Against the backdrop of intensified competition in the global semiconductor industry, the recent financial reports released by China's two major wafer foundries, SMIC and Huahong Semiconductor, show signs of industry recovery, but also reflect the challenges they face.

According to the latest financial report, SMIC achieved an annual growth rate of 21.8% in the first quarter of 2023, with revenue reaching $1.9 billion. However, despite the increase in revenue, its gross profit margin experienced a significant decline, dropping by 6.4 percentage points to 13.9%. This phenomenon has attracted market attention and discussion.

The situation for Huahong Semiconductor is even more severe, with its revenue decreasing by 24.2% year-on-year to only $480 million. Even more worrying is that Huahong's gross profit margin plummeted by 17.2 percentage points to 10.5%. The management of both companies attributed the decline in gross profit margin to the decrease in the average selling price of wafers. SMIC stated in its financial report that the unit price of wafers decreased by 8% compared to the previous quarter, while Huahong explicitly mentioned that the decrease in average prices was the main reason for its decline in gross profit margin.

Although the overall market is gradually recovering from the trough, the limitations of SMIC and Huahong in advanced chip production capacity have constrained their ability to fully capture opportunities in emerging markets, especially in the context of rapid development of new technologies such as artificial intelligence (AI). With the rise of AI technology, the demand for advanced process chips in the market is increasing day by day. In this regard, SMIC and Huahong seem somewhat inadequate.

From the perspective of wafer production size, SMIC has made certain progress in transformation, with its production proportion of 12 inch wafers reaching as high as 73.6%. Currently, Huahong mainly focuses on 8-inch wafers, but is also accelerating the construction of 12 inch production lines. This transformation process is crucial for the future profitability and market competitiveness of both companies. The production capacity of 12 inch wafers can not only improve production efficiency, but also reduce unit costs, giving enterprises a greater advantage in price competition.

However, despite leading the transformation of 12 inch wafers, SMIC still faces the challenge of technological upgrades. The research and production of advanced processes require high capital investment and technological accumulation, which is a significant challenge for SMIC. Although Huahong started relatively late, its decision to accelerate the construction of a 12 inch production line demonstrates its positive layout for the future market.

Overall, the financial performance of SMIC and Huahong reveals the complex situation facing the semiconductor industry: on the one hand, the revenue growth brought by market recovery, and on the other hand, the continuous decline in gross profit margin and production capacity limitations. All of this indicates that in the rapidly iterating semiconductor market, companies must continuously strengthen their technological strength and market sensitivity in order to maintain an advantage in fierce competition.

As the demand for high-performance chips continues to rise in the future market, SMIC and Huahong Semiconductor need to flexibly adapt to technological innovation and market strategies in order to stand out in the new round of industry competition. Facing challenges, how to improve gross profit margin and production efficiency will be an important issue that both companies must seriously consider and respond to.

Fushite Technology focuses on the field of power devices, providing customers with power devices such as IGBT and IPM modules, as well as MCU and touch chips. It is an electronic component supplier and solution provider with core technology.