SMIC - Beneficiary of China’s Semiconductor Self-Sufficiency Drive

China’s Largest and Most Advanced Foundry Champion

Semiconductor Manufacturing International Corporation (SMIC), founded in 2000, has grown to become China’s most advanced and largest pure-play foundry, and ranks third globally by revenue after TSMC and Samsung. 

Backed by state-linked shareholders, SMIC is a linchpin in Beijing’s drive to localise semiconductor manufacturing and reduce reliance on Western chipmakers.

Core Beneficiary of China’s Semiconductor Self-Sufficiency Agenda

Since the US imposed trade restrictions in 2017, China has aggressively invested in building domestic chip capabilities. 

SMIC has been a key beneficiary, supported by policy, subsidies, and financing. China's self-sufficiency rate in semiconductors has risen from 15% in 2019 to about 25% today. 

While still below its 70% target by 2025, it remains committed to this strategic priority. localisation.

Technology Lag Persists, But the Gap Is Narrowing

SMIC currently produces chips at the 7nm node and is expected to move to 5nm by 2025. 

In comparison, TSMC and Samsung began mass production of 5nm chips in 2020 and are now advancing to 2nm nodes. 

Despite being around five years behind, SMIC has made rapid progress in closing the technology gap—achieved without access to the most advanced EUV lithography tools due to export restrictions from the US and its allies. 

Broad-Based Revenue Streams and AI Upside

SMIC’s revenue is well-diversified across key end markets: 40% from consumer electronics, 24% from smartphones, and 19% from PCs and tablets. 

While AI-specific revenue is not disclosed, the company has cited rapid growth in AI-related demand. 

With the rise of Chinese AI models such as Deepseek and Alibaba’s Qwen, and limited access to foreign foundries, SMIC is increasingly becoming the go-to domestic supplier for AI hardware production in China.

Capacity Expanding Amid High Utilisation Rates 

In 2024, SMIC expanded its wafer capacity by 18% while maintaining a utilization rate above 80%, signaling strong demand from local clients. 

The company is committed to adding one new fabrication plant per year and plans to spend US$7.5 billion in capex in 2025 to support this growth.

Profitability Remains Subdued Due to High Depreciation and Subsidy Dependence

Despite strong structural demand, SMIC’s profitability remains under pressure. 

Gross margin dropped to 18% and net margin to 9.1% in 2024 due mainly to high depreciation expenses from ongoing capacity buildouts. 

Key risks include heavy reliance on government support, and exposure to cyclical nature of semiconductor industry, amongst others. 

Notably, government subsidies of US$411 million accounted for nearly 87% of SMIC’s 2024 operating profit. 

Without these grants, SMIC would have earned just US$62 million in operating income, highlighting its reliance on state support.

Valuation Reflects Strategic Value Rather Than Profit Metrics

SMIC is currently trading at a price-to-book (P/B) ratio of 2.0x, reflecting SMIC’s critical role in China’s national tech strategy. 

You can now trade SMIC through Hong Kong Singapore Depository Receipts (SDRs). These HK SDRs offer investors a more accessible way to invest in Hong Kong-listed companies. 

Apart from SMIC (HSMD), JD.com, Petrochina would also be accessible through Hong Kong SDRs for investors from 23 June 2025. 

Three new Thailand SDRs – Gulf Energy, Bangkok Dusit Medical Services (BDMS) and CP Foods will also be launched. 

The introduction of Singapore Depository Receipts allows investors to purchase SMIC shares with a lower minimum investment outlay compared to buying Hong Kong-listed shares directly. 

Additionally, SDR holdings will be custodised within investors’ Central Depository (CDP) accounts, providing seamless integration with their existing Singapore-based portfolios.

Check out Beansprout guide to the best stock trading platforms in Singapore with the latest promotions to SMIC HK SDR 5to1.

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