SMIC swings to black in 4Q, slashes 2007 capex

January 31, 2007 – Semiconductor Manufacturing International Corp. (SMIC) says it swung to a $1.2 million net profit in 4Q06, vs. losses of $35.1 million in the prior quarter and $15.0 million a year ago, as it looks to maximize profits with finer-linewidth processes and control expenditures.

Revenues increased 4% sequentially and 15% year-on-year to $383.8 million, with 90nm processes contributing 14.4% of sales, nearly threefold more than in 3Q06. In a statement, Richard Chang noted particular strength in PC related ICs, DTV, MP3/4, and Bluetooth applications. SMIC’s mix by device in 4Q06 showed a shift toward more DRAM work (38.6%, up from 30.1% in 3Q and 28.8% in 2Q), while logic (including copper connect) fell to 57.4%, down from 65%-66% in the past two quarters.

Wafer shipments (200mm-equivalent) increased 2.5% quarter-on-quarter and 12.8% year-on-year to 424.4K units. Capacity increased to 182,250 200mm-equivalent wafers/month, mainly due to a 14k WPM increase (a 34% jump) at the company’s 300mm “mega fab” in Beijing. Utilization rate was 86.6%, up from 84.3% in 3Q but well below the 93.0% rate seen in 4Q05.

For the year, sales were up 25% to $1.46 billion, with gross profits up 68% to $150.7 million. Gross margins were still low at 6.6%, down from 8.9% in the prior quarter and 12.9% a year ago, attributed to higher depreciation expenses and product mix change.

Chang noted that fab projects in Chengdu and Wuhan, reportedly funded heavily by government investments, “allow us to continue to grow our business while managing our internal capital expenditure in an efficient manner.” Also helping the bottom line in 4Q was the sale of some matured technology equipment that further lowered depreciation expenses, he said.

Capital expenditures in 2007 are set at $720 million, down from $1.0 billion in 2006. “We will continue to develop our capabilities according to our technology roadmap in a fiscally responsible manner,” the company stated, adding that 65nm process technology development “is progressing smoothly.”

For 1Q, SMIC projects flat revenues, with 90nm contributions increasing to more than 17% of wafer sales, and gross margins improving to 12%-14%.


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