The global AI boom is producing an unexpected side effect: a shortage of mature-node semiconductors and a surge in orders flowing to Chinese foundries to fill the gap. The South China Morning Post reports that Zhao Haijun, co-CEO of Semiconductor Manufacturing International Corporation (SMIC), described the dynamic as a “panic” during the company’s first-quarter earnings call on Friday, May 15.
“AI demand has directly pushed power-management and other mature capacity into shortage,” Zhao said. The squeeze is prompting consumer electronics and IoT customers to seek capacity in mainland China, a trend reinforced by electric vehicle demand, a robotics boom, domestic supply-chain localization, and companies stockpiling ahead of potential further disruptions.
How the AI Boom Is Reshaping the Foundry Market
The mechanism is straightforward. As global demand for AI accelerators and high-bandwidth memory has surged, leading foundries, including Taiwan Semiconductor Manufacturing Company (TSMC), have been reallocating capacity toward high-margin advanced-node production. TSMC is planning to reduce some of its 12-inch mature-node capacity, according to research firm TrendForce. That reduction is creating a vacuum in the supply of older-generation chips used in power management, automotive, industrial, and consumer electronics applications.
The average utilization rate for older-generation 8-inch wafers at the world’s top 10 foundries is expected to hit nearly 90% in 2026, up from 80% in 2025, according to TrendForce. The rebound is driven primarily by surging demand for power management integrated circuits (PMICs) used in AI servers — the same AI infrastructure buildout that is crowding out mature-node capacity in the first place.
Chinese suppliers and second-tier foundries are absorbing the overflow. SMIC’s own metrics reflect this migration clearly. The company’s overall wafer utilization rate rose to 93.1% in the March quarter, up from 89.6% a year earlier even as monthly capacity expanded. Revenue from China climbed to nearly 89% of SMIC’s total — a figure that reflects both the domestic demand surge and the ongoing constraints on SMIC’s ability to serve international customers given US export restrictions on its most advanced equipment.
SMIC’s Q1 Results and Guidance
SMIC reported first-quarter revenue of $2.51 billion, up 11.5% from a year earlier. Net profit attributable to shareholders rose to $197 million from $188 million. Gross margins narrowed to 20.1% from 22.5%, reflecting the cost pressures of expanding capacity. The company guided for second-quarter revenue growth of 14% to 16% quarter on quarter, with gross margins of 20% to 22%.
In the last quarter of 2025, SMIC was the world’s third-largest foundry with a 5.2% market share, though it lagged far behind TSMC at 70.4% and Samsung Electronics at 7.1%, according to TrendForce data.
Zhao warned that the capacity squeeze had not peaked. He anticipated that rising AI data center investments through 2027 would further crowd out non-AI semiconductor production, making overseas supply for legacy products increasingly unreliable. The “panic” extended to memory as well, he said. As international players discontinue small-volume specialty NOR and NAND flash products, customers are turning to Chinese foundries to secure supply.
Hua Hong Also Benefits
Smaller domestic foundry rival Hua Hong Semiconductor reported stronger first-quarter results as well, with revenue rising 22.2% from a year earlier to $660.9 million and net profit attributable to shareholders increasing to $20.9 million. Hua Hong guided for second-quarter revenue of $690 million to $700 million, compared with $661 million in the prior quarter.
The parallel strength at both SMIC and Hua Hong suggests the mature-node tailwind is broad-based rather than company-specific. SMIC and Hua Hong had already posted record revenue in Q4 2025 as the AI boom overrode the drag from US sanctions, and the Q1 2026 results confirm that the trend has continued into the new year.
On Friday, SMIC’s Hong Kong-listed shares closed down 0.49% to HK$71.15, while Hua Hong fell 8.74% to HK$115.90, suggesting that investors had already priced in much of the good news or were reacting to margin compression concerns.
The Strategic Dimension
The mature-node shortage dynamic has a strategic dimension that goes beyond quarterly earnings. Chinese foundries have historically been strongest in the mature-node segment — the 28nm and above process nodes where US export controls on advanced chipmaking equipment have been less restrictive. The current demand surge is playing to their existing strengths, arriving at a moment when Chinese tech companies are under pressure to localize their supply chains.
SMIC founder Richard Chang has argued that measuring chip success only by 3nm or 2nm is a misconception, a view that the current market dynamics appear to be validating. The chips that power AI servers, electric vehicles, and industrial robots are not cutting-edge by process node standards, but they are in short supply, and Chinese foundries are positioned to capture a growing share of that demand.
For customers outside China, the message from SMIC’s earnings call is a warning: the assumption that mature-node capacity is abundant and commoditized is no longer reliable. As the AI buildout continues to absorb foundry resources globally, the secondary effects on non-AI chip supply chains are becoming increasingly difficult to ignore.