Wed, Feb 08, 2006 page11

• SMIC defies expectations

  THINGS LOOKING UP The Shanghai-based chipmaking company posted a smaller than expected fourth quarter loss of US$15 million mainly thanks to increased orders

  • BLOOMBERG
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  Semiconductor Manufacturing International Corp (SMIC, 中芯), China's biggest chipmaker, posted a smaller-than-expected fourth-quarter loss as increased orders limited price declines.

  The net loss was US$15 million, or US$004.1 per US depositary share, compared with US$11.2 million, or US$003.11, a year earlier, the Shanghai-based company said in an e-mailed statement.

  The chipmaker may post a profit this year and aims to break even by the third quarter, Chief Executive Richard Chang (張汝京) said in a conference call yesterday. An increased demand for dynamic random access memory, or DRAM, chips may raise prices and help the company lift its gross margin, which in the fourth quarter was about a quarter of Taiwan Semiconductor Manufacturing Co's (TSMC, 台積電).

  "Investors may expect DRAM prices to increase in the next three to six months as demand rises," Khiem Do said, who helps manage US$3.4 billion at Baring Asset Management in Hong Kong.

  "There's very little new capacity to make DRAM as prices were depressed until about the end of last year," he said.

  The company's shares were 2.3 percent lower at HK$1.26 (US$0.16) by the 12:30pm break in Hong Kong. The stock has risen 22 percent this year, compared with a 4.2 percent gain in the benchmark Hang Seng Index.

  SMIC's US depositary shares jumped as much as 3.5 percent before they closed at US$8.28, a rise of 2.9 percent in New York on Monday.

  Gross margin, or the percentage of sales left after deducting production costs, in the fourth quarter fell to 12.9 percent from 20.7 percent a year earlier. The company forecast gross margin in the current quarter will be "at the same level" as the fourth. Larger rival TSMC's gross margin rose to 49.1 percent from 44 percent in the third quarter.

  SMIC's revenue and average selling prices for the quarter both gained as a result of rising orders, Chang said in the statement. Sales rose to US$333 million from US$292 million. In the third quarter, SMIC reported a third-quarter loss of US$26.1 million.

  "During the fourth quarter we commenced commercial production for nine new customers, two of whom are among the top fabless companies in the world," Chang, 57, said.

  The company's fourth-quarter sales were equivalent to 13 percent of market leader TSMC's NT$81.16 billion and 39 percent of United Microelectronics Corp's (UMC, 聯電) NT$27.47 billion. UMC, the second-biggest made-to-order chipmaker, is scheduled to report Feb. 14.

  The chipmaker now joins TSMC and Chartered Semiconductor Manufacturing Ltd in beating analysts' estimates on higher demand for chips used in consumer electronics such as Microsoft Corp's Xbox 360 game system.

  In the fourth quarter, SMIC's shipments of 8-inch equivalent wafers rose 23.8 percent from a year earlier to 376,227 units, and from 355,664 units in the previous quarter, it said in the statement. Shipments in the current quarter are likely to rise between 2 percent and 4 percent, the statement said.

  SMIC which produces chips for companies including Infineon Technologies AG and Elpida Memory Inc, makes mostly 8-inch silicon wafers, which are cut into chips used in devices such as mobile phones and personal computers.
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