• News
• 2024-09-10

$170B Investment Vanishes, Profits Plunge 78%

The competition in technology is always full of twists and turns. When Huawei made a high-profile comeback, everyone thought that our country's semiconductor industry would also make a triumphant return. However, SMIC, China's most advanced foundry, has faced a significant drop in profits.

Moreover, according to the latest information, SMIC's profits have plummeted by 78.4% year-on-year, while TSMC, the industry leader, has experienced a different situation, with its revenue increasing by nearly 15.7% compared to the previous year. It can be said that the two have presented different scenarios. Why, in the context of Huawei's return, has SMIC still experienced such a significant drop? Is Huawei's Kirin 9000S processed by TSMC? Has our country's domestic substitution failed again?

SMIC's Profits Plunge

While everyone was immersed in the joy of Huawei's return, SMIC, the largest foundry on the mainland, has encountered a different situation, which is a significant drop in profits.

In the current era of the rise of national trends and the vigorous promotion of domestic substitution, it can be said that this is the best period for the development of our country's semiconductor manufacturers. At this time, competitors have basically been excluded from the market, and with the domestic bottom-line thinking, more manufacturers will naturally choose domestic brands.

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From Huawei's return, we can see the desire of the people for domestic substitution. However, at this time, SMIC has taken a different path, that is, while others are expanding profits, SMIC is incurring losses.

According to SMIC's financial report for the third quarter, we can see that the company's revenue has decreased by 10.6%, which is not very significant. However, the decline in profits is unusually noticeable, with a year-on-year drop of nearly 80%. It can be said that SMIC is selling at low profits and high volume, but it still cannot stop the decline in its revenue.

In stark contrast is TSMC. In the latest performance released by TSMC, we can see that TSMC's revenue has increased significantly, with a year-on-year increase of up to 15.7%. It can be said that TSMC is going against the trend.

Because we know that since last year, the sales of electronic devices have been continuously declining, which has affected the performance of semiconductor manufacturers. However, in October, there was a situation where one was still declining significantly, and the other was soaring.Moreover, we are aware that Huawei made a comeback in August and September, and Huawei smartphones were in such high demand that they were virtually sold out. As a former distributor, one would expect a surge in profits, so why did both profits and revenue decline?

Some people have even begun to speculate that Huawei's Kirin 9000s are definitely not manufactured by SMIC. If they were, SMIC's performance and revenue would inevitably soar, so how could they continue to plummet?

With the release of TSMC's performance, many people, seeing the skyrocketing figures, have come to the conclusion that Huawei's latest chip, the Kirin 9000S, must have been produced by TSMC, as this would align perfectly. However, is this really the case?

TSMC Manufacturing Kirin 9000S?

The manufacturing of the Kirin 9000S remains an enigma to this day, as it is a symbol of the semiconductor industry's advancement and also represents the outcome of the Sino-American tech rivalry.

We do not know who manufactures the Kirin 9000S, but according to information released by foreign media, the chips in Huawei smartphones are produced using ASML's equipment.

This means that only with ASML's lithography equipment can Huawei's chips be manufactured. We all know that the United States has long banned ASML from exporting the latest lithography equipment to our country. Furthermore, after subsequent upgrades, SMIC was also added to the list.

Thus, some argue that even if SMIC has the technology, it cannot be put into effect. Both SMIC's financial reports and related media information suggest that SMIC is unable to manufacture.

But does this really prove that the Kirin 9000S is manufactured by TSMC?I think this does not prove anything, because we know that although TSMC was a core supplier for Huawei before the United States' crackdown, after the United States introduced restrictive measures, TSMC decisively gave up contract manufacturing for Huawei.

Moreover, we know that the United States previously asked TSMC and Samsung to hand over core relevant data and information, which naturally would include supplier-related information, so it is impossible.

At the same time, we can also see that after Huawei's return, the United States has mobilized various organizations and teams to disassemble and analyze Huawei's mobile phones, and the conclusion drawn is incredible, but it did not conclude that TSMC was the contract manufacturer.

If it were TSMC that was the contract manufacturer, wouldn't it be a matter of a word for the United States to continue the blockade? Therefore, the possibility of TSMC being the contract manufacturer is more likely a speculation among people.

Since it's not SMIC that is the contract manufacturer, then who would be? And who has the technology to contract manufacture? Moreover, does the significant decline in SMIC's performance also mean that our country's semiconductor domestic substitution has failed?

Industrial upgrading is a long and difficult road

Industrial upgrading is not something that can be achieved overnight, and the significant decline in SMIC's performance does not mean the failure of domestic substitution.

If we compare SMIC with TSMC, it is true that we can see a decline in SMIC's performance, but if we compare with Samsung, we will find that TSMC may be more of an exception.

Samsung, a competitor of TSMC, also recently announced its performance. Its financial report shows that the operating profit in the third quarter plummeted by nearly 80%, and its sales also fell by about 12.2%, which means that it is not just SMIC that is declining.

Moreover, we can see that Samsung's profits fell even more in the first and second quarters. Therefore, this does not prove that our industrial upgrading has failed, but rather proves that our industrial upgrading has been successful.Because in mature process technologies, our real competitors are South Korea. After all, in high-end process technologies, we are still in a rapid catch-up phase. Although there is the emergence of Kirin 9000s, overall, our entire industrial system still needs continuous upgrading.

Therefore, we cannot judge the success or failure of our country's industrial upgrading based solely on the performance of SMIC. Moreover, SMIC, like Huawei in recent years, has also been suppressed by the United States.

So, in the current difficult global economy, it is understandable that SMIC's performance has declined. Moreover, our domestic semiconductor development speed has been exceptionally fast in recent years. According to previous data from ASML, there are already 1,400 photolithography machines in the country.

That is to say, now it is not only a competition between SMIC and foreign manufacturers, but also a confrontation with domestic manufacturers. Therefore, in the mature process end, the more our country develops, the inevitable process its profits will go through a decline. And this situation has also occurred in other industries.

So, the upgrade of domestic products is very fast, but there is still a long way to go. This road is destined to be extraordinary and will not be smooth. However, with the return of Huawei, it also indicates that we are on the right path and gradually producing results. Everyone should have confidence in this.