The Chinese chipmaker’s recent earnings call said that prices for ICS used in displays and flash memory chips in smartphones have dropped by 30% but that it would be continuing to invest in capital expenditures. However, most of spending will be on mature technologies and increasing capacity for older generations and infrastructure for new plants.
The US government’s export controls are probably taking a bite out of SMIC, as well as the usual downturn in demand. The company has had to delay some of its production plans because of delays in receiving equipment but with a drop on production utilization from 92.1% to 79.5% in the fourth quarter of 2022, there doesn’t seem to be enough demand anyhow. Furthermore, the company foresees another possible 12% drop the first quarter of 2023 compared the last.
This continues a trend of worse than expected drops in demand, inventories that need to be stabilized, and political pressures that are biting into profits and sales for Chinese manufacturers. But, even with all that, companies like SMIC can consolidate their market position in mature markets, drive prices down and competitors out, and wait out the sanctions because there isn’t enough demand to warrant a rush to procure new capacity.
