As the domestic demand rises, the foundry is performing better these days.
Although COVID-19 has not been controlled well globally, the semiconductor industry is gradually recovering, especially for domestic consumption in China. This might be a sign of benefits arising from two main factors. Firstly, the US-China trade war is accelerating homemade production in China, and China has directed more attention towards high-tech firms these days. Secondly, COVID-19 is triggering the coming of the intelligence era, and new applications based on 5G and AIoT are lifting demand for electronic components.
As a representative of China's Integrated Circuit (IC) foundry, SMIC’s operating income and gross profit rates are positively affected by the above phenomena. Specifically, its operating incomes rose 32.6% to CNY 7.64 billion in the third quarter of 2020. Its gross profit rates increased by 20.8% to CNY 1.74 billion from the second quarter.
According to SMIC's financial reports in the third quarter, its expenses in R&D and marketing expenses increased by 0.3% and 27.6% separately, but the administrative costs decreased 4.1%, lowering 56.9% of its total costs. This could be a sign of SMIC's operating efficiency. However, the US's negative influence over Huawei may affect SMIC's profits in the fourth quarter, as Huawei is its primary customer.