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SMIC posts record $3B quarter and hikes wafer prices — US sanctions hand Chinese foundry a captive AI market
China's only 7nm-class foundry ran at 93.7% utilization last quarter, blew past its own guidance, and told customers to expect "fairer pricing."
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SMIC posted its first $3 billion quarter earlier this month, with revenue up 36.1% year on year, net profit nearly tripling to $479.2 million. Co-CEO Zhao Haijun told analysts the next day that the Shanghai foundry will charge more for wafers processed in the third quarter after price negotiations concluded in the first. Utilization hit 93.7% against demand Zhao said SMIC can't fully meet, driven by Chinese AI data center buildouts that U.S. export controls have cut off from TSMC and Samsung at the leading edge. "Since there's still a big gap between industry-leading wafer prices and SMIC's current prices, we need to negotiate with customers for fairer pricing," Zhao said on the call.
The quarter blew SMIC's own out of the water on every front. The company had guided to 14% to 16% sequential revenue growth and a 20% to 22% gross margin; it delivered 20% growth to $3.01 billion and a 25.3% margin, up from 20.1% in Q1. Wafer shipments rose 14% quarter-on-quarter to 2.9 million 8-inch equivalents, blended selling prices climbed 5.7%, and Q3 guidance calls for a 26% to 28% gross margin. China accounted for 90% of revenue.
Demand isn’t coming from GPUs, however, with Zhao commenting that the surge came mostly from AI chips other than CPUs and GPUs, such as logic ICs, BCD power-management parts, and optical transceiver components, all in short supply. Meanwhile, growth in SMIC’s AI peripheral segment is expected to be around 40% for the quarter, while industrial and automotive chips rose to 16.5% of wafer revenue from 10.6% a year earlier.
SMIC's utilization sat at 68.1% in the first quarter of 2023 and averaged 75% that year as net profit fell more than 60% and gross margin dropped 16.4 points to 21.9%. As late as early 2025, it was reported that SMIC and Hua Hong were cutting mature-node prices to defend share against a wall of new Chinese capacity. The company that spent 2023 and 2024 discounting into overcapacity spent 2026 raising prices by around 10% in December, negotiating targeted increases in capacity-constrained segments in February, and applying another round to Q3 wafers.
Export controls did most of the work, with Washington’s restrictions keeping China's AI accelerator demand away from TSMC. Beijing has been redirecting that demand inward: the government wants 70% of silicon wafers sourced domestically this year, and a Bloomberg Intelligence survey of 60 Chinese tech executives in June found firms plan to spend 46% of their AI accelerator budgets on local chips over the next 12 months, up from 30% now. SMIC is the only Chinese foundry that mass-produces 7nm-class logic, which makes it the sole domestic route to silicon for Huawei's Ascend line and Cambricon's accelerators. A protected buyer pool, along with a mandated shift to domestic supply and a single qualified supplier at the leading edge, produces a textbook seller's market.
Hua Hong, China's second-largest foundry, reported utilization of 102.8% in the same week, with record revenue of $717.5 million, up 26.8% year on year. TrendForce data shows foundry prices across China rose 5% to 15% between Q1 and Q2, with a third round of increases being prepared for the second half. TSMC is reportedly raising prices across all its advanced nodes too, so SMIC's hikes track a global trend, but SMIC is doing it from a captive position TSMC doesn't have: its customers have no other choice.
Cambricon's first-half revenue rose 108% to 6 billion yuan (c. $890 million) with net profit up 122.6% to 2.3 billion yuan, per its Shanghai Stock Exchange filing reported by the South China Morning Post. Moore Threads grew first-half revenue 147% to 1.74 billion yuan and cut its net loss by 96%, and Biren projected first-half revenue grow