Pleasant Side Effect: SMIC Revenue in Peripheral Chips for AI Grows 40%

SMIC, the leading Chinese contract chip manufacturer, reported a 40% increase in revenue from peripheral chips for AI infrastructure, which the company calls a 'side effect' of the AI boom. CEO Zhao Haijun explained that an AI server with 72 GPUs requires 16,000 power management chips, illustrating the high demand. Additionally, import substitution efforts on the Chinese market boosted demand, with Chinese customers' share rising from 84.1% in the prior year to 90.2% in the second quarter, while the American market's share dropped from 12.9% to 8.2%. Given this market situation, SMIC sees no possibility to cut prices this year, although it did not raise prices for smartphone, automotive, and industrial automation chips due to weaker demand in those sectors. Some clients are stocking up on chips for smartphones and TVs, fearing future supply disruptions and price increases. In the first half, SMIC spent $3.4 billion on capital expenditures for capacity expansion. In the second quarter, SMIC processed 2.87 million 200-mm equivalent silicon wafers, up 20% year-over-year, with fab utilization rising from 92.5% to 93.7%. The share of consumer devices in wafers processed decreased from 46.2% to 44.2%, while automotive electronics and industrial automation increased from 10.6% to 16.5%.