Semiconductor Manufacturing International Corporation (SMIC) reported a 23.2% year-on-year increase in net profit to 12.23 billion yuan ($1.7 billion) for the fourth quarter of 2025, as the Chinese chipmaker navigates a market reshaped by artificial intelligence demand. The company's capacity utilization hit 95.7% despite the traditional off-season, with 8-inch facilities running above full capacity and 12-inch lines nearing maximum output.

Co-CEO Zhao Haijun disclosed that AI's voracious appetite for memory chips is creating supply constraints that ripple through consumer electronics markets, particularly affecting mid-to-low-end smartphone production. The phenomenon has triggered what Zhao described as panic-driven ordering, with storage demand "amplified" as industry participants grow anxious about supply availability.

SMIC maintained its capital expenditure at $8.1 billion for 2025, exceeding initial projections, and plans to sustain that level through 2026. The company projects full-year 2026 revenue growth above industry peers, though it faces headwinds from cyclical volatility in the memory sector.

The results underscore how AI infrastructure buildout is reshaping semiconductor supply chains, creating winners in specialized segments while pressuring traditional consumer-focused capacity.

Off-Season Strength Driven by Structural Shift

SMIC's fourth-quarter revenue reached $2.489 billion, up 4.5% sequentially, defying typical seasonal weakness. The company added 16,000 wafers of 12-inch monthly capacity during the quarter while maintaining utilization rates near maximum levels across its facilities.

Zhao attributed the performance to sustained product cycle transitions and concentrated photomask shipments at year-end. Total monthly capacity reached 1.059 million 8-inch equivalent wafers by year-end, an increase of approximately 111,000 wafers compared to the prior year.

The capacity expansion coincided with improving profitability. Full-year gross margin reached 21.0% under international financial reporting standards, up 3.0 percentage points from 2024. Annual capacity utilization averaged 93.5%, an 8-percentage-point improvement year-over-year, supporting shipment volumes of approximately 9.7 million 8-inch equivalent wafers.

AI Memory Crunch Creates Market Dislocation

The company's management provided detailed analysis of demand dynamics reshaping the semiconductor landscape. Zhao explained that AI applications' intensive memory requirements are constraining chip supply available to other sectors, particularly mid-to-low-end smartphone manufacturers.

This supply squeeze subjects terminal device makers to dual pressures of restricted availability and rising prices. While manufacturers can pass cost increases to consumers through price hikes, Zhao noted this approach ultimately dampens end-product demand, creating a feedback loop that reduces wafer orders from traditional consumer segments.

The result is pronounced order bifurcation: declining orders for mid-to-low-end applications offset by increasing demand for AI-related, storage, and high-end applications. Zhao characterized the storage demand surge as driven by crisis mentality, with market participants "somewhat panicked," artificially magnifying near-term requirements.

SMIC positions itself to benefit from this shift through technical capabilities in BCD (Bipolar-CMOS-DMOS), analog, storage, MCU (microcontroller units), and mid-to-high-end display driver segments. Management expressed confidence these specialized strengths will enable the company to maintain favorable positioning through the current industry cycle.

Elevated Investment Sustained Through 2026

Capital expenditure for 2025 totaled $8.1 billion, above initial guidance. Zhao cited strong customer demand, external environment changes, and extended equipment delivery timelines as factors driving the higher spending.

For 2026, SMIC plans capital investment roughly flat with 2025 levels, maintaining an aggressive expansion posture. The company issued first-quarter guidance for sequential revenue stability and gross margins between 18% and 20%, compared with 19.2% in the fourth quarter.

Full-year 2026 revenue growth is targeted above comparable industry averages, contingent on stable external conditions. The company acknowledged it must balance opportunities from supply chain regionalization against challenges posed by cyclical memory market fluctuations.

Financial fundamentals remained solid, with total assets reaching 367.72 billion yuan as of December 31, 2025, up 4.0% year-over-year. Shareholders' equity attributable to listed company owners stood at 150.87 billion yuan, a 1.8% increase. Return on equity improved to 0.81% for the full year from 0.68% in 2024, while basic earnings per share rose 25.0% to 0.15 yuan.

The company's non-GAAP net profit reached 9.47 billion yuan in the fourth quarter, surging 112.4% year-over-year, reflecting core operational strength despite a 23.0% decline in operating profit to 21.14 billion yuan, which was affected by higher financial expenses and reduced investment income.