China’s biggest chip makers, SMIC and Hua Hong Semiconductor, saw their stock prices drop sharply after warning that they might face problems in the second half of the year because of ongoing tensions between the U.S. and China.
SMIC, the country’s biggest chipmaker, expected a 4 to 6 percent sequential drop in second-quarter revenue, citing “fab production fluctuation” as a cause that led to a decrease in average selling prices, co-CEO Zhao Haijun said in an earnings call on Friday.
In its earnings report on Thursday, the company said the second half of the year will bring “both opportunities and challenges.” It added that it is working to become more flexible and better prepared to handle risks.
Hua Hong, a smaller competitor of SMIC, also shared worries about the business outlook for the coming months.
In its earnings report on Thursday, the company said the global situation and new policies are creating more uncertainty for the whole chip industry, especially around customer demand, costs, and supply chains.
Even with the challenges, Hua Hong expects its second-quarter revenue to increase, reaching between $550 million and $570 million.
SMIC and Hua Hong’s Hong Kong-listed shares declined on Friday by 4.8 percent and 7.9 percent, respectively.
On Friday, the state-backed newspaper Securities Times reported that the China Integrated Circuit Industry Investment Fund, also called the Big Fund, had reduced its investments in both SMIC and Hua Hong.
The Big Fund, which supports China’s goal of becoming more self-sufficient in making semiconductors, made the move through one of its Hong Kong-based subsidiaries.
Despite the difficulties, both companies reported strong revenue growth in the first quarter. Their leaders said they saw good signs of increasing demand for their chips.
SMIC’s revenue jumped 28.4 percent year on year to US$2.2 billion for the three months ended March, while Hua Hong’s revenue increased 17.6 percent to US$540.9 million.
However, their profits were very different. SMIC’s net income jumped by 162% to $188 million, while Hua Hong’s profit dropped by 88% to just $3.75 million.
SMIC said its profit increase was partly due to higher demand from the industrial and automotive sectors.
A report from the Chinese research group Dolphin Research on Friday added that the revenue growth also came from some foreign customers buying and storing chips in advance, who were worried about upcoming U.S. tariffs.
“If this impact is not taken into account … the downstream demand is still relatively sluggish,” the firm said.
SMIC’s Zhao said there was hope that the “situation could be further improved” through the future negotiation process, and the impact of tariffs could be absorbed “at the factory and procurement levels.”
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