SMIC shores up chip production with US$1b capital outlay this year

PUBLISHED : Wednesday, 30 April, 2014, 1:31am
UPDATED : Wednesday, 30 April, 2014, 4:51am

Semiconductor Manufacturing International Corp, the mainland's largest contract chipmaker, plans to boost capital spending to US$1.1 billion this year after posting its eighth consecutive profitable quarter in the three months to March.

Shanghai-based SMIC said the 25 per cent increase in expenditure, from US$880 million last year, was needed to build up its chip foundry capacity to meet demand in the fast-growing consumer electronics and communications markets.

"We are working with customers to provide the integrated circuits required for 4G LTE (long-term evolution technology) handsets in China," chief executive Chiu Tzu-yin said yesterday in a conference call with analysts.

About US$570 million of this year's capital spending will be on the company's 55 per cent-owned joint-venture chip-manufacturing business in Beijing that was established in June last year, while US$400 million will be for buying used equipment for its Shenzhen fabrication plant. A further US$110 million will be spent on building quarters for employees at production sites.

"We target 10,000 wafers-per-month-capacity installed in Shenzhen by the end of this year, which will be ready for production in 2015," Chiu said.

The Beijing factory would have a capacity of 5,000 to 6,000 wafers per month in the same period, he said.

In its Hong Kong stock exchange filing, SMIC reported a 50 per cent drop in first-quarter net profit to US$20.3 million from US$40.6 million a year ago due to seasonality and inventory correction. Revenue fell 10 per cent to US$451.1 million from US$501.6 million.

Mark Li, a senior analyst at Bernstein Research, said in a report: "We remain optimistic about SMIC's outlook despite the short-term headwind."

Li forecast revenue this year to reach US$2.2 billion.

Chiu expects "a robust recovery" for SMIC in this quarter and gains for the rest of the year as demand for chip components in 4G smartphones continues to increase.

Mainland customers consist of "fabless" semiconductor companies, which outsource their fabrication to chip foundries such as SMIC. Multinational clients include Qualcomm, Texas Instruments and AMD.