Chipmakers eye demand recovery in H2

China's major chip foundries saw revenue and profit drop in the second quarter amid geopolitical uncertainties and weakening demand, but industry experts said they expect a recovery in the second half on the back of demand from the smartphone sector.

Semiconductor Manufacturing International Corp, the biggest manufacturer of semiconductor chips on the Chinese mainland, posted revenue of $1.56 billion in the second quarter, an 18 percent decrease year-on-year. Its net income also declined 21.7 percent to $402.76 million during the period.

Hua Hong Semiconductor, another major chip foundry, reported a 1.7 percent year-on-year increase in revenue to $631 million in the second quarter. However, gross profit rate at the company, which earlier this year made the world's second-largest initial public offering, dropped 5.9 percentage points year-on-year to 27.7 percent.

The market, especially the smartphone and consumer electronics segments, has recovered slower than expected, said SMIC's co-CEO Zhao Haijun, adding that he expected revenue in the second half of the year to be "better than that in the first half".

The company will strengthen technology research and development, verify new products quickly, arrange support capacity as soon as possible, and fully prepare for the next growth cycle, Zhao said.

Industry experts said the global tech industry downturn has deepened amid rising geopolitical tensions, and the smartphone market, one of the most important for chips, has been declining for several quarters, with China being no exception.

Data from the China Academy of Information and Communications Technology showed that over 22 million smartphones were shipped in the domestic market in June, a year-on-year decrease of 20.9 percent. Of these, shipments of 5G mobile phones saw a 24.8 percent drop year-on-year.

"With more policies and an expected recovery of the smartphone market, chip and related component demand is likely to pick up in the second half," said Li Hui, an analyst at Huajin Securities.

In addition, as OpenAI's generative artificial intelligence platform ChatGPT takes the tech world by storm, technology companies also expect it to help reverse the chip industry's pessimistic outlook for 2023.

Jensen Huang, CEO of AI chip giant Nvidia, said at a recent news briefing that the modified chips are fully compliant with US export rules and that demand for Nvidia's advanced AI chips in China has surged recently.

"Alibaba, Tencent and Baidu are all excellent partners and I fully expect them to have the most advanced systems there for them to do AI computing," Huang said.