Deep Dive on SMIC - Navigating the Tides of Geopolitics and the Technological Frontier

Part 1: Executive Summary (TL;DR)

Core Investment Thesis

Semiconductor Manufacturing International Corporation (“SMIC” or “the Company”) is not a conventional investment to be measured by standard near-term profitability metrics. It is, in essence, a strategic asset driven by national will, and its stock value reflects, on a deeper level, China’s ambitions for technological sovereignty. The foundation of its valuation is not short-term earnings power but its core strategic position within China’s semiconductor industry chain, a vast and protected domestic market, and continuous asset expansion under state support. Therefore, an investment in SMIC is fundamentally a judgment on the long-term evolution of the Sino-U.S. tech rivalry and the potential future of a “dual-track” global semiconductor supply chain.

Key Opportunities

Structural Opportunity of Domestic Substitution: As geopolitical risks intensify, China’s large and growing ecosystem of fabless chip design companies is seeking a secure, U.S.-jurisdiction-free supply chain with unprecedented urgency. This creates a massive, highly sticky “walled garden” market for SMIC.
Growth Driven by National Will: The company receives unwavering financial and policy support from the Chinese government, particularly through continuous capital injections from the “National Integrated Circuit Industry Investment Fund” (the “Big Fund”). This enables SMIC to undertake large-scale capital expenditures and R&D investments that might be commercially unviable for its peers, accelerating capacity expansion and technological catch-up.
Consolidation of Market Position: Buoyed by strong domestic demand, SMIC’s revenue has propelled it to become the world’s third-largest foundry, demonstrating its powerful market share acquisition capabilities in mature and specialty process nodes.

Core Risks

Geopolitical Ceiling: U.S. sanctions are the “Sword of Damocles” hanging over the company. Any escalation of sanctions could further restrict its access to critical equipment, materials, software, and spare parts, creating an almost insurmountable barrier to its technological development path beyond the 7nm/5nm nodes.
Drag on Profitability: The company is in a prolonged phase of high depreciation costs resulting from aggressive capacity expansion, which will continue to suppress its gross and net profit margins. This financial profile poses a severe challenge to traditional, earnings-oriented valuation models.
The Reality of the Technology Gap: A persistent technology gap of 4 to 5 years exists between SMIC and industry leader TSMC, especially in the yield, cost-effectiveness, and performance of advanced processes. This gap is difficult to close in the short term.

Investment Recommendation Overview

In summary, SMIC’s investment value exhibits typical “high-risk, high-potential” characteristics. The bull case rests on its irreplaceable role in China’s tech self-sufficiency strategy and the resulting certainty of demand and unlimited state-level support. The bear case is entirely concentrated on geopolitical uncertainty and its suppression of the company’s technological ceiling and profitability. Therefore, this report positions SMIC as a strategic holding suitable for investors with a high-risk tolerance, a deep understanding of the Sino-U.S. tech competition, and a long-term investment horizon.

Part 2: Company Overview & Strategic Mission

Business Model: The Cornerstone of China’s IC Industry

SMIC is the largest and most technologically advanced pure-play foundry in mainland China and a leading global player.¹ The company’s core business is manufacturing semiconductor chips based on customers’ design blueprints in its own fabrication plants (fabs). Its technology services span a wide range, covering multiple technology nodes from mature 0.35-micron (

0.35μm) processes to advanced 14-nanometer (14nm) and below.¹ The company operates both 8-inch and 12-inch wafer production lines, capable of meeting diverse needs from mature process applications like power management ICs, Internet of Things (IoT) devices, and automotive electronics, to advanced process products such as smartphone Systems-on-Chip (SoCs) and Artificial Intelligence (AI) accelerators.²

In addition to its core wafer manufacturing, SMIC is committed to building a platform-based ecosystem, offering customers one-stop solutions including design services, IP support, mask manufacturing, bumping, and testing, aiming to foster collaboration across the industry chain.¹

Strategic Role: A National Champion for Technological Self-Sufficiency

SMIC’s identity extends far beyond that of a commercial entity; it is a central pillar of China’s “Made in China 2025” strategy and subsequent policies for technological self-reliance.⁵ Its primary strategic mission is to provide a secure, reliable manufacturing base for China’s burgeoning chip design industry, insulated from external supply chain disruptions.

The company’s shareholder structure also confirms its “national team” status. Its major shareholders include state-owned entities like Datang Telecom Group and the National Big Fund, whose presence ensures that the company’s development direction remains highly aligned with national strategy.⁶

Global Manufacturing Footprint & Aggressive Capacity Expansion

Headquartered in Shanghai, the company has also established multiple fabs in key Chinese tech hubs such as Beijing, Tianjin, and Shenzhen, forming a large-scale manufacturing network.³ Currently, SMIC is in an unprecedented cycle of high-intensity capital investment, building new fabs and expanding existing capacity to meet the explosive demand from the domestic market.⁷ This round of expansion focuses not only on mature processes of 28nm and above but also includes capacity building for advanced processes, aiming to comprehensively absorb order transfers from domestic clients.

This hybrid model, driven by both commercial and strategic objectives, is the key to understanding all of SMIC’s operational behaviors. A traditional foundry would carefully balance capital expenditure with market demand to maximize profit margins. However, SMIC’s financial reports show massive capital expenditures and high depreciation expenses, which severely suppress profits during an industry recovery cycle, seemingly defying pure business logic.⁷ But when placed within the grand narrative of national strategy, this behavior appears highly rational. China’s goal is to establish an autonomous and controllable semiconductor industry, which requires building vast domestic capacity regardless of short-term profitability.⁵ Therefore, measuring SMIC’s success cannot rely solely on profit metrics but should also focus on its capacity growth, technology node breakthroughs (no matter the cost), and its ability to serve key domestic clients like Huawei. This dual mission dictates its unique corporate behavior and valuation logic.

Part 3: Comprehensive Financial Performance Analysis

Historical Performance Review (2021-2023): A Complete Industry Cycle

SMIC’s financial performance over the past three years clearly illustrates the full cycle of the semiconductor industry from peak to trough.

2021: Against the backdrop of a global chip shortage, the company’s performance was strong. Annual revenue reached RMB 35.63 billion, a year-over-year (YoY) increase of 29.7%; net profit attributable to parent company shareholders soared by 147.7% to RMB 10.733 billion.¹¹
2022: Performance reached an all-time high. Revenue grew by a record 39.0% to RMB 49.516 billion; net profit attributable to parent company shareholders was RMB 12.133 billion, a YoY increase of 13.0%.¹⁴ This year marked the peak of this industry cycle.
2023: The impact of the industry downturn became apparent. Annual revenue fell to RMB 45.250 billion (as per the annual report), a YoY decrease of 8.6%; net profit attributable to parent company shareholders plummeted by 56.4% to RMB 6.396 billion.⁷ The gross margin contracted sharply from 38.3% in 2022 to 21.9%.⁷ Company management attributed this to weak global market demand, high industry inventory, and fierce competition, specifically highlighting that the company is in a high-investment period, with a significant increase in depreciation expenses being a key factor eroding profits.⁷

Recent Financials (Q1 2024): The Profitability Paradox

Entering 2024, SMIC’s financial performance exhibits a significant “profitability paradox”—strong revenue recovery accompanied by a sharp decline in profit.

Revenue: In Q1 2024, the company’s sales revenue grew 19.7% YoY to $1.75 billion, exceeding guidance and indicating a rebound in customer willingness to stock up and a recovery in demand.⁹ The capacity utilization rate also rose to 80.8% quarter-over-quarter (QoQ).⁹
Profit: However, net profit attributable to shareholders of the listed company plunged by 68.9% YoY to just $71.8 million.⁹ The gross margin fell from 20.8% in the same period last year to 13.7%.¹⁹
The company explicitly stated in its financial report that the profit decline was mainly due to “changes in product mix, increased depreciation, and a decrease in investment income”.⁹ This clearly reveals the direct impact of large-scale capital expenditure on current profitability.

Balance Sheet and Cash Flow Deep Dive

Balance Sheet Structure: As of the end of 2023, the company’s total assets were RMB 338.46 billion, and total liabilities were RMB 119.99 billion, resulting in a very healthy asset-liability ratio of about 35.45%, indicating controllable debt risk.⁷
Capital Expenditure: The company remains in a phase of high-intensity capital investment. In 2023, the balance of “Construction in Progress” surged by 68.3% YoY, reflecting massive investments in new fab construction and equipment procurement.⁷ It is these capital expenditures that form the basis for the depreciation that will continue to suppress profits in the coming years.
R&D Investment: Despite pressure on profitability, the company’s R&D investment remains firm. In 2023, the R&D-to-revenue ratio increased to 11.2%.²¹ This demonstrates that the company’s strategic determination to catch up technologically has not wavered due to short-term financial performance.

The table below summarizes SMIC’s key recent financial and operational metrics, visually demonstrating the cyclical fluctuations in its performance and its current unique phase of “revenue growth without profit growth.”

Table 1: Key Financial and Operational Metrics (FY2021-2023 & Q1 2024)

Metric	2021A	2022A	2023A	2023Q1A	2024Q1A
Revenue (RMB Billion)	35.63	49.52	45.25	10.21	12.60
Revenue YoY Growth (%)	29.7%	39.0%	-8.6%	-	23.4%
Net Profit (RMB Billion)	10.73	12.13	6.40	1.59	0.51
Net Profit YoY Growth (%)	147.7%	13.0%	-47.2%	-	-68.0%
Gross Margin (%)	29.3%	38.3%	21.9%	20.8%	13.7%
R&D to Revenue Ratio (%)	11.6%	10.0%	11.0%	-	10.6%
Capacity Utilization (%)	Full	-	75.0%	68.1%	80.8%
Capital Expenditure (RMB Billion)	-	-	16.71	-	15.87
Data Sources: ⁷
Note: Some data is estimated from USD financial reports based on the exchange rate of the period and may differ slightly from RMB reports.

SMIC’s current financial situation is the inevitable result of its strategic choices. The company is intentionally sacrificing short-term profitability in exchange for long-term capacity scale and technological capability enhancement. The huge divergence between revenue and profit in Q1 2024 is not a sign of operational failure but a direct, foreseeable consequence of its massive capital expenditures and the resulting high depreciation burden. This understanding is crucial because it fundamentally reshapes the valuation framework for the company. The market should not evaluate SMIC as it would a mature, profit-maximizing company like TSMC. Instead, it should be viewed as a heavy-asset, infrastructure-building enterprise in a high-growth phase. Under this framework, the key metrics are no longer Earnings Per Share (EPS), but asset growth, capacity expansion, and the achievement of key technology milestones.

Part 4: Technological Capabilities & Competitive Landscape

Process Technology Roadmap: A Forced March of Innovation

SMIC offers a broad range of technology platforms, from mature specialty processes like 0.35-micron to the 14nm FinFET process, which has been in mass production since 2019.¹ However, the market’s greatest focus, and the most controversial aspect, are its process nodes known as N+1 and N+2. These nodes are widely considered by the industry to be 7nm-class technology, representing a major technological leap achieved by the company under severe external restrictions.²²

The DUV Dilemma: Achieving 7nm Without EUV

Technology Path: Due to U.S. sanctions, SMIC cannot obtain the most advanced Extreme Ultraviolet (EUV) lithography equipment from the Dutch company ASML.⁸ Consequently, the company has been forced to use the previous generation of less precise Deep Ultraviolet (DUV) immersion equipment to develop its 7nm process. This is achieved through a complex technique called “multi-patterning,” where multiple DUV exposures and etches are used to carve the fine circuit patterns that an EUV machine could create in a single exposure.²⁵
Proof of Concept: The HiSilicon Kirin 9000S processor, featured in Huawei’s Mate 60 Pro flagship smartphone, successfully validated that SMIC’s 7nm (N+2) process is fully functional and capable of supporting a complete SoC design, including SRAM cells, passive components, and more.²⁴
The Trade-off between Yield, Cost, and Performance:
- Yield: This is the biggest challenge. Achieving 7nm with DUV is technically feasible (TSMC also used this approach in its early days), but the yield is significantly lower compared to using EUV. Some analyses estimate that the yield per wafer could be as low as 15%, although this figure may be continuously improving.²⁵ Low yield directly leads to high manufacturing costs.
- Cost: The multi-patterning process is complex, has a long production cycle, and consumes more energy, making the final chip cost much higher than that of similar products produced with EUV technology.²⁵
- Performance: Although fully functional, SMIC has stated that its N+1 process is mainly for low-cost applications, with a performance gap of about 35% compared to mainstream 7nm processes, though its power consumption is comparable.³⁰ The N+2 process used for Huawei’s chips is more advanced.
Comparison with TSMC: SMIC’s 7nm DUV process is considered to be 4 to 5 years behind TSMC’s 7nm process. TSMC has been mass-producing 7nm since 2018-2019 and has widely transitioned to the more efficient EUV technology.²⁵ The current reality is that while SMIC struggles to achieve 7nm mass production, TSMC and Samsung are already mass-producing 3nm chips.²⁵

Global Market Positioning & Peer Analysis

Market Share: According to TrendForce data, as of Q1 2025, SMIC, with a 6.0% market share, surpassed UMC (4.7%) and GlobalFoundries (4.2%) for the first time, solidifying its position as the world’s third-largest foundry. TSMC leads with an overwhelming 67.6% share, holding an absolute dominant position.³²
This leap in market position is almost entirely driven by the surge in Chinese domestic demand.³⁵

Table 2: Global Foundry Market Share Comparison (Q1 2025)

Rank	Company	Q1 2025 Revenue (USD Billion)	Q1 2025 Market Share (%)	Q4 2024 Market Share (%)	Most Advanced Node in Production
1	TSMC	25.52	67.6%	67.1%	3nm (EUV)
2	Samsung	2.89	7.7%	8.1%	3nm (EUV)
3	SMIC	2.25	6.0%	5.5%	7nm (DUV)
4	UMC	1.76	4.7%	4.7%	14nm
5	GlobalFoundries	1.58	4.2%	4.6%	12nm
6	HuaHong Group	1.01	2.7%	2.6%	28nm
-	Others	2.39	6.3%	7.4%	-
Data Sources: ³²

SMIC’s 7nm technology breakthrough is less a commercially competitive process on the global stage and more a geopolitical statement and a demonstration of technological resilience. Its core value is strategic: it proves that a “good enough” domestic advanced process option is achievable under external blockade, thereby breaking China’s complete dependence on foreign foundries for high-performance chips. The logic behind this breakthrough is not a commercial optimum, as data shows it is high-cost, low-yield, and years behind TSMC technologically.²⁵ Yet, Huawei still chose to use this process for its flagship phone, a high-volume product.²⁸ This seemingly uneconomical behavior must have non-economic motivations. For Huawei, it was a critical step for survival and re-entry into the 5G market; for China, it was about national security and demonstrating to the world that U.S. sanctions could not completely stifle its technological progress.²⁶ Therefore, investors should not view SMIC’s 7nm process as a direct competitor to TSMC’s N7 process, but as a strategic asset that unlocks the high-end domestic market for Chinese companies—a vast market willing to pay a premium for supply chain security and accept certain performance trade-offs.

Part 5: The Geopolitical Crucible: U.S. Sanctions and Their Profound Impact

Dissecting the “Entity List” and Export Controls

In December 2020, the U.S. Department of Commerce officially added SMIC to the “Entity List”.³⁶ This action severely restricts the company’s access to U.S.-origin technology. Specifically, the U.S. government applies a “presumption of denial” policy to license applications for the export of items necessary for the production of semiconductors at or below the 10nm advanced node.³⁶

The impact of these control measures is comprehensive, covering not only core manufacturing equipment from U.S. companies like Applied Materials, Lam Research, and KLA, but also critical Electronic Design Automation (EDA) software, and even restricting U.S. persons from providing technical support to its advanced fabs.⁸ Among these, the embargo on ASML’s EUV lithography machines is the most symbolic restriction.⁸

The “Sanctions Moat”: A Double-Edged Sword

U.S. sanctions are both a heavy burden for SMIC and, paradoxically, have built a unique moat for it.

Negative Impact: The sanctions are the fundamental reason for the technology gap between SMIC and global leaders. They directly hinder the company’s R&D and mass production below the 7nm node and make 7nm production inefficient and expensive.⁸ This effectively sets an insurmountable ceiling on the company’s technological potential.
Positive Impact (The Moat): At the same time, the sanctions have inadvertently created a powerful incentive for Chinese customers to shift their orders to SMIC. With Huawei as a cautionary tale, Chinese tech companies are widely concerned about the risk of being cut off from overseas foundry services, making supply chain security their top strategic priority. This has created a huge, protected domestic market for SMIC, strongly driving its revenue and market share growth.²⁸ Currently, revenue from domestic Chinese customers accounts for over 80% of SMIC’s total revenue.²⁸

The Huawei Catalyst and Risk of Escalating Sanctions

The successful production of a 7nm chip for Huawei’s Mate 60 Pro was a major event that triggered significant media attention and immediately drew heightened scrutiny from Washington.²⁸ U.S. officials publicly stated that this production might have violated U.S. law and hinted at further tightening restrictions on SMIC.²⁸

This creates a dangerous feedback loop: SMIC’s technological success in circumventing sanctions directly increases its risk of facing even stricter sanctions. This means the company’s stock price will be perpetually exposed to sudden news risks triggered by geopolitical dynamics.

U.S. sanctions have fundamentally altered SMIC’s competitive landscape, pushing it from a globalized, free market based on technology and cost into a protected, strategically significant domestic market. In this new paradigm, the company’s core competitive advantage is no longer just technology or price, but its geopolitical identity as a “safe” supplier for Chinese enterprises. In a normal market environment, a foundry that is 4-5 years behind in technology and more expensive should be losing market share. Yet, SMIC’s market share is rapidly climbing ³², which contradicts conventional market logic. The only explanatory variable is the dramatic shift in the risk environment. The U.S. sanctions on Huawei demonstrated to all Chinese tech companies the fatal vulnerability of relying on foreign foundries. Consequently, these companies are making a rational strategic choice: shifting production to SMIC, even if it means higher costs or slightly lower performance, to hedge against geopolitical risk. This means SMIC’s growth has become structurally tied to the intensity of Sino-U.S. tensions. The more confrontational the external environment, the stronger the “sanctions moat,” and the more indispensable SMIC becomes to its domestic customers. Therefore, the investment thesis for SMIC is, in effect, a direct bet on the long-term continuation of this tech rivalry.

Part 6: The China Factor: State Support & Domestic Market Dynamics

The “National Big Fund”: Engine of Patient Capital

The National Integrated Circuit Industry Investment Fund is a national-level strategic investment vehicle established by China to achieve semiconductor self-sufficiency, and SMIC is one of its most core investment targets.⁵

Phase I & II: The first two phases of the fund injected tens of billions of dollars into SMIC, providing crucial support for its R&D and fab construction, enabling the company to execute its high-capital-expenditure expansion strategy.⁵
Phase III: Officially established in May 2024 with a registered capital of a staggering RMB 344 billion (approx. $47.5 billion), its scale surpasses the sum of the first two phases, signaling an unprecedented level of state support.⁴⁴
Phase III Investment Focus: Analysts widely expect that the investment focus of the third phase will shift to the most vulnerable “chokepoint” segments of China’s semiconductor industry chain, including advanced manufacturing equipment, core materials, EDA software, and possibly AI-related High-Bandwidth Memory (HBM) and advanced packaging technologies.⁴⁶ This is a strategically far-sighted shift aimed at building a complete, autonomous, and controllable industrial ecosystem around SMIC.

The Immense Opportunity of Domestic Substitution

China is the world’s largest semiconductor consumer market, consuming nearly 50% of the global chip supply, yet its self-sufficiency rate is low (projected to be only 19.4% by 2025).⁴¹ This huge supply-demand gap provides a historic market opportunity for domestic producers.

SMIC’s revenue structure is rapidly “localizing.” The proportion of revenue from customers in the China region has grown from about 68% in early 2022 to over 80% in Q1 2024 ²⁸, and this trend is accelerating under geopolitical pressure. At the same time, the company’s customer base is becoming more diversified. In 2021, the top five customers accounted for 31.2% of revenue, indicating an expanding domestic client group.⁴⁰ Nevertheless, the 2023 annual report shows that the largest customer accounted for 15.0% of revenue, suggesting that key strategic partners like Huawei remain critically important.²¹

Key Domestic Partners: A Symbiotic Ecosystem

Huawei (HiSilicon): Undoubtedly SMIC’s most critical partner. Huawei provides high-end chip designs (like the Kirin series mobile SoCs and Ascend series AI chips) whose demands push SMIC’s advanced process technology to its limits. In turn, SMIC is Huawei’s only path to producing these advanced chips domestically.²⁸
Other Leading Design Companies: Although the latest customer lists are not typically disclosed in detail, major Chinese chip design companies such as Will Semiconductor (whose OmniVision is a leader in CMOS image sensors), GigaDevice (a leader in NOR flash and MCUs), and Unisoc (a major mobile SoC supplier) are important clients of SMIC, relying on it for a significant portion of their capacity needs.⁶

The strategy of the National Big Fund is evolving from direct capital injections into manufacturing companies like SMIC in its early days to systematically building the entire domestic semiconductor supply chain. This shift significantly reduces SMIC’s long-term operational risks. The initial U.S. sanctions primarily targeted SMIC’s ability to purchase advanced equipment.⁸ However, SMIC’s success in producing 7nm chips using DUV technology showed that this path was not completely blocked, but it also highlighted its dependence on foreign tools. Now, the explicit goal of Big Fund Phase III is precisely these “chokepoint” areas—equipment, materials, etc..⁴⁶ This is a logically clear strategic response: instead of just funding the end-user (SMIC), the state is now starting to fund SMIC’s

suppliers. This will create a long-term positive feedback loop: a stronger domestic equipment industry will make SMIC more resilient to sanctions, which in turn makes it a more reliable supplier for Chinese chip design companies. Therefore, an investment in SMIC is, in a sense, also an indirect bet on China’s ability to build a complete, vertically integrated, and sanction-proof semiconductor industry.

Part 7: Valuation & Investment Thesis

Valuation Multiples Analysis: A Story of Strategic Premium

SMIC’s valuation multiples, particularly for its A-shares, consistently remain at the high end of the industry, reflecting the market’s pricing of its strategic value rather than its current profitability.

Price-to-Earnings (P/E) Ratio: The company’s P/E ratio has been extremely high, with the dynamic P/E for its A-shares (688981.SH) often exceeding 100x or even 200x.⁵⁴ This is far higher than global peers like TSMC (approx. 38x), UMC (approx. 12x), and GlobalFoundries (currently negative, not meaningful).⁵⁸ Such a high P/E ratio directly reflects the aforementioned profit pressure from high depreciation and the market’s greater emphasis on its strategic position over short-term EPS.
Price-to-Book (P/B) Ratio: The P/B ratio is a relatively more stable valuation metric. SMIC’s A-share P/B ratio ranges from 3.7x to 5.8x.⁵⁴ This level is still higher than UMC’s (approx. 1.5-2.3x) but significantly lower than the technologically and profitably superior TSMC (approx. 8.6x).⁵⁸ The P/B premium over its mature-process peers clearly reflects its unique position as China’s sole advanced process champion.
Valuation Logic: What supports its high valuation is not current financial returns, but the following core elements: 1) its near-monopoly position in the domestic advanced process foundry services; 2) its role as a key national strategic asset; 3) its immense growth potential in a protected domestic market; and 4) its extreme scarcity value as the only high-end foundry accessible to mainland Chinese investors.

SWOT Analysis

Strengths:
- Steadfast support at the national level (National Big Fund).
- Dominant position in a large and protected domestic market.
- Proven technological resilience (successful development of 7nm DUV process).
- Comprehensive technology portfolio covering mature to advanced nodes.
Weaknesses:
- Significant technology gap with industry leaders.
- Low profitability due to high capital expenditure and depreciation.
- Advanced processes have high costs and low yields, lacking commercial competitiveness.
- Still reliant on foreign equipment and materials for key process steps.
Opportunities:
- Sustained, structural market opportunities from the wave of domestic substitution.
- China’s rapid development in emerging fields like AI, electric vehicles, and IoT provides a vast incremental market.
- Technological breakthroughs by domestic equipment and material suppliers could gradually reduce its dependence on external supply chains.
Threats:
- U.S. sanctions could escalate further, imposing more destructive restrictions.
- A large number of newly built mature process capacities in China could trigger intense price wars, eroding profits.
- A slowdown in China’s macroeconomy could affect end-user demand for electronic products.
- Inability to achieve a breakthrough in the yield of advanced processes for commercial mass production.

Analyst Consensus & Target Price Review

The analyst community generally holds a positive view on SMIC, but opinions are highly divided, reflecting the stock’s complexity.

Recent ratings show that most analysts give a “Strong Buy” or “Buy” rating.⁶¹ For instance, one statistic shows that among 15 analysts, 66.7% gave a “Strong Buy” and 20% gave a “Buy” rating.⁶¹
Target prices vary widely. For its H-shares (0981.HK), the average target price is around HK58.14,withthehighestatHK63.30 and the lowest at HK$47.00.⁶¹ Some investment banks like Goldman Sachs are optimistic and have significantly raised their target prices.⁶²
However, although rare, “Sell” ratings have appeared in the market, primarily citing the uncontrollability of geopolitical risks.⁶⁴

Table 3: Valuation Multiples Peer Analysis

Company	Market Cap (USD Billion)	P/E Ratio (TTM)	P/B Ratio (TTM)	Latest Quarter Gross Margin (%)	Tech Lag (Years)
SMIC (A-Share)	~45	190-220x	3.7-5.8x	13.7%	4-5
SMIC (H-Share)	~45	80-110x	2.5-3.0x	13.7%	4-5
TSMC	~950	~38x	~8.6x	53.1%	0
UMC	~17	~12x	~1.5x	30.9%	>6
GlobalFoundries	~18	N/A	~1.6x	18.0%	>6
Data Sources: ¹⁹
Note: Market cap and valuation multiples are dynamic; figures here represent the approximate range at the time of writing. Tech lag is a subjective estimate.

This table visually reveals SMIC’s unique valuation logic. Despite its gross margin being far below TSMC’s and even lower than UMC’s, its P/B ratio is significantly higher than that of UMC and GlobalFoundries. This clearly demonstrates the “strategic premium” the market has assigned to it. Investors are willing to pay a higher price for SMIC’s book assets because these assets represent China’s only hope and strategic security guarantee in the field of advanced processes.

Part 8: Concluding Outlook & Strategic Recommendations

Bull Case: “The Rise of the Red Dragon”

U.S. sanctions remain at the current level but do not escalate to a point that cripples its operations.
With its own efforts, the support of the National Big Fund Phase III, and domestic equipment manufacturers, the company successfully improves the yield and reduces the cost of its 7nm/5nm DUV processes, achieving commercially competitive mass production.
The trend of domestic substitution accelerates, allowing SMIC’s fabs to maintain high capacity utilization, thereby better absorbing depreciation costs and gradually improving profit margins.
China’s AI and electric vehicle industries flourish, providing a huge, high-growth walled garden market for SMIC’s specialty and advanced processes.
In this scenario, the market will re-evaluate SMIC, viewing it as a successful, self-sufficient tech infrastructure giant, and its stock price could be re-rated.

Bear Case: “The Geopolitical Noose Tightens”

The U.S. imposes stricter secondary sanctions, specifically cutting off SMIC’s access to DUV equipment, critical spare parts, and core chemicals, causing its production of 14nm and below processes to stagnate.
The challenges of cost and yield for DUV-based advanced processes prove insurmountable, preventing large-scale commercial production and ultimately locking the company into mature process technologies.
A large number of state-subsidized new mature process capacities emerge domestically, triggering a brutal price war that completely destroys the industry’s profitability.
China’s macroeconomy experiences a severe downturn, suppressing domestic end-user demand for electronic products and leaving SMIC’s expensive production lines largely idle.
In this scenario, the market will deem its strategic premium unsupported by its limited technological prospects, and the stock will face a significant valuation de-rating.

Long-Term Investment Outlook & Recommendations

SMIC is a high-beta investment suitable only for investors with a deep understanding of the semiconductor industry and geopolitics, and an extremely high-risk tolerance.

Its core investment logic is not based on SMIC surpassing TSMC, but on its ability to become a “good enough,” dominant player within a protected, strategically important domestic ecosystem.

Recommendation: For investors who believe in the long-term inevitability of a “dual-track” global tech supply chain and have confidence in China’s ability to overcome technological hurdles through massive state-led investment, SMIC offers a unique, albeit highly volatile, long-term holding opportunity. Any investment position should be commensurate with its immense geopolitical risks. Investors should closely monitor the following key future signposts:

Progress of the domestic semiconductor equipment manufacturing industry: This is the key to judging whether SMIC can reduce its external dependence.
Yield improvement of the N+2 process: This is the core indicator of whether its advanced processes can achieve commercial mass production.
Any changes in U.S. export control policies: This is the most direct variable affecting the company’s technological ceiling and market sentiment.

Cited works

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中芯国际集成电路制造有限公司2023 年年度报告, https://www.smics.com/uploads/66152426/688981.pdf
大跌7%！中芯国际确认遭美国出口管制，多项举措应对潜在冲击 - 大众新闻, https://dzrb.dzng.com/articleContent/3491_798148.html
中芯国际集成电路制造有限公司2024 年第一季度报告, https://www.smics.com/uploads/663c9743/ER_SC.pdf
The Chinese Government’s Financial Support for the Semiconductor Industry: Further Strengthening Support Despite Dilemma, https://ifi.u-tokyo.ac.jp/en/wp-content/uploads/2022/03/SSU_WP_SIto_EN20220214.pdf
中芯国际2021年营收356.3亿元特色工艺成绩斐然 - 中国经济网, http://www.ce.cn/cysc/tech/gd2012/202204/08/t20220408_37472492.shtml
中芯国际发布2021年年报：净利润107亿，同比增长147.7%_新基建 - InfoQ, https://www.infoq.cn/article/njlk6qrefdytlr8vtzpw
中芯国际集成电路制造有限公司2021 年年度报告, https://www.smics.com/uploads/688981_Final.pdf
中芯国际2022年业绩创新高预计今年毛利率20% 资本开支大致持平 - 财联社, https://www.cls.cn/detail/1306991
中芯国际2022年业绩创新高预计今年毛利率20% 资本开支大致持平 - 财联社, https://m.cls.cn/detail/1306991
中芯国际2022年报出炉：库存压力上升，营收利润齐走高 - 第一财经, https://www.yicai.com/news/101714922.html
中芯国际集成电路制造有限公司2022 年年度报告, https://www.smics.com/uploads/688981_2022&e5&b9&b4&e5&b9&b4&e5&ba&a6&e6&8a&a5&e5&91&8a_final.pdf
中芯国际(688981)_公司公告_中芯国际：2023年年度报告新浪财经, https://vip.stock.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=688981&id=9914966
中芯国际2024年Q1净利润7180万美元同比下降68.9% - 财联社, https://www.cls.cn/detail/1671952
中芯国际：2024年Q1营收17.5亿美元，同比增长19.7% - 第一财经, https://www.yicai.com/brief/102102883.html
净利腰斩！同比减少过半，中芯国际2023年年报出炉 - 东方财富, https://finance.eastmoney.com/a/202404093037936336.html
SMIC aligns itself with cutting-edge technology and reveals N+1 process route - EEWorld, https://en.eeworld.com.cn/news/manufacture/eic503174.html
中芯国际（688981）, http://pdf.dfcfw.com/pdf/H3_AP202501051641812018_1.pdf
HiSilicon Kirin 9000s (SMIC 7nm, N+2) Process Flow Analysis | TechInsights, https://www.techinsights.com/blog/hisilicon-kirin-9000s-smic-7nm-n2-process-flow-analysis
Contextualizing the National Security Concerns over China’s Domestically Produced High-End Chip - CSIS, https://www.csis.org/analysis/contextualizing-national-security-concerns-over-chinas-domestically-produced-high-end-chip
China’s SMIC Plays 7 nm Card | TechInsights, https://www.techinsights.com/blog/chinas-smic-plays-7-nm-card
The truth about SMIC’s 7-nm chip fabrication ordeal - EDN Network, https://www.edn.com/the-truth-about-smics-7-nm-chip-fabrication-ordeal/
中芯国际季度营收同比增长20% 但随着美国禁令影响预计面临更多挑战, https://www.voachinese.com/a/chinese-chipmaker-smic-sees-more-challenges-later-as-us-ban-bites-20240510/7605700.html
Huawei Ascend Production Ramp: Die Banks, TSMC Continued Production, HBM is The Bottleneck - SemiAnalysis, https://semianalysis.com/2025/09/08/huawei-ascend-production-ramp/
SMIC Graduating from 14nm to Something Sort of Akin to 7nm - EE Times, https://www.eetimes.com/smic-graduating-from-14nm-to-something-sort-of-akin-to-7nm/
巅峰对决：三大顶流半导体厂商高端工艺逐鹿，你更看好谁？, https://www.mouser.cn/blog/cn-semiconductor-ic-manufacturing
Top 10 foundries face tariffs and subsidies, 1Q revenue declines - Evertiq, https://evertiq.com/news/2025-06-11-top-10-foundries-face-tariffs-and-subsidies-1q-revenue-declines
Tariff Effects and China Subsidies Soften 1Q25 Downturn; Foundry Revenue Decline Narrows to 5.4%, Says TrendForce, https://www.trendforce.com/presscenter/news/20250609-12612.html
【半导体新观察】全球前十大晶圆代工厂产值再创新高合肥晶合重返 …, https://stcn.com/article/detail/1574041.html
史上首次！中芯国际跃升全球第三大芯片代工巨头 - 财联社, https://www.cls.cn/detail/1685487
中芯国际进入实体清单美国对中科技制裁继续收紧 - Radio Free Asia, https://www.rfa.org/mandarin/yataibaodao/jingmao/bx-12182020133053.html
Collateral Damage: The Domestic Impact of U.S. Semiconductor Export Controls - CSIS, https://www.csis.org/analysis/collateral-damage-domestic-impact-us-semiconductor-export-controls
The impact of US sanctions on the Chinese semiconductor landscape - Evertiq, https://evertiq.com/news/52685
Balancing the Ledger: Export Controls on U.S. Chip Technology to China - CSIS, https://www.csis.org/analysis/balancing-ledger-export-controls-us-chip-technology-china
工艺及客户结构积极优化，推动中期盈利能力提升, https://pdf.dfcfw.com/pdf/H3_AP202206171572745840_1.pdf
大力扶持！去年中国投入106亿补贴半导体上市企业，中芯国际获近25亿补贴 - InfoQ, https://www.infoq.cn/article/xgj99890a3zmwjudnf6l
Inside China’s Largest Semiconductor Investment Fund - Sayari, https://sayari.com/resources/inside-chinas-largest-semiconductor-investment-fund/
数据|国家大基金新增投资兴科半导体三张图尽收其最全A股投资名单 - 财联社, https://m.cls.cn/depth/453949
中国集资逾3000亿扶持半导体，缺民企参与恐难与美国抗衡 - 美国之音, https://www.voachinese.com/a/china-sets-up-country-s-largest-ever-chip-investment-fund-20240528/7629712.html
Six banks to invest in big way in IC fund, https://english.www.gov.cn/news/202405/29/content_WS66569746c6d0868f4e8e7987.html
大基金三期启航，半导体进入上行周期, https://pdf.dfcfw.com/pdf/H3_AP202406091635914020_1.pdf
注册资本3440亿！大基金三期来了与前两期有何变化？, https://jrj.wuhan.gov.cn/ztzl_57/xyrd/dcczbsc/202405/t20240531_2410056.shtml
3440亿元！“国家大基金三期”成立，或将重点投资AI芯片产业, https://www.mittrchina.com/news/detail/13369
3440亿助力芯片国产化，国家大基金三期着眼“卡脖子” - 汽车商业评论, https://inabr.com/news/19415
風險提示 - 中芯国际, https://www.smics.com/uploads/0726-3%20&e4&b8&ad&e8&8a&af&e5&9b&bd&e9&99&85&e7&a4&be&e4&bc&9a&e8&b4&a3&e4&bb&bb&e6&8a&a5&e5&91&8a-&e7&b9&81&e4&bd&93.pdf
China Fabless 100 - EE Times, https://www.eetimes.com/wp-content/uploads/2024_China-Fabless-100_final_single.pdf
SMIC to foundry NOR memory wafers for GigaDevice - SimmTester.com, https://simmtester.com/News/IndustryArticle/19505
Semiconductor industry in China - Wikipedia, https://en.wikipedia.org/wiki/Semiconductor_industry_in_China
中芯国际（sh688981）行情走势 - 证券时报, https://www.stcn.com/quotes/index/sh688981.html
中芯国际(688981)_股票行情 - 中财网, https://quote.cfi.cn/quote108368_688981.html
中芯国际109.78 1.12(+1.03%) - 腾讯证券, https://gu.qq.com/sh688981/gp
中芯国际120.01 10.23(+9.32%) - 腾讯证券, https://gu.qq.com/sh688981
TSMC (TSM) - P/B ratio - Companies Market Cap, https://companiesmarketcap.com/tsmc/pb-ratio/
United Microelectronics (UMC) - P/B ratio - Companies Market Cap, https://companiesmarketcap.com/united-microelectronics/pb-ratio/
GlobalFoundries (GFS) - P/E ratio - Companies Market Cap, https://companiesmarketcap.com/globalfoundries/pe-ratio/
中芯国际(00981)股票预测和分析师评级- 富途牛牛, https://www.futunn.com/stock/00981-HK/forecast
中芯国际108.91(0.23%)_个股资讯- 新浪财经, https://vip.stock.finance.sina.com.cn/corp/go.php/vCB_AllNewsStock/symbol/sh688981.phtml
8000亿中芯国际的价值跃迁 - 南方财经网, https://www.sfccn.com/2025/2-28/yNMDE0NDlfMTk5NTIyNw.html
券商近期罕见发布175次下调评级报告，中芯国际、重庆啤酒被这家券商实名唱空, https://m.cls.cn/detail/583630
中芯国际（hk00981）股票价格_股票实时行情_走势图-手机新浪财经, https://quotes.sina.cn/hk/company/quotes/view/00981
中芯国际(00981)股票价格_行情_走势图—东方财富网, http://quote.eastmoney.com/hk/00981.html?jump_to_web=true
GlobalFoundries (GFS) - P/B ratio - Companies Market Cap, https://companiesmarketcap.com/globalfoundries/pb-ratio/
GLOBALFOUNDRIES PE Ratio Trends - YCharts, https://ycharts.com/companies/GFS/pe_ratio

September 17, 2025