Earnings reports

Chip maker SMIC posts steady first-quarter earnings growth amid market headwinds

PUBLISHED : Wednesday, 10 May, 2017, 9:08pm
UPDATED : Wednesday, 10 May, 2017, 11:53pm

Semiconductor Manufacturing International Corp (SMIC), mainland China’s largest contract chip maker, reported on Wednesday steady earnings growth in the first quarter, but forecast a modest decline in second-quarter revenue due to a market downturn.

Shanghai-based SMIC posted a 13.7 per cent increase in net profit to US$69.8 million for the three months ended March 31, up from US$61.4 million in the same period last year, as demand for its 28-nanometre semiconductor device fabrication ramped up.

Revenue grew 25 per cent to US$793.1 million from US$643 million a year earlier.

“Our team delivered a good quarter,” newly appointed SMIC chief executive Zhao Haijun said in a statement on Wednesday.

Zhao pointed out that earnings before interest, taxes, depreciation and amortisation – a measure of a company’s operating profitability – grew 42.8 per cent year on year to a record high US$312.4 million.

“We are pursuing growth in areas in which we are seeing meaningful demand, such as NOR flash [memory], RF [radio frequency chip] and connectivity, power integrated circuits and others,” he said.

SMIC, however, warned of headwinds in the first half of this year, which it has estimated will lead to a 3 per cent to 6 per cent quarter-on-quarter drop in revenue in the three months to June.

China’s SMIC ramps up chip production capacity, as it targets strategic new acquisitions

“We are confronting the challenges of customer changes in market positioning, seasonal inventory adjustments and overall muted handset market growth in China,” Zhao said.

“We believe we are in a great position, both strategically and financially, to weather this cyclical downturn, and are positioned to benefit from some exciting future trends, including [chips for the] automotive, industrial and internet of things [industry segments].”

That implies "a back-loaded 2017" for SMIC, according to Jefferies equity analyst Rex Wu.

Wu predicted second-half gains for the company "will mainly come from 28nm [business] reaching high single digit [growth] and new demand for mature technology" like NOR flash, power management integrated circuits and sensors.

SMIC last year attributed part of its solid increase in silicon wafer shipments to the contribution of LFoundry, the Italian contract chip manufacturer that it acquired for 49 million (US$53.4 million) in June last year.

LFoundry manufactures so-called complementary metal-oxide semiconductor image sensors, as well as analogue and mixed-signal chips used in security, automotive and industrial-related applications.

While starting from a small customer base in this particular wafer production process, SMIC’s 28nm business is projected to make up 6.6 per cent of its revenue this year on the back of committed orders from US mobile chip giant Qualcomm, a recent report by Bernstein Research senior analyst Mark Li said.

Zhao, who joined SMIC in October 2010, on Wednesday was named the new SMIC chief executive, replacing Chiu Tzu-yin.

Chiu, who had served as SMIC’s chief executive since August 2011, will continue at the company in the role of vice-chairman to help guide its future strategic direction.

He presided over SMIC's advances in business development during this decade, including eight consecutive quarters of record revenue as of December 31.