SMIC 2Q26 Outlook Strong, With ASP Increases as the Core Support

Overview

This report reviews Semiconductor Manufacturing International Corp's 2026 first-quarter results and second-quarter guidance. The report argues that 1Q26 revenue was broadly in line with market expectations, gross margin was stronger than expected, and 2Q26 revenue and gross margin guidance were meaningfully stronger than market expectations. Key drivers include improved demand for AI-related companion chips, better specialty memory demand, capacity tightness, product mix optimization, and ASP increases.

Core views

Bernstein's core view is that SMIC's 2026 demand outlook is better than the market previously expected. Existing logic, MCU, and power capacity remain fully utilized, and new capacity will gradually be allocated to specialty memory. As supply tightens, the company has negotiated price increases with customers and optimized its product mix. 1Q26 ASP rose 2.5% QoQ, and further increases may continue in subsequent quarters. Although depreciation and amortization in 2026 are expected to rise by about 30%, high utilization and ASP improvement should support gross margin.

Analysis framework

The report evaluates the company's outlook through earnings review, comparison against management guidance, analysis of consensus estimate gaps, tracking of capex and capacity expansion, transmission from utilization and ASP to gross margin, and observation of changes in application mix and regional revenue mix.

Methodology notes

• Valuation methodsPB valuation

  Estimate the target price based on average NTM+1 BVPS and a P/B multiple.

  The report uses average NTM+1 BVPS of US$2.80, a 3.2x P/B multiple, and a 1.7x A-H premium to derive target prices of HKD 70 for the H-share and CNY 120 for the A-share.

• Performance analysisGuidance vs. consensus comparison

  Compare the company's 2Q26 guidance with market consensus to assess near-term earnings momentum.

  The 2Q26 revenue, gross profit, and gross margin guidance were overall better than or in line with consensus, supporting the report's positive view on near-term demand conditions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 981.HK

  SMIC H-share

  Strengths

  Strong 2Q26 guidance, ASP improvement, high utilization, and support from AI-related and specialty memory demand.

  Weaknesses

  The current price of HKD 71.20 is slightly above the HKD 70 target price, implying negative near-term upside; depreciation pressure remains a gross margin headwind.

  Comparison

  Over the past 12 months, the absolute return is about 72.6%, outperforming ASIAX by about 29.4 percentage points, but year-to-date performance has lagged.

  Risks

  Further US sanctions, weaker-than-expected demand recovery, and supply-demand imbalance caused by competitors' capacity expansion.

• 688981.CH

  SMIC A-share

  Strengths

  Shares the same fundamentals as the H-share, benefiting from domestic foundry demand, specialty memory capacity allocation, and ASP improvement.

  Weaknesses

  The valuation embeds an A-H premium assumption and is sensitive to market risk appetite and domestic semiconductor valuation volatility.

  Comparison

  The report gives an A-share target price of CNY 120 and uses a 1.7x A-H premium in its valuation.

  Risks

  It faces the same sanctions, downstream demand, depreciation pressure, and industry capacity expansion risks.

Key data

• 1Q26 revenueUS$2,505.5mUp 0.7% QoQ and 11.5% YoY, and 0.3% below consensus.
• 1Q26 gross margin20.1%Up 89 bps QoQ and down 241 bps YoY, and 66 bps above consensus.
• 1Q26 net profitUS$197.4mUp 14.2% QoQ and 5.0% YoY, and 7.6% below consensus.
• 2Q26 revenue guidanceUS$2,856m-2,906m7% to 8% above consensus, implying 14% to 16% QoQ growth.
• 2Q26 gross margin guidance20%-22%The range is 53 bps below to 147 bps above consensus.
• 1Q26 ASP+2.5% QoQDriven by capacity tightness, price increase negotiations, and product mix improvement.
• 1Q26 utilization rate93.1%Down from 95.7% in 4Q25, mainly because newly added capacity entered the denominator.
• 2026 capex guidanceabout US$8bnThe report believes capacity expansion remains on track.
• Industrial and automotive revenue mix14.0%Up from 9.6% a year earlier, making it the fastest-growing application.

Impact & implications

The report's implication for SMIC is positive: if demand for AI-related companion chips, specialty memory, and domestic fabless share gains continues, the company is likely to further lift ASPs amid capacity tightness and offset higher depreciation and amortization through pricing and product mix improvement. For China's semiconductor foundry chain, the report reinforces the logic of domestic substitution and rising share for local fabs.

Risks

• Further-than-expected US sanctions could hinder capacity expansion plans or severely affect the company's going-concern operations.
• A weaker-than-expected recovery in downstream demand could leave SMIC's utilization and ASP below expectations.
• Competitors' capacity expansion could outpace expectations, leading to supply-demand imbalance and price erosion.
• Depreciation and amortization are expected to rise by about 30% in 2026; if ASP and utilization improvement is insufficient, gross margin could come under pressure.

What to watch

• Whether 2Q26 revenue lands within the US$2,856m-2,906m guidance range.
• Whether 2Q26 gross margin can approach or exceed the upper end of the 20%-22% guidance range.
• Whether ASP continues to rise in subsequent quarters.
• Whether demand for AI-related companion chips and specialty memory remains strong.
• The 2026 capex budget of about US$8 billion and the pace of new capacity release.
• Whether the industrial and automotive revenue mix continues to increase.
• Changes in US export controls and sanctions policy.