Semiconductor Manufacturing International Corporation (SMIC) Faces Regulatory Scrutiny While Navigating Market Expectations
Regulatory Action on Applied Materials’ Equipment Export
On 12 February 2026, the U.S. Department of Commerce announced a settlement with Applied Materials Inc. (NASDAQ: AMAT) for the unlawful shipment of chip‑making equipment to SMIC, a Chinese foundry. The settlement amounts to US$252 million and resolves allegations that the U.S. export‑control embargo, which restricts advanced lithography and other high‑tech devices from reaching Chinese customers, was breached. Applied Materials’ compliance team stated that the violations were accidental, yet the penalty underscores the intensity of U.S. scrutiny over technology transfer to China.
The incident has immediate implications for SMIC. While the foundry remains compliant with all applicable export controls, the event has drawn attention from regulators and may trigger further inspections of its supply chain. It also risks limiting SMIC’s access to the latest lithographic tools, potentially slowing its progress toward producing sub‑10‑nanometer nodes.
Analyst Outlooks Amid Mixed Financial Guidance
A cluster of research reports published on the same day reflects a broadly neutral stance on SMIC’s near‑term prospects, with variations in earnings forecasts and growth expectations:
| Analyst | Rating | Key Takeaways |
|---|---|---|
| Nomura | Neutral | Anticipates mid to high double‑digit revenue growth for 2026, citing strong demand for consumer electronics and AI compute. Maintains a flat‑quarter‑on‑quarter guidance for 1Q26 and a gross‑margin range of 18‑20 %. |
| UBS | Neutral | Highlights a favorable pricing environment but notes depreciation pressure from a projected 30 % rise in depreciation expenses, potentially eroding margins. |
| CLSA | Outperform | Lowers 2026/2027 earnings forecasts by 14 %/11 % due to memory‑shortage constraints, yet keeps target prices unchanged. Emphasizes an expected easing of memory shortages within 9‑12 months. |
| M Stanley | Overweight | Points to benefits from China’s AI compute build‑out, suggesting continued capacity utilization in data‑center applications. |
| G Sachs | (not specified) | Notes operating‑profit beat in 4Q25. |
| UBS (second report) | (not specified) | Cuts earnings forecast after quarterly results beat but indicates gross‑profit‑margin pressure. |
Across the reports, a common theme is that SMIC’s 2026 revenue growth is likely to outpace many peers, yet capital expenditure of US$8.1 billion and rising depreciation could squeeze profitability. The firm’s 4Q25 results were described as broadly in line with expectations, and management’s guidance for the next quarter remains flat.
Capacity Utilization and AI Data‑Center Demand
SMIC’s CEO recently cautioned that the company’s accelerated investment in AI data‑center capacity may remain underutilized. He cited the rapid pace at which the foundry expanded its output capabilities without a fully mature demand forecast. This warning aligns with concerns raised by CLSA and other analysts that memory shortages—particularly in DRAM and NAND—could restrain growth for an extended period.
Nevertheless, the ongoing push for AI‑centric chip manufacturing in China provides a strategic tailwind. SMIC’s positioning in the foundry market, combined with a portfolio that spans logic, memory, and mixed‑signal processes, should help absorb fluctuations in demand across segments.
Financial Snapshot
- Close Price (10 Feb 2026): HKD 70
- 52‑Week High (28 Oct 2025): HKD 133
- 52‑Week Low (6 Apr 2025): HKD 37
- Market Capitalization: HKD 663 billion
These figures illustrate the volatility inherent in SMIC’s share price, reflecting both external regulatory pressures and internal operational challenges. The recent settlement with Applied Materials and the broader U.S. export‑control environment add further uncertainty to the company’s strategic roadmap.
Bottom Line
SMIC sits at the intersection of geopolitical tension and burgeoning demand for AI‑driven silicon. The US$252 million settlement involving its equipment supplier signals heightened regulatory vigilance, while analyst reports convey a cautiously optimistic growth outlook tempered by depreciation and memory‑supply constraints. For investors and industry observers, SMIC’s trajectory will hinge on its ability to navigate these dual pressures while maintaining a robust pipeline for the next generation of semiconductor devices.
