SMIC on track for record annual earnings, bolstered by robust global demand

Revenue at mainland China’s biggest contract chip manufacturer is forecast to reach US$2.88bn this year

PUBLISHED : Tuesday, 08 November, 2016, 6:33pm
UPDATED : Tuesday, 08 November, 2016, 10:44pm

Semiconductor Manufacturing International Corp (SMIC), mainland China’s largest contract chip maker, is looking to attain record-high earnings for this year after its quarterly net profit exceeded US$100 million for the first time in the three months to September 30.

The Shanghai-based company said on Tuesday that it was also ratcheting up expansion of production capacity across its Chinese fabrication plants and at LFoundry, its recently acquired contract integrated circuit manufacturer headquartered in Italy, to meet fast-growing demand.

“We are on track to achieve another record year of revenue and net profit,” SMIC chief executive Chiu Tzu-yin said in a conference call with analysts. “We had a fantastic third quarter, when we achieved our seventh consecutive quarter of revenue growth and 18th consecutive quarter of profit.”

Listed in both Hong Kong and New York, SMIC late on Monday reported a 37.4 per cent jump in third-quarter net profit to a record US$113.56 million, up from US$82.63 million in the same period last year.

SMIC is seeing robust demand across the board and we reiterate our growth target of 20 per cent compounded annual growth from 2016 to 2019
SMIC chief executive Chiu Tzu-yin

SMIC attributed that growth to a solid increase in silicon wafer shipments in the third quarter and revenue contribution from LFoundry, in which the company bought a majority stake in June for €49 million (HK$420.41 million) as its first overseas-based acquisition.

Total third-quarter revenue rose 36 per cent to a record-high US$774.84 million from US$569.85 million a year earlier.

“SMIC is seeing robust demand across the board and we reiterate our growth target of 20 per cent compounded annual growth from 2016 to 2019,” Chiu said. “This year, SMIC is growing in excess of 28 per cent year on year.”

China made up 51.6 per cent of SMIC’s total revenue last quarter, while sales in North America contributed 28.3 per cent. The Eurasia geographical market comprised 20.1 per cent of revenue.

Communications applications, including fingerprint sensors for smartphones, contributed 46.1 per cent of SMIC’s total third-quarter sales, while consumer electronics comprised 40.7 per cent.

“We are still experiencing robust demand.” Chiu said. “In the last month, we announced several new fab construction projects to address our diverse demand.”

SMIC shipped a total 1.06 million 8-inch equivalent silicon wafers in the third quarter, when utilisation rate at its chip fabrication plants -- known as fabs -- reached 97.2 per cent.

Gareth Kung, SMIC’s executive vice-president for strategic business development and finance, told the South China Morning Post in September there was “more room to expand capacity”, based on high demand from Chinese firms that outsource chip production to SMIC.

Kung said capital expenditure this year was raised to US$2.6 billion, from the previous US$2.5 billion, to build up SMIC’s 12-inch wafer production line in Shenzhen.

Bernstein senior research analyst Mark Li said in a report that SMIC, since 2012, “has been gaining share and growing much faster than peers most of the time, and we are confident the trend will continue in 2016 and 2017”.

SMIC was forecast by Bernstein in September to reach record annual revenue of US$3.44 billion next year, up from the estimated US$2.88 billion this year. Both figures are above market analysts’ consensus estimate of US$3.30 billion next year and US$2.82 billion this year.