SMIC posts higher 1Q sales & profits, preps for big capex push

April 27, 2007 – Chinese flagship foundry SMIC posted an $8.8 million profit in 1Q07, vs. essentially breakeven in the prior quarter (and a net loss of $9.6 million a year ago). Sales rose about 1% sequentially and 10% Y-Y to $388.3 million.

Total capacity actually decreased about 3% to 177.15 million wafers/month (200mm-equivalent), mainly due to reduced capacity registered at the company’s facilities in Shanghai (Fabs 1, 2, and 3), where assets are being disposed to partner Chengdu Cension. The Beijing “megafab” complex (encompassing Fab 4, 5, and 6) increased capacity by ~1% to 57,150 wafers/month. The company’s 200mm fab in Tianjin boosted capacity by 10% (to 22,000 wafers/month) during the quarter. Output increased about 6% Q-Q and 16% Y-Y, keeping utilization rates roughly flat at ~86%.

Capex during 1Q was $90.9 million, about 13% of the company’s planned $720 million capex for the full year.

The company pointed to orders from Chinese design companies, which accounted for 12.8% of revenues in 1Q07 vs. 8.8% in 4Q06. Similarly, SMIC’s 1Q07 sales show a jump in fabless business from 36.1% to 47.1%, while IDM business dropped to 43.2% from 55.8%. Wafer sales (logic only, excluding DRAM and copper connects) showed more business at the 0.13-micron and 0.35-micron nodes, with a dropoff in business at 90nm and continued decline in 0.15-0.18-micron.

The SMIC numbers include a couple of noteworthy points. First, SMIC has recalculated how it thinks it should account for its license with TSMC (the subject of much dispute over the past couple of years), by breaking out its settlement agreement with TSMC into several chunks and reporting only some of it for accounting purposes — i.e., the $175 million settlement is being registered as $141.3 million as a deferred cost, amortized over a six-year period as a component of cost of sales.

Also, curiously, the company has changed the way it calculates fab-related equipment depreciation, from a five-year straight-line depreciation to a range of five to seven years, “which is consistent with industry practice and more accurately reflect the economics associated with the ownership of the equipment,” the company stated.

Looking ahead, 2Q sales are expected to remain flat, with capex ramped to ~$450-$510 million — meaning that roughly two-thirds of SMIC’s budgeted 2007 capex will be used up in 2Q.


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