SMIC Q2 revenue tops $3 billion as AI demand lifts margins

SMIC reported second-quarter revenue of $3.006 billion, up 36.1% from a year earlier and beating the $2.9 billion consensus compiled by Bloomberg.

Goldman Sachs said the results beat both its own and market expectations, and exceeded management guidance for 14% to 16% sequential growth. The broker kept its Buy rating and a HKD 135 target price on the H shares.

Net profit attributable to shareholders rose 261.7% year over year to $479 million, with earnings per share of $0.06. Gross margin widened to 25.3% from 20.1% in the first quarter. Capacity utilization reached 93.7%, near full, as wafer shipments climbed 20.1% year over year to 2.869 million 8-inch equivalents.

Shares opened 4.7% higher at HKD 70.75 on Thursday. The company guided third-quarter revenue up 2% to 4% sequentially with gross margin of 26% to 28%, extending an upcycle driven by AI demand spilling into mature process nodes.

Revenue growth was driven by higher wafer shipments, higher average selling prices, and an improved product mix. The share of 12-inch wafers rose to 78.2% of output from 76.4% in the first quarter, lifting average selling prices. Monthly capacity expanded to 1.097 million wafers, while capital expenditure reached $1.836 billion, up 17.5% sequentially.

Industrial and automotive chips accounted for 16.5% of wafer revenue, up from 14.0% in the first quarter and 10.6% a year earlier, reflecting AI demand spreading from advanced nodes to mature process technologies. Consumer electronics remained the largest category at 44.2%, while smartphones fell to 16.9% from 25.2% a year earlier.

Profitability was also supported by non-operating gains. Other income, net, reached $276 million, up from $7.5 million in the first quarter, including $194 million from associates and joint ventures and $63.97 million in other net gains. The company said some associates are investment funds whose portfolios saw large fair-value swings during the quarter.

Operating expenses fell 24.3% year over year to $226 million, while research and development spending rose 14.6% to $209 million. Operating cash flow reached $2.522 billion, up from $685 million in the first quarter. Net debt stood at $162 million, with a net debt-to-equity ratio of 0.4%.

The results echo a strong quarter for China's foundry sector, where smaller rival Hua Hong Grace Semiconductor posted record revenue of $717.5 million, up 26.8% year over year, with net profit up 385.9% to $38.6 million.

The guidance suggests management expects AI-driven demand to keep flowing into mature process nodes through the second half. Investors will watch whether gross margin holds above 26% in the third quarter, which would mark a third consecutive quarter of improvement.

This article is for informational purposes only and does not constitute investment advice.