China’s biggest chipmaker warns geopolitics is stoking global glut – Financial Times

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China’s largest chipmaker is boosting spending on plants and equipment this year while warning that geopolitical tensions and supply chain adjustments are stoking a global glut in semiconductors.

Semiconductor Manufacturing International Corporation on Friday raised its capital expenditure budget for 2023 by 18 per cent to $7.5bn, citing the need for production expansion and new plants.

SMIC said it had authorised equipment providers to ship in advance in order to secure supplies for its new factories in the face of “increasingly complex” geopolitical tensions.

Chinese companies have been struggling to navigate tightening export controls that the US has imposed on advanced chips and the equipment used to make them. At the same time, Washington has been supporting an expansion of chip production capabilities in the US and among its allies, as well as a reworking of the semiconductor supply chain.

Zhao Haijun, SMIC’s co- chief executive, said on Friday that “geopolitical factors” were causing “duplication of construction and supply chains”.

“From a global perspective, there will be excess production capacity,” he said, “and it will take a lot of time to slowly digest the production that has been built hastily in recent years.”

Zhao defended SMIC’s expansion in the face of such a glut, saying local production in some markets such as China and the US was still not enough to meet demand.

“China’s semiconductor demand will require a lot of local manufacturing capacity in the future . . . so our confidence in SMIC’s production capacity is relatively high, and we believe that there will still be customer demand and orders in the future,” he said.

SMIC was placed on the US trade “entity” blacklist in 2020, which meant US companies needed hard-to-obtain licences before selling their technology to the chipmaker. SMIC is also several generations behind Taiwan Semiconductor Manufacturing Company, Samsung and Intel in terms of its chip miniaturisation efforts.

However, it has continued to play a significant role in China’s efforts to build a self-sufficient chip supply chain with state backing.

Zhao said political tensions had increased demand from Chinese clients and grown its business. In the July-September quarter, the proportion of its sales from China increased to 84 per cent from 75 per cent a year earlier.

However, the continuing downturn in the broader semiconductor industry was reflected in a 15 per cent year-on-year drop in third-quarter revenues to $1.62bn. Net income plummeted by 80 per cent to $94mn, from $470mn in the same period last year.

“The overall market has stabilised, [but we] haven’t seen drivers and momentum for significant growth for the market. [We] still need to wait for the recovery of the global macro economy,” said Zhao.

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