SMIC Faces Financial Strain Amid High Costs and Declining Profits

China's largest semiconductor manufacturer, SMIC, reports significant financial challenges due to increased production costs, lower yields, and geopolitical tensions.

• SMIC's transition from 7nm to 5nm chip production is marked by costs up to 50% higher than TSMC's, coupled with a yield only one-third of TSMC's.
• The company's revenue declined over 13% to $6.3 billion in 2023, with net profit decreasing by 50.4% to $900 million.
• Geopolitical tensions and economic challenges are expected to further impact SMIC's business, with warnings of reduced margins and profits in 2024.
• Despite the financial setbacks, SMIC continues to invest in advanced chip technology, with capital expenditure remaining roughly flat for 2024.
• The Chinese market remains SMIC's largest revenue source, but the company sees potential growth in the US market despite geopolitical headwinds.

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