US-sanctioned SMIC reported its first sales growth in four quarters. Its profit halved amid a semiconductor downturn, with utilization rates remaining low.
SMIC released its financial results for the fourth quarter, recording revenue of US$1.68 billion, up 3.52% year-on-year. Net income for the quarter declined by 54.69% to US$174.68 million.
The company said in a press release that the decrease in profit is mainly due to several reasons. Over the past year, the semiconductor industry experienced weak global demand, high inventory, and slow destocking, leading to a declining utilization rate, decreased wafer sales volume, and changes in the product mix. Besides, SMIC was expanding investments, with depreciation increasing from a year ago, affecting the company's financial performance.
SMIC's utilization rate fell slightly to 76.8% in the fourth quarter from 77.1% a quarter ago, with the annual utilization rate of 2023 at 75%, equivalent to an average monthly production of 806,000 200mm wafers. SMIC saw its capital expenditure for 2023 increased by 18% to US$7.47 billion from a year ago. However, the company expects its capital expenditure to remain flat in 2024, while revenue for 2024 is expected to grow by a single-digit percentage over 2023.
Zhao Haijun, co-CEO of SMIC, said at the earnings call that after two years of chip shortage and overheated demands, the semiconductor industry encountered deep corrections, and a macroeconomic downturn and intensified geopolitical tensions persist till now.
Zhao said in the third quarter of 2023, the mobile industry experienced upgrades, bringing rush orders and signs of recovery. However, he said the industry has not seen a full recovery, and the company is still closely watching to see whether the rush orders can be sustained.
A recent report from the Financial Times said that SMIC established a new wafer fab, aiming to achieve mass production of 5nm chips, which will power Huawei's next-generation high-end smartphone. It is expected that Huawei's AI chip, Ascend 920, may be made using SMIC's 5nm process node if SMIC manages to overcome technological challenges, a difficult task for SMIC amid the US sanctions to prevent the company from acquiring the most advanced chipmaking tools.
SMIC financial summary (US$m) | ||||||
Financial | 4Q22 | 1Q23 | 2Q23 | 3Q23 | 4Q23 | YoY for 4Q23 (%) |
Revenue | 1,621.27 | 1,462.29 | 1,560.40 | 1,620.58 | 1,678.30 | 3.52 |
Gross profit | 518.69 | 304.67 | 316.50 | 321.62 | 274.96 | -46.99 |
R&D | 197.46 | 167.67 | 177.63 | 172.84 | 189.14 | -4.21 |
Operating income | 282.35 | 83.28 | 79.80 | 87.39 | 107.28 | -62.00 |
Profit | 385.53 | 231.10 | 402.76 | 93.98 | 174.68 | -54.69 |
Source: SMIC, February 2024
SMIC sales by geography (US$m) | ||||||
Geography | 4Q22 | 1Q23 | 2Q23 | 3Q23 | 4Q23 | YoY for 4Q23 (%) |
China | 1,120.30 | 1,104.03 | 1,242.08 | 1,361.28 | 1,356.07 | 21.05 |
America | 410.18 | 286.61 | 274.63 | 209.05 | 263.49 | -35.76 |
Eurasia | 90.79 | 71.65 | 43.69 | 50.24 | 58.74 | -35.30 |
Source: SMIC, February 2024
SMIC wafer sales by application (%) | |||||
Application | 4Q22 | 1Q23 | 2Q23 | 3Q23 | 4Q23 |
Smartphone | 28.6 | 23.5 | 26.8 | 25.9 | 30.2 |
Computer and tablet | 19.9 | 22.4 | 23.8 | 29.2 | 30.6 |
Consumer electronics | 24.2 | 26.7 | 26.5 | 24.1 | 22.8 |
Connectivity and IoT | 15 | 16.6 | 11.9 | 11.5 | 8.8 |
Industrial and automotive | 12.3 | 10.8 | 11 | 9.3 | 7.6 |
Source: SMIC, February 2024
