SMIC Just Crossed $3 Billion in Quarterly Revenue for the First Time — and It’s Raising Prices Because It Can

For a company that has spent much of the past three years navigating US export controls, TSMC’s technological lead, and a domestic Chinese semiconductor market that was expected to plateau, SMIC’s second quarter of 2026 looks like a vindication of patience. Revenue above $3 billion for the first time. Profit nearly tripling year-on-year. Wafer prices rising. And Co-CEO Zhao Haijun going on the earnings call to tell customers, with unusual directness, that SMIC’s prices are going up because there is still a gap between what industry leaders charge and what SMIC has been charging — and that gap is now closing.

On August 14, 2026, SMIC reported its second-quarter financial results, posting $3.01 billion in revenue, a 20 percent sequential increase and a 36.1 percent year-on-year gain. Profit attributable to shareholders reached $479.2 million, nearly tripling from $132.5 million in the same period a year earlier. Both figures beat average analyst estimates compiled by LSEG. The company simultaneously confirmed that it had raised wafer prices for its most sought-after production capacity and would charge more for wafers processed in the third quarter, citing AI demand as the driver of the pricing power it is now exercising.

What the Q2 Numbers Say

The $3.01 billion quarterly revenue figure is both a financial milestone and a structural signal about China’s domestic semiconductor industry. SMIC crossed the $3 billion threshold for the first time, Reuters reported, driven by a volume increase and a price increase occurring simultaneously — a combination that typically indicates demand exceeding available supply rather than either factor alone. Wafer shipments reached 2.9 million 8-inch-equivalent units in the second quarter, up 14 percent from the first quarter. The average selling price of those wafers rose 5.7 percent over the same period. Gross profit reached $760.6 million, giving SMIC a gross margin of 25.3 percent — up from 20.1 percent in the first quarter — which reflects the pricing improvement flowing through to earnings before cost effects. Zhao Haijun attributed the volume increase specifically to AI-fuelled demand for chips outside the traditional CPU and GPU categories, mostly from China-based customers, with some orders arriving ahead of expected schedules.

Chief Financial Officer Wu Junfeng noted that net profit was also boosted by a one-time gain from a subsidiary recorded in the second quarter, a detail that moderates the profit tripling figure somewhat — the underlying operational improvement is real, but the magnitude of the net profit gain includes a non-recurring component. The underlying operational improvement, reflected in the gross margin expansion from 20.1 to 25.3 percent, is the more informative measure of SMIC’s fundamental trajectory.

The Pricing Decision and What It Signals

Zhao Haijun’s Direct Statement

Zhao’s comments on pricing were more direct than most foundry executives make publicly. ‘We believe we’ve reached top-tier industry standards in these areas,’ he said, referring to SMIC’s technical capabilities on its most advanced process nodes. Then: ‘Since there’s still a big gap between industry-leading wafer prices and SMIC’s current prices, we need to negotiate with customers for fairer pricing.’ That framing — not ‘we are raising prices due to input cost pressure’ but ‘we are negotiating toward the price our capabilities are worth’ — reflects a foundry that believes it has developed sufficient customer dependency to begin closing the price discount it has historically maintained relative to TSMC. The specific mechanism was negotiated in the first quarter: conversations with customers that established higher prices for wafers processed in the third quarter, giving customers advance notice of the increase rather than presenting it as a sudden change. The 5.7 percent increase in average selling price already visible in Q2 results reflects earlier-stage pricing work; the Q3 adjustments will compound that improvement.

The AI Demand Basis

The pricing power behind Zhao’s statement rests on a specific supply constraint. SMIC is the only Chinese foundry capable of mass-producing logic chips — CPUs, GPUs, and adjacent AI accelerators — on a 7-nanometre-class process. That capability, achieved through techniques that US export regulators have examined closely and disputed in some contexts, makes SMIC the essential domestic supply option for Chinese AI chip designers who cannot access TSMC’s advanced nodes due to US restrictions. As the development and deployment of AI applications in China has accelerated, demand for the chips that run those applications has grown faster than SMIC’s capacity can expand, creating the seller’s market conditions that make Zhao’s pricing approach viable. The demand is not for SMIC’s most mature process nodes — it is specifically for the capacity that Chinese customers cannot obtain elsewhere.

SMIC’s Position in the AI Supply Chain

What 7nm in China Means

SMIC’s 7nm process is significant for a reason that goes beyond the node number. Advanced foundry processes — 7nm, 5nm, 3nm — are measured not in transistor gate length (as the names historically implied) but as marketing designations that broadly correlate with transistor density and power efficiency improvements relative to predecessors. SMIC’s 7nm is assessed by external analysts to be functionally comparable to TSMC’s generation-earlier process nodes rather than its current cutting edge, but it is nonetheless the most advanced process commercially available to Chinese chip designers given the US export controls that prevent them from accessing TSMC. For the purpose of designing AI accelerators for Chinese applications — inference chips for enterprise deployment, training accelerators for domestic AI labs, edge AI chips for connected devices — SMIC’s 7nm provides workable performance relative to the state of Chinese AI development. As documented in our earlier reporting on DeepSeek’s inference chip development programme, the strategic logic for Chinese AI companies building custom chips specifically optimised for their model architectures at available process nodes is compelling regardless of the absolute performance gap with Nvidia or TSMC’s most advanced offerings. SMIC is the foundry that makes that strategy executable.

The 90% China Revenue Concentration

The geographic concentration of SMIC’s revenue — 90.2 percent from China in the second quarter, with the US contributing 8.2 percent — reflects both the export control constraints on SMIC’s international business and the scale of domestic Chinese AI chip demand. Prior to the current AI cycle, SMIC had been building a more internationally diverse customer base across consumer electronics, automotive, and industrial chip categories. The AI-driven demand surge from Chinese customers has, in the short term, absorbed the capacity that international customers might otherwise have competed for, and the pricing increase SMIC is implementing for its most advanced capacity will be paid predominantly by Chinese customers who have no alternative domestic supply option.

The Export Control Context

SMIC’s ability to produce chips at the 7nm node has been a subject of ongoing attention from US export regulators. The Bureau of Industry and Security added SMIC to the Entity List in December 2020, which restricts US companies from supplying SMIC with certain equipment and technology without a licence. Subsequent reporting, including analysis of chips from Huawei’s Mate 60 Pro smartphone that used SMIC-produced chips at advanced nodes, raised questions about whether SMIC has advanced its process capabilities beyond what the export control framework expected it to be able to achieve. The US government has reviewed SMIC’s capabilities and the equipment supply chains that enable them, but has not to date imposed additional restrictions that would prevent SMIC from continuing to produce at its current process levels. That regulatory equilibrium — constraining SMIC’s access to the most advanced equipment while accepting its current node capabilities — defines the envelope within which Zhao’s pricing confidence sits.

Competitive Implications

SMIC’s pricing move has two significant competitive implications outside China. For TSMC, the pricing story is validating: SMIC’s CEO citing a gap between ‘industry-leading wafer prices’ and its own prices is effectively a public acknowledgement that TSMC’s premium pricing is defensible, and that domestic Chinese alternatives have not produced the commodity-pricing pressure that some market participants expected. For non-Chinese fabless chip designers who use SMIC for mature-node chips — a customer base that SMIC has maintained despite Entity List constraints — the Q3 price increase applies across capacity categories, not just the advanced nodes. Those customers will be evaluating whether SMIC’s pricing trajectory makes alternative foundry sourcing outside China more economically attractive. The broader pattern of AI-driven semiconductor supply constraint is explored in our earlier analysis of the South Korea $950 billion chip deal announcements and the global HBM supply shortage — SMIC’s pricing move is the latest data point in the same macro trend: AI demand has tightened semiconductor supply across the stack, and foundries with constrained capacity in categories customers cannot easily substitute are exercising the pricing power that constraint produces.

Q3 Guidance and the Road Ahead

SMIC guided for Q3 2026 revenue to grow a further 2 to 4 percent quarter-on-quarter, with wafer shipments continuing to increase. Zhao committed to both adjusting existing capacity utilisation and accelerating the ramp-up of new production lines to help ease industry-wide supply constraints over time. The supply constraint easing commitment is important context for the pricing discussion: SMIC is not trying to maximise near-term margins at the cost of customer relationships — it is managing a period of demand-supply imbalance while investing in the capacity that will eventually reduce the imbalance. New capacity coming online in 2027 and beyond will be the test of whether today’s pricing premiums are structural or transitional. SMIC shares rose 5 percent in the trading session following the earnings call, reflecting market endorsement of both the revenue beat and the pricing strategy, though the year-to-date performance remains slightly negative at a 0.21 percent decline — indicating that the earnings beats are being weighed against broader concerns about the sustainability of demand and the regulatory environment.

Why It Matters

SMIC’s Q2 2026 results and Q3 pricing announcement matter for three reasons beyond the earnings beat itself. First, they confirm that AI demand for semiconductor foundry services has reached a scale sufficient to give Chinese domestic foundries meaningful pricing power — a development that US semiconductor policy, which has sought to slow Chinese chip manufacturing advancement, did not prevent and may have inadvertently accelerated by concentrating Chinese AI chip demand on SMIC as the only available domestic advanced-node option. Second, they demonstrate that SMIC’s 7nm capabilities are commercially mature enough to serve the current wave of Chinese AI chip design at a volume and quality level that warrants premium pricing. Third, the 36 percent year-on-year revenue growth confirms that Chinese domestic AI chip demand is large, accelerating, and structurally dependent on domestic foundry supply — which means SMIC’s strategic and commercial importance to China’s AI development programme is growing faster than any alternative supply arrangement could currently substitute for.

Sources

Reuters, August 14, 2026 (Zhao Haijun earnings call quotes). Quartz, August 14, 2026 (SMIC Q2 detailed financials). The Edge Malaysia, August 15, 2026. Free Malaysia Today (Reuters), August 15, 2026. Taipei Times, August 15, 2026. Business Recorder, August 14, 2026. LSEG analyst estimates compilation.