China’s top chipmaker warns of looming memory shortage as AI demand surges

Artificial Intelligence

China’s largest contract chip manufacturer, Semiconductor Manufacturing International Corp (SMIC), has raised concerns about a deepening shortage of memory chips that could disrupt multiple industries next year. Speaking during an earnings call, co-CEO Zhao Haijun said customers are becoming increasingly cautious about placing orders for the first quarter of next year because no one can predict how much memory supply will actually be available. With AI-focused chips consuming a growing share of global production, uncertainty is spilling into sectors like smartphones, automotive and consumer electronics.

Zhao noted that companies dependent on memory components may face pricing pressure and limited supply in the coming months. Few suppliers are willing to guarantee availability, and the sharp surge in memory prices is already reshaping buyer behaviour. According to Reuters, Zhao described the current environment as a “super cycle” in the memory market, where rising memory costs are pushing customers to negotiate harder for discounts on other types of chips to offset their expenses.

Industry executives and analysts share the same outlook. The worldwide push to build AI-optimised semiconductors is diverting manufacturing capacity away from standard memory chips used in phones, computers and servers. This has led some customers to stock up aggressively, further driving up prices. Key players in this segment include Micron in the US, along with South Korean suppliers SK Hynix and Samsung, all of whom are seeing intense demand for high-performance memory.

Despite the supply concerns, SMIC’s operational metrics improved in the third quarter. Monthly production capacity increased by 3.2% to 1.02 million eight-inch equivalent wafers, and utilisation rose to 95.8% from 92.5% in the previous quarter. The company shipped 2.5 million equivalent wafers during the period, representing a 4.6% quarter-on-quarter increase.

China remained SMIC’s dominant market, contributing 86% of its revenue in the third quarter, slightly up from the previous quarter. Revenue from the US declined marginally to 11% from 13%. Consumer electronics excluding smartphones saw sequential growth, a trend Zhao attributed to rising domestic demand and stronger market share among SMIC’s customers in China.