Warning from China’s largest foundry: consumer demand for smartphones is softening

China’s largest foundry, Semiconductor Manufacturing International Corp. (SMIC), is nowhere close to having the same capabilities to produce cutting-edge chips as TSMC and Samsung. Still, as China dreams about being self-sufficient when it comes to chips, SMIC’s most advanced chips are basic 7nm SoCs for cryptocurrency miners, and 14nm smartphone chips. That compares to the 3nm chips that TSMC and Samsung are shipping this year.

China’s top foundry, SMIC, is a few process nodes behind TSMC and Samsung

We’ve explained it many times but the best way to explain the process node numbers without making it too complex is thus: the smaller the process node, the smaller the transistors which means that the transistor count of a chip is higher. For example, the 7nm Apple A13 Bionic SoC sports 8.5 billion transistors in each chipset. The A14 Bionic, manufactured by TSMC using its first-generation 5nm process node, carries 11.8 billion transistors, and the A15 Bionic, using TSMC’s enhanced 5nm node, has 15 billion transistors.

Huawei’s Kirin 710A chipset is manufactured by SMIC using its 14nm process node

The reason why this is important is that typically the higher a chip’s transistor count, the more powerful and energy-efficient it is. The A16 Bionic SoC, expected to power the iPhone 14 Pro and iPhone 14 Pro Max, will be produced using TSMC’s 4nm process node.

SMIC still expects its fabs to run at a high utilization rate over the next two years

Still, SMIC expects its fabs to run at a high utilization rate over the next two years as more and more devices and products in China such as appliances and cars use more chips. And SMIC is getting more business from fabless chip designers in China. The company’s shares trade on the Hong Kong stock market where the foundry has a market capitalization (stock price multiplied by the number of shares outstanding) of $201.86 billion Hong Kong Dollars ($25.76 billion USD).

Investors, fearing that the global consumer electronics slump is going to hurt SMIC, sent the foundry’s shares falling 3.1% on Friday in Hong Kong to $17.08 Hong Kong Dollars ($2.18 USD). The 52-week high is $26.30 Hong Kong Dollars while the 52-week low is $14.64 Hong Kong Dollars.