In a nutshell: SMIC announced that the strict lockdowns in China, coupled with the ongoing war in Ukraine, have caused demand for smartphones and PCs to drop considerably. This won’t help with the global chip crisis either, as the company’s factories in Shanghai are forced to operate at a reduced capacity.
SMIC CEO Zhao Haijun told analysts that demand for smartphones, PCs, and home appliances has decreased dramatically.
SMIC is currently the biggest contract chipmaker in China and the 5th largest globally, with a 5.3 percent market share last year.
Zhao claims that the war in Ukraine is partially to blame for the sales slump, as many companies have stopped selling their products in Russia, while Ukrainian citizens have cut down on non-essential spending.
However, the strict lockdowns in China are impacting SMIC’s customers the most, with the CEO claiming that Chinese smartphone vendors would reduce shipments by 200 million units this year, forcing them to cancel chip orders.
This means that smartphone chips are going to take up only 29 percent of the foundry’s total manufacturing capacity, as opposed to 50 percent last year.
The lockdowns are also affecting SMIC’s production as the company has several factories in Shanghai, which it only managed to keep open thanks to a closed-loop system (reports say over 60 percent of workers are sleeping and living in the factories).
Even though the company is taking measures to reduce the impact of these lockdowns and the increased prices of raw materials, it still expects a five percent production loss in the second quarter.
It’s worth noting that SMIC saw outstanding financial results in the first quarter, especially considering the US sanctions it has been facing. It posted $1.84 billion in revenue, a 67 percent increase year-on-year, and a net profit of $447 million, up 182 percent YoY.