China's SMIC says foreign clients shifting orders back to China

• SMIC's co-CEO says many overseas customers are shifting orders to China as foreign foundries redirect capacity to AI-related products, reducing availability for legacy foundry products
• The company expects depreciation expenses to rise about 30% year-over-year as it added 9,000 12-inch equivalent wafers of capacity in Q1, though utilization rate was 93%
• SMIC's expansion into advanced 7-nanometre manufacturing faces constraints from U.S. export controls, but executives see capacity squeeze for non-AI products as a long-term trend

Summary: China's SMIC Reports Increased Foreign Orders Amid AI-Driven Capacity Constraints

Key Developments:

Semiconductor Manufacturing International Corporation (SMIC), China's leading contract chipmaker, reported increasing orders from overseas clients as the global AI boom strains production capacity at foreign foundries. Co-CEO Zhao Haijun announced that international customers are redirecting orders to China due to limited available capacity elsewhere.

Critical Figures:

• Q1 utilization rate: 93% (slightly down from Q4)
• Depreciation expenses expected to rise ~30% year-over-year
• Q1 depreciation/amortization up 26% YoY
• Added 9,000 12-inch equivalent wafers of capacity in Q1
• Shipped 2.5 million 8-inch equivalent wafers (unchanged from Q4)
• Revenue breakdown: China 89%, U.S. 9%

Market Context:

The capacity shift stems from semiconductor companies redirecting factory resources toward AI-related products, memory, and high-bandwidth applications, reducing availability for legacy foundry products. SMIC is aggressively expanding capacity to capture demand from Chinese chip designers, though its advanced 7-nanometre manufacturing faces U.S. export control constraints.

Outlook:

Zhao indicated this represents a long-term trend, with growing AI chip and edge application demand expected to further squeeze capacity for non-AI products. Q1 utilization appeared lower due to smartphone makers cutting orders over memory chip shortage concerns and new fab operations increasing total capacity.

Market Implications:

SMIC's positioning as a beneficiary of capacity constraints at global foundries could strengthen its competitive position, particularly for non-AI legacy products, despite ongoing U.S. technology restrictions limiting its advanced chipmaking capabilities.