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Following a massive shortage of chips throughout the COVID-19 pandemic, the microchip fabrication industry is finally starting to catch up. However, supply for chips might be exceeding demand for another year, according to a report from Bloomberg via Yahoo Finance. The news comes after a briefing from Semiconductor Manufacturing International Corp., the Chinese company that makes Huawei chips.
After reporting another fall in revenue, SMIC warned that smartphone demand might not recover this year. SMIC executives also noted that increased geopolitical tensions between tech companies might cause another problem: an excess of microchips and fabrication infrastructure.
Tensions between the U.S. and China continue to grow. Both countries are trying to assert their respective economical and technological might, each hoping to outpace the other. The tensions came to a head in 2019, when then-president Donald Trump issued a U.S. executive order giving the federal government authority to restrict certain transactions related to technology with foreign companies. In practice, the move barred U.S. companies from working with Huawei.
That forced SMIC and Huawei to bolster its chip fabrication infrastructure independent of the U.S. The U.S. hopes to do the same, offering great incentives to companies who open fabrication plants on U.S. soil. But as the countries aim for independence, efficiency is sacrificed.
“From a global perspective, capacity will be excessive,” said Zhao Haijun, the co-CEO of SMIC, on a conference call. “It will take a lot of time to digest the new capacities built in recent years.” The potential excess in supply for microchips, which are used in smartphones among many other products, comes amidst waning demand. According to a recent Canalys report, only one company in the top five of global smartphone manufacturers saw year-over-year growth in Q3 2023. Three of the top companies, including Apple and Samsung, saw year-over-year losses. Amidst these reports, SMIC says recovery isn’t coming just yet.
What comes next for Huawei and SMIC
Despite the considerable sanctions levied by the U.S., Huawei and SMIC are starting to recover independently. While sales may still be down, SMIC was able to create 7nm chips for the latest Huawei smartphone. That’s a huge improvement for the Chinese chipmaker, and it bodes well for the future. However, there are rumblings that the U.S. may be considering more sanctions in the wake of Huawei’s advancements. Since SMIC does have the backing of China’s government, it may be able to overcome the hurdles ahead. As both China and the U.S. try to make chips independently of each other, SMIC thinks supply will overwhelm demand.