Shares of Semiconductor Manufacturing International Corp (HK:0981), China’s largest contract chipmaker by capacity, fell sharply in Hong Kong trading on Wednesday after management issued a sober near-term outlook and flagged memory supply constraints.
SMIC’s stock dropped 3.6% to HK$68.95, underperforming the Hang Seng index, which rose 0.4% over the same session.
Management cautioned that the company will face greater margin pressure this year as it increases capacity to keep pace with surging chip demand. The company said depreciation and other costs are expected to rise as it scales up production, and it forecast a 30% increase in depreciation costs in 2026. For the current quarter, SMIC guided to flat revenue growth.
Co-CEO Zhao Haijun said that the robust AI-driven demand for memory chips has tightened supplies for other areas of the market, particularly consumer electronics. Zhao warned that this squeeze is producing memory shortages and raising costs for device manufacturers, a dynamic he linked directly to the strong AI-related pull on memory capacity.
Those warnings largely offset investor reaction to the firm’s fourth-quarter financial performance. SMIC reported a 60.7% surge in net profit, supported by strong domestic chip demand, and revenue climbed nearly 13% as the company benefitted from elevated orders related to the AI industry.
The company’s results also reflect ongoing policy support, the firm said, from Beijing’s push for greater self-reliance in the AI sector that has increased reliance on locally sourced chips.
SMIC’s comments reverberated through the broader Chinese chipmaking complex. Shares of several major peers declined between 1% and 2% following the announcement, including Hua Hong Semiconductor Ltd (HK:1347), Cambricon Technologies Corp Ltd (SS:688256), and Moore Threads Technology Co Ltd (SS:688795).
Outlook and market implications - while the quarter’s top-line and bottom-line gains highlight strong AI-driven demand, the company’s guidance points to near-term headwinds for margins as elevated depreciation and rising costs accompany capacity expansion. The stated memory supply tightness could transmit higher component costs to consumer-electronics manufacturers and other device makers that rely on the same memory pools.
Investors and industry participants will likely monitor how rising depreciation and the memory supply dynamic affect SMIC’s margin profile and how quickly the company can scale capacity without eroding profitability.