China's top chipmaker claims that smartphone, PC demand has declined substantially

Tudor Cibean

Posts: 92   +6
Staff
In a nutshell: SMIC announced that the strict lockdowns in China, coupled with the ongoing war in Ukraine, have caused demand for smartphones and PCs to drop considerably. This won't help with the global chip crisis either, as the company's factories in Shanghai are forced to operate at a reduced capacity.

SMIC CEO Zhao Haijun told analysts that demand for smartphones, PCs, and home appliances has decreased dramatically.

SMIC is currently the biggest contract chipmaker in China and the 5th largest globally, with a 5.3 percent market share last year.

Zhao claims that the war in Ukraine is partially to blame for the sales slump, as many companies have stopped selling their products in Russia, while Ukrainian citizens have cut down on non-essential spending.

However, the strict lockdowns in China are impacting SMIC's customers the most, with the CEO claiming that Chinese smartphone vendors would reduce shipments by 200 million units this year, forcing them to cancel chip orders.

This means that smartphone chips are going to take up only 29 percent of the foundry's total manufacturing capacity, as opposed to 50 percent last year.

The lockdowns are also affecting SMIC's production as the company has several factories in Shanghai, which it only managed to keep open thanks to a closed-loop system (reports say over 60 percent of workers are sleeping and living in the factories).

Even though the company is taking measures to reduce the impact of these lockdowns and the increased prices of raw materials, it still expects a five percent production loss in the second quarter.

It's worth noting that SMIC saw outstanding financial results in the first quarter, especially considering the US sanctions it has been facing. It posted $1.84 billion in revenue, a 67 percent increase year-on-year, and a net profit of $447 million, up 182 percent YoY.

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brucek

Posts: 1,126   +1,670
I'm confused, I thought the conventional wisdom was that lockdowns led to an increased demand for home communication and entertainment devices?
 

arrowflash

Posts: 515   +590
I'm confused, I thought the conventional wisdom was that lockdowns led to an increased demand for home communication and entertainment devices?

Probably the same case as in the west - most people who would purchase a new device or upgrade their devices, already did. That high post-pandemic demand wouldn't keep up forever.
 

noel24

Posts: 806   +1,066
I'm confused, I thought the conventional wisdom was that lockdowns led to an increased demand for home communication and entertainment devices?
The market is saturated with equipment already bought last two years, while the home budgets dry up, as inflation and hight energy/fuel costs run away. Not only in China.
 

brucek

Posts: 1,126   +1,670
Ahh, those explanations make sense, but being nit picky I would then say the cause is not in fact the lockdowns, it's the other factors mentioned in those explanations...
 

RedBear

Posts: 48   +40
Ahh, those explanations make sense, but being nit picky I would then say the cause is not in fact the lockdowns, it's the other factors mentioned in those explanations...
I think there's also the fact that lockdowns in China aren't quite like lockdowns here in the West, people are literally confined to their houses, it's more like a large scale quarantine, and consequently the affected people are more worried about getting enough supplies of food and water (tap water in many places is avoided) rather than updating their electronic devices.
 

cuerdc

Posts: 266   +91
If there is a chip shortage surely should be working at full capacity to reach existing demands or does a scarce product get a price increase the preferred option.
 

wujj123456

Posts: 67   +39
I think there's also the fact that lockdowns in China aren't quite like lockdowns here in the West, people are literally confined to their houses, it's more like a large scale quarantine, and consequently the affected people are more worried about getting enough supplies of food and water (tap water in many places is avoided) rather than updating their electronic devices.
In addition, the lockdown in Shanghai also restricted logistics and most online shopping sites simply stopped shipping to Shanghai. It's a lot of hassle to get things delivered even when possible, and thus most people wouldn't bother for things other than essentials. We know the 10% inflation in US is affecting consumer spending. Meanwhile, the price shock back home in Shanghai has been 2x to 3x for essentials during the lockdown, for food and basic supplies. This is going to hurt for quite a while for a lot of people.

> (tap water in many places is avoided)

Not sure where this part comes from though. I grew up in Shanghai, and my classmates come from all over the country. Haven't really heard anyone complaining about tap water. It's not advertised as drinking quality for sure, but no one drinks tap water directly back home anyway.