SMIC rings up 9th straight profitable quarter

Beijing's plans boost semiconductor maker as it posts ninth successive quarter of profit

PUBLISHED : Thursday, 07 August, 2014, 3:36pm
UPDATED : Friday, 08 August, 2014, 8:20am

Semiconductor Manufacturing International Corp, which posted its ninth consecutive profitable quarter in the three months to June, expects to reap the rewards of the central government's new policy to promote its industry.

"As the largest semiconductor enterprise and the most advanced foundry in China, we are looking forward to a period of accelerated industry growth," SMIC chief executive Chiu Tzu-yin said yesterday.

The Shanghai-based contract chipmaker's optimism stems from the State Council's announcement in June of the "Guidelines to Promote National IC Industry Development", which sets out the central government's targets and long-term support for domestic designers, developers and manufacturers of integrated circuits.

This high-level framework proposes the setting up of a National Industry Investment Fund, managed by professional investors and used to inject an unspecified amount of capital into the mainland's semiconductor industry.

The financing will be used to expand plant capacity, research and development, and push for market consolidation.

Mark Li, a senior analyst at Bernstein Research, said in a report: "SMIC is well positioned to capture the growth in China."

Li said the high capital spending requirements of chip foundries made them likely to get much of the planned funding. Other support mechanisms, like research and development grants, were expected to continue.

The customers of these foundries consist of "fabless" chip design firms that outsource fabrication to contract manufacturers. "The Chinese fabless industry is a US$10 billion market," Li said. SMIC is the No2 supplier for fabless companies on the mainland, behind the world's biggest contract chipmaker, Taiwan Semiconductor Manufacturing.

In its filing with the Hong Kong stock exchange on Wednesday, SMIC reported a second-quarter net profit of US$56.8 million that was a 24.7 per cent decline from US$75.4 million a year earlier, but marked a 180.3 per cent jump from the previous quarter's US$20.3 million profit.

It attributed the quarter-on-quarter improvement to greater capacity use at its factories and higher gross margins.

The company's second-quarter revenue reached US$511.3 million. That represented a 5.5 per cent fall from US$541.3 million a year ago but a 13.4 per cent increase from US$451.1 million in the first quarter.

"We are optimistic about 2015 as we prepare … for many new opportunities," Chiu said.