SMIC and the Foundry Industry China Is Building InsteadNarrow moat

TSMC (TSM) — moat facet

SMIC isn't competing for TSMC's customers; it is serving the market TSMC is being shut out of, with money that doesn't need a return.

SMIC is the third-largest foundry by revenue, holding about 5.1% of the market and running at 93.7% utilisation after a record first quarter of 20261. On the usual measures it is far behind: no EUV access, no leading-edge roadmap comparable to TSMC's. Treating it as a straightforward competitor misses the point entirely.

China's share of TSMC revenue (%)7%20149%201617%201820%201917%202010%202112%20239%20256%2Q26TSMC quarterly management reports, revenue by customer headquarters
China's share of TSMC revenue peaked at 20% in 2019 and was 6% in the June 2026 quarter.

SMIC is not trying to take Apple or Nvidia from TSMC. It is supplying a Chinese electronics industry that export controls are progressively separating from TSMC, and doing so with state backing that does not require a competitive return on capital. The competitive threat is not that SMIC wins TSMC's customers — it is that a large and growing share of world semiconductor demand becomes unavailable to TSMC by policy, and is served by a domestic industry that improves every year it is protected.

The scale is already visible in TSMC's own reports: customers based in China supplied 20% of its revenue in 20192 and 6% in the June 2026 quarter3, and China holds 1.7% of its noncurrent assets4. The geopolitical risk has its own root threat on this company.

So the number to watch is not SMIC's share of the foundry market but China's share of TSMC's revenue over time. The fall from 20% to 6% says the bifurcation is already under way — two semiconductor industries rather than one — and that TSMC's addressable market is shrinking for reasons no amount of process leadership can fix.

Moat trajectory: Narrowing

This is the one front that has genuinely deteriorated, and not for competitive reasons. SMIC posted a record quarter at 93.7% utilisation and sits third by foundry revenue, supported by a state that does not require a return on the capital. Each year of export controls builds more of a parallel industry that TSMC cannot serve, and process leadership is no defence against a market being closed by policy rather than lost on merit.

The number that tests this moat
Third-party estimate
SMIC's foundry position
~5.1% share, 93.7% utilisation, third by revenue

SMIC is not competing for TSMC's customers; it is supplying a Chinese industry that export controls are separating from TSMC, with state backing that does not require a competitive return. Watch China's share of TSMC's revenue rather than SMIC's share of the foundry market — a steady decline would mean the bifurcation is real.

Source: Third-party foundry market-share data, Q1 2026 ↗
References
  1. Third-party estimateSMIC holds about 5.1% of the foundry market at 93.7% utilisation after a record first quarter of 2026.
    Third-party foundry market-share data, Q1 2026 — TSMC captured about 73% of the pure-foundry market; Samsung second at 6.5%, followed by SMIC 5.1%, UMC 3.9%, GlobalFoundries 3.3% and HuaHong 2.5%; Intel does not appear in the top ten foundry rankings; Intel 18A entered high-volume manufacturing in October 2025 with yields estimated at 65-75%, still below TSMC's mature 3nm process, and Intel Foundry reported a $2.4 billion operating loss in Q1 2026; SMIC posted a record quarter at 93.7% utilisation; Samsung is prioritising yield on its SF2 2nm process, with Qualcomm and Tesla among those planning to use it — Q1 2026 · publ. 2026 · source ↗
  2. ReportedCustomers based in China supplied 20% of TSMC's 2019 revenue.
    TSMC 4Q19 Quarterly Management Report (2019 revenue by customer headquarters: North America 60%, China 20%) — Full year 2019 · publ. January 16, 2020 · source ↗
  3. ReportedCustomers based in China supplied 6% of TSMC's revenue in 2Q26.
    TSMC 2Q26 Quarterly Management Report (net revenue US$40.20B / NT$1,270.38B, +36.0%; gross margin 67.7%; 2nm 3%, 3nm 30%, 5nm 33%, 7nm 11% of wafer revenue, 7nm and below 77%; HPC 66% of net revenue; China 6% of net revenue; capex US$15.70B) — 2Q26 · publ. July 16, 2026 · source ↗
  4. Moat Explorer calcChina holds 1.7% of TSMC's noncurrent assets.
    TSMC Form 20-F, FY2025 (net revenue, noncurrent assets by country, customer concentration, capacity above 17 million wafers, risk factors; earthquake losses of about NT$3B in 2Q24 and NT$5.3B in 1Q25) — FY2025 (and prior years) · publ. Filed early 2026 · source ↗
    Method: NT$65,019.9M of NT$3,876,339.8M of noncurrent assets at 31 December 2025, from the 20-F geographic note.
Sources
Generated September 23, 2026