Sou Hu Cai Jing·2025-08-09 02:29Core Viewpoint - The significant decline in stock prices for SMIC is attributed to disappointing Q2 earnings, revealing deeper issues within the Chinese semiconductor industry, including depreciation costs, tariff changes, and technological gaps [1][3]. Financial Performance - SMIC reported a revenue of $2.2 billion, but net profit plummeted by 19% year-on-year [3]. - Depreciation costs for the newly launched 12-inch fab reached 23 billion yuan in the first half of the year, equating to approximately 1.3 million yuan lost daily [3]. Market Dynamics - The potential imposition of a 100% tariff on chips by the U.S. has caused significant concern among SMIC's overseas clients, with management claiming the impact would be less than 10%, despite U.S. revenue accounting for 12.9% of total income [3]. - The company faces a severe reduction in orders from Huawei, reminiscent of the drastic loss of 100 billion yuan in market value following the U.S. supply chain disruptions [3]. Technological Challenges - SMIC is struggling with a significant technological gap, as TSMC has successfully ramped up production of 3nm chips while SMIC is still grappling with 14nm yield issues [3]. - The N+2 process has a 15% lower yield and 20% higher costs compared to competitors, leading to a loss of market share in AI chip orders [3]. Market Sentiment - The current market valuation of SMIC includes an estimated 50 billion yuan in "domestic substitution" premium, which may not be sustainable given the technological and operational challenges [4]. - The disparity in gross margins is stark, with TSMC achieving 58.8% while SMIC's margin stands at only 23.1% [4]. Strategic Insights - Investors are advised to monitor SMIC's Q3 gross margin closely, as a drop below 18% could signal a need to exit [5]. - The reliance on government policy over technological advancement is cautioned against, especially with delays in the N+2 process validation [5]. - The volatility of overseas orders, particularly in light of potential tariff increases, poses a significant risk to SMIC's stock performance [5]. Investment Opportunities - Key indicators for potential investment include the successful completion of capacity validation in Q3 and confirmed orders from Huawei's HiSilicon [7]. - Any operational setbacks at TSMC, such as labor strikes, could present a buying opportunity for SMIC [7].