It’s been a mixed quarter for semiconductor stocks, with many expecting a recovery in the back half of 2023. And China’s largest chipmaker has not been immune to the slowdown.
Semiconductor Manufacturing International Co. (SMIC) posted Q1 revenue of $1.46 billion (-20.6% YoY), its first sales decline since Q3 2019. Net profits also fell 48% YoY to $231.1 million, highlighting potential issues with Beijing’s ambitions to boost its domestic semiconductor industry. 🔻
The geopolitical environment has become significantly more hostile towards the company as the U.S. and other Western countries take aim at China’s tech capabilities. Trade restrictions have SMIC unable to procure the tools necessary to keep pace with foreign competitors TSMC and South Korea. And with the West pouring billions of dollars of incentives into onshoring their supply chains, China’s industry giants are feeling the heat. 🥵
While the company reported record revenues in 2022, the global supply glut and demand slump are taking their toll. More than 50% of SMIC’s revenues come from making chips for smartphones and other consumer electronics. And since the pandemic pulled much of those products’ demand forward, sales have slumped significantly over the last year.
That said, executives stayed optimistic in the face of the company’s many headwinds. They forecasted a Q2 sales increase of 5% to 7%, noting that the domestic market recovery is happening earlier than overseas. 🔺
Although company-specific issues impact SMIC, investors can still extract some information about the semiconductor industry from its results. For now, it appears SMIC’s outlook aligns with its peers, looking for a recovery to take hold in the coming quarters. 📆
Only time will tell… 🕰️