BEIJING, CHINA – DECEMBER 4: A logo hangs on the Beijing branch building of Semiconductor Manufacturing International Corporation (SMIC) on December 4, 2020 in Beijing, China. (Photo by VCG/VCG via Getty Images)
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Semiconductor Manufacturing International Corporation on Friday warned of intense competition in the chip industry after its first-quarter profit beat expectations.
“Competition in the industry is becoming increasingly fierce and the pricing of commodity products basically follows market trends,” SMIC said on Friday during the firm’s earnings call.
“The company is doing its job [long-term view] by constructing quality technology platforms that jump here in mainland China by one to two generations,” SMIC said.
SMIC, China’s largest contract chip maker, is seen as critical to Beijing’s ambitions to reduce foreign dependence in its domestic semiconductor industry as the US continues to curb China’s technological prowess. The SMIC lags behind that of Taiwan TSMC and South Korea’s Samsung Electronics, according to analysts.
The company’s first quarter net incomee fell 68.9% from a year earlier to $71.79 million, compared to the average LSEG analyst estimate of $80.49 million.
Gross margin fell to 13.7% in the quarter — the lowest the firm has seen in nearly 12 years — according to LSEG data.
First-quarter revenue was $1.75 billion, up 19.7 percent from a year earlier, as customers stocked up on chips, SMIC said. That slightly beat LSEG’s estimate of $1.69 billion.
“In the first quarter IC [integrated circuits] the industry was still in the recovery stage and customer stocks gradually improved. Compared to three months ago, we have noticed that our global customers are more willing to build inventory,” SMIC said on Friday.
Customers are building inventories to prepare for competition and meet market demand, the firm said, adding that it was unable to fulfill several urgent orders in the first quarter as some production lines were operating at near maximum capacity.
SMIC chips are found in cars, smartphones, computers, IoT technologies and more. More than 80 percent of revenue in the first quarter came from customers in China, it said.
Preparing for competition
In a bid to build competitiveness and increase market share, the firm said it is prioritizing areas such as capacity building and research and development activities for investment.
“[To] ensures that the company maintains its leading position in a fierce market competition and maximizes the protection of investor interest… the company plans to pay no dividends for 2023,” SMIC said.
“We believe that as long as there is customer demand along with our technology and capacity readiness, we can ultimately be bigger, better and stronger despite fierce competition.”
The company expects second-quarter revenue to rise 5% to 7% from the first quarter due to strong demand, while gross margin could fall further to between 9% and 11%.
“Along with the increase in capacity scale, depreciation is expected to increase quarter after quarter. So the gross margin is expected to decline sequentially,” SMIC said.
https://www.cnbc.com/2024/05/10/chinas-smic-warns-of-fierce-chip-competition-as-it-misses-profit-estimates.html
