SMIC, China's largest foundry, is actively weighing additional production equipment for its factories as demand for artificial intelligence chips exceeds expectations. The company also signaled it could raise wafer prices further.
At its second-quarter earnings release on the 15th, SMIC executives said orders had risen sharply from what they had projected earlier this year, as the boom in AI infrastructure spending created a supply crunch for AI chips, according to the Hong Kong-based South China Morning Post.
"The volume of wafers going into our production lines is far exceeding our earlier forecasts," Zhao Haijun, SMIC's co-chief executive, said in a conference call after the earnings release. He added that the company was "adjusting its expansion plans" and could install additional equipment at existing factories with spare space.
Demand was particularly strong for the auxiliary chips used in AI servers and data centers. Orders for BCD (bipolar-CMOS-DMOS) power-management chips, which integrate components with different device characteristics onto a single silicon chip, are expected to continue through the end of next year. The BCD process supports efficient power management and is essential to data centers, which require enormous amounts of electricity.
Against this backdrop, SMIC's production capacity has reached its limit. The company said its factory utilization rate in the second quarter was 93.7%, up from 93.1% in the previous quarter. Wafer shipments rose 14.4% from the prior quarter. Monthly production capacity increased to a level equivalent to about 1.1 million wafers, on an 8-inch wafer basis.
Zhao said the company plans to cap utilization at around 95% going forward, reserving about 5% of capacity for research and development.
The possibility of price increases was also raised. SMIC had earlier this year raised prices on some products in short supply. Smartphone chips and display driver ICs (DDIs), however, were excluded from the increases given weak market conditions. But with the supply shortage persisting, the company indicated it could raise prices further on third-quarter output.
"We believe we have reached the industry's top standards in the relevant areas," Zhao said. "There is still a large gap between the wafer prices of the industry leaders and SMIC's prices, so we need to negotiate with customers for more reasonable pricing." He stressed that if demand for smartphones and consumer electronics recovers, "the upward pressure on prices could grow even stronger."
SMIC's results are also improving. Second-quarter revenue reached $3.01 billion, up 20% from the previous quarter and 36.1% from a year earlier. The company projected third-quarter revenue would rise a further 2% to 4% from the prior quarter. By region, China accounted for the largest share at about 90%, while the United States and Eurasia accounted for 8% and 2%, respectively. Revenue grew in each region, but growth in China was the fastest.
Zhao cited three factors driving China's revenue growth: expanding demand for AI-related chips, a recovery in overseas orders and the ongoing localization of supply chains.
