SMIC

In the global competitive landscape of the semiconductor industry, SMIC (Semiconductor Manufacturing International Corporation) has emerged as a formidable force in the global wafer foundry sector through its robust capabilities as a “Chinese chipmaker.” As mainland China's most technologically advanced and largest integrated circuit foundry,Semiconductor ManufacturingAs a leading enterprise, SMIC not only shoulders the historic mission of domestic substitution but also serves as a core infrastructure provider in the AI wave.

Company Profile: The Leap from “Follower” to “Global Top Five”

SMIC was founded in 2000 with its headquarters located in Shanghai's Zhangjiang Hi-Tech Park. The company listed on the Hong Kong Stock Exchange in 2004 and returned to the STAR Market in 2020, establishing an “A+H” dual financing platform.By 2025, the company had established three 8-inch wafer fabs and four 12-inch wafer fabs in Shanghai, Beijing, Tianjin, and Shenzhen, achieving a global monthly production capacity of 948,000 wafers (equivalent to 8-inch standard), with a domestic market share exceeding 75.1% and ranking fifth globally.Its equity structure features substantial state-backed ownership, with China Information Technology and the National Integrated Circuit Industry Investment Fund collectively holding over 24% of shares, underscoring its strategic positioning as a “national semiconductor team.”

Throughout its development, the company has prioritized both technological breakthroughs and capital operations: achieving mass production of 14nm FinFET technology in 2018, ranking first in patent holdings among STAR Market companies in 2022, and securing full ownership of SMIC North through the acquisition of its 49.1% stake in 2025 to further consolidate its production capacity advantage.Despite facing pressure from U.S. sanctions, SMIC demonstrated supply chain resilience by partnering with domestic equipment suppliers like Northern HuaChuang to increase its equipment localization rate to 35%.

Products and Services: A “One-Stop Shop for Chip Manufacturing” Covering the Entire Process Flow”

SMIC positions itself as “not designing chips, but solely manufacturing them,” offering full-process foundry services ranging from 0.35 micron to 14 nanometers. This forms a product matrix centered on mature processes with breakthroughs in advanced processes:

• Mature Process (55nm and above)Accounting for 651 million yuan in revenue, the company specializes in consumer electronics chips, including smartwatch controllers, home appliance MCUs (microcontrollers), and power management chips. Its automotive-grade MCUs have been certified by BYD and entered the automotive electronics supply chain.
• Advanced Process Nodes (14nm and below): Accounting for 18% of revenue, mass-produced using 14nm FinFET process technology for Huawei's Kirin 710A mobile chip and Horizon Robotics' autonomous driving chip, achieving a yield rate of 85%. The N+1 process performance rivals TSMC's 7nm, with a gap of only 15%, overcoming the limitations of DUV lithography equipment.
• Distinctive CraftsmanshipFocusing on image sensors (CIS), high-voltage display driver chips, and other fields, with applications in automotive radar and industrial robots, the technology benchmarks against international leaders.

Beyond foundry services, SMIC also provides design services and IP support, photomask manufacturing, and other one-stop complementary services, building a fully integrated ecosystem spanning “chip design, manufacturing, and packaging/testing.” For instance, its collaborations with design firms like Huawei HiSilicon and韦尔股份 have shortened product iteration cycles to meet high-end demands in 5G, AI, and automotive electronics.

Core Technology: Breaking Through the Three Major Bottlenecks

SMIC's technological moat manifests across three key dimensions:

1. Process Technology InnovationThrough SAQP quadruple exposure technology, 14nm mass production was achieved under DUV lithography limitations; the N+1 process employs a novel transistor structure, delivering a 20% performance boost and 57% power reduction, approaching international advanced levels.
2. Domestic Substitution of EquipmentBy collaborating with domestic equipment suppliers such as Northern HuaChuang and AMEC, breakthroughs have been achieved in critical processes like etching and cleaning. This has elevated the domestic equipment localization rate from 10% in 2018 to 35%, reducing reliance on overseas suppliers like ASML and Applied Materials.
3. Economies of scale in production capacityMonthly production capacity for 12-inch wafers reached 948,000 units, ranking fifth globally with a 75.1% domestic market share. Through scaled production, depreciation costs were diluted, resulting in a 18.1% reduction in unit wafer costs by 2024 compared to 2020. Gross margin rose to 18.59%, though subject to fluctuations due to industry cycles.

Primary Users: “Ecosystem Win-Win” with Key Clients”

SMIC's customer structure exhibits a pattern of “domestic dominance with international penetration”:

• Domestic clientsHuawei HiSilicon (contributing over 301 billion yuan in revenue),韦尔股份, Unisoc, Gecko Micro, and other design companies span sectors including smartphones, automotive electronics, and security surveillance. For instance, leveraging SMIC's CIS manufacturing process, Gecko Micro has become the world's third-largest image sensor supplier, with its products integrated into devices from brands like Samsung and Xiaomi.
• International clientsOverseas giants such as Qualcomm and Broadcom have reduced geopolitical risks by outsourcing power management chips, WiFi and Bluetooth RF chips, and other components to SMIC. By 2025, SMIC's 12-inch wafer exports are projected to rise to 25% of total production, indicating growing recognition in the international market.

In terms of user stickiness, SMIC has built dual barriers through “technology iteration + capacity assurance.” For instance, it provided 14nm process support to Huawei HiSilicon, enabling mass production of its Kirin 710A chip; and offered automotive-grade chip foundry services to Horizon Robotics, gaining entry into Tesla's supply chain to form a closed-loop “design-manufacturing-application” ecosystem.

Development Prospects: Dual Drivers of AI and Domestic Substitution

Looking ahead, SMIC faces three major opportunities and challenges:

1. Explosive Growth in AI Computing Power DemandThe global AI chip market is projected to exceed $100 billion by 2025. SMIC's 14nm production capacity is in high demand, with the company already manufacturing inference chips for domestic AI firms like Cambricon and Suyuan Technology. If its N+2 process (performance comparable to TSMC's 5nm) achieves mass production, it will further open up the high-end market.
2. Policy Dividends from Domestic Substitution InitiativesChina aims to achieve a 70% self-sufficiency rate in semiconductors by 2025. SMIC has received funding from the second phase of the National Integrated Circuit Industry Investment Fund, enabling production expansion with government subsidies. Its joint venture project in Lingang focuses on mature 28nm and above processes to meet demands in automotive electronics and industrial control, reducing reliance on imports.
3. Industry Cycles and Competitive PressureThe semiconductor industry exhibits strong cyclicality. In 2024, the global wafer foundry market size declined by 12.1% year-on-year, putting pressure on SMIC's gross margin. The company must balance short-term profitability with long-term investments through technological upgrades (such as achieving over 90% yield rates for N+2 processes) and cost control measures (like increasing domestic equipment localization rates to 50%).

Conclusion: The Art of Balancing Strategic Value and Short-Term Volatility

SMIC's valuation logic has transcended traditional financial metrics. Its strategic positioning as both a “flagship for domestic substitution” and “AI infrastructure” has made it the focal point of a tug-of-war between “faith-based” and "rational" investors in the capital markets. As of November 2025, the company's dynamic price-to-earnings ratio reached 199.5 times, reflecting high market expectations for technological breakthroughs. However, caution is warranted regarding the pressure on valuation from declining net profits.

For investors, SMIC's long-term value hinges on three key variables: the progress of advanced process mass production, the rate of domestic equipment substitution, and accounts receivable turnover efficiency.Should the N+2 process yield rate surpass 90%, coupled with the ramp-up of automotive-grade chip production capacity, the company could potentially double its net profit by 2026, supporting a market capitalization of 100 billion yuan. Conversely, if technological iteration lags or geopolitical risks intensify, caution is warranted regarding potential valuation adjustments.

On the long march toward semiconductor self-reliance, SMIC is driving forward with a dual-pronged approach of technological breakthroughs and ecosystem collaboration, writing a pivotal chapter in China's semiconductor journey. Each breakthrough not only shapes the company's destiny but also determines China's influence within the global semiconductor supply chain.