SMIC's record quarter hides a 17% profit drop from Q2
Thursday's print will be billed as a profit doubling, but the same consensus number is 17% below Q2, because last quarter's headline carried a quarter-billion of investment gains. The money is in the gross-margin guide, the Q4 outlook and a depreciation bill running above $1.2 billion a quarter.
Vincent Jiangthree-minute read
A record quarter that is really a step down
SMIC+2.61% — SMIC, up 2.61 percent today, China's largest contract chipmaker, reports third-quarter results after the Hong Kong close on Thursday, November 12 12. The Visible Alpha poll of 13 analysts puts revenue at $3.12 billion, up 31% year on year, and net profit at $396.8 million, more than double a year ago 12. But the doubling is against last year. Against the quarter just ended, the same number is a fall of $82.2 million, 17% below the $479 million SMIC booked in Q2 12. That is the number the wires have not written up.
What the headline hides
Q2's $479 million was not all foundry 2. It carried about $194 million of profit from associates and joint ventures and about $64 million of other gains, and SMIC itself said these are volatile and cannot be directly extrapolated to Q3 2. Strip those and the operating story still improved, but the Q3 consensus is for net profit to give back part of the headline 12. The first quarter carrying the full SMIC Beijing share count, after the 49% buy-in completed in June, muddies attribution further 2.
The margin is the trade
Growth is now profit per wafer. Q3 revenue is guided up only 2% to 4% sequentially with gross margin of 26% to 28%, implying about $836 million of gross profit at the midpoint, 9.9% above Q2 2. In comments after the Q2 results, co-CEO Zhao Haijun said price hikes, not mix, drove the margin, and that increases will keep flowing through 6. Against that: Q2 depreciation of $1.212 billion, up 37.9% year on year, 1,096,500 wafers a month at 93.7% utilization and roughly $3.4 billion of first-half capex 23.
SMIC's gross profit rises as net profit falls into the Q3 print
Gross profit climbs on price hikes as net profit gives back part of Q2's investment gains
- Gross profit
- Net profit
- Estimate
Data
| Gross profit | Net profit | |
|---|---|---|
| Q2 2026 | $761M | $479M |
| Q3 2026 (consensus) (estimate) | $836M | $396.8M |
The counterpoint, and the door
Bulls can point to a foundry share of 5.4%, within half a point of Samsung, and AI peripheral demand that pushed SMIC's Q2 up 20% while Samsung grew 1.8% 3. Huawei's Qingyun HM650 desktop, launched November 5 with the Kirin X90 built on SMIC's 7nm-class N+2 process, shows the mature and trailing-edge engine still running 47.
The skeptics answer that the quarter was flattered by advance buying and a memory shortage, and that SMIC and Hua Hong are adding capacity into the same domestic market 3. SMIC's Hong Kong shares lost 32% in the third quarter and have fallen a further 22% so far this quarter; the stock was up nearly 4% at midday on November 10 into the print 56.
Buy the margin guide, not the doubling
The verdict arrives with the print: whether gross margin touches 28%, and whether Q4 guidance covers the $3.393 billion needed to reach $12 billion for 2026, 9.6% above Q3 2. Buy or short on the margin guide, not the doubling.
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