Semiconductor Manufacturing International Corp (SMIC), the largest contract chipmaker in China, reported a marked increase in orders from international clients as artificial intelligence-related demand tightens capacity at foundries outside China. On its recent earnings call, co-CEO Zhao Haijun said that many overseas customers are shifting production to Chinese facilities because available production capacity remains concentrated here.
"There are still quite a lot of semiconductor capacity expansion projects and companies in China," Zhao said. "These are among the few places with available production capacity, so we are seeing many overseas customers shift their orders to be manufactured in China." He added that as the biggest domestic foundry, "SMIC is probably seeing the biggest share of this. This is happening across the board."
Zhao explained that the global reallocation of manufacturing capacity largely reflects the prioritization of AI-centric products and other high-bandwidth applications. Many semiconductor manufacturers have repurposed factory output toward AI chips, memory and similar high-performance lines, reducing the slots available for legacy or older-node foundry work. "Some products that were previously made at overseas foundries are no longer being produced there," he said.
SMIC has continued an aggressive program of capacity expansion, positioning itself to serve rising demand from Chinese chip designers. The company noted, however, that its ambitions to scale cutting-edge 7-nanometre manufacturing are constrained by existing U.S. export controls.
On costs, SMIC anticipates a significant rise in depreciation expense as a result of investment in new facilities and tooling. The company expects depreciation to increase by about 30% from the prior year, and reported first-quarter depreciation and amortization up 26% year on year. In the first quarter, SMIC added 9,000 12-inch equivalent wafers of capacity.
Utilisation, a measure of how intensively capacity is used, was 93% in the first quarter, a slight decline from the fourth quarter. Zhao attributed part of the dip to a reduction in smartphone orders late last year, when some phone makers cut orders amid concerns over shortages of supporting memory chips. He also noted that the start-up of new fabs in the first quarter increased overall capacity, which had the effect of lowering utilisation on a percentage basis.
Geographically, China accounted for the vast majority of SMIC's revenue in the quarter, making up 89% of sales, while the U.S. market contributed 9%. Shipment volumes for the period totaled 2.5 million 8-inch equivalent wafers, unchanged from the prior quarter.
Industry data cited on the call projects an increase in Chinese foundries' share of global legacy-node capacity in the 22nm to 40nm range. That share is expected to reach 37% this year and rise to 41% in 2027, up from 32% in 2025. Zhao warned that continued growth in demand for AI-related chips and edge applications next year "could further squeeze capacity for non-AI products," and called this trend a long-term development.