SMIC Stumbles, But China's Chip Dreams Are Still Kicking: A Bobby Axelrod Take

Earnings Miss? More Like a Minor Inconvenience

Alright let's get one thing straight: missing earnings is like missing a layup. Embarrassing sure but it doesn't change the damn game. SMIC the pride of China's chipmaking scene saw its shares dip nearly 7% after Q1 earnings weren't exactly stellar. Revenue at $2.24 billion and profit at $188 million... yeah missed the mark. But in this game you gotta see beyond the immediate fumble. It's like when Wags spills his Cristal – a momentary mess but the party's far from over. Gotta keep your eye on the ball. You either adapt or you evaporate. Now where's my damn short position list?

Geopolitics: The Only Game Bigger Than Poker

SMIC blames 'production fluctuations' for the miss and projects weaker numbers next quarter. Sounds like someone needs to light a fire under their ass. But let's be real the real story here is geopolitics. SMIC is riding the wave of China's push for semiconductor independence. They're saying that customer shipment pull in are brought by changes in geopolitics and increased demand driven by government policies such as domestic trade in programs and consumption subsidies. Think of it as a national mandate to buy local even if the local stuff is a bit... behind. This ain't about free markets; it's about strategic positioning. Like a perfectly timed short squeeze.

Utilization Rate: Almost 90%? Now We're Talking

Okay here's where things get interesting. SMIC's capacity utilization hit nearly 90%. That's a hell of a lot of wafers spinning. It means demand is there folks. Ray Wang some analyst said it reflects strong domestic demand for semiconductors likely driven by smartphone and consumer electronics production. China wants chips and they want them now. Sure R&D spending is down a bit but they are currently in an important period of capacity construction roll out and continuously increasing market share. Focus on the macro game and let the details play out as they may. It's like buying real estate – location location location. In this case it's demand demand demand.

Mature Nodes: Sometimes Old is Gold

SMIC is all about those 'mature node' chips the ones that go into your toasters and washing machines. Not exactly cutting edge AI stuff but it pays the bills. And let's be honest everyone needs a toaster. The state backed chipmaker is critical to Beijing's ambitions to build a self sufficient semiconductor supply chain with the government pumping billions into such efforts. Over 84% of its first quarter revenue was derived from customers in China. A little old fashioned is better than no fashioned at all. Like a good suit – timeless reliable and always in style.

Trade War: A Headache But Not a Hemorrhage

The U.S. trade war looms large naturally. Those pesky export controls are keeping SMIC from getting the best gear. But they're finding ways around it. Like a goddamn cockroach when you are broke... they are appearing in Huawei products notably in the Mate 60 Pro smartphone and some AI processors. SMIC also said it would closely monitor the potential impacts of the U.S. China trade war on its demand noting a lack of visibility for the second half of the year. Phelix Lee an equity analyst for Morningstar focused on semiconductors told CNBC that the impacts of U.S. tariffs on SMIC are limited due to most of its revenue coming from Chinese customers. China's market is big enough to keep them afloat. It could disrupt supplies but the firm is working on alternatives in China and other non U.S. regions. You can't block progress you can only slow it down. Makes me wonder if there are some good short term investment opportunities.

The Axe Take: Opportunity Knocks (Again)

SMIC's shares might be down today but the long game is far from over. China's committed to this semiconductor play and that means opportunity. There will be winners and losers of course and you gotta know which side to bet on. The localization transformation of the supply chain has been strengthened and more manufacturing demand has shifted back domestically. SMIC's Hong Kong listed shares have gained over 32.23% year to date. It's time to sharpen those pencils folks and figure out how to profit from this. It's all about the alpha baby. Now someone get me Chuck Rhoades on the phone. I think I smell a rat...and an opportunity. And remind me to look into ASML...