Staff Reporter |
Editor | Wen Shuqi
SMIC just dropped a blockbuster quarterly report, blowing past the $3 billion revenue mark for the first time ever.
During the earnings call on August 14, Co-CEO Zhao Haijun and VP & CFO Wu Junfeng made their stance crystal clear: the AI wave is triggering a tidal wave of demand, and the twin trends of tight capacity and rising prices are sticking around for the rest of the year.
According to the numbers, SMIC’s Q2 2026 sales hit $3.006 billion, up 20% quarter-over-quarter and a whopping 36.1% year-over-year. Gross margin landed at 25.3%, a solid 5.2 percentage point jump from the previous quarter. Profit attributable to shareholders came in at $479 million—a jaw-dropping 142.7% surge quarter-over-quarter. Looking ahead, the company guided for Q3 revenue growth of 2% to 4% sequentially, with gross margin in the 26% to 28% range.
Zhao broke down that record $3 billion quarter into two simple drivers: volume and price. In Q2, SMIC shipped 2.87 million wafers (in 8-inch equivalent standard logic), up 14.4% from Q1, while the average selling price ticked up 5.7%. The volume boost comes from AI’s insatiable appetite for supporting chips and customers pulling orders forward. The price lift reflects adjustments negotiated with certain clients back in early 2024 that kicked in starting Q2.
And here’s the kicker—that volume growth wasn’t all about new capacity. SMIC added just 8,000 wafers per month of 12-inch capacity in Q2, with utilization hitting 93.7%, only 0.6 percentage points higher than last quarter. In other words, shipments are racing way ahead of capacity expansion.
Zhao explained the strategy: the company prioritized back-end processes closer to the shipping stage for clients while slightly slowing down new wafer starts. That way, even without adding capacity, more of the existing fab muscle goes into finishing and shipping wafers. Meanwhile, capacity invested over the past few years—after that grueling 16-month validation marathon—is finally hitting its stride just as demand explodes, translating directly into real net shipment growth.
Look at the business mix, and one theme dominates this recovery: AI’s spillover effect. Zhao gave a concrete example: a single rack housing 72 GPUs needs over 16,000 power management chips alone. That massive appetite for 48-volt high-voltage, high-current BCD process technology is handing SMIC a wave of new orders in 8-inch analog circuits. As a result, revenue from AI-support chips, computers & tablets, and industrial & automotive segments all grew around 40% quarter-over-quarter in absolute terms.
Management hinted they might start disclosing AI-support chip revenue as a standalone line item down the road.
This crowding-out effect is also creating golden opportunities. Zhao pointed out that as overseas chipmakers pivot heavily into AI-support chips, they’re ditching their traditional products. A classic case: memory makers have stopped producing low-density specialty memory chips entirely, and that demand is now flooding into SMIC’s fabs—with prices climbing all the way up.
On the flip side, there’s a different kind of comeback in weak consumer segments like smartphones and display drivers. Clients are getting nervous about capacity shortages and rising costs next year, so they’re stockpiling inventory now. That pre-buying frenzy is cushioning the blow from weak end-market demand, pushing smartphone and consumer electronics revenue up 8% and 16% respectively in absolute terms.
On pricing, Zhao clarified that SMIC never issued any blanket price hike notice. Instead, starting February and March, the company negotiated with clients one-on-one based on market trends—and only for products that were genuinely in short supply. Notably, smartphone and display driver chips haven’t seen any price increases at all. Why? Because those customers are struggling right now too, and SMIC gets that.
For the second half of the year, he gave a definitive call: don’t hold your breath for any price drops in 2026.
The geographic mix is shifting too. In Q2, revenue from China, the Americas, and Europe-Asia accounted for 90.2%, 8.2%, and 1.6% of SMIC’s total respectively. China grew 22%—the fastest clip—and its share has been climbing steadily from 84.1% a year ago, while the Americas’ slice shrank from 12.9%. Zhao attributes this to roaring AI-support chip demand, overseas orders flowing back, and stronger localized manufacturing.
SMIC isn’t the only one riding this wave. Hua Hong Semiconductor also reported record Q2 revenue of $717.5 million, up 26.8% year-over-year, with gross margin at 16.5% and capacity utilization hitting a scorching 102.8%. Chairman Bai Peng noted that AI-driven demand is hitting memory chips first, and is now cascading into logic and analog chips.
This order repatriation has deeper industry roots. TrendForce’s May research shows that TSMC and Samsung have been cutting 8-inch capacity since the second half of 2025. By 2026, average 8-inch utilization among the world’s top ten foundries has bounced back to nearly 90%. At the same time, fabs are shifting capacity from DDIC and CIS to PMIC, BCD, and power discrete devices. Clients, desperate for stable pricing and supply, are moving their wafer orders to mainland Chinese foundries. By late June, TrendForce further predicted the price hike momentum would extend well into 2027.
Beyond the headline numbers, one word kept echoing through management’s earnings call: pressure.
First up, depreciation. Wu Junfeng revealed that depreciation for the first half was around $2.3 billion, with full-year expectations of roughly 30% growth year-over-year, approaching $5 billion in total. That number will keep climbing in 2027, with the peak timing depending on the pace of capacity expansion. Zhao added that depreciation eats about 4 to 5 percentage points off gross margin, with Q2 alone seeing a 4-percentage-point hit. Strip that out, and Q2 gross margin was actually 9 to 10 percentage points higher than Q1.
Second, capacity utilization is scraping the ceiling. Q3 is expected to hover around 95%, and the company needs to hold back about 5% for R&D. Translation: the volume lever is basically maxed out.
On top of that, Zhao was blunt that rising supply chain costs are already squeezing the manufacturing stage. One big reason clients are stockpiling now? They’re bracing for across-the-board price hikes next year in supply chain, packaging & testing, and packaging materials.
Even with a full order book, management is keeping short-term expectations deliberately modest. The Q3 guidance of 2% to 4% growth looks puny next to Q2’s 20% surge, and Zhao attributes this to intentional smoothing. Q2 already front-loaded capacity near the shipping end. If they keep pushing that lever, the front-end of the line will lag behind and wreck the fab’s steady rhythm.
Zhao’s read on the AI boom: it’s pulling up the two extremes—cutting-edge standard logic tied to advanced computing on one end, and highly mature analog circuits on the other. The stuff stuck in the middle, like 40nm and 28nm, has no products that plug directly into compute or data center infrastructure. Those nodes will just have to wait for the two ends to fill up and let the spillover effect do its thing.
