China’s leading chipmaker the Semiconductor Manufacturing International Corporation (SMIC) is gaining ground in the global race for AI supremacy, as it continues to challenge the global semiconductor status quo.
But though it might pose a threat to industry giants like Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung, does it really have what it takes to help China become a top player in the field? Because the bad news for China is that the US and Taiwan hold the cards when it comes to exports, which are key to dominating the AI industry.
DisruptionBanking investigates a company that has rocked the stock market in Hong Kong, but also faces challenges that could pose a serious threat to China’s global ambitions if they aren’t overcome.
How SMIC is Helping China’s Fight for Tech Autonomy
One of China’s technological goals is a complete domestic substitution in terms of chips used in the automotive sector, replacing foreign suppliers and strengthening its local supply chain, according to Nikkei Asia.
SMIC is a rising star among foundries in China and plays a big role in the superpower’s struggle for high-tech autarchy. It steadily leads in the making of so-called legacy semiconductors, used in auto and industrial applications.
Unfortunately for China, the same cannot be said of its high-class AI chip and processor industry, of utmost importance to global technological development.
China Faces Down Export Bans
Facing growing export restrictions from either side of the globe, the self-reliance push in China proves all too necessary. The world’s ongoing efforts to cut China off from the technology it needs to manufacture more powerful chips have trumped its expansion into the AI market, impacting global demand and prices.
One such crucial component that China lacks is extreme ultraviolet lithography (EUV), produced mainly by Dutch company ASML. The EUV machines, through using extreme ultraviolet light of 13.5 nanometers wavelength, facilitate the manufacture of smaller microchips that are more efficient and powerful than their predecessors.
This absence is causing SMIC to lag noticeably behind competitors such as TSMC, which have free access to these cutting-edge solutions.
SMIC and Huawei Join Forces
In response to these challenging circumstances, SMIC has partnered up with China’s big league player – Huawei. The companies are reportedly working on developing 3-nanometre chips using alternative lithography methods such as self-quadruple patterning (SAQP) that uses deep ultraviolet lithography systems (DUV). They intend to commence mass production next year.
In the meantime, Huawei has introduced Ascend 910C – a high-performance AI chip built by SMIC to replace Nvidia’s products on the Chinese market.
Taiwan vs. China
Taiwan is fighting to contain China’s efforts to intercept the island’s technological know-how. Since 2020 it has opened over a hundred investigations into the alleged illegal poaching of Taiwanese engineers by Chinese companies. This includes a SMIC branch set up in Taiwan as a Samoa-based company that attempted to acquire local talent, as Bloomberg reported in March.
SMIC Blacklisted
On June 10, Taiwan’s International Trade Administration followed US sanctions by putting SMIC on a high-tech commodities blacklist with the stated aim of preventing arms proliferation and other potential national security threats.
This way, Taiwanese companies intending to export their technologies and products to any of the listed entities must obtain the government’s approval prior to shipping. Such measures are limiting China’s access to key technology components required for production of cutting-edge AI chips, and thus enforcing the mainland’s isolation.
The US government recently introduced the No Advanced Chips for the CCP Act – aimed at preventing advanced AI chips being sold to China without Congress approval.
Revenue Ups and Downs
A financial summary for Q2 2025 presented by SMIC at a performance briefing in August announced just over $22 billion in revenue, meaning a year-on-year rise of 16.2 percent, but also a quarter-on-quarter fall of 1.7 percent.
According to Zhao Haijun, co-chief executive officer of SMIC, yearly sales growth was driven by increased demand and front-loading of orders as channels hastily restocked in response to planned US changes in export policy.
The Q2 gross profit margin’s drop of 2.1 percentage points from the previous quarter, on the other hand, is explained by the average selling price decreasing due to production disruptions reported in May as well as changes in product mix.
Still, the company’s guidance for Q3 foresees a 5-7 percent quarter-on-quarter revenue increase with the gross profit margin of 18-20 percent. Rush orders and shipments are expected to traditionally slow down in Q4.
SMIC: the Pride of China?
Treating SMIC as the country’s national pride, Chinese investors enthusiastically pump the chip foundry’s shares, causing the price to more than double in Shanghai inside just two months last fall. Weibo users comment on SMIC’s recovery on the stock market last Friday, highlighting the gains in the semiconductor industry.
However, experts warn against speculative buying and suspect it might just be a bubble that will burst due to an overvalued share price. Morgan Stanley analysts predict that even SMIC’s leading position in legacy semiconductor production might soon be challenged by growing competition and reduced prices.
China Shut Out of AI Race
While SMIC does well in strengthening China’s local supply chain and dominates its domestic market for legacy chips used in the automotive and industrial sectors, there seems little it can do to help the Asian superpower progress with AI development.
Without accessing critical technologies, which its rivals already have at their disposal, manufacturing cutting-edge AI chips lies beyond SMIC’s reach. The US and Taiwan have skillfully controlled exports, using geopolitics to shut China out of external supply chains.
SMIC’s potentially overpriced shares may not be a reliable indicator of the company’s capabilities in the AI sector, which remains dominated globally by Samsung and TSMC.
Author: Agata Kwiatkowska
#China #Taiwan #AI #semiconductors #Huawei #ArtificialIntelligence
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