Hungry for growth, China’s top chipmaker SMIC budgets US$2.1 bln for foundry operations after record 2015

Shanghai-based chipmaker moving to raise capacity at three of its six fabrication plants - or fabs - on the mainland

PUBLISHED : Friday, 19 February, 2016, 7:32pm
UPDATED : Friday, 19 February, 2016, 7:32pm

Semiconductor Manufacturing International Corp (SMIC), China’s largest contract chipmaker, plans to significantly raise its production capacity this year to meet strong market demand, after posting record-high net profit and revenue last year.

The Shanghai-based company has budgeted about US$2.1 billion in capital expenditure for its foundry operations, up from US$1.4 billion last year, to ratchet up the capabilities at three of its six fabrication plants, or fabs, on the mainland.

“By the end of this year, we [aim] to increase our Shenzhen fab capacity to approximately 30,000 8-inch wafers per month, our Beijing joint-venture fab to 15,000 12-inch wafers per month, and our Shanghai 12-inch fab to 20,000 wafers per month,” SMIC chief executive Chiu Tzu-yin said in a conference call with analysts on Friday.

“We are optimistic about 2016 given our strategy and execution track record.”

Listed in both Hong Kong and New York, SMIC reported a 36 per cent jump in fourth-quarter net profit to a record US$38.6 million, up from US$28.4 million in the same period one year earlier. This was largely driven by more wafer shipments.

Total revenue last quarter grew 25.6 per cent to a new high of US$610.1 million, compared with US$485.9 million a year earlier.

Jefferies equity analyst Ken Hui pointed out that Sweden-based sensor supplier Fingerprint Cards remained a solid growth driver for the contract chipmaker.

“SMIC saw revenue from [geographic market] Eurasia grow 32 per cent quarter-on-quarter,” Hui said.

Communications applications were the biggest market segment SMIC made chips for in the last quarter, followed by consumer applications.

“Despite the inventory correction in the industry during the year, we maintained full [fab] utilisation

throughout 2015,” Chiu said.

That resulted in a 65.7 per cent rise in net profit last year to US$253 million, up from US$153 million in 2014.

Revenue rose 13.5 per cent to reach a new high of US$2.2 billion in 2015, compared with the 2014 total of US$1.9 billion.

“With the large opportunities presented to us being in China, we strive to capture the attractive

prospects with profitability as our underlying objective,” Chiu said.

The customers of SMIC consist of fabless semiconductor companies, which design chips and outsource fabrication to integrated-circuit foundries.

Texas Instruments and Qualcomm, which supply many of the essential chips used in smartphones and media tablets, are among SMIC’s top multinational clients.

“To address many of the opportunities at hand, SMIC plans to grow through both organic and inorganic means,” Chiu said.

Jefferies’ Hui said SMIC may be eyeing acquiring overseas assets to accelerate capacity addition for its

for its 8-inch wafer production.

Backed by a government policy that is infusing vast amounts of capital into the domestic market to spur consolidation, SMIC and other local players are expected to continue driving mergers and acquisitions in the global semiconductor industry.

According to Bernstein analysts, the domestic market is big enough for SMIC to continue expanding because supply from Chinese fabless chip companies currently only meets 10 per cent of the country’s total annual demand.

Despite the record-high earnings results for last year, SMIC’s Hong Kong shares fell 2.94 per cent to close the week at 66 cents.