Competition with "elephants" core international small breakthrough

In Shanghai, the last hot summer, SMIC (00981.HK) CEO Chiu finally breathed a sigh of relief.

Two years ago in the summer, Qiu-ci yun back to SMIC headquarters in Shanghai, the CEO, facing the situation is strife: internal to stabilize the team, external to the chip industry in the background of the downturn to stabilize customers and orders.

This June, SMIC released its 2013 fiscal year Q2 earnings show: When revenue closed to 541.3 million U.S. dollars, the year-on-year growth of 28.3%. Net profit was $75.4 million trillion, compared with $7.1 million a year earlier. This is its six consecutive quarter to achieve profitability, experienced personnel struggle after the SMIC is driving into the rising track.

"Small Micro" route

In spite of the rise, SMIC's gap is still quite clear compared with other strong rivals.

Market research institutions IC Insights released the 2012 Global Wafer Foundry rankings show that TSMC is sitting on the leading position, the size of the revenue is about 4 times times the 2nd place Groffand. Samsung's beneficiary processors are ranked 3rd in the foundry business, and have been ranked 2nd in the past 4th. TSMC's market share is as high as 44%, and its revenues are almost 10 times times the 5th-place SMIC.

According to the results of the 2013Q2, TSMC, as at June 30, TSMC revenue of 155.89 billion NT dollars (about 31.95 billion yuan), net profit of NT $51.81 billion (about 10.62 billion yuan); compared with the same period last year, TSMC's revenue, Net profit increased by 21.6%, 23.8% respectively.

"Chang let TSMC from stagnation into a flexible elephant," in the eyes of Taiwan's media, TSMC is a flexible elephant. Since last year, TSMC's revenue from mainland business has risen from 3% to 5%. TSMC's goal of eating the mainland market is so obvious that it poses a threat to SMIC.

Global foundry ranked fifth, volume of about 1/10 of SMIC, how with TSMC and other elephants to compete with Taiwan?

SMIC chairman Zhang once admitted: "We are relatively weak, it is difficult to learn the foundry giants are prone to tens of billions of dollars in the investment way." He proposed the development model of differentiation, hoping to find the profit point and technical route combination.

"Over the past ten years, we have been serving the IC design industry in China, almost as they grew up together or have some advantages." Chiu said, in contrast, TSMC, Samsung and other foundry giants of the customer base is basically a large design institute, they are just starting small and medium-sized companies are not particularly focused.

A survey by the Ministry of Industry last December showed that the proportion of domestic customers choosing SMIC as its preferred foundry partner increased from 60% in 2011 to 75% in 2012; SMIC has become the first choice for mainland Chinese customers in the global foundry industry.

SMIC's 2013 Q2 earnings show that sales in China accounted for about 40.9% of the total quarterly sales, up 14.3% from the first quarter of the year, and 60.6% per cent from the second quarter of last year. Because of this, the market has also been coveted by the foundry giants.

In recent years, the domestic IC design company has developed rapidly, its growth rate is twice times or three times times of other regions. We work harder in product quality and customer service. Chiu said that in the introduction of customer products, in many advanced technology capacity, from the customer to the data to the SMIC to the market, the entire process to 4-6 months, to help many customers to win market opportunities.

With equal emphasis, it is to work with the mainland design company to provide a complete solution for the special market. Chiu that, as long as SMIC completes customer service, this piece of market will be very promising. Take smart card For example, at present, the application of smart card in China is very special, have ID card, traffic card, Social Security card, bank card and so on, ID card market has cultivated a group of very outstanding design company.

In overseas markets, SMIC has also adopted a "avoid its sharpness" competition strategy, its representative is in the Japanese market. SMIC in 2002 years or so into the Japanese market, mainly to help dram big Seoul (Elpida) OEM production of wafer products, 2007-core 8% revenue from the Japanese market, since the Darfur performance deteriorated, SMIC was forced to withdraw from the Japanese market. However, Chiu confirmed to reporters: SMIC is also planning to re-enter the Japanese market.

Innovation of mature technology

In the 1965 Moore's Law, ITRS (International Semiconductor Technology Roadmap Organization) pointed out that the 2010 technical node is 45 nm, 2013 to 32 nm, to 2015 will be further reduced to 25 nm, 2016 22 nm Estimated to be near the limit of silicon CMOS technology by 2018.

In the long run, SMIC's technology nodes and international advanced technology than the gap between the larger, from the technical trend, SMIC's revenue growth point from 45 nm and the following technology is reasonable. According to industry experts Modacan introduced, the Global foundry technology is to 28 nm, 20 nm forward, will make 65 nm process technology products revenue reduction, 45/40 NM technology products expansion, so SMIC must speed up the breakthrough advanced process technology.

In fact, in the second quarter of this year, SMIC's 40/45-nm process contributed more than 71.9% in the previous quarter, and its contribution to wafer sales rose from 6.4% in the first quarter to 10% in the second quarter. It is expected to contribute 15% of revenue in the second half of this year.

From the mic data show that, due to the surge in demand for 28 of nanometers, this year, TSMC, Silicon, Beijing Yuan, Jing, such as the annual capital expenditure increase, TSMC more than 10 billion U.S. dollars (about 301 billion NT $). Earlier this year, TSMC announced: 2013 will be the mainland to obtain more than 5 28 NM customer products.

"With capacity utilization at 98.5% per cent, we will also carefully assess opportunities to expand our 8-inch capacity to ensure our production operations meet growing customer demand," he said. Chiu said that in the choice of technical route, SMIC takes two legs to walk, namely: advanced technology and mature process.

He revealed that SMIC in the end of this year to complete 28 NM research and development and to customer design pilot products, next year into the trial production, but also will begin to develop 20 nm and 14 nm advanced technology, at the same time, will be in smart cards, LCD drives, energy-saving devices, such as hot products focus on

"At present, many customers do not require 28 NM and other advanced technology, in the mature process there are still many opportunities." "Chiu said that different users of technology nodes have different pursuits, the most fundamental of the foundry enterprises are all technical nodes do well;" In the mature process, we still cooperate with customers to develop and improve, so that the application more widely. ”

The main customers for SMIC, the world's fourth largest semiconductor equipment manufacturers United States Branch Day Company (KLA-TENCOR,KLAC,NASDAQ) China President Zhang Zhian told reporters that this year's semiconductor industry boom than last year, so that semiconductor industry enterprises not only to increase orders this year , the performance also improved greatly, SMIC also benefited.

However, it can not be overlooked that the generation of industries rely mainly on investment, as long as the investment to expand the scale of risk, will increase depreciation and loss, this balance is difficult to grasp. Large sums of money are needed to expand the scale, or to continue to invest in advanced and mature processes.

"The size of the semiconductor industry is very important and we will expand on the basis of ensuring profitability." "Chiu stressed: SMIC has the basic ability to use cash flow to contend with, we also hope to have more abundant cash, when special opportunity occurs, have the ability to seize."