Semiconductor Manufacturing International Corporation (SMIC) just posted its Q3 earnings report, and its profit declined 80% compared to last year (via CNBC). As China's largest foundry, SMIC represents the cutting-edge of the country's semiconductor fabbing industry, and it's clear that things aren't going super well.
Global factors are partly to blame for SMIC's poor showing in Q3. The global economy isn't in great health due to high inflation, which has resulted in lower consumer spending. In China, inflation hasn't been a problem, but consumers are decreasing spending as they focus on paying off debt. SMIC also has to contend with U.S. sanctions over Chinese silicon, and the company
Still, SMIC's decline in profit is particularly notable compared to its rival TSMC. While TSMC also experienced a decline in profit, it was a mere 12% as opposed to 80%. Regarding technology, SMIC is significantly behind TSMC, as the former is only just getting to 7nm while TSMC is working on its upcoming 2nm node. A sharp decline in profitability will likely impede SMIC's attempt to catch up.
SMIC hasn't ever been a cutting-edge foundry, launching its 28nm node in 2015, the same year TSMC reached 16nm. When SMIC launched its 14nm process in 2019, TSMC had been offering 7nm for about a year. Today, although SMIC is apparently going to be able to progress to 7nm and 5nm, by the time that happens it's likely that American-friendly foundries like TSMC, Intel, and Samsung will have sub-2nm processes.
It's also bad news for China's ambitions to build up a native semiconductor industry. If China wants to be able to produce chips as fast as those designed by companies like AMD and Nvidia, and fabbed at TSMC or Samsung, then cutting-edge nodes are going to be needed at foundries like SMIC.
