SMIC's first $3 billion quarter comes with a wafer price increase attached

SMIC posted its first $3 billion quarter and, a day later, told analysts it will charge more for wafers processed in the third quarter, after price negotiations concluded in the first ^[1][2]. For anyone with a mature-node bill of materials sourced in China, that is the operative fact: the direction of travel has flipped from discount to increase, and the customers who most need the capacity have nowhere else to qualify ^[14]. The quarter itself: revenue up 36.1% year on year, net profit nearly tripling to $479.2 million ^[1]. SMIC had guided to 14% to 16% sequential revenue growth and a 20% to 22% gross margin, and delivered 20% growth to $3.01 billion at a 25.3% margin, up from 20.1% in the first quarter ^[5]. That is 3.3 points above the top of its own margin range ^[1] and a 5.2 point sequential expansion ^[4]. Wafer shipments rose 14% quarter on quarter to 2.9 million 8-inch equivalents while blended selling prices climbed 5.7% ^[6], which compounds to roughly the 20% reported ^[5]: volume did most of the work, and price is only now being layered on. Third-quarter guidance is a 26% to 28% gross margin ^[6], another 0.7 to 2.7 points ^[3]. Utilization hit 93.7% against demand co-CEO Zhao Haijun said SMIC cannot fully meet ^[3]. His stated rationale for the increases was relative, not cost-based: "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" ^[4]. The captivity is the mechanism. U.S. export controls have cut Chinese AI data center buildouts off from TSMC and Samsung at the leading edge ^[3], and SMIC is the only Chinese foundry that mass-produces 7nm-class logic, making it the sole domestic route to silicon for Huawei's Ascend line and Cambricon's accelerators ^[14]. Beijing wants 70% of silicon wafers sourced domestically this year ^[12], and a Bloomberg Intelligence survey of 60 Chinese tech executives in June found firms plan to put 46% of AI accelerator budgets into local chips over the next 12 months, up from 30% now ^[13], a 16 point shift ^[7]. China was 90% of SMIC's revenue ^[7]. Even when Washington approved around 10 Chinese firms to buy Nvidia's H200 in May, Beijing was blocking the purchases to protect domestic suppliers ^[21]. Note what is actually short. Zhao said the surge came mostly from AI chips other than CPUs and GPUs: logic ICs, BCD power-management parts, and optical transceiver components, with industrial and automotive rising to 16.5% of wafer revenue from 10.6% a year earlier ^[8], up 5.9 points ^[8]. That is the same mature-node capacity ordinary industrial buyers use. Two years ago the position was inverted: 68.1% utilization in the first quarter of 2023, net profit down more than 60%, gross margin off 16.4 points to 21.9% ^[9], and as late as early 2025 SMIC and Hua Hong were reported to be cutting mature-node prices to defend share ^[10]. Utilization has since moved 25.6 points ^[6]. The repricing has been sequential: around 10% in December, targeted increases in capacity-constrained segments in February, and another round on third-quarter wafers ^[11]. It is not one foundry. Hua Hong reported 102.8% utilization in the same week on record revenue of $717.5 million, up 26.8% ^[15]. TrendForce data shows foundry prices across China rose 5% to 15% between the first and second quarters, with a third round being prepared for the second half ^[16]. TSMC is reportedly raising prices across its advanced nodes too ^[17]. Watch whether SMIC lands at or above the 28% top of its margin guidance, which would confirm the increases stuck rather than being absorbed ^[6]. Watch the third TrendForce round ^[16]. Watch whether Beijing keeps blocking H200 imports ^[21], because a genuine reopening is the only thing that reintroduces an alternative.