China is focusing on large language models in the artificial intelligence space.
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Chinese semiconductor firms have reported record revenue last year driven by AI demand, a shortage of memory chips and U.S. export restrictions that have pushed Beijing to bolster its homegrown tech industry.
Analysts and the companies themselves are also expecting further revenue surges this year, underscoring how Chinese chip players are capitalizing on strong demand from domestic tech giants looking to build their AI infrastructure.
U.S. export restrictions on China’s tech sector over the last few years have added “rocket fuel” on chip demand, amplifying growth from other areas like electric vehicles and AI data centers, according to Paul Triolo, a partner at Albright Stonebridge Group.
Semiconductor Manufacturing International Co. (SMIC), China’s largest chip manufacturer, said revenue for 2025 rose 16% from a year ago to a record $9.3 billion. Revenue could top $11 billion in 2026, according to LSEG analyst estimates.
Hua Hong, another Chinese chipmaker, said fourth-quarter revenue came in at a record $659.9 million and forecast sales of between $650 million and $660 million.
Moore Threads, which is aiming to rival Nvidia, guided that 2025 revenue would be between 1.45 billion yuan ($209.8 million) and 1.52 billion yuan, a 231% to 247% year-on-year increase.
What is driving sales records?
There are multiple factors at play. The growth of electric vehicles and related infrastructure has provided support for less-advanced or “mature node” semiconductors, while demand for more advanced chips is “through the roof because of AI,” Triolo told CNBC.
U.S. restrictions over the past few years, which cut off China from key technologies, have accelerated a self-sufficiency push from Beijing to wean itself off American tech.
More recently, U.S. export curbs on Nvidia’s chips to China has prompted Beijing to encourage local firms to buy domestic alternatives, with companies like Huawei stepping in to fill the void, even if the performance of their semiconductors lags the U.S.
“While China does not yet lead in peak GPU performance, these homegrown solutions are filling the domestic ‘compute gap’ and driving record revenues,” Parv Sharma, senior analyst at Counterpoint Research, told CNBC.
Memory chip players in China have also seen a boost. Memory, a key component for AI data centers and consumer electronics, is in short supply globally while demand remains high. This has led to an unprecedented spike in prices of memory chips.
ChangXin Memory Technologies (CXMT), one of China’s leading memory players, saw a 130% year-on-year jump in revenue to more than 55 billion yuan ($8 billion), Bloomberg reported last week, citing people familiar with the matter.
High-bandwidth memory (HBM) is a type of high-end memory required for AI. The market is dominated by the world’s three biggest players in the space who make this type of memory — Samsung, SK Hynix and Micron. Export restrictions on HBM to China have provided an opening for CXMT, even as its technology trails the leading players by some way, Phelix Lee, senior equity analyst at Morningstar, told CNBC.
“After HBM is restricted into China, CXMT is picking up as the only homegrown alternative, so even the technologically inferior HBM2 or HBM2e are met with enthusiasm,” Lee said.
HBM2 and HBM2e are technologies that Samsung and SK Hynix began producing around 2016. CXMT is expected to produce HBM3 this year.
The expertise gained from manufacturing memory chips could lead to advances in other chips, such as GPUs, Albright Stonebridge Group’s Triolo said.
“All the memory fabs in China are now incubators for advanced process technology in ways inconceivable before the October 2022 US export controls,” Triolo told CNBC.
China’s continued challenges
Even as China’s semiconductor players posted record revenues, they continued to lag behind companies in the U.S., South Korea, Europe and Taiwan when it comes to technological capability.
SMIC and Hua Hong are still unable to manufacture the most advanced chips in the world at scale like market leader Taiwan Semiconductor Manufacturing Co. (TSMC). That’s because they are not able to access the most advanced tools produced by ASML in the Netherlands due to export restrictions.
While efforts are underway to create domestic alternatives, the complexity of the technology means it is a big task.
“As demand remains high, Chinese semiconductor firms remain under huge pressure from US export controls, and domestic alternatives have become increasingly available in many subsectors, but not across the board,” Triolo said.
“China is unique in basically attempting to recreate huge swathes of the entire semiconductor supply chain, and this naturally is quite challenging and will require more time to overcome US controls in key areas.”
And while current growth is being driven by “import dependence replacement,” there is a risk of overcapacity for less-advanced chips, Counterpoint’s Sharma said.
“Sustaining this growth will depend on whether China can successfully move up the value chain into advanced HBM and next-generation logic nodes,” Sharma added.
