cent share and Samsung’s 13 per cent share
The Shanghai-based firm’s latest ranking reflects how its strategic pivot to serve mainland clients has helped reduce the impact of US tech sanctions

Semiconductors

Che Panin Beijing

Published: 8:00pm, 23 May 2024

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Semiconductor Manufacturing International Corp (SMIC), mainland China’s biggest contract chip maker, has become the world’s third-largest integrated circuit (IC) foundry by sales for the first time on the back of strong domestic demand, despite rigid sanctions imposed by the United States government.

Shanghai-based SMIC, which was added to the US trade blacklist in 2020, accounted for 6 per cent of global chip foundry revenue in the first quarter, according to a report on Wednesday by tech research firm Counterpoint. That ranked SMIC behind industry leader Taiwan Semiconductor Manufacturing Co (TSMC), with a 62 per cent global market share, and Samsung Electronics, with a 13 per cent share, in the same period.

SMIC’s sales are expected to record double-digit growth in the current quarter amid a recovery in domestic demand for image sensors, power-management chips and display driver ICs, according to Counterpoint.

The company’s latest ranking reflects how the strategic pivot to serve clients in its home market has helped reduce the impact of US tech sanctions and managed to overcome the global semiconductor market’s typical seasonal sales slowdown in the first quarter.

A Kirin 9000s chip, fabricated by Semiconductor Manufacturing International Corp, is taken from Huawei Technologies’ Mate 60 Pro 5G smartphone in Ottawa, Ontario, Canada, on September 3, 2023. Photo: Bloomberg

SMIC generated 82 per cent of its total US$1.75 billion first-quarter revenue from mainland clients, up from 75.5 per cent in the same period a year earlier and 80 per cent in the December quarter, according to the Chinese chip maker’s latest financial results published earlier this month.

A third-party teardown of Huawei Technologies’ Mate 60 Pro 5G handset last September found that SMIC was behind the advanced processor used in the smartphone released in late August, which prompted calls in Washington for an investigation of how that chip was made in China amid existing US tech restrictions.

Both SMIC and Huawei have continued to stay mum about the Mate 60 Pro’s mainland-fabricated Kirin 9000s processor, which was hailed in Chinese social media as symbolic of the country’s defiance against US sanctions.

SMIC’s Hong Kong-listed shares closed 2.99 per cent lower to HK$15.60 on Wednesday.

Semiconductor Manufacturing International Corp in February reported total 2023 revenue of US$6.32 billion, down 13.1 per cent from a year earlier, owing to weak global demand. Photo: Shutterstock

Counterpoint’s latest foundry tracker report said the sector had a 5 per cent quarter-on-quarter revenue decline in the first three months of the year because of a slower recovery in demand for non-artificial intelligence (AI) semiconductors, such as those used on smartphones, Internet-of-Things devices, and automotive and industrial applications.

“We’ve observed more evidence to support that the AI demand is real, with increasing [capital expenditure] by cloud service providers adopting AI hardware first and followed by enterprises,” Counterpoint analyst Adam Chang said.

The demand for AI chips is predicted to remain strong this year and is likely to extend to 2025, while non-AI semiconductor demand remains sluggish, he said.

Global AI chip market leader Nvidia, for example, said its revenue from supplying graphics processing units (GPUs) to data centres jumped more than 400 per cent to US$22.6 billion in the quarter ended April 28, according to the US firm’s latest financial results published on Wednesday.

Nvidia has more than 80 per cent share of the world’s AI accelerator chip market, according to a separate report from Taiwan IC research firm TrendForce. It projected TSMC to raise its total monthly advanced packaging capacity by 150 per cent at the end of this year to accommodate Nvidia’s next-generation Blackwell line of GPUs – the B100, B200 and GB200.

An ASML assembly line engineer works on a Twinscan deep ultraviolet lithography system at the company’s headquarters in Veldhoven, the Netherlands, on June 16, 2023. Photo: Reuters

On the impact to SMIC of being potentially cut off from services by Dutch chip-making equipment supplier ASML, Counterpoint associate director Brady Wang said: “Although this is a hypothetical scenario, the impact will be tangible.”

“The extent and duration of this impact will hinge significantly on the available inventory of repair parts,” Wang said. “If the inventory levels are high, the negative effects might be mitigated more swiftly, whereas lower inventory could prolong and intensify these effects, potentially leading to more significant disruptions in service or operations.”