Third quarter 2026 earnings call, November 12, 2026

Record quarter beats guidance, but the margin peak is not expected to hold

Semiconductor Manufacturing International Corporation reported third quarter revenue of $3.19 billion, up 6.1% sequentially and above the upper end of its guidance range. Gross margin rose 4.6 percentage points sequentially to 29.9%, also ahead of guidance. Profit from operations was $710 million, EBITDA was $2.04 billion at a 63.9% margin, and profit attributable to the company was $428 million.

The fourth quarter outlook gives back much of the margin gain. Management guided revenue up 4% to 6% sequentially, but gross margin of 26% to 28%, which implies a drop of roughly 2 to 4 percentage points from the third quarter. Co-CEO Zhao Haijun said the company faces continuing "cost pressures from depreciation, raw materials and other items," along with an increase in engineering and R&D wafer runs in the fourth quarter. As a result, utilization is expected to see "a mild decrease on a continuously increasing capacity base."

Why the third quarter margin jumped: pull-ins and fewer R&D wafers

Zhao attributed the upside to customer pull-in demand for AI peripheral chips, specifically BCD, specialty memory and controllers, which he said outpaced initial expectations from three months earlier. To serve urgent customer requirements, SMIC reduced engineering and R&D wafer runs and added 20,000 wafers per month of capacity on an 8-inch equivalent basis. Utilization rose 3.6 percentage points to 97.3%, and output grew by a high single-digit percentage.

That higher output diluted per-wafer unit cost enough to more than offset a 2.3% sequential increase in depreciation. The mechanics matter for the fourth quarter outlook: part of the third quarter margin benefit came from deferring R&D wafer runs, which management expects to resume, while depreciation keeps rising.

Volume and pricing both contributed

Quarterly shipments exceeded 3 million 8-inch equivalent wafers for the first time, up 5.7% sequentially. Blended wafer average selling price rose 1.8% quarter over quarter, which Zhao attributed to improving product mix and to prices agreed with customers being implemented in phases. For the fourth quarter, management expects shipment volume to remain stable, with mix changes and what Zhao called "market-based pricing" lifting blended ASP.

Demand is split: domestic substitution and industrial strength against soft mobile

China accounted for 90.8% of revenue, with the US at 7.8% and Eurasia at 1.4%. China revenue grew 7% sequentially, faster than the company overall, and SMIC reallocated capacity to meet that demand. By wafer size, 12-inch contributed 79% of wafer revenue and 8-inch 21%, with 12-inch up 9% and 8-inch up 4% sequentially.

By application, smartphone represented 14% of wafer revenue, computer and tablet 18%, consumer electronics 41%, connectivity and IoT 7%, and industrial and automotive 19%. Smartphone revenue fell 8% sequentially and consumer electronics fell 1%, with Zhao describing demand as soft. End-market demand for computers and tablets, industrial and automotive, and connectivity and IoT was broadly flat, yet SMIC's revenue in those segments grew 26%, 26% and 18% respectively. Zhao credited domestic supply chain reshuffling and the company's forward-looking platform deployment.

Zhao highlighted the company's BCD portfolio across low, medium and high voltage for industrial and automotive uses, supporting up to automotive grade 0. Products span battery management systems, analog front ends, system basis chips, digital isolators, isolated sensing and power, and smart power switches.

For the fourth quarter, Zhao said mobile and some consumer orders have seen softness, and the company is reallocating capacity across platforms toward specialty memory, BCD and other high-demand, high value-added products. He described the quarter as following a traditional seasonal pattern, with performance expected to remain resilient.

Full-year picture: roughly 30% growth, with depreciation rising at a similar pace

Based on the first three quarters and the midpoint of fourth quarter guidance, SMIC expects full-year revenue to exceed $12 billion, nearly 30% growth year over year. Full-year gross margin is expected to be around 26%, roughly 5 percentage points higher than a year earlier. Total depreciation is expected to rise approximately 30% year over year, in line with the revenue growth rate.

Equipment supply is tight and capex timing uncertain

Zhao said the global equipment supply chain remains tight, with extended lead times and uncertain delivery timelines for some tools. He said this will not affect execution of this year's expansion plan but may bring volatility to the full-year capex implementation. SMIC said it expands capacity in a customer demand-driven manner.

Balance sheet and cash flow

Total assets stood at $59.1 billion at quarter-end, with cash of $13.4 billion, total debt of $14.9 billion and total equity of $38.7 billion. The debt-to-equity ratio was 38.5% and net debt-to-equity was 3.9%. Operating cash flow was $1.18 billion, investing outflows were $2.10 billion, and financing generated $910 million.

Strategic framing

Zhao pointed to two sources of industry visibility: AI demand extending the semiconductor upcycle, "accompanied by shifts in growth structure and cyclical pattern," and continued broad-based localization of the Chinese industry chain. He said SMIC aims to strengthen its position in specialty and customized processes by aligning with the innovation pace of Chinese customers, and to "stabilize EBITDA," which he defined as operating cash generation capability, while improving cost control and operational efficiency.

Q&A

Analysts from Huatai, Citic Securities, Orient Securities and CLSA, along with one unidentified analyst, asked questions. The Q&A was conducted largely in Chinese, with the first exchange interrupted by technical difficulties, and the transcript does not capture the content of the questions or answers.