16 May 2022 14:00
According to the CEO of the Chinese chipmaker SMIC, the demand for chips for smartphones and personal computers has dropped sharply in the world. Manufacturers of computers, mobile phones and other electronics have accumulated impressive volumes of semiconductors in warehouses – stocks for months ahead. However, consumers outside the US and Europe are in no hurry to buy equipment – demand has switched to essential goods. Chinese chipmakers are the hardest hit, especially those whose business is tied to the domestic market and smartphone vendors.
Demand for chips for PCs and smartphones collapsed
Demand for chips used in smartphones and personal computers has plummeted, most notably in China. This was stated Heijun Zhao (Haijun Zhao), chief executive officer of China’s largest contract semiconductor manufacturer, SMIC, during a conference call on the company’s financial results for the first quarter of 2022, writes The Register.
According to the CEO of SMIC, who described the level of declining demand for chips as “dropped like a rock”, smartphone manufacturers have accumulated sufficient stocks of electronic components – for five months in advance. They are in no hurry to place new orders until the existing stocks are depleted. Sales of PCs and consumer electronics are also under threat, according to a Chinese top manager. The markets of some countries are oversaturated with products of this kind.
However, there are segments experiencing a shortage of semiconductors. These are, first of all, chips for wireless equipment of the new Wi-Fi 6 standard, electrical energy converters; analog-to-digital converters (ADC).
Reasons for the decline
As Zhao explained, the decrease in sales was partly provoked by the events in Ukraine. Many vendors have lost the opportunity to work in Russia due to the sanctions imposed against it. The Ukrainian market has also declined significantly – the citizens of this country now demand smartphones much less than essential goods.
SMIC CEO Haijun Zhao announced a rapid drop in demand for chips for PCs and smartphones
On the other hand, according to the CEO of SMIC, the recession in China manifests itself on a much larger scale than anywhere else. Markets in Europe and the US were able to recover very quickly, while the Chinese consumer was forced to tighten their belts and reduce the number of high-value purchases in response to the severe sanitary restrictions imposed by authorities across the country due to the COVID-19 pandemic.
According to IDC, China’s smartphone market shrank 14.1% year-on-year in the first three months of 2022. Honor was the only vendor in the top 5 to post growth (+292%).
The combination of these two factors, according to Zhao’s forecast, will lead to a decrease in sales of smartphones in China by 200 million units by the end of 2022.
In March 2022, CNews wrote that the largest Chinese smartphone manufacturers halved the number of mobile phones shipped to Russia. Oppo, Huawei and Xiaomi took this step. In April 2022, mobile phone sales sank by 30% year-on-year, both in terms of money and units.
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Quarantine measures have directly affected the production process of SMIC itself. The company’s factories could not work at full capacity – the lines were idle for five or six days during the first quarter of 2022. The company plans to compensate for the downtime in the current, second quarter.
Zhao also expressed optimism about SMIC’s prospects, noting that a diversified client portfolio that includes international customers allows the company to stand out against local competitors who are forced to focus exclusively on the Chinese domestic market.
It is worth noting that at the end of 2020, SMIC was on the “black list” of the US authorities, which made it difficult for the company to work with foreign, especially American, companies.
SMIC financial performance
SMIC delivered strong results from January to March 2022. The company’s total revenue increased 67% year-on-year to $1.84 billion. Profit rose $288 million year-on-year to $447 million, down $87 million. than in the fourth quarter of 2022
Gross margin was 40.7%, up 5.7% due to changes in SMIC’s product lines. Zhao explained that previously 40% of the company’s production capacity was involved in the production of components for smartphones. By now, this figure has dropped to about 30%, so the drop in demand for mobile phones was not so painful for SMIC.
SMIC is one of the largest semiconductor contract manufacturers in the world and the largest in China. In terms of revenue, the company is second only to TSMC, Samsung Electronics, UMC and GlobalFoundries.