Summary of Key Highlights
SMIC’s performance in the second quarter of 2026 was spectacular: revenue exceeded $3 billion for the first time (a year-on-year increase of 36%), and net profit soared by 261%. All three key indicators—wafer shipments, average selling price, and capacity utilization rate—increased. This success was not achieved through its pursuit of advanced manufacturing processes (such as 3nm/5nm), but rather through mature processes (like 55nm/65nm) that were once considered “outdated.” The underlying reason is the surge in demand for supporting chips driven by the AI revolution, coupled with foreign manufacturers reducing their production capacity in these areas and shifting orders to SMIC. Additionally, the company has established a positive cycle of “full production → price increase → cash flow → expansion,” transitioning from relying on subsidies to generating profits through the market.
1. Outstanding Performance, but Not Thanks to Advanced Chips
Many believed that SMIC’s turnaround would depend on its ability to produce the most advanced chips. However, this growth was actually driven by its mature manufacturing processes. The financial report shows that second-quarter wafer shipments amounted to approximately 2.9 million 8-inch wafers, with a capacity utilization rate of 93.7% (almost at full capacity), and the average selling price increased by 5.7%. These chips are used in applications such as automotive, industrial control, and AI servers, requiring mature technologies like 55nm, 65nm, or even 90nm, which SMIC can produce reliably.
2. SMIC Profits from the “Supporting Chips” in the AI Era
With the rise of AI, attention has focused on NVIDIA’s GPUs and TSMC’s advanced packaging technologies. However, it’s important to note that an AI server requires more than just a GPU; it also needs numerous supporting chips. For example, power management and interface control chips are essential, and these can be manufactured using mature processes. The market for such chips in global data centers grew by 67% in 2026 compared to 2025. SMIC has benefited from this trend, as each additional AI server requires more of its products.
3. Foreign Manufacturers Shifting Orders to SMIC
Giant companies like TSMC and Samsung are investing heavily in advanced processes (3nm/5nm), leading to a reduction in capacity for mature processes (a 2.4% decrease in global 8-inch wafer production in 2026). Despite this, demand for mature chips remains strong in sectors such as automotive and industrial control. As foreign manufacturers struggle to find sufficient capacity, they are turning to SMIC. The cost of switching chip manufacturing suppliers is high, so once they do, the orders tend to be long-term.
4. A Positive Cycle Has Been Established
Previously, SMIC’s biggest challenge was high depreciation costs due to equipment and facility investments. Now, with a capacity utilization rate of 93.7%, depreciation is being spread over fewer wafers, reducing its financial burden. With a surplus of orders, SMIC is able to negotiate price increases, which has led to improved profits and cash flow (operating cash flow of $2.5 billion in the second quarter, with $8.2 billion in cash reserves). This has enabled the company to plan for expansion (an additional 40,000 12-inch wafer production units by the end of the year).
5. Expansion as an Opportunity, but Also a Risk
SMIC is expanding because it has sufficient cash and financial buffers (supplier payment terms and customer prepayments). However, expansion carries risks: it takes 1-2 years for new facilities to become operational, and market demand may change by the time they are ready. If expansion is too rapid, declining demand could impact profits; if too slow, SMIC might miss the opportunity presented by the AI boom. The difference this time is that SMIC’s growth is based on market demand rather than subsidies.
In Conclusion
While SMIC hasn’t produced the most advanced chips, it has transformed the production of supporting components for AI systems into a profitable business. True progress in domestic manufacturing means having fully operational factories, increasing product prices, and generating real profits to fund further expansion. This is the tangible evidence of advancement.