Two major Chinese chipmakers recorded better-than-expected revenue in the June quarter, with Semiconductor Manufacturing International Corp highlighting its long-term confidence in local semiconductor manufacturing, despite short-term challenges.

 

SMIC on Friday reported a 42 percent year-on-year jump in second-quarter revenue to $1.9 billion, slightly better than Bloomberg's estimate of $1.89 billion.

 

Its net profit came in at $514.3 million under global accounting standards, down 25 percent from the same period last year, but also exceeding Bloomberg's consensus estimates of $469 million.

 

The Shanghai-based company's management said in a statement that due to the COVID-19 epidemic, some of its plants did not conduct annual maintenance in the second quarter, causing the overall impact of the epidemic on output to be lower than expected. As a result, its revenue and gross margins in the quarter slightly exceeded forecasts.

 

In the third quarter, its revenue is expected to be flat to about 2 percent sequentially, with gross margins in the range of 38 to 40 percent, SMIC predicted.

 

Hua Hong Semiconductor Ltd, another Chinese chipmaker based in Shanghai, also said its second-quarter revenue jumped 79.4 percent year-on-year to $620.8 million.

 

The strong performance came as chips are widely seen as a sector of national strategical importance for future development and major Chinese players such as SMIC are facing a string of restrictions from the US government.

 

Bloomberg reported earlier this month that the US Commerce Department is broadening restrictions on semiconductor manufacturing equipment shipments to plants in China that make chips below 14 nanometers.

 

In chip manufacturing, production identified by a lower nm is considered more advanced. That means raising the restriction level to 14 nm from 10 nm would cover a broader range of semiconductor manufacturing equipment.

 

Despite the reported new restriction risks, SMIC's management said: "The IC industry's demand growth and global localization trend as well as the long-term logic of indigenous manufacturing remain unchanged, although there are short-term adjustments. We remain confident in the company's medium to long-term growth."

 

But Zhao Haijun, co-CEO of SMIC, also said a slowdown in demand for smartphones, in particular, has driven down prices of certain chips, and the company believes that this cycle of adjustment will last at least until the first half of next year.

 

In the first half of this year, SMIC spent a total of $2.5 billion on capital expenditure and increased its 8-inch equivalent capacity by 53,000 wafers per month, which is in line with expectations.

 

Zhong Xinlong, a senior consultant at the Beijing-based China Center for Information Industry Development Consultancy, said amid the US government's restrictions and its new unfair bill on chip subsidies, Chinese semiconductor companies are stepping up the push to achieve breakthroughs in core technologies.

 

Fu Xinhua, an official of the Shanghai Municipal Commission of Economy and Informatization, said Shanghai houses more than 1,200 key chip industry enterprises. In the first half of 2022, Shanghai's semiconductor industry's market size reached 120 billion yuan ($17.8 billion) at an annual growth rate of more than 17 percent. The scale is expected to exceed 300 billion yuan this year.