SMIC will have to focus on older processes but profitability
Hardware

SMIC will have to focus on older processes, but profitability will still decrease

Two years after the introduction of US sanctions, leading Chinese chipmaker SMIC is forced to focus on working with mature processes above 28nm. In addition, its position is hampered by the skills shortage afflicting the entire semiconductor industry.

    Image source: fabersam/pixabay.com

Image source: fabersam/pixabay.com

According to the Chinese manufacturer, the 28 nm process technology is in high demand from customers in the consumer electronics, IoT devices and automotive electronics sectors. Chips for smartphones and consumer electronics remain SMIC’s main source of revenue, according to a report published on March 28. The former make up 27% of all company sales, the latter 23%. Helps the company stay afloat because of strong demand for mature processes in the Chinese market. In fact, 74% of SMIC’s sales in 2022 came from the Chinese market.

However, like other Chinese semiconductor companies, SMIC suffers from skills shortages – the rate of “brain drain” thus only slowed in 2022 due to wage growth and the well-being of workers in general. According to Chinese media, 2,326 engineers worked at SMIC by the end of 2022, accounting for 10.8% of the company’s total workforce. According to official figures, the average salary for developers in 2022 was $66,000 per year. Talented employees are still being poached by local competitors such as the NAURA Technology Group.

The situation is exacerbated by the reduction in research and development costs. Spending is falling for the third year in a row – with 17.3% of revenue being spent on this area in 2020, and 11.7% in 2021 and 10.1% in 2022. Overall, the 2023 forecast remains disappointing . According to the current annual report, the gross margin is expected to drop to 20% in 2023. For comparison: in 2021 and 2022 it was 30.8% and 38% respectively.

At the same time, the average retail price of silicon wafers with chips does not even reach $1,000, which is more than two times less than the average price of TSMC wafers. A planned expansion of production while retaining old processes can put a heavy strain on a company. However, despite the recent decline in production and the line utilization rate falling below 80%, SMIC continues to implement large-scale expansion projects, with a focus on production in Shenzhen, Jincheng, Lingang and Xiqing.

In early February, SMIC acknowledged that the start of mass semiconductor production at its new $7.6 billion plant could be delayed by a quarter or two due to difficulties in sourcing key equipment due to foreign sanctions.

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Dylan Harris

Dylan Harris is fascinated by tests and reviews of computer hardware.

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