The 33-year-old was once again criticised for his performance during Man City's 2-1 defeat to Wigan Athletic in the FA Cup on Sunday, after giving away another penalty for Manuel Pellegrini's men.
And Smith believes it may have been a mistake bringing the defender to the Etihad Stadium.
Writing in the Daily Telegraph, under the sub-heading 'Demichelis looks past best', the former Arsenal striker said:
"No matter how experienced, no matter how shrewd, few managers seem immune to the costly blind spot when a player past his best retains their faith.
"Manuel Pellegrini and Martin Demichelis go back a long way. From River Plate to Malaga, they know each other well. But after Demichelis toiled against Wigan Athletic, perhaps it is time to call it a day."
Elsewhere, Smith also discussed the fortunes of the Gunners, taking the chance to heap praise on Alex Oxlade-Chamberlain's display against Everton.
"Alex Oxlade-Chamberlain is coming of age. In his third year at the club, the 20-year-old is now becoming an important cog in Arsenal's wheel. At a pivotal time, he could yet prove instrumental in ending the trophy drought in London N5.
"Clearly, Arsenal’s No 15 has the bit between his teeth just now. He is going into games with a lot of desire, hungry for the ball after missing a large chunk of this season through injury.
"Oxlade-Chamberlain, in fact, looks set to feature heavily for his club over the coming months, with FA Cup glory now a strong possibility. After that, he will surely get the nod to jump on that plane to Brazil.
"In short, this season could turn into his best yet. If the first half was a write-off, the final few furlongs could see him sprinting to the line."
Is Demichelis past his best at Manchester City?
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