SMIC, China's largest contract chipmaker, reported a 38.4% year-on-year fall in fourth-quarter profit.

Profit attributable to owners of SMIC reached $107.6 million in the October-December quarter, compared with analysts' estimate of $193.45 million, according to LSEG data.

Revenue rose 31.5% to $2.2 billion, compared to market expectations of $2.18 billion, according to LSEG.

SMIC's business remains overwhelmingly focused on mature-node chips for consumer electronics and home appliances, with advanced manufacturing projects like Huawei's (HWT.UL) smartphone chips representing only a marginal portion of its revenue.

As U.S. export controls restrict access to advanced chipmaking technology, Chinese foundries including SMIC have intensified their focus on this segment.

The shift has paid off, with Chinese manufacturers gradually gaining market share in mature-node chips, challenging established players like Taiwan's Powerchip.

SMIC has ramped up capital investments over the past few years to expand its production capacity and strengthen China's domestic semiconductor capabilities.

Its capital expenditure surged to $7.3 billion in 2023 from $4.5 billion in 2021, reflecting its aggressive expansion strategy. The company invested another $7.33 billion in 2024, according to its latest earnings release.

The heavy spending has squeezed profitability, with SMIC's gross margin declining to around 20% in 2023 from over 30% in 2021-2022.

SMIC reported a gross margin of 22.6% in the fourth quarter of 2024, compared with 16.4% a year earlier.