SMIC, China’s Leading Chip Manufacturer, Plans Major Investment to Boost Production and Combat US Sanctions After ~55% Decline in Q2 Profits

This article does not constitute investment advice. The author currently holds no positions in any mentioned stocks.

SMIC, the preeminent chip manufacturer in China, is actively working to strengthen its foothold in the domestic technology sector. The company has announced plans to acquire entities under its control, most notably pursuing a full acquisition of the Semiconductor Manufacturing North China (Beijing) Corporation (SMNC).This strategic move comes at a time when SMIC is grappling with profitability issues, largely driven by China’s efforts to enhance its semiconductor capabilities amidst ongoing US sanctions.

Strategic Expansion Amid Financial Challenges

Just a quarter after its prior announcement in May, SMIC reconfirmed its commitment to a substantial capital expenditure of $7 billion for the year. This decision persists despite the challenges posed by international tariffs, which have complicated cash flow forecasts for the latter half of 2025. Management expressed concerns regarding over-ordering resulting from these tariffs, creating further unpredictability in their financial outlook.

SMIC’s recent second-quarter earnings report illustrates the tangible effects of these tariffs. The company managed a slight increase in revenue, rising from $1.9 billion in Q2 of the previous year to $2.2 billion. However, profits faced a significant downturn, plummeting by 19.5% to $146 million, compared to $172 million a year earlier and reflecting a staggering 54.6% decline from the prior quarter.

Summary table of second quarter 2025 operating results with earnings per share listed as $0.02 for both basic and diluted. — SMIC’s earnings report for the second quarter.

In light of ongoing challenges, SMIC has disclosed via the Hong Kong Exchange its intent to acquire a 49% stake in SMNC. Although financial constraints necessitate funding the acquisition through the issuance of new shares, this announcement unexpectedly buoyed SMIC’s stock, which saw a 5% increase in trading on the announcement day.

The firm has indicated that the acquisition is still in its preliminary stages. Communication with involved parties is ongoing, and detailed plans—including the specific share pricing—will be forthcoming.

Following the acquisition news, SMIC’s shares had surged by 6.8%, albeit moderating from an initial 10% spike on the Shanghai exchange. This strategic consolidation reflects a concerted effort to enhance market positioning, driven by a rising domestic demand for semiconductors amidst escalating trade tensions with the United States. Smaller competitor Hua Hong Semiconductor has similarly gained traction in this dynamic environment.

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