Chip maker SMIC on target for 20pc growth this year

Chief executive Chiu Tzu-yin confident of a continued environment for growth for the semiconductor industry

PUBLISHED : Wednesday, 15 February, 2017, 10:59am
UPDATED : Wednesday, 15 February, 2017, 11:01pm

Semiconductor Manufacturing International Corp (SMIC), mainland China's largest contract chip maker, reaffirmed its 20 per cent annual revenue growth target this year after posting record high sales of nearly US$3 billion last year.

Chief executive Chiu Tzu-yin said in a conference call with analysts on Wednesday that the company was hopeful of a continued environment for growth in the semiconductor industry, despite speculation about some disruption in global trade.

Chiu pointed out that North America, where Qualcomm is a major customer, could deliver revenue growth above SMIC’s other geographic markets for this year, as the company ramps up production capacity on the mainland and at subsidiary LFoundry’s operation in Italy.

We’re targeting an 11 per cent increase in installed capacity to close out this year at 450,000 wafers per month, compared with 406,000 per month in 2016
Chiu Tzu-yin, chief executive, SMIC

“We’re targeting an 11 per cent increase in installed capacity to close out this year at 450,000 wafers per month, compared with 406,000 per month in 2016,” he said.

SMIC, however, reiterated the company’s revenue is expected to decline between 2 per cent and 4 per cent quarter on quarter in the three months to March 31.

The company’s share price fell 3.19 per cent to HK$10.94 at the close of trading in Hong Kong on Wednesday.

According to Daiwa Capital Markets analysts Rick Hsu and Martin Lee, that shortfall in the first quarter “would have to do with one of its customers in fingerprint applications cutting orders”.

“The impact should be seasonal rather than structural, as we believe SMIC will find other applications to fill the slack,” said the analysts, who have an “outperform” rating on the company.

Listed in both Hong Kong and New York, SMIC reported a 30 per cent increase in revenue to a record US$2.9 billion last year, up from US$2.2 billion in 2015, on the back of a high overall utilisation rate of 97.5 per cent at its fabrication plants.

Net profit last year rose about 49 per cent to a record US$377 million from US$253 million in 2015.

Chiu said SMIC achieved its eighth consecutive quarter of record quarterly revenue in the three months ended December 31, as sales climbed 33.5 per cent to US$814.8 million from US$610.1 million a year earlier.

Net profit for the December quarter jumped 169.4 per cent to US$104 million from 38.6 million in the same period in 2015.

Both SMIC’s revenue and net profit in the fourth-quarter are below market analysts’ consensus estimates of US$823 million and 119.4 million, respectively, as the firm’s depreciation charges increased that quarter.

“We see 2017 as a transition year for SMIC, as the company shifts its focus from improving profitability to accelerating 28-nanometre [fabrication process] development, resulting in lower gross margin and higher operating expenditure,” said Huatai Research analyst Ken Hui, who has a "hold" rating on the chip maker.