Uncertainty over tariffs sending shares of leading Chinese chipmakers tumbling, despite steady revenue growth
Caught in a Tech Tangle: The Looming Uncertainties for SMIC and Hua Hong
Semiconductor Manufacturing International Corporation (SMIC), the big daddy of chipmakers in the country, is bracing itself for a 4-6% dip in Q2 revenue, courtesy of fabrication production upheavals, as co-CEO Zhao Haijun piped up during their earnings call on Friday.
In the company's earnings report on Thursday, they acknowledged the latter half of the year would offer a rollercoaster of opportunities and challenges. They're hellbent on enhancing their adaptability and ensuring risk resilience to steer through tumultuous waters.
SMIC's smaller rival, Hua Hong, echoed similar concerns, foreseeing a rocky landscape ahead, filled with increased uncertainties related to customer demand, procurement costs, and the intricate supply chain landscape, as mentioned in their Thursday earnings report.
Even so, Hua Hong is expecting a sequential revenue boom in Q2, hovering between US$550 million and US$570 million.
Stock prices of both SMIC and Hua Hong's Hong Kong-listed shares took a dive on Friday, dipping 4.8% and 7.9% respectively.
But, what's brewing under the surface?
The present semiconductor industry landscape is brimming with doubt, especially for entities like SMIC and Hua Hong. Customer requirements are shifting quickly due to lightning-fast technological changes, making forecasting a Herculean task for manufacturers. Moreover, the burgeoning demand for specialized chips like those used in AI applications is swelling at a breakneck pace, but the swift evolution of AI and HPC markets means this demand can vanish just as quickly.
Procurement costs are also on the rise. The ever-growing complexity of integrated circuit designs necessitates more advanced manufacturing tools, which drives up costs for crucial equipment and materials. And the global supply-demand imbalance for these critical components continues to fuel cost volatility.
The industry is experiencing a tight supply-demand balance too, making the landscape highly competitive. Moreover, it's not just technological factors, as geopolitical pursuits could create obstacles in obtaining advanced manufacturing equipment and materials for Chinese manufacturers like SMIC and Hua Hong.
These uncertainties require semiconductor manufacturers to stay agile, nimble in their production planning, wise in their procurement strategies, and adept at managing risks to conquer this evolving tech jungle[1][5].
- The environment in the semiconductor industry, particularly for companies like SMIC and Hua Hong, is being challenged by rapid technological changes, making it difficult to forecast customer requirements and leading to increased uncertainties.
- As a result of these uncertainties, companies in the sector need to prioritize adaptability and risk resilience, just as SMIC has indicated in their recent earnings call.
- Another challenge is the rising procurement costs due to the intricacy of integrated circuit designs, the global supply-demand imbalance for critical components, and the ever-evolving technology landscape, such as AI and HPC markets.
- Additionally, geopolitical factors could create barriers in obtaining advanced manufacturing equipment and materials, particularly for Chinese manufacturers.
- To thrive in this complex and competitive landscape, semiconductor manufacturers must be agile, strategic in their production planning, careful in their procurement decisions, and skilled at managing risks.
