Technology
The wolf may finally be at the door…Blue Lotus downgrades the stock to Sell. SMIC posted a strong 3Q25 profit beat - mostly driven by volatile G&A associated with fab start-up - while its Q4 revenue guide of 0-2% Q/Q fell well short of Blue Lotus’ +6.8% expectation. They now see rising risk of an air pocket heading into 2026 as Beijing holds back stimulus until after March’s Two Sessions, while headwinds loom across segments that make up 75% of SMIC’s revenue: smartphone weakness from a DRAM shortage, suspension of home appliance trade-in subsidy and slowing NEV growth as tax breaks phase out. While SMIC’s aggressive capacity buildout is positive in the long run, it makes the group vulnerable to demand fluctuations and depreciation is expected to spike to 37% of revenue, leading to a gross margin cut from 26% to 17%. TP HK$51 (25% downside).
Edition: 225
- 28 November, 2025
Pressure is making life very hard for Chinese semiconductors
Technology
While SMIC blamed domestic competition for continued gross margin weakness, Richard Windsor suspects the real issue is to be found at the “leading edge” where it is using a multi-patterning technique to manufacture at 7nm and 5nm. Both Intel and TSMC tried to do multi-patterning for 7nm and abandoned it because the yields were so low that it was not economical to continue. China’s semiconductor industry can make products at much higher cost, but the state will need to support the industry which is becoming increasingly difficult as China’s economy limps along. Furthermore, Chinese technology will no longer be the cheaper option making Western products and standards more competitive in African, South East Asian and Latin American markets.
Edition: 186
- 17 May, 2024
Multi-patterning is an economic dead end
Technology
In his latest note on the Semiconductor Wars: US vs. China, Richard Windsor argues that the media is not being clear in terms of where the real ability of the Chinese semiconductor industry to compete lies. He believes the economics for SMIC in making chips at both 7nm and 5nm are truly awful and that yields are below 10%. This is unsustainable especially given the weakness of the Chinese economy and the other crises that the Chinese state is having to deal with. Consequently, there is no danger of the Chinese competing with leading-edge semiconductor makers outside of China and Richard is sceptical whether they will be able to do so at any node below 20nm.
Edition: 179
- 09 February, 2024
Technology
Huawei appears to have adapted its internal 5G modem to a novel 7nm process, one which eliminates the need for the industry-standard usage of FinFET transistors. KC Rajkumar finds it remarkable that SMIC may have been able to control the leakage profile of planar transistors just enough to make it possible for the Mate 60’s 5G modem to operate without obvious issues. The SMIC / Huawei 5G handset demonstrates that the expensive FinFET process may be unnecessary. A few years out, if mid-tier foundries were to duplicate the SMIC planar process, there could be risk to 7nm loading at TSMC.
Edition: 169
- 15 September, 2023
Technology
One of four high conviction plays on China's new industrial ambitions - as the country's largest chip foundry SMIC is totally aligned to Beijing policy priorities and is making faster than expected progress in moving towards 7nm process technology while being able to supply domestic companies with their needs at 14nm and above (which is where the majority of demand lies). It's on the entity list but can use older generation ASML technology, with ASML likely to breach US sanctions and supply it with its latest UV technology to enter what would be a bigger market than the US by 2030. ASML and Brussels are bridling against the trans-territoriality of US sanctions.
Edition: 120
- 01 October, 2021