SMIC lowers 3Q outlook due to tool delays, ASPs

September 29, 2005 – China’s Semiconductor Manufacturing International Co. (SMIC) touted a 30% increase in 1H05 sales and more than twice that growth in wafer shipments, but as the chipmaker prepares to ramp several projects into pilot production, it’s also feeling the pinch from equipment delays and slumping DRAM prices.

SMIC said 1H05 sales rose 30% from the same period a year ago to $528.3 million, while wafer shipments (200mm-equivalent) rose by nearly 64% to 615,000 wafers. However, net loss widened to $70.4 million, vs. $61.6 million in 1H05, as costs of sales jumped 80%, and gross margins sunk from 30.4% to just 4.1% — affected by lower average selling prices (ASP)/wafer and higher average costs/wafer, due to an increase in depreciation expenses.

SMIC is now getting ready to start pilot production for its JV CMOS imaging sensor module project with Toppan Printing Co. Ltd., for which it began moving equipment into its new Fab 9 facility in August. A joint project with United Test and Assembly Center Ltd. in Chengdu also is expected to move in equipment and commence pilot production shortly. SMIC also says it will move equipment into its Fab 10 facility during 4Q05 for its efforts to rework reclaimed wafers into solar power modules.

Despite maintaining its overall 2005 capital expenditure budget at $1.1 billion, SMIC has lowered much of its guidance for 3Q05 sales and spending. The company pegs 3Q05 capital expenditures at $120-$160 million, well below earlier estimates of $200-$240 million. Lower ASPs for DRAM products are showing an impact, and longer equipment lead times will cause the company to push out equipment installation and qualification from 3Q05 to 4Q05.

SMIC also says 3Q wafer shipments will increase 6%-7%, below earlier estimates of 7.5%-9.5% set in July, while gross margins are seen rising 7%-9% (vs. 12%-15% in earlier projections) and ASPs will increase just 3%-5% vs. earlier projections of 8%-10%. Capacity utilization rates will stay within previous guidance of 90%-93%, with operating margins “in the mid-teens.” — James Montgomery, News Editor


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