China’s largest chipmaker SMIC posts an 80% profit drop in the third quarter

China’s largest chipmaker SMIC on Thursday, an 80% drop in third-quarter profits was reported as weakness in global demand hit foundries hard.

Net profit for the quarter ended September fell 80% from a year ago – bigger than the 64% decline in the second quarter of 2019, according to company figures.

Here are SMIC’s third-quarter results versus LSEG’s consensus estimates:

• Gain: $1.621 billion, versus $1.625 billion expected
• Net income: $93.98 million, versus $165.1 million expected

SMIC, or Semiconductor Manufacturing International Co., posted revenue of $1.62 billion in the third quarter of the year, down 15% year over year. Net profit for the period was $93.98 million, well below analyst expectations of $165.1 million.

SMIC is China’s largest foundry, producing semiconductor chips that other companies design. The company is seen as a key hope for Beijing’s ambitions to boost its domestic semiconductor industry and overtake rivals such as Taiwan’s TSMC and South Korea’s Samsung – even as the US continues to clamp down on Chinese chip technology and exports lay.

“In the Chinese market, the high product inventory problem that started in the third quarter of last year has been resolved and inventories have fallen to relatively healthy levels,” SMIC said in its earnings call Friday morning.

“But inventories from US and European customers will remain at historically high levels,” the company said.

A continued decline in demand for certain chips used in consumer products, such as memory, has severely impacted SMIC, as well as those of its Asian rivals TSMC and Samsung.

Consumers have cut back on consumer equipment purchases as inflation soared. As a result, smartphone and PC manufacturers struggled with excess chip inventories and memory chip prices fell.

SMIC, which also produces automotive chips, said inventories for such chips “are now at relatively high levels after a supply shortage for three years” and this has led to major customers “tightening their orders”.

“After more than a year of ups and downs in the market, customers this year have experienced the shift from aggressive expansion two years ago into defense,” SMIC said.

Data from the Semiconductor Industry Association shows that global semiconductor sales rose 1.9% in September from a month ago, showing signs of a chip recovery. Worldwide, September sales fell by 4.5% compared to a year ago.

“Global semiconductor sales rose for the seventh consecutive month-over-month period in September, reinforcing the positive momentum the chip market experienced midway through this year,” said John Neuffer, president and CEO of the Semiconductor Industry. Association.

“The long-term outlook for semiconductor demand remains strong, with chips enabling countless products the world depends on and giving rise to new, transformative technologies of the future,” Neuffer said.

SMIC is in the spotlight for a “breakthrough” 5G chip in Chinese tech giant Huawei’s new smartphone launched in September.

The US has imposed sanctions on Huawei and SMIC.

In 2019, Huawei was placed on the US trade blacklist, which bans US companies from doing business with the Chinese company. The US also restricted Huawei’s access to foreign-produced semiconductors made with American technologies, and banned its agencies from obtaining Huawei equipment or services.

SMIC was also placed on a U.S. trade blacklist in 2020, limiting its ability to acquire certain U.S. technology by requiring exporters to apply for a license to sell to the company.

To cap the US sanctions, a teardown of Huawei’s latest Mate 60 Pro smartphone revealed a Kirin 9000s chip, manufactured by SMIC, which appears to support 5G, despite US attempts to cut Huawei’s budget on key technologies, including 5G potato chips.

The advanced 7-nanometer processor in Huawei’s new phone indicated that China is seeing early progress in building self-reliance in science and technology, while outpacing U.S. efforts to contain Beijing’s rise. Analysts previously said SMIC’s technology is several generations behind TSMC and Samsung.

Last year, Washington imposed sweeping export restrictions to cut off China from advanced chip technology and equipment. These limitations have cut SMIC off from the key chipmaking tools to manufacture the most advanced semiconductors.

SMIC said it expects fourth-quarter sales to increase 1% to 3% compared to the third quarter.