Early listing of yuan-denominated stake will miss benefits from Beijing plant Semiconductor Manufacturing International Corp (SMIC), China's biggest microchip maker, is considering whether to sell shares in its profitable Shanghai business for a listing in the city's A-share market next year or wait until the end of 2008 to list the entire group in the mainland, president and chief executive Richard Chang Ru-gin said. 'Our Beijing plant, which started operations in 2003, will break even this year and probably make more profit next year,' Mr Chang said. Including the Beijing operations in a 2008 shares sale 'will make SMIC's valuation much better'. Mr Chang, who in July indicated that the Hong Kong-listed company had been approached about selling yuan-denominated shares, said a decision will hinge on an asset valuation by investment bankers. SMIC, which in July posted its first profit in seven quarters, wants to raise funds as it seeks to make more advanced products and compete better with market leaders such as Taiwan Semiconductor Manufacturing Co (TSMC) and Powerchip. SMIC has raised capacity at its three Shanghai plants, together with one in Tianjin bought from Motorola in March 2004, to 167,251 eight-inch wafers per month as of June, up 20 per cent from a year earlier. The wafers are cut into small logic chips or memory chips. The company expects to break even this year, with profit for the three months to December offsetting losses in the earlier periods. Some bankers said SMIC could first secure a 2007 mainland listing of its three Shanghai plants, which have already met China Securities Regulatory Commission requirements by being profitable for three years, Mr Chang said last week. The company also could wait until the end of 2008, when the whole group will have recorded profit for three successive years. 'I am not familiar with the initial public offering market in China, so we will wait and consider proposals from bankers. We have not made any decision yet,' Mr Chang said. SMIC shares have tumbled to 64 per cent below their IPO price when they were listed in March 2004 as the company has struggled to make a profit while needing to continue investing to remain competitive. The shares declined 2 per cent to a historic low of 97 HK cents yesterday. 'It may not be a bad thing if the company waits until the end of 2008 to list in the A-share market because it can raise more funds then,' an analyst said. 'SMIC's share price will not necessarily rebound after breaking even, depending on how big the profit is.' SMIC, whose customers include Infineon unit Qimonda, the world's second-largest supplier of dynamic random access memory (dram) chips and fourth-ranked Elpida of Japan, narrowed its operating loss 78 per cent in the second quarter from a year earlier to US$6.9 million, not including a tax benefit of US$18.9 million, as sales gained 29.3 per cent to US$361.4 million. 'Chipmakers are all having an inventory adjustment in the third quarter and are slowing market supply, so we will probably turn a profit in the fourth quarter,' Mr Chang said. 'We will also benefit from rising demand in the dram market.' Spot prices for memory chips have gained about 30 per cent since the end of June, according to Taiwan-based Dramexchange.com. Even so, they have declined about 1.6 per cent this quarter. SMIC, which competes with Taiwanese companies such as Powerchip, the island's largest memory-chip maker, said it will increase to 30 per cent the contribution of dram chips to sales from a recent 28 per cent. Logic chips contribute the remaining revenue. The firm is seeking to increase profitability by making chips from larger wafers and selling products with smaller spaces between connections. In 2003, it started to produce 12-inch wafers at its Beijing plant and had a monthly capacity of 15,750 12-inch wafers at the end of June this year. The product has a surface area 2.5 times that of an 8-inch wafer. The Beijing plant started commercial production of 90-nanometre (nm) chips, SMIC's most advanced technology, in the second quarter. A nanometre is a billionth of a metre while a micrometre is a millionth of a metre. Mr Chang said the company will focus on 0.13-micrometre and 90nm chips because the market for chips with larger configurations is too competitive. Revenues generated from the 0.13-micrometre to 90nm chips accounted for 45 per cent of revenue in the first six months, compared to 36 per cent a year ago, the company said in July. SMIC, which competes in the contract market for more advanced microprocessors with leaders TSMC and United Microelectronics Corp, is also benefiting from Taiwan government restrictions that bar the island's chipmakers from producing chips of 0.18 micrometre or below in the mainland. Taiwanese chipmakers will maintain their global market leadership in the coming five years even if they have difficulty moving to China, but they will not benefit from mainland production, said Mr Chang, who gave up his Taiwanese citizenship and established SMIC in China in 2000.