AI Demand Drives Triple-Digit Profit Growth for China's Top Chip Foundries SMIC and Hua Hong

Why: AI Spillover Into Mature Nodes

The driver was AI-related chip demand for mature-node (legacy/specialty) semiconductors. SMIC captured spillover orders as tier-1 foundries shifted advanced capacity toward AI, opening the door for orders in AI peripheral chips, computing, industrial, and automotive products .

Outlook: Higher Prices, More Capacity

SMIC guided for Q3 2026 revenue to rise 2–4% sequentially (to roughly $3.07–$3.13 billion), with gross margin improving further to 26–28% . Co-CEO Zhao Haijun said SMIC has raised prices for its most sought-after capacity and is actively weighing additional production equipment, as AI-driven orders have exceeded earlier projections . The company expects AI and data-center demand to remain strong through the second half of 2026 .

Hua Hong Grace — Q2 2026: Net Profit Surges 386%

Hua Hong Grace Semiconductor also posted record financials. Revenue hit $717.5 million, up 26.8% year-over-year and 8.6% sequentially — above the company's own guidance of $690–$700 million .

Net profit attributable to shareholders reached $30.6 million, a stunning 385.9% jump year-over-year and 84.6% sequentially . Gross margin came in at 16.5%, up 5.6 percentage points year-over-year and 3.5 points sequentially .

Why: AI Demand Spreads Beyond Memory

President Peng Bai cited an AI-driven demand upturn spreading from memory chips into logic, analog, MCU, embedded/standalone non-volatile memory, power discrete, and RF segments, creating a supply-demand imbalance in MCU and memory areas tied to AI applications .

Outlook: Full Capacity, Continued Expansion

Hua Hong guided for Q3 2026 revenue of $770–$780 million (further sequential growth) and gross margin of 16–18%. Management said the midpoint would represent approximately 60% improvement from average selling prices and 40% from higher volume . The company is running plants at full capacity to meet domestic AI-related needs and is pursuing ongoing capacity expansion, including the ramp of Fab 9A in Wuxi .

The Big Picture: Foundries Running Flat Out

Both foundries are now running their fabrication plants at full capacity, as Chinese tech giants and startups scramble for domestic AI chips free of US export controls . The strength in mature-node and specialty segments highlights a broader dynamic: as the global foundry industry prioritizes advanced nodes for AI accelerators, demand for legacy and specialty chips — power management, analog, MCUs, and embedded memory — has cascaded to China's leading foundries, which are well-positioned to capture that business .

With SMIC guiding for gross margins above 26% and Hua Hong sustaining margins in the mid-teens, the near-term outlook suggests the AI-driven upcycle has further to run for both companies.