US tariffs did not cause SMIC ‘hard landing’

The Power of US Tariffs Did Not Cause SMIC 'Hard Landing'

In recent times, the global economy has been grappling with the impact of tariffs imposed by major nations like the United States. China's top foundry, Semiconductor Manufacturing International Corp. (SMIC), is no exception. Despite initial fears of a hard landing, SMIC's Co-CEO Zhao Haijun revealed that US tariff policy did not lead to such an outcome, thanks to strong domestic demand and contingency plans made earlier.

Robust Domestic Demand

Zhao attributed the company's ability to navigate the tariffs to robust domestic demand for its products. Specifically, he noted that customers are substituting analog chips, Wi-Fi and Ethernet chips, and controller chips with SMIC's offerings. This substitution effect has kept production capacity tight until October.

Capacity Expansion

SMIC's monthly production capacity expanded by 18.5% quarter on quarter to 991,000 wafers, with utilization rates rising to 92.5% from 89.6% in the March quarter. This indicates that the company is not only meeting but exceeding demand, despite the tariffs.

Impact of Tariffs

While SMIC's production capacity has been impacted by the tariffs, the effect has been relatively small. According to Zhao, previous tariff rounds had led to cost increases of less than 10% for overseas customers. The impact will become even smaller as everyone has either stocked up enough inventory or found alternative suppliers.

Fourth Quarter Outlook

Looking ahead to the fourth quarter, SMIC expects revenue to increase by 5% to 7% from the second quarter. This indicates that the company is confident in its ability to continue growing despite the tariffs.

Conclusion

In conclusion, while US tariffs have had some impact on SMIC's production capacity and revenue, they did not cause a hard landing for the company. Strong domestic demand and contingency plans made earlier have helped SMIC navigate the tariffs effectively. As the company looks ahead to the fourth quarter, it is confident in its ability to continue growing.

Key Takeaways

1. Tariffs are not always a death knell Despite initial fears of a hard landing, SMIC's experience shows that companies can adapt and thrive even in the face of tariffs.


2. Domestic demand can be a game-changer Strong domestic demand helped SMIC navigate the tariffs, highlighting the importance of focusing on local markets.


3. Contingency planning is key SMIC's ability to anticipate and prepare for the tariffs helped mitigate their impact, demonstrating the value of proactive planning.

Insights

1. Tariffs can lead to innovation The tariffs may have led to increased investment in domestic manufacturing capabilities, driving innovation and growth.


2. Substitution effects can be beneficial SMIC's experience shows that substitution effects can benefit companies by increasing demand for their products.


3. Companies must be agile The ability to adapt quickly to changing circumstances is crucial in today's fast-paced business environment.

Quotes

1. After these past few months, everyone has either stocked up enough inventory for this year and next year, or found other suppliers. - Zhao Haijun, Co-CEO of SMIC


2. So I think the impact will become even smaller. - Zhao Haijun, Co-CEO of SMIC

Keywords

1. Tariffs


2. Semiconductor Manufacturing International Corp.


3. China


4. United States


5. Domestic demand


6. Contingency planning


7. Substitution effects


8. Innovation

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.