The artificial intelligence explosion is changing everything in the tech world. While giants like Nvidia make billions of dollars, smaller companies are struggling to find factory space for their basic components. Because the world’s biggest chip makers are focusing almost entirely on high-end AI processors, they are leaving basic chips behind. This shift is creating a massive opportunity for SMIC, China’s top chip manufacturer.
SMIC Co-CEO Zhao Haijun shared some interesting news during a recent talk with investors. He explained that overseas customers are now moving their orders to China in record numbers. Since factories in other countries are completely full, SMIC is one of the only places left with open production lines. Zhao noted that this isn’t just happening in one small area; it is happening across the entire semiconductor industry.
The problem boils down to a massive shortage of “legacy” chips. These are the older, larger chips that power things like car windows, microwave ovens, and basic computer parts. Big factories in Taiwan and South Korea are spending over $1 billion to build new AI-focused lines. To make room for these high-profit parts, they are stopping production on their older designs. SMIC is stepping into that gap, providing the mature technology that the rest of the world still needs to keep everyday machines running.
To meet this new demand, SMIC is building at a breakneck pace. The company just added 9,000 new 12-inch wafers of production capacity in the first quarter of the year. This expansion is expensive, though. Zhao expects the company’s depreciation expenses—basically the cost of their expensive equipment wearing out—to jump by about 30% this year. In the first three months of 2024 alone, these costs already climbed by 26% compared to last year.
Even with all this new space, SMIC is keeping its factories very busy. The company reported a 93% utilization rate for its facilities recently. This number is slightly lower than the end of last year, but there is a simple reason for it. SMIC opened several brand-new factories in the first quarter. When you add more total capacity to your network, the percentage of the factory in use looks lower on paper even if you are physically making more chips than before.
China remains the company’s biggest market by far. About 89% of SMIC’s revenue comes from domestic clients. However, the United States still accounts for 9% of their business. During the last three months, the company shipped 2.5 million wafers to its customers. This volume stayed steady, showing that even with global trade tensions and political arguments, SMIC is maintaining its position as a major global supplier.
Data from Semicon China, the world’s biggest chip trade fair, shows that China’s influence is growing. Experts predict that Chinese factories will control 37% of the world’s legacy chip market this year. This covers the 22-nanometer to 40-nanometer range. By 2027, that share could reach 41%. Just a year ago, in 2025, that number sat much lower at 32%. This shows that China is quickly becoming the world’s primary source for the chips that run our daily lives.
While things look good for older chips, SMIC still faces major hurdles with advanced technology. US export controls make it very difficult for the company to build high-end 7-nanometer chips. They cannot easily buy the specialized machines needed for that work. Because of this, SMIC is leaning heavily into the older mature nodes where they can compete without needing the newest American or Dutch tools. They are choosing to win the market for “regular” chips rather than losing a fight for the most advanced ones.
Zhao also pointed out some struggles in the smartphone market. At the end of last year, phone makers started cutting their orders. They were worried they wouldn’t have enough memory chips to finish their phones, so they slowed down everything else. This caused a slight ripple effect that lasted into the first part of this year. However, the overall demand for chips remains strong as the AI craze continues to push the limits of what global factories can produce.
The company believes this isn’t just a short-term lucky streak. Zhao described the current situation as a long-term trend. As AI chips and “edge” applications—like smart cameras and sensors—keep growing, they will continue to squeeze the capacity for everything else. This means the world might have to rely on Chinese factories for basic electronics for many years to come. SMIC is betting that being the king of regular chips will be just as profitable as chasing the high-end AI market.
