By Sherry Qin

SMIC, China's biggest chip foundry, reported weaker-than-expected net profit at the start of the year as it continued expanding capacity amid Beijing's push for chip localization.

Semiconductor Manufacturing International Corp.--widely seen as a proxy for Beijing's chip-making ambitions--reported a 5% rise in first-quarter net profit.

Net profit came in at $197.4 million, missing a Visible Alpha consensus estimate of $223.6 million.

The company's bottom line was weighed down by sharply higher operating expenses, which rose 30% from a year earlier and 43% from the previous quarter.

Revenue rose 11.5% from a year earlier to $2.505 billion, meeting market expectations and the firm's own guidance.

"Based on customer demand and order in hand, we are more optimistic about our overall business for this year compared to last quarter," the Shanghai-based company said Thursday.

It sees scope for momentum to pick up in the second quarter, guiding for sequential revenue growth of between 14% and 16% and a gross margin of 20% to 22%.

During the first quarter, SMIC's gross margin stood at 20%, beating consensus expectations as investors look to see if the company's aggressive capacity expansion has pressured profitability.

As China's most advanced chip foundry, SMIC has a central role to play in Beijing's push to become technologically self-sufficient as it looks to overcome U.S. curbs limiting access to the advanced semiconductors needed for artificial intelligence.

That policy backdrop positions SMIC to benefit from Chinese companies shifting toward domestic chips. Still, like others in the industry, it faces headwinds from the memory supply crunch and geopolitical tensions.

SMIC co-Chief Executive Zhao Haijun has warned that Chinese foundries are seeing weaker orders from mid- to low-end smartphone makers due to the AI-driven surge in memory prices. As global supply is redirected toward AI, electronics makers have struggled to secure the components.

Concerns about the memory crunch helped drive a nearly 30% drop in SMIC shares in the first quarter. Investors have also worried about the cost of the chip maker's capacity expansion, particularly in advanced technologies that are expensive and difficult to scale.

None of that has stopped the stock from rebounding this quarter, buoyed by market optimism about AI and the prospects of Chinese chips starting to close the gap on foreign-made ones.

Developments such as homegrown AI firm DeepSeek launching a new model have boosted hopes that Chinese AI companies could gradually shift to domestic suppliers, benefiting local chip designers such as Cambricon Technologies and foundries like Semiconductor Manufacturing International Corporation.

Calling SMIC the "central manufacturing pillar" of China's AI ecosystem, Morgan Stanley said the company's ability to support increasingly complex chip designs will remain key to Beijing's progress toward AI self-sufficiency.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

May 14, 2026 07:24 ET (11:24 GMT)

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