Foundry Industry 2025 Annual Report: Huahong's Revenue Growth Leads, but Profit Lags Behind; Weak Profitability May Highlight Positioning Challenges

Produced by: Sina Finance Listed Company Research Institute

Author: Guangxin

As the end of March approaches, three leading domestic Fab manufacturers in China have delivered their performance reports.

Semiconductor Manufacturing International Corporation (SMIC), with a massive base of 673.23 billion yuan, achieved a year-on-year growth of 16.48%. This demonstrates the industry’s “anchor stone” level of business resilience—steadfast moat building through an absolute leading manufacturing capacity scale, a base platform, and a solid customer foundation. The strategic advantages of full-node, full-platform have been continuously validated.

For Jinghe Integrated, its revenue scale is the smallest (108.85 billion yuan), and its revenue growth rate is also in the middle tier (17.69%). However, its structural strategy focused on advanced process technologies and high-value-added products has continued to deepen. The company has increased the revenue share of mid-to-high-end processes such as 55nm/40nm. Non-display-driven product lines like CIS and PMIC have expanded rapidly, and profitability improvement has been significant. During the reporting period, its consolidated gross margin of 25.52% ranked first, and its attributable net profit growth rate of 32.16% was also highly impressive.

Meanwhile, although Hua Hong Company recorded a revenue growth rate of 20.18%, ranking first among the three, its attributable net profit has essentially stalled, with a slight year-on-year decline of 1.04%. Both its attributable net profit of 3.77 billion yuan and its growth rate are the lowest among the three. The underlying reasons are clear: the capacity construction of its Wuxi Fab 9 has undoubtedly brought enormous depreciation costs; more importantly, it is its deep focus on the process of “specialty IC + power devices.” Compared with logic chips’ advanced process nodes, its profitability does not have much of an advantage.

** New production lines bring depreciation drag; two non-wholly owned Wuxi subsidiaries incur losses totaling 2.4 billion yuan**

In its annual report, Hua Hong updated the latest construction progress of its IPO-funded projects.

The company stated that the Hua Hong Manufacturing (Wuxi) project (FAB 9) began risk production at the end of 2024. In 2025, capacity ramp-up accelerated rapidly. The company worked with customers to quickly introduce products. By December 2025, the number of monthly die-and-wafer samples already exceeded 40,000 units, fully meeting customers’ strong demand.

By the end of 2025, the capacity target for Phase I has been achieved. For Phase II, capacity expansion equipment is still being continuously moved in, and the planned capacity target is expected to be reached in the third quarter of 2026. Meanwhile, according to the bidding information for the FAB 9B project, its project completion date is January 31, 2027.

This timeline fully matches the company’s expectations at the time of its listing. And based on the project’s designed capacity of 83,000 units per month, by the end of 2025 the company’s capacity ramp-up progress had already reached half. How strong the project’s final economic performance will be—according to the engineering construction schedule—may soon be known.

As of now, however, the Wuxi project is seriously dragging down the company’s profitability.

The implementation entity of FAB 9 is Hua Hong’s subsidiary—Hua Hong Semiconductor Manufacturing (Wuxi) Co., Ltd. Its net profit in 2025 was a loss of 1.706 billion yuan. At the same time, Hua Hong’s other subsidiary—Hua Hong Semiconductor (Wuxi) Co., Ltd.—had a net profit loss of 711 million yuan in 2025. Combined, the two companies incurred total losses of 2.417 billion yuan.

Performance of the two non-wholly owned subsidiaries in Wuxi (source: company annual report)

The total combined loss of the two subsidiaries has decreased compared with 2.884 billion yuan in the same period last year, but it is still a sizable depreciation expense.

As a result, in Hua Hong’s consolidated financial statements, all its profit items are negative. Its net profit is -807 million yuan. After deducting -1.184 billion yuan of profit attributable to minority shareholders, its attributable net profit turns positive at 377 million yuan. (Note: both Hua Hong Semiconductor Manufacturing (Wuxi) Co., Ltd. and Hua Hong Semiconductor (Wuxi) Co., Ltd. are non-wholly owned subsidiaries, and the shareholding proportions of minority shareholders are both 49.00%.)

However, explaining Hua Hong’s profitability predicament using only this aspect may not be convincing. After all, SMIC and Jinghe Integrated are also actively expanding capacity. In 2025, SMIC’s capital expenditures reached as much as 59.951 billion yuan, and fixed asset growth exceeded 20 billion yuan. Jinghe Integrated’s fixed assets in 2025 increased by nearly 6 billion yuan to 30.7 billion yuan, and in January 2026 it announced the launch of Phase IV project construction, with designed capacity of 55,000 units per month. Production is expected to start in the fourth quarter of 2026, with full capacity reached by the end of 2028.

Looking further, behind Hua Hong’s profitability divergence is also a strategic concern from its commitment to mature process nodes.

** Acquiring Hua Li Wei adds more mature process exposure; generational gaps hint at hidden profitability risks**

Hua Hong has long focused on mature process technology and specialty processes, deeply cultivating downstream markets such as automotive, home appliances, and industrial sectors. These areas are still in an up-cycle, which brings medium- and short-term benefits to Hua Hong’s performance, but it also introduces long-term technology node transition risks for the company.

In recent years, under the semiconductor industry’s recovery of business conditions, several leading Fab manufacturers have entered the range of profitability recovery. But Hua Hong’s gross margin has fallen significantly, widening the gap step by step with the other two companies. From 2023 to 2025, SMIC’s consolidated gross margin was 21.89%, 18.59%, and 21.62%, respectively. Jinghe Integrated’s gross margin was 21.61%, 25.50%, and 25.51%. Hua Hong’s gross margin was 27.10%, 17.43%, and 18.72%.

Recently, Hua Hong’s acquisition of Hua Li Wei has also continued to drive this story. According to the latest proposal, Hua Hong plans to purchase 97.4988% equity interest in Hua Li Wei from four counterparties, including Hua Hong Group, by issuing shares, and to raise supporting funds via a separate equity financing.

Some analysts point out that Hua Li Wei’s core assets are FAB 5 and FAB 6. The former mainly covers 65/66 and 40nm technology nodes and belongs to mature processes, while the latter covers advanced process nodes of 28nm and below.

In this acquisition, Hua Hong only absorbs mature process assets from FAB 5. The rationale behind this likely includes avoiding competition within the same industry. After all, FAB 5 operated by Hua Li Wei has certain competition with Hua Hong’s process nodes.

Continuously increasing investments in mature processes can, on the one hand, strengthen Hua Hong’s strategic differentiation. By achieving relatively steadier cash flow with lower R&D costs, it can effectively support the company’s sustainable development. On the other hand, if market conditions change later and demand in specific segments shifts toward advanced processes, Hua Hong may face challenges in technology upgrades, and its market competitiveness may be at risk of weakening.

Whether Hua Hong can get out of its current profitability predicament comes down to two key issues that cannot be avoided: pricing and process migration.

According to a prior investor communication event, Hua Hong began raising prices starting from the second quarter of 2025, and results gradually became apparent from the third quarter. According to a research calculation by brokerages, in the fourth quarter of 2025 the company’s ASP (Average Selling Price, average selling price) was $455.72, up by about 4% year over year.

Hua Hong expects that product prices in 2026 will still have room to increase. However, because 8-inch demand is more balanced than 12-inch demand, the price-raising space for its 8-inch products may be relatively limited. Overall, the company holds a cautious yet optimistic view on average selling prices.

From a cost perspective, because the company’s 12-inch wafer business has become the main driver of growth, this reflects the company’s gradual shift toward more advanced 12-inch process technology. This means the trend of long-term optimization on the cost side.

In summary, in the short term, Hua Hong faces pressure on profitability due to depreciation from the new production lines and R&D spending. In the long run, its strategy of sticking to mature process nodes leaves hidden concerns. On the positive side, price increases in the short term support profitability recovery on the pricing side, and the gradual realization of 12-inch capacity provides benefits for the cost side. The status of Hua Hong’s FAB 9 capacity ramp-up, the future integration of Hua Li Wei, and the profitability potential of these two portions of assets are all worth close attention.

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Responsible editor: Company Observation