China’s SMIC says foreign clients shifting orders back to China

⦿ Executive Snapshot

• What: SMIC reports an increase in foreign orders as clients shift manufacturing back to China.
• Who: Semiconductor Manufacturing International Corp (SMIC), foreign clients, co-CEO Zhao Haijun.
• Why it matters: This trend highlights China's growing semiconductor manufacturing capacity amidst global AI demand and the challenges faced by foreign foundries.

⦿ Key Developments

• SMIC's co-CEO stated that many overseas customers are shifting orders to China due to limited capacity at foreign foundries.
• The company added 9,000 12-inch equivalent wafers of capacity in the first quarter, indicating aggressive capacity expansion.
• SMIC's utilization rate was 93% in the first quarter, slightly down from the previous quarter.

⦿ Strategic Context

• The global semiconductor industry is experiencing a shift, with many companies reallocating capacity to focus on AI-related products, impacting production of legacy foundry products.
• China's semiconductor industry is expected to capture a larger share of global legacy-node capacity, increasing from 32% in 2025 to 41% by 2027 according to industry forecasts.

⦿ Strategic Implications

• The immediate consequence is increased competition for semiconductor manufacturing as foreign clients turn to SMIC for production.
• Long-term, this trend could solidify China's position in the global semiconductor supply chain and influence pricing and availability of chips worldwide.

⦿ Risks & Constraints

• SMIC faces constraints in advancing to 7-nanometre manufacturing due to U.S. export controls, which could hinder its growth.
• The semiconductor market's volatility, particularly around AI demand, could lead to fluctuating orders and utilization rates.

⦿ Watchlist / Forward Signals

• Monitor the performance of SMIC's capacity expansion and its impact on revenue in upcoming quarters.
• Future developments in U.S.-China trade relations and semiconductor export controls will be critical indicators of SMIC's operational landscape.