SMIC, China’s leading contract chipmaker, says demand for AI peripheral chips is driving growth even as smartphone and automotive markets weaken, with continued expansion to meet AI infrastructure needs.

SMIC hinted at adding more equipment at its sites, though timing, scope, and locations were not disclosed.

Core chipmaking service prices are being kept steady with no 2026 price reductions; pricing in tight segments will be negotiated but not aggressively increased.

Customers are building inventories of display driver ICs and other smartphone/TV chips amid demand weakness to guard against potential shortages and price hikes next year.

H2 2026 outlook calls for 2–4% quarterly revenue growth and gross margin of 26–28%, supported by higher ASPs and favorable product mix; H1 capital expenditure totaled about $3.4 billion to expand capacity.

Despite near-capacity utilization, SMIC plans to invest in R&D and may raise prices, especially for non-core consumer electronics components, as AI demand sustains shortages and pricing power.

The company is expanding capacity for mature-node chips to support AI-related infrastructure, aided by China-led demand, overseas orders, and supply-chain localization, though weak consumer electronics remains a challenge.

Q2 2026 production utilization stayed high at about 93.7%, with expectations to reach around 95% in the current quarter thanks to a stronger product mix and higher selling prices.

AI peripheral chip sales jumped about 40% year-on-year in Q2 2026, with large-scale needs such as AI servers using thousands of power-related chips.

Geography shows heavy dependence on China (over 90% of revenue in Q2 2026), with the US share at about 8%, a decline from a year earlier as US exposure narrows.

The article is sourced from Nikkei Asia and republished by 36Kr under a content partnership.

In Q2, SMIC reported revenue of about $3.01 billion, up 36.1% year-over-year and 20% sequentially, with gross margin rising to 25.3% from 20.1%.