SMIC's binding constraint is floor space, and the AI crunch has reached power chips

SMIC used its second-quarter earnings call to say that wafer volumes entering its lines are running far above its own earlier forecasts, that it is adjusting expansion plans and could install additional equipment at existing factories with spare space, and that it may push wafer prices higher on third-quarter output ^[1][2][3]. The detail that matters for anyone building hardware is where the pressure is landing: not on advanced AI logic, but on BCD power-management chips, the mundane parts that regulate current inside servers and racks ^[4].

Co-CEO Zhao Haijun said the volume of wafers going into production lines was far exceeding earlier forecasts, according to remarks reported by the South China Morning Post ^[1]. Orders for BCD parts, which integrate devices with different characteristics onto one die and underpin power management in electricity-hungry data centres, are expected to run through the end of next year ^[4]. That is a long book for a commodity process node, and it is the tell. When the scarce input becomes power-management silicon rather than accelerators, the shortage has stopped being a design problem and become a capacity problem.

The capacity numbers are unambiguous. Fab utilisation was 93.7% in the second quarter, up from 93.1% ^[5], a rise of 0.6 percentage points ^[1]. Zhao said the company intends to cap utilisation at roughly 95% going forward, holding about 5% back for research and development ^[6]. That leaves about 1.3 points of usable headroom against the stated ceiling ^[2] on a base of roughly 1.1 million wafers per month, 8-inch equivalent ^[7]. Absent new tools, there is nothing left to sell.

Pricing is already doing some of the work that capacity cannot. Wafer shipments rose 14.4% quarter on quarter while revenue rose 20% to $3.01 billion, also up 36.1% year on year ^[8][9] - implying revenue per wafer up roughly 4.9% on mix and price ^[3]. SMIC had raised prices earlier in the year on products in short supply but excluded smartphone chips and display driver ICs given weak conditions in those markets ^[10]. Zhao framed further increases as a gap-closing exercise, saying a large gap remains between the wafer prices of industry leaders and SMIC's, and that negotiation with customers is needed ^[11]. He added that a recovery in smartphone and consumer electronics demand could make the upward pressure on prices stronger still ^[12].

Third-quarter guidance is 2% to 4% growth on the prior quarter ^[13], which works out to roughly $3.07 billion to $3.13 billion ^[4]. China accounted for about 90% of revenue, with the United States at 8% and Eurasia at 2%, and grew fastest of the three ^[14][15] - roughly $2.7 billion from the domestic market ^[5]. Zhao attributed China's growth to AI chip demand, recovering overseas orders and continuing supply-chain localisation ^[16].

Three things to watch. First, whether "adjusting expansion plans" converts into actual tool orders, since brownfield installs are the only near-term lever left ^[2]. Second, whether the smartphone and DDI carve-outs from the earlier price rise survive the next round ^[10]. Third, whether buyers of BCD parts start hedging on lead times that now stretch past the end of next year ^[4], because that is where board-level cost inflation shows up first.