Semiconductor foundry giant Semiconductor Manufacturing International Corporation (SMIC) has finalized a 40.6 billion yuan share placement, securing full ownership of its subsidiary SMIC North.
This significant transaction, effectively an equity-for-capacity swap, raises questions about the strategic signals it sends for the industry.
Placement of 40.6 Billion Yuan Finalized
On the evening of June 24, SMIC (688981.SH/00981.HK) announced the formal completion of its share issuance to purchase assets and related-party transaction.
According to the announcement, SMIC issued a total of 547 million A-shares at a price of 74.20 yuan per share to five counterparties, including the National Integrated Circuit Industry Investment Fund (the "Big Fund"), Beijing Integrated Circuit Manufacturing and Equipment Equity Investment Center, and Beijing E-Town International Investment & Development Co., Ltd. The shares were issued to acquire their combined 49% equity stake in SMIC North Integrated Circuit Manufacturing (Beijing) Co., Ltd., with the total transaction value reaching 40.601 billion yuan.
This transaction did not involve any cash payment. The newly issued shares were registered with China Securities Depository and Clearing Corporation Limited Shanghai Branch on June 23, increasing SMIC's total share capital to 8.561 billion shares.
Following the transaction, SMIC North has officially become a wholly-owned subsidiary of SMIC.
As of the market close on June 24, SMIC's A-shares closed at 151.53 yuan, up 6.94% for the day, with a total market capitalization reaching 1.21428 trillion yuan. Its Hong Kong-listed shares closed up 8.93% at HK$84.80.
Swapping Equity for Production Capacity
This 40.6 billion yuan capital operation offers a window to analyze SMIC's current fundamentals and strategic intent.
As the leading player in mainland China's integrated circuit manufacturing sector, SMIC holds a pivotal position in the global wafer foundry landscape.
Its Q1 2026 financial report showed revenue of 17.617 billion yuan, a year-on-year increase of 8.07%, and net profit attributable to the parent company of 1.361 billion yuan, up 0.36% year-on-year.
After navigating the industry's cyclical adjustments from 2023 to 2024, SMIC's performance has returned to a path of steady growth.
The fully acquired SMIC North is SMIC's core 12-inch wafer foundry base in the Beijing region, with process technologies covering 65nm to 28nm and a monthly capacity of up to 70,000 wafers.
Previously, SMIC held only a 51% stake in it. By gaining full control, SMIC not only eliminates related-party transactions but also fully integrates this substantial production capacity into its unified management system.
Strengthening Competitive Barriers
In the semiconductor industry, heavy-asset capacity expansion consumes significant cash flow. SMIC's choice to use a "share issuance" method rather than "cash payment" for this acquisition is noteworthy.
This approach preserves SMIC's cash flow for subsequent production line construction and equipment purchases. Furthermore, it deeply aligns the company with national-level industrial capital like the Big Fund through equity ties, achieving the strategic goal of "trading equity for a strategic time window."
On the positive side, as Moore's Law approaches its physical limits, a clear divergence is emerging in the global markets for mature and advanced process nodes.
International giants like TSMC have adjusted some of their mature-node capacity, particularly by gradually reducing or even shutting down certain 8-inch wafer production lines, shifting focus instead to high-end AI computing chips. This move creates a significant market gap for other foundries.
By taking full ownership of SMIC North, SMIC can more flexibly allocate its production capacity. Driven by multiple demand factors, this move can further solidify its competitive barriers and enhance overall operational efficiency and gross margin potential.
However, the foundation for a global semiconductor industry recovery still requires consolidation. If future demand in end markets like consumer electronics or automotive falls short of expectations, the newly integrated capacity could face risks of underutilization.
For investors, while embracing the long-term benefits of core domestic chip assets, it remains prudent to maintain a level-headed view regarding potential short-term earnings volatility and high valuation corrections.
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