SMIC Pushes Ahead With Expansion Amid Profit Slump and Sanctions

China’s largest chipmaker, Semiconductor Manufacturing International Corporation (SMIC), is doubling down on expansion despite facing significant financial pressure from U.S.

sanctions and global trade restrictions. The company recently confirmed plans to fully acquire Semiconductor Manufacturing North China (Beijing) Corporation (SMNC), a move that highlights Beijing’s push to strengthen its domestic semiconductor ecosystem in the face of mounting geopolitical challenges.

SMIC, already a cornerstone of China’s technology ambitions, finds itself at a crossroads. On one hand, revenues have continued to climb – the firm reported $2.2 billion in Q2 revenue, up from $1.9 billion a year ago. On the other hand, profits tell a different story. Net income plunged to $146 million, not only down from $172 million in the same quarter of 2024 but also marking a staggering 54.6% drop compared to Q1. This sharp decline underscores the double-edged impact of tariffs: while they may stimulate domestic demand, they also inflate costs and make financial forecasting highly uncertain.

SMIC’s management has been candid about the challenges. During its earnings call, executives admitted that over-ordering caused by tariff fears has created unpredictable cash flow. The company also flagged the burden of rising prices across its supply chain, which is eating into margins. Still, SMIC is holding firm on its earlier commitment to spend around $7 billion in capital expenditures this year – a figure that underlines how essential expansion is for China’s broader strategy to achieve semiconductor independence.

The proposed acquisition of SMNC reflects this long-term outlook. Although SMIC already held a controlling stake, taking over the company completely would streamline operations and reduce overlap. To finance the deal, SMIC plans to issue new shares, a decision that may dilute equity but has surprisingly bolstered investor sentiment. Following the announcement, the firm’s stock surged by as much as 10% on the Shanghai exchange before settling to a 6.8% gain overall. This market confidence signals that investors view consolidation as a necessary step to fortify China’s chip supply chain.

Still, the deal is not without hurdles. The specifics of the share issuance – including pricing – remain under negotiation. SMIC emphasized that talks with stakeholders are ongoing and promised to disclose more details in follow-up filings. The timing of this acquisition also coincides with broader industry consolidation in China. Peers like Hua Hong Semiconductor are similarly expanding, indicating that domestic firms see strength in unity as they brace for continued restrictions on advanced U.S. technologies.

For all the financial headwinds, SMIC’s determination reflects a larger geopolitical reality: semiconductors have become one of the most contested resources in the global economy. Washington’s sanctions aim to slow Beijing’s technological rise, but China’s response has been to pour more capital into building homegrown capabilities. Whether SMIC can balance its immediate profit struggles with long-term strategic necessity remains to be seen, but its aggressive posture shows that retreat is not on the table.

From a financial perspective, some observers argue that SMIC’s revenue growth provides enough cushion to explore loans or other financing tools rather than relying solely on equity issuance. Others stress that the missing piece is transparency – detailed quarterly cash flow and debt data would paint a clearer picture of whether lenders might step in. For now, SMIC seems intent on weathering the storm with a strategy of expansion, consolidation, and sheer persistence.