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Chinese chip manufacturer SMIC is seeking to consolidate its presence in the domestic industry by buying entities that it controls. SMIC is China's largest chip manufacturer, as the firm is the leading-edge chip fabrication company in the country. According to a statement last week, SMIC outlined that it would completely acquire the Semiconductor Manufacturing North China (Beijing) Corporation (SMNC) even as its profitability struggles amidst Beijing's push to boost its domestic chip production as it contends with US sanctions.
SMIC Struggles To Achieve Profitability But Continues Expenditure As Planned
SMIC's announcement comes a quarter after the firm outlined in May that it would continue to spend $7 billion in capital expenditure this year despite headwinds created by tariffs. In an earnings call, management warned that over-ordering due to tariffs made predicting its cash flow for the second half of 2025 difficult. They added that the pricing increases brought by tariffs created another headwind.
On the dot, SMIC's second-quarter earnings demonstrated the impact of tariffs. While the firm did manage to modestly grow its revenue to $2.2 billion in the second quarter from the year-ago quarter's $1.9 billion, its profit dropped by a whopping 19.5%. During Q2, China's largest chip manufacturer earned $146 million in profit, which was not only lower than the year-ago quarter's $172 million but marked a 54.6% drop over the first quarter figures.
Despite the headwinds, SMIC announced in a filing with the Hong Kong Exchange that the firm will acquire a 49% interest in the Semiconductor Manufacturing North China (Beijing) Corporation (SMNC). Owing to its cash flow problems, the acquisition will be funded by issuing new shares, but despite the equity dilution, SMIC's shares gained 5% during trading on the day of the announcement.
The firm was careful to note that the transaction was still in the planning stages and that it was "currently in contact with the intended transaction parties." SMIC added that it would disclose the specific plan for the transaction in an additional document, with the specifics of the deal, such as the issuing share price, still subject to negotiation.
SMIC's shares have gained 6.8% since the deal was announced after paring back some of their gains. Immediately after the announcement, the stock had added 10% on the Shanghai exchange as the firm joined smaller peer Hua Hong Semiconductor to consolidate its market position as domestic demand for Chinese chips rises amidst trade tensions with the US.
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