On the evening of August 7th, SMIC and Hua Hong, the two major foundry leaders, both released their financial reports for the second quarter of 2025.
In the financial report data, the significant increase in capacity utilization of the two foundries was more impressive compared to revenue growth: SMIC is approaching full production, and Hua Hong's utilization rate has exceeded 100% again.
Subsequently, in today's financial report briefing, SMIC CEO Zhao Haijun released several signals regarding the foundry market. The key points of the semiconductor industry were summarized.
<h2>SMIC, releasing five signals</h2>
First, the impact of tariff policies on SMIC is relatively small. This month, the U.S. stated it would impose a 100% tariff on global semiconductor products. SMIC indicated that in the previous May and June, it had coordinated with every overseas customer to assess the increase in costs and the extent of the impact, concluding that the overall impact is less than 10% for customers. If calculated based on SMIC's 13% revenue share at that time, the affected portion is approximately 1.3%.
Second, the shipment volume of automotive electronic products continues to grow steadily. The main revenue contributions come from various types of automotive chips, including analog, power management, image sensors, logic, embedded memory, and controllers. Additionally, SMIC mentioned that the China for China supply chain is taking shape, particularly in the automotive industry, which will cooperate with international customers to establish third-generation semiconductor capacity such as SiC (silicon carbide) and GaN (gallium nitride).
Third, the newly added power device capacity remains in short supply after scaling up. SMIC is laying out power device capacity primarily to meet the needs of strategic customers.
Fourth, with a capacity utilization rate of 92%, SMIC is in a state of being unable to accept all orders. Orders until October are significantly higher than capacity, making it impossible to take on all orders and immediately roll them out. The current capacity utilization rate of the company is 92.5%, mainly due to two reasons. On one hand, a considerable portion of capacity needs to be allocated for R&amp;D; on the other hand, the company follows prudent financial rules, where equipment entering the factory and mass production, even if some equipment cannot be produced due to incomplete product verification, will still be counted as part of capacity, thus lowering the utilization rate.
Fifth, regarding the visibility and outlook of orders in different downstream segments, SMIC stated that the domestic customer substitution rate in the network field (including wired networks, WiFi, etc.) is extremely high; the domestic memory industry has seen significant capacity growth; the order stability in the mobile phone sector is strong; and the recovery of domestic industrial and automotive demand is significant.
From the specific performance data, these signals have also been further confirmed and presented.
<h2>The two giants of foundry, capacity utilization rates both &#34;explode&#34;</h2>
In the second quarter, SMIC achieved total sales revenue of $2.209 billion, a decrease of 1.7% quarter-on-quarter; the gross margin was 20.4%, a decrease of 2.1 percentage points quarter-on-quarter; and the capacity utilization rate was 92.5%, an increase of 2.9 percentage points quarter-on-quarter.
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Despite the unexpected events causing production fluctuations in the new production lines of SMIC in the first quarter of this year, and the related impacts continuing into the second quarter, revenue and gross margin have decreased quarter-on-quarter.
In comparison to the previous quarterly report, SMIC provided a revenue guidance for the second quarter indicating a quarter-on-quarter decline of 4% to 6%, with shipment volumes expected to be relatively stable and average selling prices expected to decrease; the gross margin guidance was set at 18% to 20%. It is evident that the actual performance in the second quarter was better than the previous forecast.
In terms of net profit attributable to shareholders, SMIC achieved USD 132 million in the second quarter, a year-on-year decrease of 19.5% and a quarter-on-quarter decrease of 29.5%.
Regarding capacity utilization, the second quarter was at 92.5%, an increase of 0.9 percentage points from the first quarter of this year. SMIC's monthly production capacity in the second quarter increased from 970,000 wafers (equivalent to 8-inch standard logic) in the first quarter of 2025 to approximately 990,000 wafers (equivalent to 8-inch standard logic); in the second quarter of 2025, the company achieved sales of 2.3902 million wafers (equivalent to 8-inch standard logic), with shipment volume increasing by 4.3% quarter-on-quarter and 13.2% year-on-year.
In terms of capital expenditure, the second quarter of 2025 was USD 1.885 billion, compared to USD 1.415 billion in the first quarter.
SMIC stated that in the second quarter, demand for analog chips grew significantly across platforms. Among them, analog chips widely used in mobile fast charging, power management, and other fields are currently in a phase where domestic companies are accelerating the replacement of overseas shares. The company has previously collaborated deeply with these domestic customers to customize devices and process platforms for them, thus gaining incremental orders during the replacement process, driving capacity utilization to continue to rise. Additionally, revenue from the image sensor platform grew by over 20% quarter-on-quarter, and revenue from RF also saw a significant increase.
Looking ahead to the third quarter, SMIC provided a revenue guidance in the second quarter financial report indicating a quarter-on-quarter growth of 5% to 7%, with a gross margin guidance of 18% to 20%.
Hua Hong's capacity utilization reached 108.3%.
In the second quarter of this year, Hua Hong achieved sales revenue of USD 566.1 million, a year-on-year increase of 18.3% and a quarter-on-quarter increase of 4.6%; the gross margin was 10.9%, up 0.4 percentage points year-on-year.
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In the second quarter, the net profit attributable to shareholders was approximately USD 8 million, a year-on-year increase of 19.2% and a quarter-on-quarter increase of 112.1%.
In terms of revenue by technology platform, Hua Hong's sales revenue for analog and power management products saw the highest growth in the second quarter, reaching USD 161 million, a year-on-year increase of 59.3%, accounting for 28.5% of total revenue; sales revenue for standalone non-volatile memory was USD 27.6 million, a year-on-year increase of 16.6%.
Hua Hong stated that thanks to the increased demand for analog, logic, and flash memory products, sales revenue for products at 65nm and below technology nodes in the second quarter reached USD 125.5 million, a year-on-year increase of 27.4%
In terms of capacity utilization, Hua Hong reached 108.3% in the second quarter, an increase of 5.6 percentage points quarter-on-quarter; the equivalent of 1.305 million 8-inch shipped wafers, a year-on-year increase of 18% and a quarter-on-quarter increase of 6%.
During the reporting period, the company continuously launched market-competitive new products, further optimizing its product structure. Among them, the 40nm high-voltage OLED display driver chip has achieved small-batch production; the 55nm mid-to-high-end BSI and stacked CIS chips have achieved mass production, with CIS product pixels reaching 50 million, and the products have entered the mid-to-high-end smartphone market.
Hua Hong's main operating revenue comes from the 150nm to 90nm technology nodes, with a rapid growth in revenue share from the 55nm technology node. From the classification of process nodes in the first half of 2024, the revenue proportions of 55nm, 90nm, 110nm, and 150nm in the main business are 8.99%, 45.46%, 29.40%, and 16.14%, respectively.
Hua Hong disclosed that it expects third-quarter sales revenue to be between $620 million and $640 million, with a gross margin expected to be between 10% and 12%.
Hua Hong's President and Executive Director Bai Peng wrote in the performance review, &#34;As the new 12-inch production line in Wuxi steadily advances in capacity ramp-up, the company will achieve a comprehensive upgrade from capacity scale to technology ecosystem.&#34;
So, what trends in the wafer foundry market can be interpreted from these financial reports?
<h2>Wafer Foundry &#34;Localization&#34; is an Important Label</h2>
From the data on &#34;capacity utilization&#34; and &#34;revenue from mainland China&#34; of the two companies mentioned above, two pieces of information can be captured.
The first point is that the trend of returning foundry business for Chinese chip design companies is evident.
Since Q1 2024, the revenue share of SMIC from mainland China has increased from 81.6% to 84.1%, and capacity utilization has risen from 80.8% to 92.5%. This increase in data is undoubtedly aided by the return of foundry orders from chip design companies.
As the U.S. continues to escalate semiconductor export controls against China, many chip design companies that originally relied on overseas foundries are turning to domestic foundry enterprises. This reflects a trend where domestic companies are shifting orders to local foundry enterprises to ensure supply chain security.
The second point is that the demand for chips in emerging businesses in mainland China is surging, and these chips are mostly focused on mature processes.
From the demand side, the usage of analog chips in automotive electronics (such as in-vehicle radar signal processing) and industrial control (sensor interface circuits) is growing at an annual rate of 15%. Power devices are experiencing rapid growth driven by incremental markets such as new energy vehicles (with up to 80 IGBTs per vehicle) and photovoltaic inverters (with SiC device penetration exceeding 30%).
It is noteworthy that the mainstream processes for these two types of chips are concentrated in the 40nm-180nm range: analog chips often use 110nm-55nm processes to ensure performance redundancy; planar MOSFETs for power devices still primarily use 250nm processes, which do not rely on advanced processes below 7nm
As the largest mature process wafer foundry market in the world, mainland China is becoming the core carrier to undertake this wave of demand.
In addition, &#34;China for China&#34; has also become a common choice for international semiconductor giants.
&#34;China for China&#34; is gaining popularity.
&#34;China for China&#34; is a supply chain strategy that means &#34;manufacturing in China to serve the Chinese market.&#34;
The restrictions imposed by the United States on Chinese semiconductors and chips have led many foreign IDM semiconductor giants, such as STMicroelectronics, Infineon, and NXP, who are unwilling to lose the Chinese market, to adopt the &#34;China for China&#34; supply chain strategy.
For example, STMicroelectronics has announced that it will have its 40nm MCU manufactured by Hua Hong, the second-largest wafer foundry in China; NXP has also stated that it will establish a supply chain in China; Infineon has announced that it is localizing the production of some products, including having some products manufactured by Chinese wafer foundries to address supply security concerns of Chinese customers.
Recently, GlobalFoundries also announced in its financial report that it has reached a final agreement with a local foundry in China to provide reliable supply for its customers in mainland China, thereby advancing its &#34;China for China&#34; strategy. Customers will benefit from GlobalFoundries' automotive-grade process technology and manufacturing expertise to meet their domestic needs in China.
This trend is not only reshaping the domestic semiconductor supply chain landscape but also injecting new growth momentum into the global wafer foundry industry.
Recently, market research firm Counterpoint Research predicted in its latest report on the &#34;Quarterly Wafer Foundry Market&#34; that the revenue of the global pure semiconductor wafer foundry industry will grow by 17% year-on-year by 2025, exceeding $165 billion. This figure is higher than the $105 billion in 2021 and represents a compound annual growth rate of 12% from 2021 to 2025.
In this view, 2025 will be a &#34;mild and warm&#34; year for the wafer foundry industry.
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SMIC and Hua Hong released their Q2 2025 financial reports on August 7, showing a significant increase in capacity utilization for both companies. SMIC CEO Zhao Haijun pointed out that the impact of tariff policies is limited, the shipment volume of automotive electronic products is steadily increasing, and the newly added capacity for power devices is in short supply, with the current capacity utilization rate reaching 92.5%. In addition, the order outlook in the network sector is optimistic

- On August 7, SMIC and Hua Hong released their Q2 2025 financial reports, highlighting significant increases in capacity utilization, with SMIC nearing full capacity and Hua Hong exceeding 100%.  
- SMIC's CEO indicated that the impact of U.S. tariffs on the company is minimal, while demand for automotive electronics continues to grow, and the company is expanding power device capacity to meet strategic customer needs.  
- Hua Hong reported a revenue increase of 18.3% year-on-year, with a capacity utilization rate of 108.3%, driven by strong demand for analog and power management products.

SMIC, Hua Hong latest financial reports: Where is the next wave of dividends?