Chart Preview | SMIC’s Q2 Earnings Imminent! Revenue Expected to Surge Sequentially—Can Semiconductor Price Hikes Unlock Profit Margins?

$SMIC (00981.HK)$ will announceAugust 13its second-quarter 2026 results after the Hong Kong market close and hold a Q2 earnings conference call on August 14; institutions expect Q2 2026 revenue of USD 2.824 billion, up 27.85% year-over-year, and earnings per share of USD 0.034, an increase of 69.5% year-over-year.

The aforementioned figures were prepared in accordance with International Financial Reporting Standards.

Compared to Q1, the most significant change in Q2 lies in the simultaneous strengthening of demand and pricing: the company previously guided for Q2 revenue to increase 14%–16% quarter-over-quarter, with a gross margin of 20%–22%, and stated that, based on customer demand and its current order backlog, it is now more optimistic about full-year performance than before.

Market expectations for SMIC’s Q2 results have already undergone a notable upward revision,Simply delivering strong revenue growth may not be sufficient; average selling price (ASP), Q2 gross margin, and Q3 guidance could be the key determinants of the earnings report’s quality.

Key focus #1: Price hikes enter the realization phase—can Q2 gross margin approach the upper end of guidance?

SMIC reported Q1 revenue of USD 2.505 billion, up 11.5% year-over-year and 0.7% quarter-over-quarter; gross margin was 20.1%, an improvement of 0.9 percentage points from the prior quarter. Notably, wafer shipments declined 0.2% quarter-over-quarter, and capacity utilization fell from 95.7% to 93.1%, yet both revenue and gross margin still rose sequentially—a trend the company attributed primarily toan improved product mix and higher average wafer selling prices.。

This trend is expected to further strengthen in Q2. Management previously indicated that Q2 revenue growth will be driven byboth wafer shipments and average selling price.For certain products facing supply shortages, the company has already negotiated price increases with customers; the impact of these price hikes will become clearly evident in Q2 and is expected to further materialize in Q3 and Q4.

Industry supply-demand dynamics also provide support. According to TrendForce data, due to capacity reductions in certain mature processes by Taiwan Semiconductor and Samsung, coupled with rising demand for AI servers and power management ICs, the average 8-inch wafer fab utilization rate among the world's top ten foundries is expected to approach 90% by 2026. Relevant foundries have already begun passing on price increases to customers. At the end of June, TrendForce further projected that the pricing upcycle for mature nodes could extend into 2027.

Therefore,Within the gross margin guidance range of 20%–22%, performance near or even above 22% would be a more noteworthy signal. If revenue grows rapidly while gross margin approaches the upper end of guidance, it would indicate the emergence of a profit driver characterized by 'rising ASPs + improved product mix + high utilization,' potentially resulting in profit elasticity significantly exceeding revenue elasticity.

Key focus #2: Can the AI 'spillover effect' persist? Demand for power management ICs, specialized memory, and other segments warrants attention.

Unlike $Taiwan Semiconductor (TSM.US)$ companies directly benefiting from advanced-node demand driven by AI GPUs and ASICs, SMIC’s current AI-related upside stems more clearly fromperipheral chip demand and global capacity reallocation.。

Management previously noted that rapid AI industry growth has boosted demand for power management, power supply, data transmission, and driver chips, with some products already facing supply shortages. Meanwhile, overseas wafer fabs are allocating more capacity to AI-related products, leading to a shift of mature-node orders—such as those for general consumer electronics and IoT—back to Chinese mainland foundries. Additionally, new applications like ToF sensors, automotive, robotics, logic chips, and specialized memory are also contributing incremental demand.

This shift is already reflected in SMIC’s product mix. In Q1 wafer revenue, consumer electronics accounted for 46.2%, while industrial and automotive rose to 14.0%, up significantly from 9.6% a year earlier. Smartphone share declined to 18.9% from 24.2% a year ago. The company is also proactively reallocating more capacity to platforms with stronger demand, such as BCD and memory.

Therefore, beyond overall revenue, Q2 will merit close attention toChanges in the proportion of high-momentum segments such as industrial automotive, analog/power management, and specialized memory. If these businesses continue to improve and growth is not primarily driven by inventory restocking in traditional smartphones and low-end consumer electronics, it would imply higher quality and sustainability of the current demand recovery.

Key point three: With high utilization rates, will new depreciation continue to 'erode' profits?

For SMIC, strong revenue and order momentum represent only one side of the coin; the other side is the ongoing depreciation pressure stemming from continuous capacity expansion.

In Q1, the company’s monthly capacity rose from 1.0588 million wafers in Q4 last year to1.0783 million 8-inch equivalent wafers, with a capacity utilization rate of 93.1%; quarterly capital expenditures amounted to USD 1.563 billion.

However, during the same period, the company’s total depreciation and amortization reached USD 1.088 billion,an increase of 25.7% year-over-year.The company previously projected that depreciation expenses could rise by approximately 30% year-over-year in 2026.primarily due to the continued ramp-up of newly added equipment and capacity into production; capital expenditures in 2026 are expected to remain broadly at the elevated 2025 level of approximately USD 8.1 billion, with plans to add roughly 40,000 wafers per month of 12-inch capacity within the year.

This is also why SMIC has frequently experienced a situation in recent years where 'revenue growth is significant, but net profit elasticity remains limited.'Q1 was a typical example: revenue rose 11.5% year-over-year, yet profit attributable to owners of the company increased by only 5%, while operating expenses surged 30.3% over the same period.

Therefore, if Q2 can stabilize gross margin at 21%–22% or even higher despite continued increases in new depreciation, this would be more positively meaningful than simply achieving USD 2.9 billion in revenue. It would indicate thatrising average selling prices (ASP) and high capacity utilization have already begun offsetting the pressure from new depreciation, marking the phase where previously massive capital expenditures are gradually translating into earnings realization.

Conversely,If revenue surges significantly but gross margin remains around 20%, it would imply that much of the incremental revenue is still being absorbed by depreciation and manufacturing costs,suggesting that profit realization could lag behind market expectations.

Key focus point #4: Q3 guidance may ultimately determine post-earnings share price performance.

Given that strong Q2 growth may already be factored into the company's guidance,the biggest potential surprise from this earnings report is likely to come from the Q3 outlook.

In May, management explicitly stated that current order visibility remains robust, the impact of price increases was clearly evident in Q2, and further benefits are expected to materialize in Q3 and Q4.

Industry conditions also temporarily support this view. According to the latest research from TrendForce, AI-related power ICs continue to occupy mature-node foundry capacity, while overseas wafer fabs have reduced supply at certain 8-inch and 12-inch mature technology nodes, creating conditions for sustained pricing improvements in mature processes through 2027.

Therefore, if SMIC reiterates during this earnings calla Q3 revenue outlook implying sequential growth and gross margins holding steady at 21%–22% or even improving further,the market may gain further confirmation that the company has transitioned from a prior phase of 'utilization recovery' into a new stage of 'volume and price expansion.'

Conversely, one risk factor to watch is front-loading of orders.Management previously acknowledged that some consumer electronics and IoT customers, concerned about potential future supply shortages and further price hikes, have pulled forward orders; TrendForce recently noted that certain consumer products—such as TVs and laptops—have seen advance inventory build-ups,which could exert downward pressure on inventories in the second half of the year.

Therefore, if Q2 results are strong but Q3 revenue growth slows significantly or gross margins decline again, the market may reassess whether the Q2 growth stemmed from genuine end-market demand or temporary order-pulling driven by expectations of price hikes.

Summary

Overall, SMIC is highly likely to report Q2 revenue significantly stronger than Q1. The company’s previous guidance of 14%–16% quarter-over-quarter revenue growth implies quarterly revenue could approach USD 2.9 billion, supported by price increases in mature-node chips, demand for AI peripheral chips, overseas orders returning to China, and domestic substitution trends.

However, for the market, what this earnings report truly needs to validate is no longer whether there are orders, but whether those orders can translate into higher profitability.

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