SMIC to add wafer capacity to meet strong chip demand, warns of margin hit

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Title SMIC's Capacity Expansion A Tabula Rasa Approach to Meeting Strong Chip Demand

Semiconductor Manufacturing International Corp. (SMIC), China's largest contract chipmaker, has been at the forefront of the global semiconductor industry's growth trajectory. In a recent earnings call, SMIC's CO-CEO Zhao Haijun highlighted the company's plans for massive capacity expansion to meet strong demand for chips, warning that this growth would come at the cost of margin pressure.

The shift towards domestic production in China has been a game-changer for the industry, with analog circuits, display drivers, image sensors, memory, microcontrollers, and logic chips experiencing significant growth. To capitalize on this trend, SMIC plans to add approximately 40,000 12-inch equivalent wafers in new monthly capacity by the end of this year, building upon its existing capacity of 50,000 12-inch wafers per month.

While the rapid expansion poses challenges, including a projected 30% jump in depreciation costs this year, SMIC remains committed to investing in its capacity expansion to meet strong demand from Chinese chip designers. The company's decision to pre-purchase critical equipment and pending ancillary equipment has created timing mismatches, which may not translate into full production capacity this year.

This underscores the importance of careful planning and execution in a rapidly evolving industry. In 2025, SMIC invested $8.1 billion in capital spending, a 10.5% increase from 2024, exceeding its original projection earlier last year. The company expects similar levels of investment in 2026.

In conclusion, SMIC's capacity expansion is a testament to the company's commitment to meeting strong chip demand in China. While this growth comes with challenges, such as margin pressure and increased depreciation costs, it also presents opportunities for the company to solidify its position as a leading contract chipmaker.

The Tabula Rasa Approach

The concept of tabula rasa, or blank slate, can be applied to SMIC's capacity expansion. Just as a blank slate provides a clean canvas for creative expression, SMIC's capacity expansion offers a fresh start for the company to capitalize on strong demand from Chinese chip designers.

This approach requires careful planning and execution, as well as a willingness to adapt to changing market conditions. By embracing this tabula rasa mindset, SMIC can leverage its resources to drive growth and innovation in the years to come.

Significance for Startup Founders

For startup founders, SMIC's capacity expansion serves as a reminder of the importance of strategic planning and execution in today's fast-paced entrepreneurial landscape. By staying ahead of the curve and adapting to changing market conditions, startup founders can position their companies for long-term success.

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Edward Lance Arellano Lorilla

CEO / Co-Founder

Enjoy the little things in life. For one day, you may look back and realize they were the big things. Many of life's failures are people who did not realize how close they were to success when they gave up.