Why Semiconductor Orders Are Returning to China in the AI Boom

Why Foreign Customers Are Returning to Chinese Foundries

With mature‑node capacity tightening at some non‑Chinese fabs, overseas customers are increasingly turning to Chinese manufacturers that still have available production lines.

SMIC said during its earnings discussions that orders from foreign clients are rising because the global AI boom has absorbed capacity elsewhere.

Several factors explain this shift:

• Advanced fabs prioritize AI chips: Higher‑margin AI processors and advanced memory receive priority at leading foundries.
• Mature‑node demand remains strong: Industries such as automotive, industrial electronics, and IoT rely heavily on older process technologies.
• China has expanded legacy‑node capacity: Chinese fabs have invested heavily in mature manufacturing processes, making them a natural alternative supplier.

The result is a subtle but meaningful supply‑chain rebalancing: advanced chips concentrate at leading‑edge foundries, while mature‑node demand increasingly flows to Chinese producers.

SMIC’s Q1 2026 Results: Stable Growth and High Utilization

SMIC’s latest earnings provide a snapshot of this trend in action.

In Q1 2026, the company reported:

• Revenue: $2.5055 billion (up 0.7% quarter‑over‑quarter and about 11.5% year‑over‑year)
• Gross margin: 20.1%, slightly higher than the previous quarter
• Net profit: about $197 million, roughly a 5% increase year over year but below analyst expectations due to rising operating costs

Factory utilization remained very high. SMIC’s overall utilization rate was about 93.1% in the March quarter, even as the company continued expanding capacity.

Such high utilization suggests strong ongoing demand for the company’s production lines, particularly for mature‑node technologies.

SMIC’s Q2 2026 Outlook Signals Strong Momentum

Management expects the trend to continue into the next quarter.

SMIC’s official guidance for Q2 2026 projects:

• Revenue growth: 14–16% quarter over quarter
• Gross margin: 20–22%

Both figures are above prior market expectations and suggest stronger demand for shipments and pricing.

This outlook indicates that mature‑node orders remain robust even as AI reshapes broader semiconductor demand.

China’s Expanding Role in Legacy‑Node Chips

China’s semiconductor strategy has heavily emphasized mature‑node manufacturing. According to CSIS analysis, Chinese capacity in mature and commodity chips expanded four times faster than global demand between 2014 and 2025, and these processes now account for roughly half of global capacity.

These chips—sometimes called “legacy” or “foundational” semiconductors—are essential components in a wide range of products, including:

• automobiles and industrial machinery
• consumer electronics
• power management systems
• communications equipment

Because they are less dependent on cutting‑edge lithography equipment, Chinese foundries have been able to expand aggressively in this segment even amid export restrictions on advanced semiconductor tools.

What This Means for the Global Chip Supply Chain

Taken together, these developments suggest a structural shift in the semiconductor ecosystem.

• Advanced‑node manufacturing is increasingly concentrated at leaders such as TSMC and Samsung, where AI demand dominates capacity.
• Mature‑node production is becoming more geographically diversified—but with China playing an increasingly large role.
• Supply‑chain segmentation may deepen, with different regions specializing in different layers of semiconductor manufacturing.

Chinese foundries are unlikely to replace advanced‑node leaders in cutting‑edge AI chip production in the near term. However, their growing scale in legacy nodes positions them as a crucial backstop for the global supply chain.

In practical terms, the AI boom is not only transforming computing—it is also reshaping where the world’s everyday chips are made.