SMIC warns that rushed AI chip capacity expansion could result in idle production capacity.
China's top chipmaker Semiconductor Manufacturing International Corp (SMIC) has raised concerns that breakaway spending on artificial intelligence chips is accelerating demand cycles, bringing forward years of future capacity needs. SMIC cochief executive officer Zhao Haijun warned on a recent analyst call that "companies would love to build 10 years' worth of data center capacity within one or two years," while cautioning that "as for what exactly these data centers will do, that hasn't been fully thought through." Moody's Ratings projects AI-related infrastructure investment will exceed US$3 trillion over the next five years as developers pour capital into data centers housing training and inference chips from Nvidia Corp, Advanced Micro Devices Inc, and Huawei Technologies Co. In the United States alone, combined capital expenditure from Alphabet Inc, Amazon.com Inc, Meta Platforms Inc, and Microsoft Corp is on track to reach US$650 billion this year, driven by their AI arms race.
China's leading developers including Alibaba Group Holding Ltd, Tencent Holdings Ltd, and ByteDance Ltd are investing heavily in AI infrastructure equipped with both Nvidia chips and domestically produced alternatives. However, SMIC faces significant constraints: the company can only manufacture less advanced AI chips compared with those produced by Nvidia and its contract manufacturer Taiwan Semiconductor Manufacturing Co, due to US export restrictions limiting access to cutting-edge equipment. Drawing an analogy to infrastructure development, Zhao noted: "It's like building high-speed rail stations and highways — even if there aren't that many cars today, you still want to complete 10 years' worth of infrastructure in just two years."
SMIC's financial performance reflects the current demand surge. The company reported net profit of US$173 million for the fourth quarter of last year, jumping 60.7 percent year-on-year and beating analyst estimates. Revenue rose 12.8 percent to US$2.49 billion, topping forecasts, though gross margin fell to 19.2 percent from 22.6 percent a year earlier and factory utilization remained at 95.7 percent. Capital spending reached US$8.1 billion last year, up 10.5 percent from 2024, with Zhao expecting SMIC's capital spending this year to remain at similar levels.
The surge in AI infrastructure investment has also triggered critical supply bottlenecks. High-bandwidth memory (HBM)—a critical component for advanced AI computing—remains in tight supply, with Zhao indicating shortages could persist for years as new capacity requires time to build and qualify. Supply chain tensions have extended to chip-manufacturing equipment, with US Secretary of Commerce Howard Lutnick expressing concerns to ASML Holding NV's senior leadership over whether the Dutch company's extreme ultraviolet lithography (EUV) machines may have reached China in violation of US-led export restrictions. ASML responded by denying "unfounded rumors regarding non-compliance with export controls concerning China," stating it enforces controls strictly. SMIC's domestic clients, including Huawei and Cambricon Technologies Corp, are ramping up silicon production to meet China's AI needs against this constrained equipment landscape.