SMIC Draws Overseas Chip Orders as AI Strains Global Capacity

BEIJING — Semiconductor Manufacturing International Corp. delivered a pointed message this week. Foreign customers have begun shifting production back to China. The reason? Artificial intelligence has swallowed capacity at foundries abroad, leaving SMIC as one of the few places still able to take new business.

The development marks a reversal in the chip supply chain. Years of export controls and efforts to diversify away from China have not stopped the pull of available production lines. Demand for AI chips and related memory has redirected capacity at major players like TSMC toward high-margin work. Legacy nodes, long the backbone of consumer electronics and automotive parts, suddenly face bottlenecks.

Capacity Crunch Reshapes Order Flows

SMIC co-CEO Zhao Haijun laid it out plainly on the company’s first-quarter earnings call. “There are still quite a lot of semiconductor capacity expansion projects and companies in China,” he said. “These are among the few places with available production capacity, so we are seeing many overseas customers shift their orders to be manufactured in China.” (Reuters, May 15, 2026)

He didn’t stop there. “As the largest domestic foundry, SMIC is probably seeing the biggest share of this. This is happening across the board.” Some products once handled exclusively overseas have simply stopped production at those sites. The shift, Zhao added, reflects a long-term trend. “As demand for AI-related chips and edge applications keeps growing next year, it could further squeeze capacity for non-AI products. We believe this is a long-term trend.”

SMIC’s own numbers back the story. The company shipped 2.5 million 8-inch equivalent wafers in the first quarter. Utilization held at 93 percent, even as new fabs came online and some smartphone orders softened. It added 9,000 12-inch equivalent wafers of capacity during the period. Depreciation and amortization jumped 26 percent year-over-year. Executives expect full-year depreciation to rise about 30 percent as expansion continues. (Yahoo Finance, May 15, 2026)

China accounted for 89 percent of SMIC’s first-quarter revenue. The U.S. contributed 9 percent. Those figures underscore how thoroughly Beijing’s self-sufficiency drive has reshaped the company’s customer base. Yet the new overseas orders signal that pragmatism can override policy when factories sit idle elsewhere.

Analysts see the pattern spreading. Chinese foundries’ share of global legacy-node capacity — the 22- to 40-nanometer range — is forecast to climb to 37 percent this year and 41 percent by 2027, up from 32 percent in 2025. Data come from Semicon China, the industry’s largest trade gathering. The numbers reflect both aggressive building in China and the redirection of global demand.

But. Not every part of the market tells the same tale. SMIC’s push into 7-nanometer technology still runs into U.S. equipment restrictions. The company bets heavily on domestic designers hungry for advanced nodes. Huawei and others have poured resources into localized supply chains. That domestic focus remains the core bet.

Zhao also addressed near-term turbulence. Smartphone makers slashed orders late last year over fears of memory shortages. The impact spilled into the first quarter. New factory startups diluted utilization rates. Still, SMIC guided for 14 to 16 percent sequential revenue growth in the second quarter. That pace outruns many Wall Street forecasts. First-quarter revenue reached $2.505 billion. Profit rose 5 percent year-over-year but missed analyst targets. (Wall Street Journal, Feb. 10, 2026, with updates in recent coverage)

The broader industry picture grows more complex. Global semiconductor capacity keeps expanding, yet AI siphons the newest lines. Mature processes — essential for cars, industrial equipment, and consumer devices — receive less investment from leading foundries. TSMC has signaled plans to trim some 12-inch mature-node output. That decision funnels overflow directly toward Chinese suppliers. Industry projections show average utilization for older 8-inch wafers at top foundries approaching 90 percent in 2026.

SMIC founder and industry veteran Richard Chang recently noted that advanced nodes represent less than 20 percent of global semiconductor demand by volume. More than 80 percent lies in mature and specialty segments. Chinese firms, he argued, could carve out advantages in those niches where foreign players still dominate. Recent comments from SMIC leadership echo that view. Domestic chip companies have replaced foreign rivals in multiple categories, sometimes growing tenfold in two years. (Nikkei Asia, Aug. 8, 2025)

Geopolitical tension has not vanished. U.S. tariffs and export rules remain. Yet SMIC executives downplay their immediate bite on orders. The company’s 2026 action plan targets sales growth above the industry average. Capital spending should stay roughly in line with 2025’s roughly $8 billion level. Expansion continues. New facilities rise across multiple Chinese cities.

So the orders flow in. Foreign clients, facing tight supply abroad, accept the trade-offs. They gain guaranteed capacity. SMIC gains revenue diversification and validation of its processes. Chinese policymakers gain another data point in their self-reliance narrative. The arrangement satisfies multiple interests — at least for now.

Longer term, risks accumulate. Further U.S. restrictions could tighten equipment access. Domestic wafer supply still depends partly on foreign sources, though Beijing aims to raise local silicon wafer usage sharply. SMIC has pressed clients to test and adopt Chinese-made wafers. Success there would strengthen the entire local chain.

Investors have taken notice. SMIC shares reacted positively to the earnings and outlook. The company ended 2025 with record revenue above $9 billion. Margins have fluctuated. First-quarter gross margin guidance landed between 20 and 22 percent. Price negotiations with customers on scarce products should help lift future profitability.

The story extends beyond one earnings call. Global chip demand no longer moves in simple cycles. AI has introduced a permanent high-priority claimant on manufacturing resources. That claimant sits at the top of the queue. Everything else — from power-management chips to image sensors — competes for what remains.

SMIC sits squarely in that competition. Its factories run near full. Its customer list now includes names that once avoided Chinese production for risk reasons. The shift happened quietly. Then it accelerated. Zhao’s comments this week simply made it official.

Whether the trend reverses depends on how quickly the rest of the world adds capacity. Few expect rapid relief. Billions have been pledged to new fabs in the U.S., Europe, and Asia. Construction timelines stretch years. In the interim, available capacity dictates terms. And right now, a meaningful slice of that capacity sits inside China.

SMIC intends to keep it that way. More expansion. More specialization in automotive-grade and power technologies. Steady progress on the nodes it can reach. The company no longer hides its ambition. It broadcasts it on earnings calls for the world to hear.