Hua Hong Grace Semiconductor, China’s second-largest contract chipmaker, intends to significantly expand its footprint in silicon photonics during its next major capacity expansion in 2027. Chairman and president Bai Peng told analysts during a Thursday earnings call that the company wants to participate in all silicon-based devices inside optical modules. This sector, along with power management chips, is one of two areas where the firm wants to add significantly more capacity.
The expansion strategy comes as the Shanghai-based chipmaker reported robust third-quarter earnings. According to a stock exchange filing on Thursday, the firm’s net profit for the three months ended September 30 jumped 147 per cent year on year to US$123.4 million. Total revenue reached a record US$987.1 million, a nearly 20 per cent year-on-year increase. This growth was partially driven by the integration of Huali Microelectronics, a newly acquired subsidiary intended to increase advanced manufacturing capacity. Excluding Huali Microelectronics, revenue reached US$803.4 million, exceeding the company's previous guidance of US$770 million to US$780 million.
Bai Peng attributed the earnings surge to an AI boom that has created a significant imbalance between chip supply and demand, noting that the boom had caught most people by surprise. He compared the current AI infrastructure buildout to the early days of the internet, describing semiconductor chips as the new oil of the industrial age. As a speciality technology foundry, Hua Hong Grace has seen increasingly higher demands for microcontrollers, flash memory, power management, and power discrete products, with tight supply in some segments despite ongoing capacity expansion. Bai expects the pattern of rising demand and prices to continue for some time.
To manage production shortages, the company is moving equipment into its new Fab 9B facility in Wuxi in mid-September, with Bai stating they are pushing construction forward with highest possible speed. However, the company anticipates ongoing supply constraints even as new capacity opens because local foundries, specifically its larger rival Semiconductor Manufacturing International Corp (SMIC), are running at full capacity.
A large part of the company’s capacity expansion for next year has already been booked by customers, Bai said, and he added that overall fab utilisation would remain at 100 per cent or slightly higher. During the third quarter, the company's total production capacity utilisation rate was 102.9 per cent. Shares of Hua Hong had fallen 2.04 per cent to HK$67.3 in Hong Kong before the earnings release.
