SMIC's Q2 revenue hits record high, and raises full-year revenue growth and gross profit margin targets

On August 5, SMIC released its second quarter 2021 financial report, with quarterly revenue hitting a new high of US$1.344 billion, a month-on-month increase of 21.8% and a year-on-year increase of 43.2%.

In the second quarter of this year, SMIC's gross profit reached US$405 million, a 61.9% increase from the previous quarter and a 62.9% increase from the previous year. In addition, the gross profit margin also increased significantly from 22.7% in the first quarter to 30.1%.

It is worth mentioning that SMIC's second quarter financial report also revealed two key pieces of information. First, at a time when global chip production capacity is tight, SMIC's revenue share from mainland China and Hong Kong, China in the second quarter increased from 55.6% in the previous quarter to 62.9%; second, SMIC's 28nm and FinFET process revenue contribution ratio rebounded. After falling to 6.9% in the previous quarter due to external factors, it quickly rebounded to 14.5% in the second quarter of this year.

Financial report details

SMIC's monthly production capacity in the second quarter increased from 540,800 8-inch equivalent wafers in the previous quarter to 561,500, mainly due to the expansion of 8-inch wafer fab capacity in the second quarter. Sales of wafers (8-inch equivalent) in the second quarter reached 1.7452 million, a month-on-month increase of 12.0% and a year-on-year increase of 21.6%. Since the capacity utilization rate is calculated by dividing the total equivalent output wafers by the estimated quarterly capacity, SMIC's capacity utilization rate in the second quarter reached an astonishing 100.4%.

In the second quarter, SMIC's revenue by application accounted for 31.6% of smartphones, 12.4% of smart homes, 25.1% of consumer electronics, and 30.9% of others. In terms of service type, wafer foundry still accounts for a very high proportion of 91.7%, while mask manufacturing, wafer testing and others account for 8.3%.

Looking at the revenue contribution of each region, revenue from mainland China and Hong Kong, China still accounts for more than half, reaching 62.9% this quarter; Eurasia accounts for 13.8%, while North America's share has dropped from 16.7% in the first quarter of this year to 13.8%.

By process classification, the revenue contribution of 28nm and FinFET processes has increased to 14.5%, and the revenue contributions of other processes are 150/180nm (28.4%), 55/65nm (29.9%), 40/45nm (14.9%), 110/130nm (5.9%), 250/350nm (3.2%), and 90nm (3.2%).

SMIC's capital expenditure in the second quarter of this year was US$771 million, compared with US$534 million in the first quarter. The capital expenditure planned for the whole year of 2021 is about US$4.3 billion, most of which will be used for the expansion of mature processes, a small part will be used for advanced processes, civil engineering of the new joint venture project in Beijing, and others.

Steadier pace, higher goals

SMIC co-CEOs Zhao Haijun and Liang Mengsong pointed out in the financial report that since being included in the Entity List last year, SMIC has been moving forward in difficulties. In terms of operational continuity, the company actively cooperates with suppliers to ensure that its commitments to customers are fulfilled, and the uncertainty risks of mature processes are further reduced. In terms of capacity expansion, SMIC is still advancing as planned, but uncontrollable factors such as license approval, shortage of industrial chain, and logistics caused by the epidemic have inevitably affected the arrival time of equipment. The company will do its best to optimize the internal procurement process, speed up the efficiency of capacity installation, strive to shorten the procurement cycle as much as possible, and reach production as soon as possible.

Zhao Haijun and Liang Mengsong emphasized: "We understand that everyone has high expectations for SMIC, but there is no such thing as overtaking on a curve or advancing by leaps and bounds in the integrated circuit manufacturing industry. The company will take one step at a time, grasp its advantages in its niche areas, improve its core competitiveness, and enhance customer satisfaction."

SMIC's Chief Financial Officer Gao Yonggang also said that the company's financial indicators in the second quarter were all better than expected. Although there is a certain degree of uncertainty in the expectations of various indicators due to the impact of the Entity List, the company will actively work hard to solve the problems, do its utmost to ensure operational continuity and performance improvement, and better return to shareholders.

Looking ahead, Gao Yonggang expects the company's sales revenue in the third quarter to grow by 2% to 4% month-on-month, and the gross profit margin is expected to be between 32% and 34%. Based on the performance in the first half of the year and the outlook for the second half of the year, under the premise of a relatively stable external environment, the company's full-year sales revenue growth target and gross profit margin target have been raised to around 30%. Due to depreciation dilution, it is expected that the adverse impact of advanced processes on the company's overall gross profit margin this year will drop to around five percentage points.