SMIC’s 2025 Performance and the Looming Memory Chip Crisis

SMIC (00981.HK) delivered a robust 3Q 2025 performance that surprised analysts and investors alike. Revenue rose 7.8 % QoQ to US$2.38 billion, comfortably exceeding the guidance range of 5‑7 %. Gross margin improvement further underscored operational efficiency, prompting CLSA to maintain its Outperform rating and lift its target price to US$93.3. Likewise, Goldman Sachs upheld a Buy recommendation with a $117 target, noting that the quarter’s revenue of US$2.4 billion surpassed market expectations and the company’s own guidance.

Market Context

  • Short‑selling activity reached US$380.05 million with a ratio of 5.43 %, indicating heightened skepticism among short‑sellers even as earnings beat forecasts.
  • The Hong Kong Stock Exchange price moved +1.15 % to HKD 73.5, a modest gain amid broader market volatility. The Hang Seng Index slipped 0.7 % on Monday due to U.S. data delays and Fed policy uncertainty, dampening risk appetite across the board.

The Memory Chip Shortage

While Q3 revenue growth was encouraging, SMIC’s leadership warns that 2026 will be a lean year for automotive and consumer tech sectors. The company cites escalating demand for memory chips—driven by AI accelerators and data‑center expansion—as a looming bottleneck. Analysts from TrendForce and Mobile World Live echo this sentiment, noting that shortage‑induced price hikes from Samsung (up to 60 %) are already rippling through the supply chain and prompting smartphone manufacturers to hold back Q1 orders.

This dual reality—strong short‑term earnings versus long‑term supply constraints—creates a paradox for investors. On one hand, SMIC’s all‑time record revenue outlook (projected >US$9 billion for the full year) reflects tight foundry capacity and localised supply‑chain advantages. On the other hand, the impending memory crunch threatens to throttle output for high‑growth segments, potentially eroding margins and delaying the company’s 2026 expansion plans.

Strategic Implications

  1. Capacity Utilisation vs. Demand Management SMIC’s fabs are operating near capacity, a fact that has historically bolstered revenue. However, as memory shortages tighten, the firm will need to balance utilisation against the risk of over‑saturation and price inflation.

  2. Client Order Caution Memory shortages have already prompted order caution from smartphone clients, as reported by TrendForce. This may lead to reduced volume in the near term, potentially offsetting the gains seen in Q3.

  3. Geopolitical Pressure The company continues to navigate U.S. curbs and regional geopolitical tensions. Its ability to maintain supply‑chain resilience while complying with export restrictions will be critical to sustaining growth.

Conclusion

SMIC’s recent financials demonstrate operational resilience and effective cost management, justifying the optimistic outlooks from CLSA and Goldman Sachs. Yet the company stands at a crossroads: a tightening memory market threatens to erode the very gains that buoy investor confidence. Stakeholders must watch how SMIC adjusts its production strategies and client engagement in the face of escalating shortages, as the next quarter’s performance will be a litmus test for its long‑term viability.