Semiconductor Manufacturing International Corporation (SMIC) has delivered a stronger-than-expected second-quarter earnings report, with revenue surpassing $3 billion and gross margin improving to 25.3%, reflecting a broad-based improvement in profitability. As AI demand extends into mature process nodes, the company's capacity utilization remains high, its product mix continues to optimize, and management forecasts a further sequential increase in both revenue and gross margin for the third quarter.
On August 13, SMIC released its unaudited results for the second quarter of 2026. The company reported quarterly revenue of $3.006 billion, a 20% sequential increase and a 36.1% year-over-year rise. Gross profit reached $761 million, up 51% from the previous quarter and 69.1% higher than the same period last year, with the gross margin expanding to 25.3% from 20.1% in the first quarter.
Profit growth was even more pronounced. Operating profit for the second quarter stood at $534 million, more than doubling sequentially and surging 254.5% year-over-year. Net profit reached $733 million, a nearly four-fold increase from a year ago. The company expects third-quarter revenue to grow by 2% to 4% sequentially, with the gross margin further improving to a range of 26% to 28%.
Wafer shipments and ASP rise, driving steady Q2 performance
SMIC attributed its second-quarter revenue growth to increased wafer shipments, a higher average selling price (ASP), and a favorable shift in product mix.
During the quarter, the company shipped 2.869 million wafers (equivalent to 8-inch standard logic), a 14.4% increase sequentially and a 20.1% rise year-over-year. Capacity utilization edged up to 93.7% from 93.1% in the first quarter, surpassing the 92.5% rate of the prior year period and approaching full capacity.
Concurrently, SMIC continued to expand its capacity. Monthly capacity increased to 1.097 million wafers (8-inch equivalent) from 1.078 million in the first quarter, while capital expenditure reached $1.836 billion, up 17.5% sequentially. The combination of higher volumes, increased ASPs, and sustained high capacity utilization were the key drivers of the revenue growth.
Product mix improves, industrial and automotive demand heats up
From an application perspective, the share of revenue from industrial and automotive chips saw the most significant increase.
In the second quarter, revenue from the industrial and automotive segment accounted for 16.5% of wafer revenue, up from 14.0% in the first quarter and a substantial increase from 10.6% in the same quarter last year. This indicates a sustained release of demand for domestic wafer foundry services in areas such as automotive electronics and industrial control. Consumer electronics remained the largest application category, contributing 44.2% of revenue, though this was lower than the 46.2% share in the first quarter. The share of smartphones fell further to 16.9%, down noticeably from 25.2% a year ago, while the contribution from computers and tablets rose to 15.6%.
The wafer size structure also continued to improve. The proportion of 12-inch wafers rose to 78.2% in the second quarter, up from 76.4% in the first quarter and 76.1% in the same period last year. This higher mix of 12-inch products is a key factor in the rising ASP.
Gross margin rises sharply, but non-recurring items warrant attention
Beyond the improvement in core operations, SMIC's profit in the second quarter was also significantly boosted by a sharp increase in other income.
The company's "Other income, net" for the quarter was $276 million, a substantial increase from $7.5 million in the first quarter. The main sources included $194 million in share of profits from associates and joint ventures, and $63.97 million in other net gains. The company noted that some associates are investment funds holding diversified portfolios, which experienced significant changes in the fair value of their investments during the quarter, generating considerable gains. These two items, totaling approximately $257 million, are inherently volatile and should be evaluated separately from the performance of the core business when assessing the company's fundamental profitability.
On the other hand, second-quarter EBITDA reached $2.109 billion, with the EBITDA margin rising to 70.2%. This represents a significant improvement from 57.3% in the first quarter and 51.1% in the same period last year, indicating that the company is further realizing economies of scale.
Cost control and R&D proceed in parallel, cash flow improves
Operating expenses for the second quarter totaled $226 million, a decrease of 11.5% sequentially and a drop of 24.3% year-over-year. General and administrative expenses alone were cut by 36.5% compared to the same period last year, demonstrating effective cost management.
While reducing costs, the company continued to increase its investment in research and development. R&D expenses for the quarter reached $209 million, up 11.5% sequentially and 14.6% year-over-year, reflecting a sustained commitment to technology upgrades and process capability development. For other operating income, the company recorded $113 million in the second quarter, a sharp sequential increase of 91.5% and a 32.3% rise year-over-year, primarily driven by the recognition of government grants, which provided positive support to operating profit.
Cash flow performance was particularly strong. Net cash flow from operating activities reached $2.522 billion in the second quarter, a significant improvement from $685 million in the first quarter. As of the end of the second quarter, the company held $8.216 billion in cash and cash equivalents, an increase of $937 million from the previous quarter. Including financial assets, total liquid funds were $13.857 billion, essentially flat with the previous quarter. In terms of debt structure, interest-bearing liabilities decreased to $14.019 billion from $14.512 billion at the end of the first quarter, further compressing net debt to just $162 million. The net debt-to-equity ratio stood at a mere 0.4%, reflecting a robust balance sheet.
AI demand spills over, mature processes enter a new cycle
Looking ahead to the second half of the year, SMIC remains optimistic about demand. The company expects third-quarter revenue to grow by 2% to 4% sequentially, with the gross margin further improving to between 26% and 28%.
Management has clearly stated that the industrial impetus and spillover effects from artificial intelligence will continue, generating broad demand for integrated circuit manufacturing. The company will flexibly allocate capacity and rapidly validate new capacity additions to help alleviate supply chain bottlenecks. Based on the second-quarter performance, the impact of AI demand is spreading from high-end advanced manufacturing processes to a wider range of mature nodes and peripheral chips. For SMIC, high capacity utilization, an improving product mix, and the release of new capacity are collectively propelling its performance into an upward cycle.
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