Semiconductor Manufacturing International Corporation (SMIC), China’s top contract chipmaker, said the artificial intelligence boom is driving massive demand for peripheral AI chips, and that there is “no chance” the company will lower its prices despite weaknesses in the smartphone and automotive markets.
On August 14, co-CEO Zhao Haijun said the company’s most substantial growth came from the China market, “mainly driven by robust demand for AI peripheral chips and continued strengthening of localized manufacturing.”
“We see the massive demand for peripheral chips to support the AI infrastructure build-out,” Zhao said. “Looking ahead to the second half of this year, the industrial momentum and spillover effects generated by AI will persist.”
SMIC’s AI peripheral chip segment grew by around 40% in the April-June period, he said, adding that the company’s products and technologies were gaining market recognition.
“For example, if an AI server has 72 graphics processing units (GPUs), it will need 16,000 power-related chips. That illustrates just how massive the demand has become,” the CEO said.
Zhao said the chipmaker did not raise prices for chips used in smartphone, automotive, and industrial applications, given that these markets have been lackluster and overall demand is declining this year.
Some customers, however, have begun building up inventories of display driver ICs and other chips used in smartphones and TVs despite weak consumer demand, he said. “People are worried that they might not get enough chip supplies next year and would face higher prices, so they are building some inventory now for next year.”
“We don’t see any chance of the price [of our chipmaking services] going down this year,” Zhao said.
For the tightest supply segments, such as power management and optical communication chips, SMIC will continue to discuss price increases with clients, he said. “We will never be the first one to raise the price and we will not be the one that raises the most. Our prices are discussed with clients and are reasonable.”
SMIC’s revenue contribution from its home market reached a high of 90.2% in the April-to-June quarter, compared with 84.1% the same time last year, while sales from the US market dropped to 8.2% from last year’s 12.9%.
Zhao said rising supply chain costs have been passed through to the manufacturing segment and that SMIC will “proactively address these challenges and mitigate headwinds to minimize the overall impact.”
SMIC’s revenue rose 36.1% on the year to USD 3 billion last quarter, with its net income surging nearly 400% on the year to USD 733.21 million. Gross margin increased to 25.3% from 20.4% a year ago. SMIC attributed the revenue growth to increased wafer shipments, rising average selling prices, and a better product portfolio. Its production utilization rate also remains at the high level of 93.7% last quarter and is expected to further grow to about 95% in the current quarter, according to the CEO.
The chipmaker said the outlook is positive for the second half of 2026 as industrial momentum and spillover effects generated by AI are expected to continue. Revenue is estimated to grow 2–4% compared to last quarter, while gross margin is expected to improve to 26–28%. The company attributed the improving profit margin to rising average selling prices and a favorable product mix. Multiple chipmakers and electronics component makers have raised their own selling prices this year.
In the first half of this year, SMIC spent USD 3.4 billion on capital expenditure to expand production capacity.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.