China’s SMIC reports a 20% increase in quarterly revenue, but is cautious about demand going forward

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China's SMIC reports a 20% increase in quarterly revenue, but is cautious about demand going forward
China's SMIC reports a 20% increase in quarterly revenue, but is cautious about demand going forward

SMIC, the biggest contract chip manufacturer in China, unveiled a new tab and announced a 5% rise in first-quarter revenue as both domestic and foreign consumers topped off their stock.

The largest contract chipmaker in China, SMIC (0981.HK), opened a new tab and reported a five percent increase in first-quarter revenue as both local and international customers replenished their stocks. However, the company issued a warning over the demand prognosis for the second half of the year.

The corporation reported $1.75 billion in revenue on Thursday. This was the second consecutive quarter of growth following sharp falls for the majority of 2023, exceeding an LSEG consensus prediction of a 16% gain from the previous year.

“Compared to the fourth quarter, our global customers were more willing to build up inventory, while in the domestic market, some customers managed to boost their market share and wanted to lock in orders to solidify their position,” Zhao Haijun, our co-CEO, stated.

About 80% of SMIC’s income comes from domestic clients.

However, Zhao noted that the prognosis remained uncertain and that SMIC was keeping an eye on whether its clients had overestimated their demand for the second half. He projected a total revenue growth rate of more than 8% in 2024, which is a far gentler rate.

SMIC’s stock increased 1.1% in early Friday trading.

The company mostly produces simple chips that are typically utilized in less complex electronic devices, but it has drawn greater attention when a SMIC-manufactured chip—one of the most advanced chips ever built in China—was discovered during the disassembly of a Huawei (HWT.UL) smartphone last year. The Pura 70, the newest smartphone from Huawei, also has a SMIC chip.

China has greatly increased its production capacity as a result of investing enormous sums of money to support the chip industry in an effort to become technologically independent as tensions with the United States have grown.

According to official data, China’s total integrated circuit output increased by 40% to 98.1 billion units in the first quarter of 2024. This has thus given rise to worries that overcapacity will encourage low-cost exports in the future.

Zhao expressed his lack of concern regarding excess inventory, pointing out that SMIC’s plants are now running at high utilization rates and are not experiencing a dearth of orders.

Amidst the robust revenue growth, SMIC’s unaudited profit attributable to owners experienced a 69% decline to $71.8 million, falling short of projections as the business incurred substantial depreciation expenses for its equipment.

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