In a nutshell: SMIC announced that strict restrictions in China, combined with the ongoing war in Ukraine, have led to a significant drop in demand for smartphones and PCs. It won’t help with the global chip crisis either, as the company’s factories in Shanghai are forced to run at reduced capacity.
SMIC CEO Zhao Haijun told analysts that demand for smartphones, PCs and home appliances has dropped sharply.
At present, SMIC is the largest contract chip manufacturer in China and the 5th largest in the world with a market share of 5.3% last year.
Zhao argues that the war in Ukraine is partly to blame for the drop in sales, as many companies have stopped selling their products in Russia and Ukrainian citizens have reduced non-essential spending.
However, strict restrictions in China are affecting SMIC customers the most, with the CEO saying Chinese smartphone suppliers will cut shipments by 200 million units this year, forcing them to cancel chip orders.
This means smartphone chips will only account for 29% of the foundry’s total production capacity, up from 50% last year.
The lockdowns are also impacting SMIC’s production, as the company has several factories in Shanghai that have only been kept open thanks to the closed system (reports say more than 60 percent of workers sleep and live in the factories).
While the company is taking steps to mitigate the impact of these lockdowns and higher commodity prices, it still expects a 5 percent production loss in the second quarter.
It is worth noting that SMIC delivered outstanding financial results in the first quarter, especially given the US sanctions it faced. The company’s revenue was $1.84 billion, up 67 percent from last year, and net income was $447 million, up 182 percent from the previous year.