SMIC boosts margins on way to ninth straight profitable quarter

Chipmaker set for ninth consecutive profitable quarter as Beijing backs semiconductor sector

PUBLISHED : Tuesday, 22 July, 2014, 12:29am
UPDATED : Tuesday, 22 July, 2014, 12:29am

Semiconductor Manufacturing International Corp, the mainland's largest contract chipmaker, has raised its guidance for gross margin in the three months to June after achieving greater use of its production capacity and enhanced cost control.

SMIC said yesterday its preliminary assessment of second-quarter gross margin - the percentage of total sales revenue retained after production-related expenses - is now between 27 and 29 per cent, up from the previous estimate of 22 and 24 per cent.

The upbeat guidance followed strong market speculation that the Shanghai-based company would be the prime beneficiary of a new central government policy announced in May which aimed to accelerate the development of the domestic semiconductor industry.

"Since the release of our second-quarter gross margin guidance, we have seen an increase in utilisation and improved expense control, exceeding our earlier expectations," SMIC chief financial officer Gao Yonggang said in a company filing.

A higher percentage for gross margin means that the company retains more on each dollar of sales to pay for its other operating expenses. SMIC is poised to record its ninth consecutive profitable quarter in the three months ended June 30 on revenue that it estimated to grow by 12 per cent to 15 per cent quarter on quarter.

Bernstein Research has forecast SMIC's second-quarter revenue to increase 14 per cent to US$515 million from US$451 million in the three months to March. But on a year-on-year basis, the mainland chipmaker's revenue is estimated to be down 4.8 per cent from US$541 million recorded in the three months to June last year.

Mark Li, a senior analyst at Bernstein, said in a report that SMIC's management was confident of improving the company's performance in the second-half of this year as the domestic roll-out of 4G mobile networks and sales of 4G smartphones continues to accelerate.

Mainland customers consist of domestic "fabless" semiconductor companies, which design chips and outsource fabrication to semiconductor foundries like SMIC.

The company's top multinational customers include Texas Instruments and Qualcomm, which supply many of the essential chips used in smartphones.

SMIC generated 46.6 per cent of its revenue from North America in the first quarter.

The State Council unveiled earlier this month the "Guidelines to Promote National IC Industry Development", which would help the mainland's integrated circuit market reach 350 billion yuan (HK$440 billion) in sales next year from 269 billion yuan last year.