SMIC reported a record $3 billion quarterly revenue with near-tripled net profits and implemented wafer price increases, driven by a surge in domestic orders as U.S. sanctions force Chinese AI firms to rely exclusively on local foundries.

SMIC posted its first $3 billion quarter earlier this month, with revenue rising 36.1% year on year and net profit nearly tripling to $479.2 million. The Shanghai foundry had guided for 14% to 16% sequential revenue growth and a 20% to 22% gross margin; instead, it delivered 20% growth to $3.01 billion and a 25.3% margin, up from 20.1% in the first quarter. Wafer shipments rose 14% quarter-on-quarter to 2.9 million 8-inch equivalents, while blended selling prices climbed 5.7%. For the third quarter, management has set guidance for a 26% to 28% gross margin. China accounted for 90% of total revenue.

Capacity utilization hit 93.7% against demand that Co-CEO Zhao Haijun noted SMIC cannot fully meet, driven by Chinese AI data center buildouts restricted from TSMC and Samsung’s leading-edge processes by U.S. export controls. This represents a stark turnaround from early 2023, when utilization sat at 68.1% and averaged 75% for the year as net profit fell more than 60% and gross margin dropped 16.4 percentage points to 21.9%. Even as late as early 2025, reports indicated SMIC and Hua Hong were cutting mature-node prices to defend share against new Chinese capacity. Instead, the company spent 2025 and 2026 raising prices: implementing a roughly 10% increase in December 2025, negotiating targeted hikes in capacity-constrained segments in February 2026, and applying another round to third-quarter wafers following price negotiations concluded in the first quarter. “Since there's still a big gap between industry-leading wafer prices and SMIC's current prices, we need to negotiate with customers for fairer pricing,” Zhao said on the earnings call.

The surge in demand is not coming from GPUs. Zhao noted that growth was driven primarily by AI chips other than CPUs and GPUs, including logic ICs, BCD power-management components, and optical transceivers, all of which remain in short supply. SMIC’s AI peripheral segment is expected to grow by approximately 40% for the quarter, while industrial and automotive chips expanded their share of wafer revenue to 16.5%, up from 10.6% a year earlier.

U.S. export controls have been the primary catalyst, keeping China’s AI accelerator demand away from TSMC and forcing Beijing to redirect procurement inward. The government aims for 70% domestic sourcing of silicon wafers this year, and a June Bloomberg Intelligence survey of 60 Chinese tech executives revealed that firms plan to allocate 46% of their AI accelerator budgets to local chips over the next 12 months, up from 30% currently. As China’s only foundry mass-producing 7nm-class logic, SMIC serves as the sole domestic manufacturing route for Huawei’s Ascend line and Cambricon’s accelerators. This combination of a protected buyer pool, mandated domestic supply shifts, and a single qualified supplier at the leading edge has created a textbook seller’s market.

SMIC’s pricing moves align with broader industry trends but operate from a uniquely captive position. Amid shifting trailing-edge foundry roadmaps for GlobalFoundries, UMC, and SMIC, TSMC is reportedly raising prices across all advanced nodes by up to 15% as AI demand fills its 4nm lines. Foundry prices across China rose 5% to 15% between the first and second quarters, with a third round of increases being prepared for the second half, according to TrendForce. Hua Hong, China’s second-largest foundry, reported 102.8% utilization and record revenue of $717.5 million, up 26.8% year on year, in the same week. Meanwhile, China claims chip exports nearly doubled to $177 billion in the first half of 2026 as memory prices surged. Several Chinese semiconductor firms tied to the U.S. Entity List or dependent on sanctioned suppliers recently posted record or near-record results: Cambricon’s first-half revenue rose 108% to 6 billion yuan ($890 million) with net profit up 122.6% to 2.3 billion yuan, per its Shanghai Stock Exchange filing reported by the South China Morning Post; Moore Threads grew first-half revenue 147% to 1.74 billion yuan while cutting its net loss by 96%; Biren projected first-half revenue growth exceeding 1,850% ahead of a Hong Kong IPO; and memory maker CXMT raised $8.6 billion in Shanghai’s largest-ever semiconductor listing, surging 466% on its debut to become the most valuable company on any mainland exchange.

Beijing had until recently been blocking Chinese imports of U.S. accelerators to shield domestic suppliers. Although the U.S. approved around ten Chinese firms to purchase Nvidia’s H200 chips in May, Under Secretary of Commerce Jeffrey Kessler testified at a congressional hearing on July 14 that “very few” had actually shipped. Officials relented on August 19, with ByteDance and Tencent each receiving approximately 10,000 H200 units—the first meaningful deliveries since the approvals. With roughly 20,000 accelerators delivered against Huawei’s annual target of 600,000 Ascend 910Cs, Chinese cloud spending—projected by Goldman Sachs at roughly $102 billion in combined AI capital expenditure for 2026 across Alibaba, Tencent, ByteDance, and Baidu—is landing overwhelmingly on domestic silicon.

Despite the financial surge, SMIC’s leading-edge economics remain challenging. Cited by the Financial Times, industry sources place SMIC’s 5nm and 7nm prices 40% to 50% above TSMC’s, with yields below one-third due to reliance on multi-patterned DUV lithography on nodes originally designed for EUV. The wafers undergoing repricing are predominantly mature-node components, where SMIC’s cost structure is sound; advanced capacity feeding Ascend production remains yield-limited and expensive per good die regardless. Furthermore, memory, not logic, ultimately caps accelerator output. SemiAnalysis estimates Huawei has been drawing down a stockpile of roughly 13 million Samsung HBM stacks acquired before late-2024 controls, and domestic HBM from CXMT will cover only a fraction of 2026 Ascend targets. Finally, SMIC’s profit jump carries a caveat: CFO Wu Junfeng noted the near-tripling was boosted by a one-time gain from a subsidiary. Analysts note that demand for SMIC’s silicon relies heavily on policy rather than organic end-market traction, with an Asia Times-cited valuation tally placing China’s top 11 listed chip firms at an average of roughly 122 times projected 2026 earnings.