Semiconductor Manufacturing International Corp (SMIC) reported its third straight loss-making quarter yesterday, but said second-half performance should improve as the industry climbs out of a downturn that had weighed on earnings since last year. Net losses increased to US$40.4 million in the second quarter from US$30 million in the first quarter, mainly due to declining DRAM (dynamic random access memory chip) prices and an increase in the cost of sales. SMIC's blended average selling price for its chips fell from $829 to $807 during the period, compared with $1,034 a year ago. But the world's third-largest chipmaker said there were sufficient signs the worst was over, pointing to a 12.3 per cent rise in sales to US$279.5 million on increased capacity and demand. Capacity utilisation also recovered slightly to 87 per cent from 85 per cent the previous quarter, and the company has forecast a third-quarter utilisation rate of between 90 per cent and 93 per cent. SMIC will increase its capital expenditure marginally to US$1.1 billion this year to meet rising demand, company president Richard Chang said. 'The second quarter of 2005 marked what we believe to be the trough of this current semiconductor cycle,' Mr Chang said. 'We are seeing substantial improvement in the business environment in the coming months. Our growth will be coming from an improvement in product mix and a shift towards more advanced technology,' he added. 'This will help drive a growth in wafer shipments at a higher [average selling price].' SMIC predicts that wafer shipments will increase 7.5 per cent to 9.5 per cent in the third quarter, after a 16 per cent quarter-on-quarter rise to 330,499 eight-inch wafer equivalents from 284,912 this time. Gross margins will also improve from 2.3 per cent in the second quarter to between 12 per cent and 15 per cent as SMIC reduces the proportion of revenue coming from DRAM business to 24 per cent by the end of the year from 36.5 per cent now. Mr Chang said the company was seeking to begin logic shipments from its 300mm foundry in Beijing by the end of the year, which would boost its average selling price by selling more chips at the high end. The Semiconductor Industry Association predicts that global chip sales will rise 6 per cent this year to US$226 billion. SMIC shares finished at $1.65 yesterday, a gain of 1.23 per cent.