According to Zhao Haijun, CEO of China’s largest chipmaker Semiconductor Manufacturing International Corporation (SMIC), demand for the chips needed to make smartphones and PCs has dropped “like a stone”, but mainly in China.
Speaking on the company’s first-quarter 2022 earnings call last Friday, Zhao said smartphone makers currently have five months of stock, so they’re working on that stock before ordering a new one. new product. Sales of PCs, consumer electronics and home appliances are also struggling, the CEO said, leaving some markets oversupplied with products for now. But unmet demand remains for silicon used for Wi-Fi 6, power conversion, green energy products, and analog-to-digital conversion.
Zhao partly blamed the drop in sales on the war in Ukraine, which made the Russian market off-limits to many suppliers and effectively pulled Ukraine’s 44 million citizens off the global market for non-essential purchases.
But the CEO added that the fall in demand is worse in China than elsewhere. He explained that the US and European markets have seen a “very rapid recovery”, but Chinese buyers have closed their wallets – a response to strict and widespread COVID-19 lockdowns across the country. Between war and unrest in China, Zhao said smartphone sales will drop by 200 million this year.
Lockdowns in China also impacted the minimum wage, as the company’s foundries were unable to work at maximum production capacity. Zhao said five or six days were lost in the first quarter, but the company plans to make up for lost time and deliver outstanding orders by the end of the second quarter.
Zhao expressed optimism about SMIC’s prospects, saying its diverse international customer base means it is in a better position than its Chinese chipmaking rivals which are solely focused on the domestic market.
SMIC’s first quarter results were strong – revenue of $1.84 billion was up 67% year-on-year, with profit of $447 million, a jump of $288 million year-on-year, although a decrease of $87 million from the fourth quarter of 2021.
Gross margin was 40.7%, up 5.7% thanks largely to a change in product lineup – which brings us back to that smartphone crisis. Zhao said about 40 percent of SMIC’s business is products for use in smartphones. This figure is now closer to 30%, which somewhat cushions this sharp drop in demand. ®