TSMC Rival SMIC Reports Significant 80% Profit Drop In Q3 Earnings Amid Weak Global Demand

Semiconductor Manufacturing International Co. (SMIC), the largest chipmaker in China, has reported a severe 80% fall in its third-quarter profits.

What Happened: The profit decline is attributed to a global demand weakness affecting foundries. The net income for the quarter ending in September plummeted 80% year-on-year, overshadowing the 64% drop experienced in the second quarter of 2019, based on company data, reported CNBC.

SMIC posted a third-quarter revenue of $1.62 billion, marking a 15% decrease year-on-year. The net income for the same period was $93.98 million, significantly lower than the anticipated $165.1 million by analysts.

The Beijing-based powerhouse in the domestic semiconductor industry has been grappling with U.S. sanctions that limit China’s chipmaking technology and exports.

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In their earnings call, SMIC disclosed that the high product inventory issue has been somewhat resolved in the China market. However, inventory levels for American and European customers are still at historic highs.

A continuous downturn in demand for specific chips used in consumer products has harshly affected SMIC and its Asian competitors, TSMC TSM and Samsung (OTC SSNLF). Inflation hikes have led to consumers reducing device purchases, leaving smartphone and PC manufacturers to deal with surplus chip inventories.

SMIC also highlighted that after a three-year shortage, automotive chip inventories are now at a relatively high level, leading major customers to reduce their orders.

This decline is in contrast to data from the Semiconductor Industry Association that indicated a 1.9% month-on-month increase in global semiconductor sales for September, hinting at a potential chip recovery.

Despite these challenges, SMIC anticipates a revenue increase of 1% to 3% in the fourth quarter from the third quarter.

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