As the COVID-19 pandemic led to a massive chip shortage, the microchip fabrication industry now seems to be gradually catching up. However, for one more year, chip supply might outstrip demand, according to a report, as relayed by Bloomberg via Yahoo Finance. This news follows a briefing by Semiconductor Manufacturing International Corp Chinese firm that manufactures chips for Huawei.

The company reported another dip in its income and cautioned that this could mean the demand for smartphones will likely not make a recovery within the current year. The leadership of SMIC have observed that heightened geopolitical friction between tech businesses could lead to another issue - an oversupply of microchips and production equipment.

The relationship between China and the US continues to be on edge as each nation attempts to assert its economic and technological dominance, hoping to outdo the other. These tensions reached new heights in 2019 when then-President Donald Trump enacted a US executive order, effectively giving the federal government the power to limit certain tech transactions with foreign corporations.

In practical terms, this directive effectively excluded U.S. companies from collaborating with Huawei, pushing Huawei and SMIC to augment its chip production framework independently from the US. For its part, the US is offering attractive incentives to firms that open fabrication plants within its borders. However, as these nations strive for autonomy, they ultimately compromise efficiency.

Zhao Haijun, co-CEO of SMIC, stated during a conference call that from a global view, capacity will overreach its limits. It would require ample time for the world to absorb the new capabilities developed in recent years. The possibility of an oversupply of microchips, essential components of smartphones among numerous other products, looms as their demand keeps dwindling.

According to a fresh report from Canalys, out of the top five global smartphone manufacturers, just one company witnessed year-over-year growth in Q3 2023. Meanwhile, three leading firms, encompassing Apple and Samsung, reported year-over-year losses. Despite these predictions, SMIC maintains that the recovery isn’t imminent.

 

Despite the US severe sanctions, Huawei and SMIC are beginning to bounce back independently. Though sales remain low, SMIC succeeded in developing 7nm chips for the newest Huawei smartphone. This is a significant stride forward for the Chinese chip producer and holds promise for the future. However, murmurs are that the US may consider imposing heavier sanctions in response to Huawei’s technological progress. Yet as SMIC enjoys the support of China’s government, it could potentially weather future challenges. As both China and the US. aim to independently develop chips, SMIC foresees a situation where chip supply could surpass demand.