Chinese foundry SMIC is bruised but not broken by U.S. sanctions — revenue still much higher than in 2021 and 5nm node on track

News
By Matthew Connatser
published

SMIC might not be doing so bad after all.

SMIC
(Image credit: SMIC)

Although U.S. sanctions caused SMIC's revenue to drop in 2023, the China-based foundry is largely unaffected and continues developing its 5nm node, according to DigiTimes. SMIC is actually expanding its production capacity for 7nm and 5nm nodes that will power upcoming Huawei processors. When those nodes reach high-volume production in the coming years, SMIC's revenue is expected to grow again.

SMIC didn't have a great 2023, and it closed out the year with $6.3 billion in revenue, down from $7.2 billion in 2022, as well as just $900 million in net profit, when 2022 saw double that. Gross margin in Q4 was also down to 16.4%, half of what it was in Q4 of 2022. Expectations for SMIC's Q4 earnings were even lower, which speaks volumes about the reversing fortunes the Chinese foundry is experiencing.

On a larger scale of time, though, things don't look so bad for SMIC, as DigiTimes points out. In Q4 of 2021, SMIC made $1.1 billion, versus the $1.68 billion made in Q4 of 2023. Even though 2023 was disappointing compared to 2022, SMIC's financial gains since 2021 are still largely intact. Plus, in Q4 of 2023, SMIC increased its proportion from newer 12-inch wafers to 74.2% from 64.4% in Q4 of 2022, and its monthly 8-inch wafer capacity increased from 714,000 to 805,500. The significant capacity expansion is why utilization was low at less than 80%.

In addition to SMIC's decent financial health, the foundry is making good progress on its advanced 7nm and 5nm nodes. SMIC's 7nm is reportedly the node of choice for Huawei's mobile processors and AI-focused Ascend 910B GPU. Although yields look to be less than 50%, SMIC can rely on subsidies from the Chinese government to shore up its budget, and it's expected that yields will improve over time, improving productivity and reducing the need for subsidies.

SMIC is also allegedly making unabated progress on its 5nm node, which Huawei will use for its Kirin 9100 mobile chip and Ascend 920 GPU. SMIC's 5nm chips might even be ready this year, narrowing the gap between China's semiconductor industry and Western fabs even further. 3nm is also on the horizon for SMIC, but it's almost certainly at least a year away, if not more.

Matthew Connatser
Matthew Connatser

Matthew Connatser is a freelancing writer for Tom's Hardware US. He writes articles about CPUs, GPUs, SSDs, and computers in general.

14 Comments Comment from the forums
  • Mattzun
    If Tom's article on the cost per transistor being flat since the 28nm node is true and most consumer products had acceptable performance at 10nm or 14nm, I'm not seeing how US sanctions would affect profitability at SMIC. China still has a huge market for producing consumer products that work fine on proven tech.

    I imagine the only reason that SMIC is even working on smaller nodes is for niche products like AI accelerators where the cost per transistor is largely irrelevant. Every major country seems to be subsidizing local production of advanced nodes for such products, not just China.
    Reply
  • EyadSoftwareEngineer
    Producing 5nm nods means that US restrictions obvisouly has failed
    Reply
  • Notton
    EyadSoftwareEngineer said:
    Producing 5nm nods means that US restrictions obvisouly has failed
    That's a maybe.
    It takes time to feel the effects of sanctions and restrictions.
    Due to its lengthy nature, it can also be counteracted.

    It's similar to how humans can be wounded, but the severity and outcome depends on how quickly the injury is treated.
    Reply
  • JTWrenn
    That's what happens when companies are directly tied to a countries governments. Unless China goes down their fab company isn't going to go down. It's all a house of cards though, and I wonder if we will ever really know what the financials in China look like. I doubt it.

    The thing is trusting any of these numbers given China's penchant for not following the rules is likely a mistake. It might be true, it might be false, so it doesn't really tell us anything.
    Reply
  • ThomasKinsley
    These articles are swinging wildly back and forth between positive and negative outlooks on SMIC. SMIC is backed by the government, which means their financial situation is secured for now. Sanctions is really a matter of how much the Chinese government must spend on their tech sector to keep it advancing. If it were not for sanctions, that money could've been spent elsewhere, so the tech sector is not the one to watch for success or failure. It's the other sectors.
    Reply
  • Geef
    Mattzun said:
    I'm not seeing how US sanctions would affect profitability at SMIC. China still has a huge market for producing consumer products that work fine on proven tech.

    My exact thoughts. There are 2 billion people in China and I'm sure at least 330 million of them want some kind of tech that can be made by SMIC.
    Reply
  • ivan_vy
    ThomasKinsley said:
    These articles are swinging wildly back and forth between positive and negative outlooks on SMIC. SMIC is backed by the government, which means their financial situation is secured for now. Sanctions is really a matter of how much the Chinese government must spend on their tech sector to keep it advancing. If it were not for sanctions, that money could've been spent elsewhere, so the tech sector is not the one to watch for success or failure. It's the other sectors.
    well, USA is doing the same with CHIPS Act,also Japan and Europe
    https://eias.org/publications/japan-and-the-european-chips-act/tech companies are dragged in the proxy war for tech supremacy between countries, meanwhile we consumers pay more and more with every iteration.
    Reply
  • ThomasKinsley
    ivan_vy said:
    well, USA is doing the same with CHIPS Act,also Japan and Europe
    https://eias.org/publications/japan-and-the-european-chips-act/tech companies are dragged in the proxy war for tech supremacy between countries, meanwhile we consumers pay more and more with every iteration.
    I'm hoping the fierce competition and subsidies result in extremely low chip prices for mainstream users. We've reached a plateau where even a modest i3 can run most office applications. The next generation of ARM and RISC-V promises much more.
    Reply
  • Pierce2623
    EyadSoftwareEngineer said:
    Producing 5nm nods means that US restrictions obvisouly has failed
    I guess if their “5nm” didn’t cost significantly more than TSMC 3nm while being significantly worse than TSMC 7nm, I’d probably agree. Their “7nm” node had clocks and efficiency worse than TSMC 10nm, and actually closer to 14nm.
    Reply
  • Pierce2623
    ThomasKinsley said:
    These articles are swinging wildly back and forth between positive and negative outlooks on SMIC. SMIC is backed by the government, which means their financial situation is secured for now. Sanctions is really a matter of how much the Chinese government must spend on their tech sector to keep it advancing. If it were not for sanctions, that money could've been spent elsewhere, so the tech sector is not the one to watch for success or failure. It's the other sectors.
    The bottom line is the performance and efficiency of these SMIC nodes do not correlate closely at all with nodes of the same “nm” from the three leading edge silicon fab companies in the world. The Kirin 9000s has core architectures that should be performing like a snapdragon8+gen1 but it has performance like sd865, but using nearly double the power to get there.
    Reply