--- title: "SMIC's record quarter hides a 17% profit drop from Q2" description: "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." publisher: "The Inference" section: "Chips" published: 2026-11-10T16:03:05.779Z modified: 2026-11-10T16:03:05.779Z canonical: https://theinference.org/article/smic-s-record-quarter-hides-a-17-profit-drop-from-q2 language: en keywords: "Semiconductors, Earnings, Foundries, China, Stock Moves" --- # 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. ## A record quarter that is really a step down [SMIC](https://theinference.org/markets/companies/smic), China's largest contract chipmaker, reports third-quarter results after the Hong Kong close on Thursday, November 12 [1][2]. [The Visible Alpha poll of 13 analysts](https://www.ad-hoc-news.de/boerse/news/corporate-news/smic-stock-heads-into-results-as-profit-is-expected-to-double/70484995) puts revenue at $3.12 billion, up 31% year on year, and net profit at $396.8 million, more than double a year ago [1][2]. 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 [1][2]. 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 [1][2]. 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%](https://news.platform.elebank.com/en/post/1003985572/chart-preview-smic-s-q3-earnings-are-coming-gross-margin), implying about $836 million of gross profit at the midpoint, 9.9% above Q2 [2]. In [comments after the Q2 results](https://www.marketwatch.com/story/smic-s-third-quarter-net-profit-likely-more-than-doubled-earnings-preview-5b23346b), 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 [2][3]. *Chart: **SMIC's gross profit rises as net profit falls into the Q3 print** Column chart: SMIC gross profit rises from an implied $761 million in Q2 to a consensus $836 million in Q3, while net profit falls from $479 million to a consensus $396.8 million* *Units: US$ millions. Q2 net profit $479M is reported [2]; Q3 net profit $396.8M is the Visible Alpha consensus [1]; Q3 gross profit $836M is the guidance midpoint [2]; the Q2 gross profit bar of $761M is implied, back-calculated from the stated ~9.9% quarter-on-quarter increase, and is drawn hatched as an estimate [2]. [1][2]* ## The counterpoint, and the door Bulls can point to [a foundry share of 5.4%, within half a point of Samsung](https://unboxchina.com/posts/china-foundry-race-second-place), 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](https://www.gsmdome.com/huawei-launches-qingyun-hm650-business-desktop-with-harmonyos-and-kirin-x90) with the Kirin X90 [built on SMIC's 7nm-class N+2 process](https://www.techspot.com/news/114490-huawei-new-desktop-pc-contains-only-chinese-components.html), shows the mature and trailing-edge engine still running [4][7]. 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](https://www.thestandard.com.hk/finance/article/348027/HSI-rises-69-points-by-midday-as-SMIC-rallies-nearly-4-Alibaba-drops-3) into the print [5][6]. ## 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. ## Takeaway Thursday's headline doubling is against last year; the tradeable numbers are the 26-28% gross-margin guide, whether Q4 guidance covers the $3.393 billion needed for $12 billion in 2026, and a depreciation bill above $1.2 billion a quarter. ## Sources 1. [Ad Hoc News, SMIC stock heads into results as profit is expected to double, 10 November 2026](https://www.ad-hoc-news.de/boerse/news/corporate-news/smic-stock-heads-into-results-as-profit-is-expected-to-double/70484995) 2. [Futu News via EleBank, Chart Preview: SMIC's Q3 earnings are coming, 10 November 2026](https://news.platform.elebank.com/en/post/1003985572/chart-preview-smic-s-q3-earnings-are-coming-gross-margin) 3. [Unbox China, SMIC is closing on Samsung. The foundry race that matters is at the mature end, 10 November 2026](https://unboxchina.com/posts/china-foundry-race-second-place) 4. [TechSpot, Huawei says its new desktop PC is 100% Chinese-made, with a few asterisks, 9 November 2026](https://www.techspot.com/news/114490-huawei-new-desktop-pc-contains-only-chinese-components.html) 5. [The Standard (HK), HSI rises 69 points by midday as SMIC rallies nearly 4%, Alibaba drops 3%, 10 November 2026](https://www.thestandard.com.hk/finance/article/348027/HSI-rises-69-points-by-midday-as-SMIC-rallies-nearly-4-Alibaba-drops-3) 6. [MarketWatch, SMIC's Third-Quarter Net Profit Likely More Than Doubled, Earnings Preview, 10 November 2026](https://www.marketwatch.com/story/smic-s-third-quarter-net-profit-likely-more-than-doubled-earnings-preview-5b23346b) 7. [GSMDome, Huawei launches Qingyun HM650 business desktop with HarmonyOS and Kirin X90, 6 November 2026](https://www.gsmdome.com/huawei-launches-qingyun-hm650-business-desktop-with-harmonyos-and-kirin-x90) --- SMIC's record quarter hides a 17% profit drop from Q2 — The Inference. 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