China's SMIC Posts Profit Surge as AI Demand Fuels Foundry Race
BEIJING — China's largest contract chipmaker reported Thursday that second-quarter profit more than tripled from a year earlier, blowing past analyst estimates as artificial intelligence workloads keep pulling mature-node wafers into factories across the region. The earnings beat underscores a semiconductor terrain where geopolitical pressure and AI-driven demand are redrawing the foundry map in real time.
Semiconductor Manufacturing International Corp said profit attributable to shareholders reached $479.2 million for the three months ended June, nearly double the $253.4 million consensus compiled by LSEG. Revenue climbed 36 percent to just over $3 billion, topping the $2.8 billion forecast. The company cited strong AI-related chip demand and said it would adjust existing capacity while accelerating the ramp-up of new production lines to ease industry-wide supply constraints.
The numbers arrive at a moment when the global foundry sector is being pulled in two directions. On one side, AI accelerators and high-performance computing chips are soaking up every available wafer at the leading edge — TSMC's 3-nanometer and 2-nanometer nodes are effectively sold out through next year. On the other, mature nodes at 28 nanometers and above are seeing a second wind as Chinese fabs expand to serve domestic customers cut off from advanced Western tooling.
SMIC's quarter illustrates that tension. The company does not disclose its node mix, but analysts estimate the bulk of its revenue still comes from 28-nanometer and older processes. Those nodes are precisely where the AI boom is creating unexpected lift: legacy analog, power-management, and display-driver chips that go into AI servers and data-center infrastructure are suddenly in short supply. SMIC said AI would continue to drive firm chip demand in the second half of the year, a signal that the mature-node tightness may persist.
Capacity Race Intensifies
The foundry is not waiting for demand to soften. SMIC has been adding capacity at its Shanghai and Beijing fabs and broke ground on a new 300-millimeter facility in Tianjin last year. The company's capital expenditure for 2026 is expected to exceed $7 billion, a figure that would have been unthinkable before the U.S. entity-list restrictions forced a domestic substitution push. Equipment deliveries from Chinese toolmakers such as Naura, AMEC, and Huahai Qingke have accelerated, allowing SMIC to keep lines moving even as American and Japanese gear becomes harder to license.
That self-reliance drive has a ceiling. Without extreme-ultraviolet lithography, SMIC cannot economically push below 7 nanometers at scale. Its N+1 and N+2 processes — 7-nanometer-class nodes built with deep-ultraviolet multipatterning — remain low-yield and high-cost, suitable for flagship smartphone processors but not for the high-volume logic that pays the bills. The profit beat, then, is less about a technology breakthrough and more about a market structure that rewards anyone with working 28-nanometer and 40-nanometer capacity.
Analysts at CICC estimate SMIC's 28-nanometer utilization topped 95 percent in the quarter, with 40-nanometer lines running nearly as hot. The firm's blended average selling price rose mid-single digits quarter over quarter, a rare feat in a segment where pricing pressure is usually relentless. Gross margin held above 18 percent, up from 13.7 percent a year earlier, as higher-margin specialty analog and power ICs took a larger share of the mix.
The Tianjin fab, a joint venture with the local government, is slated to add 100,000 wafers per month of 28-nanometer capacity by late 2027. That timeline assumes Chinese immersion tools from Shanghai Micro Electronics Equipment can fill the gap left by ASML. SMEE's first 28-nanometer scanner passed factory acceptance tests this spring, but field deployment data remains thin. If the domestic tool chain delivers on schedule, SMIC could narrow the mature-node capacity gap with Taiwan's United Microelectronics and GlobalFoundries by the end of the decade.
Advanced Packaging Hits a Snag
While Chinese foundries chase node parity, the advanced-packaging supply chain just took a hit. Samsung Electro-Mechanics disclosed this week that its glass-substrate samples failed customer reliability verification, pushing mass production from the second half of 2027 to beyond 2028. The setback rippled through the GlaSSEM joint venture with Japan's Dongwoo Fine-Chem, where equipment orders for deposition, etching, and laser-drilling tools have been repeatedly delayed since late last year.
Glass substrates are widely seen as the next platform for high-performance computing. They offer superior flatness, thermal stability, and mechanical strength compared to organic substrates, making them a natural fit for the chiplet-based architectures that AMD, Intel, and Nvidia are betting on. Samsung's stumble does not kill the technology, but it adds another quarter of uncertainty for foundries and chip designers planning 2027 tape-outs. LG Innotek is reportedly pivoting toward image-sensor packaging for humanoid robots as a lower-stress entry point, a reminder that commercialization often follows the path of least resistance.
The delay also clouds the equipment outlook. Tool suppliers that had lined up orders for Samsung's Pyeongtaek line — deposition systems from Applied Materials, etching gear from Lam Research, laser drills from Han's Laser — now face a blank schedule. Industry sources say the procurement freeze could shave several hundred million dollars off 2026 equipment spending forecasts for the advanced-packaging segment.
Intel, meanwhile, is pressing ahead with its own glass-substrate roadmap, targeting pilot-line production in 2027 and high-volume manufacturing by 2030. The company's Arizona campus has a dedicated glass-substrate research line, and early data suggests Intel's thermal-cycling reliability numbers are ahead of the industry baseline. If Intel can execute, it would own a critical packaging lever that no rival — TSMC included — currently matches at scale.
The Geopolitical Overhang
SMIC's earnings call coincided with a fresh round of Dutch export restrictions on ASML immersion tools, part of a coordinated U.S.-led effort to cap Chinese semiconductor development at 28 nanometers. The Dutch government said the move aligns with national-security interests, but it also freezes the one equipment category that could have helped SMIC improve yield on its DUV-based 7-nanometer flows. For now, SMIC's management says it has enough tool inventory to meet its 2026 capacity targets. The question is what happens in 2027 when the installed base ages and spare-part pipelines tighten.
Taiwan Semiconductor Manufacturing Co, meanwhile, posted record July revenue of NT$256.9 billion, up 44.7 percent year over year, and said 3-nanometer utilization remains full. The company is pulling forward its 3-nanometer ramp to 180,000 wafers a month by early fourth quarter, two to three months ahead of schedule, according to TrendForce. TSMC's 2-nanometer line is targeting 100,000 wafers a month by year-end, backed by a $60-64 billion capex plan for 2026. The gap between the Taiwanese leader and its Chinese pursuer is widening in absolute terms, even as SMIC posts its best quarter in years.
What Comes Next
For chip buyers, the message is mixed. Leading-edge AI silicon remains on allocation, with lead times stretching past six months. Mature-node capacity is tighter than it was a year ago, but not yet in crisis. SMIC's willingness to accelerate new lines suggests the company sees a structural shift, not a cyclical blip. If AI server build-outs continue at the current clip, the foundry's 2027 utilization could challenge TSMC's in the 28-nanometer-to-40-nanometer band — a remarkable outcome for a company that was written off as a also-ran five years ago.
The semiconductors supply chain is now a two-speed race: one track chasing the physics of 2-nanometer and below, the other grinding out the workhorse nodes that keep data centers running. SMIC's profit surge is a reminder that the second track matters just as much, and investors are starting to price that reality into foundry valuations across Asia.
Source: Reuters via Yahoo Finance — SMIC profit more than triples on AI-driven chip demand, August 13, 2026; BigGo Finance — Samsung Electro-Mechanics' Glass Substrate Qualification Stalls, August 12, 2026.
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Keywords: SMIC, Semiconductor Manufacturing International, China foundry, AI chip demand, mature nodes, glass substrate, Samsung Electro-Mechanics, advanced packaging, TSMC, semiconductor earnings