Leading chipmaker raises guidance

PUBLISHED : Tuesday, 24 July, 2012, 12:00am
UPDATED : Tuesday, 24 July, 2012, 12:00am

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Semiconductor Manufacturing International Corp (SMIC) bolstered investors' hopes that it has entered a new stage of growth when it raised its earnings guidance for this year's second quarter.

Following that announcement by the mainland's largest contract manufacturer of chips, SMIC's share price rose 12.97 per cent yesterday to finish at 27 HK cents, its highest close since reaching 30 HK cents on May 30.

Chief financial officer Gareth Kung said in a filing with the Hong Kong stock exchange that Shanghai-based SMIC's revenue for the three months to June 30 is forecast to increase 25-26 per cent over the previous quarter. The company's original guidance was for a 19-21 per cent improvement.

Another upward adjustment was made in SMIC's guidance for second-quarter gross margin, which is now forecast at 23-24 per cent; the previous estimate was 19-22 per cent.

Kung said the company has 'seen improvement on business from our customers, exceeding our earlier expectations'. He said: 'We see continued growth moving into the third quarter of this year.'

In April, SMIC revised upwards its previous guidance for first-quarter revenue. The company reported that its revenue that quarter climbed 14.85 per cent to US$332.71 million from the previous quarter.

Chief executive Chiu Tzu-yin said in May the firm was 'expecting continued order momentum for both new and existing products, across various applications, from our leading global and Chinese customers'.

Chiu pointed out that the momentum was 'primarily due to various new product ramp-ups for connectivity chips, mobile phones and set-top boxes'.

One of SMIC's major customers is United States-based Qualcomm, the world's biggest supplier of mobile-phone chipsets.

But Bernstein Research senior analyst Mark Li said SMIC's higher revenue and margins were 'just cyclical and not structural'.

He said Bernstein's analysis found that there was neither a 'structural improvement' in terms of operating cost nor any sign of technological advances made by the mainland chipmaker.

That led Li to maintain an 'underperform' rating - equivalent to a moderate sell or weak hold - on SMIC's stock, but the analyst raised his target for SMIC's share price to 35 HK cents 'to reflect more positive forecasts'.