Semiconductor Manufacturing International Corp (SMIC) expects depreciation to increase by about 30% in 2026 as it continues large-scale investment to expand production capacity, the company said on Wednesday. Management framed the higher depreciation as a direct consequence of sustained capital expenditure intended to capture strong demand from Chinese chip designers.
On an earnings call, SMIC’s co-CEO said the business maintained high capital spending, which propelled rapid revenue growth but also applied "considerable depreciation pressure on gross profit margins." That comment accompanies a broader shift in the semiconductor supply chain that the company said has moved from an overseas mix - where design and manufacturing were split across borders - to manufacturing increasingly taking place inside China.
Within that transition, SMIC identified the product groups moving fastest to domestic production. Analog circuits showed the most rapid conversion to local output, followed by display drivers, image sensors and memory, microcontrollers (MCUs) and logic chips.
On capacity, SMIC plans to add roughly 40,000 12-inch equivalent wafers per month by the end of this year. The company had already added 50,000 12-inch equivalent wafers in monthly capacity in 2025. Despite the additions, management cautioned that pre-purchases of critical equipment and delays on ancillary systems have created timing mismatches - meaning equipment already acquired may not immediately translate into full production capacity within the same year.
The company also pointed to demand dynamics in memory markets. SMIC said strong AI-related memory demand was constraining supply to other sectors, particularly mid-to-low-end mobile phones. That pressure has produced memory shortages and contributed to upward price pressure on memory components.
SMIC reported fourth-quarter results showing a notable beat versus analyst expectations. Net profit for the period rose 60.7% to $172.85 million, above the $170.3 million consensus figure cited by LSEG data. Revenue climbed 12.8% to $2.49 billion, topping forecasts of $2.42 billion.
Operational metrics showed modest quarterly gains. The company's monthly production capacity rose 3.5% quarter-to-quarter to 1.06 million eight-inch equivalent wafers, while utilization - a measure of production intensity at foundries - was reported at 95.7%, essentially unchanged from the third quarter. SMIC shipped 2.51 million eight-inch equivalent wafers in the fourth quarter, up 0.6% from the prior quarter.
On spending guidance, SMIC disclosed capital expenditure for 2025 totaled $8.1 billion, an increase of 10.5% from 2024 and above the company's earlier projection. Management expects first-quarter revenue this year to be flat compared with the fourth quarter, and it indicated that 2026 capital spending should be at similar levels to 2025.
Separately, the company acknowledged that timing mismatches between critical equipment purchases and pending ancillary systems could limit the speed at which newly acquired tools are converted into usable capacity during the year.
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Key points
- SMIC expects depreciation to rise about 30% in 2026 as a result of sustained capital spending to increase wafer capacity.
- The semiconductor supply chain is shifting toward Chinese production, with analog circuits, display drivers, image sensors, memory, MCUs and logic chips moving domestically at varying speeds.
- Operationally, SMIC posted a 60.7% jump in fourth-quarter profit to $172.85 million and revenue of $2.49 billion, while capacity and utilization metrics showed modest increases.
Sectors impacted: Semiconductors, memory, mobile phones, electronics manufacturing and foundry services.
Risks and uncertainties
- Depreciation and margin pressure - High capital expenditure is boosting depreciation, which the company says is placing pressure on gross profit margins.
- Timing mismatch in equipment deployment - Pre-purchased critical tools and pending ancillary equipment could delay conversion of purchased equipment into full production capacity, limiting near-term capacity gains.
- Memory supply squeeze - Elevated AI memory demand is tightening supply to other end markets, particularly mid-to-low-end phones, creating shortages and upward pricing pressure.