SMIC gains 15.9 million USD for 7 year best

After the twists and turns of SMIC (0.435,0.01,2.35%, real-time quotes) (00981. HK) is slowly returning to orbit.

Earnings showed that in 2012, SMIC's international sales were 1.7 billion U.S. dollars, up 29% from the previous year, earning 15.9 million of dollars, and finally achieving a full year of profitability, the best in 7 years.

This for the stepped Chiu, is undoubtedly the most comforting thing, meaning Smic finally out of the haze of personnel unrest, played the first turnaround. Chiu returned to SMIC as CEO and executive director in September 2011, a year in which the company's gross profit margin rose from 1.4% to 19.9%.

Industry researchers believe SMIC has benefited from Low-cost smartphone and tablet-related businesses, as well as management's progress in "reversing adversity". Over the past 12 years, SMIC's development in mainland China has been inseparable from the repression of TSMC. The latter is the world's number one chip OEM, global market share of up to 60%, SMIC is ranked fifth in the world.

Turnaround

After adjusting the strategy, SMIC finally achieved a full-year loss, and a year ago, the company still lost as much as $246 million trillion. In an interview with this newspaper, Chu Yunzhi that this was due to increased capacity utilization.

Since the second quarter of 2012, SMIC's overall capacity utilization rate reached 95%, when the quarter turned to 710 U.S. dollars, after the quarterly earnings of 12 million U.S. dollars and 39.7 million dollars. Sales in the fourth quarter also hit a record high of $486 million trillion, up 67.8% per cent year-on-year. As production efficiency improved, the company's gross profit margin was also 1.4%, back to 24% in the second quarter of 2012, gradually rising to 27.5%, the fourth quarter to 19.9%, followed by the fourth quarter from the operating activities of the net cash inflow of 189.8 million U.S. dollars, compared to the last quarter increased by 70.8 million U.S. dollars.

For fourth-quarter growth, Chiu explained, "The power is mainly from 45/40 nm technology began to enter the mass production, the contribution of sales than the previous quarter three times times more than the total sales of 2.6%." In the first quarter of 2013, he predicts, corporate gross margins will be between 17.5% and 19.5%, and revenues will grow 1% to 2%.

"In the fourth quarter of last year, sales were high and strong, and the first Ti Yu in 2013 was expected to moderate, and the second half will continue to go up." "Chiu said.

In 2013, SMIC's capital expenditure on manufacturing operations will be about $600 million trillion, most of which is used for 12-inch chip business, Chiu introduced. "This figure is higher than last year, mainly used to build factories and expand capacity," he said, the Shanghai Chip Factory's main research 40nm/45nm chip technology, expected capacity will be from the current monthly 6000 to the end of 12,000 per month. Beijing New Project Chip Factory project is still in progress.

In addition, SMIC will continue to look for development opportunities to improve plant productivity.

SMIC's expansion plan has started in Beijing. At present, SMIC and Beijing government Cooperation of Beijing company Two project has been launched, Beijing after the Beijing-Orient 8.5 generation of TFT-LCD production line, but also a total investment of more than 30 billion yuan of major projects.

With this cooperation, SMIC can expand production scale and reduce production costs, with a total investment of more than 40 billion yuan. The first phase of the project is scheduled to be completed by the end of 2015 and is expected to achieve annual sales revenue of USD 1.19 billion. The project is developed in two phases, the future will focus on the production of 20 to 45 NM integrated circuit, the final expected to produce 70,000 pieces of 12-inch wafer production capacity per month.

In his isuppli China chief analyst Wenjun [Weibo] It appears that SMIC has finally entered an upward trajectory. Credit Suisse's research report also found that SMIC benefited from Low-cost smartphone and tablet-related business, and that management had made progress in "reversing adversity".

To reverse adversity.

Over the past 12 years, SMIC's development in mainland China has been inseparable from the repression of TSMC. The latter is the world's number one chip OEM, global market share of up to 60%, SMIC is ranked fifth in the world.

In 2009, TSMC reached a settlement on SMIC's lawsuit over intellectual property rights, and SMIC would pay 200 million dollars in cash for four years, in addition to TSMC gaining a 10% per cent stake in SMIC.

The lawsuit has brought big changes to SMIC. On the day of reconciliation, SMIC founder Zhang Ru Beijing announced his retirement, since then, SMIC entered the turbulent internal friction phase, management team loss, the company's strategy has been changed several time.

June 2011, Chang successor chairman Jiang died, broke the company's control of the dispute, in the large shareholder Datang Telecom support, high pipe fighting more intense, July, the CEO Wang was blocked outside the board door angrily resigned, September, shareholder support COO Yangsning submitted resignation report.

During this period, "veteran" Chiu back to SMIC, quickly steered, as CEO and Executive director. Known as "less domineering, stronger than the ability to communicate" Chiu the emergence of the internal contradictions is the best treatment results-Chiu in 2001 followed founder Chang founded SMIC, when senior Operation vice president, has nearly 30 years of experience in the semiconductor industry.

SMIC's third chairman, Zhang, said in an email to employees that Chiu has extensive experience in technology research and development, business development, production and management, and has extensive and in-depth knowledge of SMIC and China's semiconductor market and is the best person to lead the company "Towards a brighter future".

However, in front of the Chiu is the management changes, performance decline, industry recession and other multiple propositions.

At the beginning of his tenure, Chiu announced a solution to the dilemma, will improve operations, turning loss as the company's first task, to adjust the previous business strategy, the implementation of the "short-term use of sufficient capacity to achieve differentiation in the medium term to promote advanced development" strategy, requires internal stability team, external to ensure that orders.

In June 2012, CIC reduced its holdings of 721 million SMIC to 11.28%. Half a year, TSMC also quickly reduced SMIC, the shareholding ratio from 10% rapidly to 4%.

"If we want to achieve break-even, the factory's operating rate must reach 85%-90%", then, Chiu that, under the heavy losses of SMIC under the core international operating rate is low, the semiconductor industry environment downturn, the customer demand decline, to improve the operating rate is not simple.

To this end, the company decided to slow capital spending, "the company will focus from capacity adjustment to the start rate, so the future level of capital spending will slow down, unless the customer demand performance is particularly strong." "In the specific operation, Qiu Tzu is committed to improving production management and customer service, to strengthen the team and promote the operation of customers to restore, and committed to the Chinese mainland market deep."

"The direct return of this is that in 2012, SMIC's capacity increased by only 6%, and sales revenue rose by 50%, one of the important reasons is the increase in productivity." "Chiu said.

In addition, in the market strategy, Qiu Tzu Cloud allows the team to devote more resources and power to the communication and consumer market, avoid a recession in the computing market, and, geographically, more than half of the company's revenue still comes from the developed regions of North America, and by working with these international clients, SMIC maintains a higher standard of operation. "However, in strategic deployment, we have always been a strategic tilt towards mainland customers." SMIC has a natural geographical advantage in the mainland, and in recent years the local chip design company has developed rapidly, which has benefited a lot from the company. "Chiu said.

2012, SMIC 65/55 nanometer technology, contributed 1/3 of the company's sales revenue, the company expected, 45/40 NM technology will become the main profit growth point in 2013. At present, SMIC in Shanghai, Beijing and Tianjin has more than 200,000 pieces/month (8-inch chip) capacity supply, and as China's most advanced wafer production base of SMIC Beijing plant, its mass production scale is still gradually expanding.

At this point, Chiu in a year after returning to SMIC, in the context of the continued downturn in the industrial environment, played the first beautiful turnaround. All along, the loss has become the haze of SMIC, the company only in 2004 the first year of listing, and 2010 has been profitable.

Gap

However, the gap between SMIC and the industry is still very clear.

The Morgan Stanley report recently pointed out that although SMIC is committed to improving its operations, its structural problems remain unresolved. Even if the company's capacity utilization rate is over 90% and sales innovation is high, still only get meager profit, SMIC still lags behind the leading technology.

The report noted in particular that "SMIC's capital expenditure is significantly lower than its rivals". The Daiwa report also notes that capital spending is limited, which will affect the long-term profitability of SMIC – "in the context of a low capital expenditure plan, SMIC has struggled to successfully dabble in 28 of nanotechnology, and has yet to see any significant signal of the expansion of the core 40 nm capacity."

The opponents are striding forward. TSMC, the biggest competitor of SMIC, announced in 2013 that capital spending would grow from $8.3 billion trillion last year to $9 billion trillion. In the 2012 fiscal year, TSMC's revenue was 17.1 billion U.S. dollars, up 18.5% per cent year-on-year, with revenues expected to be between $3.44 billion and $3.5 billion in the first quarter of 2013, according to earnings reports.

Other sources say Apple will end its collaboration with rival Samsung [Weibo] on processors, and the new partner will be TSMC. The main reason is that TSMC, compared with Samsung, is a pure foundry and may never compete with Apple in the finished consumer electronics market, and TSMC is one of the few OEM manufacturers with enough capacity and advanced technology.

TSMC's strength, but also increased the core of the international advantage of the field-Mainland China market. On February 19, TSMC announced that it would make more than 5 28 NM customer products in mainland China in 2013. Since last year, TSMC's revenue from mainland business has risen from 3% to 5%.

In this respect, Chiu said, the international trend of semiconductor manufacturing to Asia has been unstoppable, the domestic IC demand has been in the world first, plus the China State Council 4th documents provide a very good policy environment, will further encourage and foster the development of domestic semiconductor industry, to bring us a broad space for development. In addition, the domestic design company has developed quite rapidly in recent years, localization of the industrial chain has brought us a lot of good opportunities. "At present, we already have 30% of sales revenue from mainland China, which will continue to grow in the future," he noted, according to the company's focus on high-growth markets, commitment to customer and market-oriented strategy, SMIC since 2009 in the mainland region, the average growth rate of 25%.

On the question of capital expenditure and technology upgrading, Chiu that "the basic principle of our technology research and development is to meet customer demand, and strive to provide reliable technology on time according to customer's demand." "He introduced," we expect at the end of 2013, completed 32nm/28nm full process development work, and into small batch trial production, 20nm node of the Prophase development work has been fully launched, in 2013, the company will continue to strengthen the close cooperation with local customers, the development of a differentiated advantage of technology and IP, To become the preferred generation factory for local customers, "Chiu said," I believe that the company's continued investment in technology research and development will play an important role in the follow-up of the company, but also to improve the profitability of the company to provide a guarantee. "SMIC focuses on professional applications that do not require the most advanced production processes, and services are unique, and these platforms are maturing so that SMIC can provide more cost-sensitive applications to emerging market supply chains, thus avoiding commercial competition." Credit Suisse's research report points out.

As the largest chip foundry company in mainland China, the 12 of SMIC's development led to the development of local semiconductors in China. Chiu that China's IC generation industry is expected to account for 2015 of the world's 1/3. "The company is on the verge of bankruptcy, rising to the top ten foundry companies in the world, encouraging mainland semiconductor workers to have the confidence of the successor." "Chiu said.