Summary of Key Points
The two leading domestic wafer foundry companies, SMIC and HuaHong Semiconductor (formerly known as HuaHong Company), have seen a significant surge in performance in the second quarter of 2026: both sales revenue and profits have increased substantially, with capacity utilization rates approaching or exceeding full capacity. They have also provided positive forecasts for the third quarter. The driving factors behind this are the ongoing expansion of AI demand (spreading from storage to logic and analog chips) and the tight supply of mature manufacturing processes (especially for 8-inch wafers), leading to a gradual improvement in industry sentiment. The market has responded positively, with rising stock prices.
I. Outstanding Performance: Double-digit Growth in Revenue and Profit, Setting New Records
The financial results for both companies exceeded expectations:
- SMIC: For the first time, its quarterly sales revenue exceeded $3 billion (a year-on-year increase of 36.1% and a month-on-month increase of 20%). Net profit more than tripled compared to the same period last year, reaching $479 million (a year-on-year increase of 261.7%), with a gross margin of 25.3% (up 4.9 percentage points).
- HuaHong Semiconductor: Sales revenue reached a record high of $717.5 million (a year-on-year increase of 26.8%), and net profit nearly quadrupled, with the parent company's profit rising to $38.6 million (a year-on-year increase of 385.9%). The gross margin was 16.5% (up 5.6 percentage points).
In terms of business structure, consumer electronics is the largest market for both companies (44.2% for SMIC and 6% for HuaHong), and industrial/automotive demand is also on the rise (16.5% for SMIC and [missing percentage] for HuaHong). HuaHong's memory products, particularly embedded memories (used in MCU smart card chips), have performed exceptionally well, with revenue increasing by 41.8%, and standalone flash memory by 149%, becoming significant growth drivers.
II. Growth Drivers: Expanding AI Demand and Shortage of Mature Manufacturing Processes
There are two main reasons for this impressive performance:
1. Spreading AI Demand: AI not only requires high-end chips but also drives demand for a large number of mature manufacturing processes. For example, AI servers need supporting storage chips, while smart devices require MCUs (microcontroller units) and smart card chips. HuaHong's President, Bai Peng, mentioned that AI demand is expanding from storage to logic and analog chips, and SMIC believes this trend will continue in the second half of the year.
2. Shortage of Mature Manufacturing Processes: There is a global imbalance between supply and demand for mature manufacturing processes, especially for 8-inch wafers. According to TrendForce Research, the utilization rate of 8-inch wafer capacity among the top ten foundries has increased, and prices have risen across the board since the first quarter, with an average increase of 5-15%. As leading domestic providers of mature processes, both companies are directly benefiting from these price increases and full orders.
III. Full Capacity: Production Lines Are Operating at Maximum Effort, with Further Expansion Plans
The capacity utilization rates for both companies are exceptionally high:
- HuaHong Semiconductor's capacity utilization rate reached 102%, indicating that production lines are not only operating at full capacity but also producing beyond normal hours or through process optimization.
- SMIC's rate was 93.7%, close to full production.
To meet the growing demand, SMIC has increased its capital expenditure by $1.836 billion (a month-on-month increase of 17.5%) and increased its monthly production capacity from 1.078 million 8-inch equivalent wafers in the first quarter to 1.0965 million.
IV. A Promising Future: Optimistic Forecasts for the Third Quarter
Both companies are optimistic about the third quarter:
- SMIC expects revenue to increase by 2%-4% month-on-month, with a gross margin of 26%-28% (higher than in the second quarter).
- HuaHong Semiconductor expects revenue of $770 million-$780 million (a month-on-month increase of 7%-8%) and a gross margin of 16%-18%.
Industry analysts are also bullish, with SEMI China reporting a 7.4% year-on-year increase in global silicon wafer shipments. SUMCO executive Shinji Hayashi mentioned that AI demand has expanded to power devices and optoelectronics, and industrial/automotive demand is recovering, leading to continued growth in silicon wafer demand.
V. Market Recognition: Rising Stock Prices Reflect Investor Confidence
After the financial results were released, both companies' stock prices increased:
- SMIC (688981.SH) closed at 129.44 yuan per share, up 1.16%.
- HuaHong Semiconductor (688347.SH) closed at 276.99 yuan per share, up 1.39%.
This indicates that investors are confident in the companies' performance and future prospects, given the dual benefits of AI and mature manufacturing processes.
In summary: The two domestic wafer foundry leaders are riding on the wave of AI and mature manufacturing processes, with strong performance, full capacity, and promising prospects. It seems that the industry is truly entering a period of growth.
(End of translation)