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NEWS RELEASE
SMIC Reports 2015 Second Quarter Results
All currency figures stated in this report are in US Dollars unless stated otherwise.
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”).
Shanghai, China –August 11, 2015. Semiconductor Manufacturing International Corporation (NYSE: SMI; SEHK: 981) (“SMIC” or the “Company”), one of the leading semiconductor foundries in the world, today announced its consolidated results of operations for the three months ended June 30, 2015.
Second Quarter 2015 Highlights
- Revenue was a record high of $546.6 million in 2Q15, increased 7.2% QoQ from $509.8 million in 1Q15 and increased 6.9% YoY from $511.3 million in 2Q14.
- Gross profit was a record high of $176.4 million in 2Q15, increased 17.7% QoQ from $149.9 million in 1Q15 and increased 23.3% YoY from $143.1 million in 2Q14
- Gross margin was a record high of 32.3% in 2Q15, compared to 29.4% in 1Q15 and 28.0% in 2Q14.
- Profit for the period attributable to SMIC was $ 76.7 million in 2Q15, compared to $55.5 million in 1Q15 and $56.8 million in 2Q14. Excluding the gain of commitment to grant shares and warrants in 2Q10, profit for the period attributable to SMIC was a record high in 2Q15.
- China-region revenue contributed 51.1% of overall revenue in 2Q15, a record high for the Group.
Third Quarter 2015 Guidance:
The following statements are forward looking statements which are based on current expectations and which involve risks and uncertainties, some of which are set forth under “Safe Harbor Statements” below. The Company expects:
- Revenue to increase by 1% to 3% quarter over quarter.
- Gross margin to range from 28% to 30%.
- Non-GAAP operating expenses excluding the effect of employee bonus accrual, government funding and gain from the disposal of living quarters to range from $134 million to $139 million.
- Non-controlling interests of our majority-owned subsidiaries to range from positive $11 million to positive $13 million (losses to be borne by non-controlling interests).
Dr. Tzu-Yin Chiu, SMIC’s Chief Executive Officer and Executive Director, commented, “SMIC has achieved two quarters of consecutive growth in 2015 and we are guiding an additional quarter of growth for the third quarter. With some customers undergoing inventory adjustments, SMIC has successfully ramped up new products keeping our fabs well utilized.
The second quarter of 2015 was our best quarter to date with record-high revenue of $546.6 million and gross margin of 32.3%. In the second quarter shipments and utilization exceeded our expectations, resulting in 7.2% quarter over quarter revenue growth. We achieved a profit attributable to SMIC of $76.7 million, an increase of 38.3% quarter over quarter and 35.0% year over year.
Our China revenue share has continued to increase in the past quarters and in Q2 China-region revenue contributed more than half our revenue for the first time. SMIC is in a key position as the largest and most advanced foundry in China to capture the many opportunities stemming from China.”
Conference Call / Webcast Announcement
Date: August 12, 2015
Time: 8:30 a.m. Shanghai time
Dial-in numbers and pass code:
| China | +86 400-620-8038 | (Pass code: SMIC) |
| Hong Kong | +852 3018-6771 | (Pass code: SMIC) |
| Taiwan | +886 2-2650-7825 | (Pass code: SMIC) |
| United States, New York | +1 845-675-0437 | (Pass code: SMIC) |
The call will be webcast live with audio at http://www.smics.com/eng/investors/ir_presentations.php or http://edge.media-server.com/m/p/ijmh7wth.
An archived version of the webcast, along with an electronic copy of this news release will be available on the SMIC website for a period of 12 months following the webcast.
About SMIC
Semiconductor Manufacturing International Corporation ("SMIC"; NYSE: SMI; SEHK: 981) is one of the leading semiconductor foundries in the world and the largest and most advanced foundry in mainland China. SMIC provides integrated circuit (IC) foundry and technology services at 0.35-micron to 28-nanometer. Headquartered in Shanghai, China, SMIC has a 300mm wafer fabrication facility (fab) and a 200mm mega-fab in Shanghai; a 300mm mega-fab and a second majority owned 300mm fab under development for advance nodes in Beijing; and 200mm fabs in Tianjin and Shenzhen. SMIC also has marketing and customer service offices in the U.S., Europe, Japan, and Taiwan, and a representative office in Hong Kong.
For more information, please visit www.smics.com.
Safe Harbor Statements
(Under the Private Securities Litigation Reform Act of 1995)
This press release contains, in addition to historical information, “forward-looking statements” within the meaning of the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements, including statements under “Third Quarter 2015 Guidance”, “CapEx Summary” and the statements contained in the quotes of our CEO regarding our expectations for our growth and opportunities in China are based on SMIC’s current assumptions, expectations and projections about future events. SMIC uses words like “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “target” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements involve significant risks, both known and unknown, uncertainties and other factors that may cause SMIC’s actual performance, financial condition or results of operations to be materially different from those suggested by the forward-looking statements including, among others, risks associated with the cyclical nature of the semiconductor industry, changes in demand for our products, competition in our markets, our reliance on a small number of customers, orders or judgments from pending litigation, intensive intellectual property lawsuits in semiconductor industry and financial stability in end markets.
Investors should consider the information contained in SMIC’s filings with the U.S. Securities and Exchange Commission (“SEC”), including its annual report on 20-F filed with the SEC on April 28, 2015, especially the consolidated financial statements, and such other documents that SMIC may file with the SEC or The Hong Kong Stock Exchange Limited (“SEHK”) from time to time, including current reports on Form 6-K. Other unknown or unpredictable factors also could have material adverse effects on SMIC’s future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this press release may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this press release. Except as may be required by law, SMIC undertakes no obligation and does not intend to update any forward-looking statement, whether as a result of new information, future events or otherwise.
About Non-Generally Accepted Accounting Principles (“Non-GAAP”) Financial Measures
To supplement SMIC’s consolidated financial results presented in accordance with IFRS, SMIC uses in this press release non-GAAP operating expenses which consist of total operating expenses as adjusted to exclude the effect of employee bonus accrual, government funding and gain from the disposal of living quarters. This earnings release also includes third quarter 2015 guidance for non-GAAP operating expenses. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with IFRS.
SMIC believes that use of these non-GAAP financial measures facilitates investors’ and management’s comparisons to SMIC’s historical performance. The Group’s management regularly uses these non-GAAP financial measures to understand, manage and evaluate the Group's business and make financial and operational decisions.
The accompanying table has more information and reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis.
Summary of Second Quarter 2015 Operating Results
Amounts in US$ thousands, except for EPS and operating data
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| 2Q15 | 1Q15 | QoQ | 2Q14 | YoY |
| Revenue | 546,615 | 509,798 | 7.2% | 511,344 | 6.9% |
| Cost of sales | (370,210) | (359,871) | 2.9% | (368,291) | 0.5% |
| Gross profit | 176,405 | 149,927 | 17.7% | 143,053 | 23.3% |
| Operating expenses | (115,728) | (104,423) | 10.8% | (84,861) | 36.4% |
| Profit from operations | 60,677 | 45,504 | 33.3% | 58,192 | 4.3% |
| Other income (expense), net | 11,943 | 6,125 | 95.0% | (1,105) | - |
| Profit before tax | 72,620 | 51,629 | 40.7% | 57,087 | 27.2% |
| Income tax (expense) benefit | (924) | (54) | 1611.1% | 93 | - |
| Profit for the period | 71,696 | 51,575 | 39.0% | 57,180 | 25.4% |
| Other comprehensive income: |
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| Exchange differences on translating foreign operations | 397 | (400) | - | (858) | - |
| Change in value of available-for-sale financial assets | (1,006) | 1,451 | - | - | - |
| Total comprehensive income for the period | 71,087 | 52,626 | 35.1% | 56,322 | 26.2% |
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| Profit for the period attributable to: |
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| SMIC | 76,704 | 55,477 | 38.3% | 56,801 | 35.0% |
| Non-controlling interests | (5,008) | (3,902) | 28.3% | 379 | - |
| Profit for the period | 71,696 | 51,575 | 39.0% | 57,180 | 25.4% |
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| Gross margin | 32.3% | 29.4% | - | 28.0% | - |
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| Earnings per ordinary share(1) Basic | 0.00 | 0.00 |
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| Diluted | 0.00 | 0.00 |
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| Earnings per ADS(2) Basic | 0.10 | 0.08 |
| 0.09 |
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| Diluted | 0.10 | 0.07 |
| 0.08 |
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Wafers shipped (in 8” equivalent wafers) | 731,730 | 692,131 | 5.7% | 648,764 | 12.8% |
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| Capacity utilization(3) | 102.1% | 99.7% | - | 94.6% | - |
Note:
(1) Based on weighted average ordinary shares of 37,192 million (basic) and 41,572 million (diluted) in 2Q15, 35,877 million (basic) and 40,181 million (diluted) in 1Q15, and 32,766 million (basic) and 35,291 million (diluted) in 2Q14.
(2) Each ADS represents 50 ordinary shares.
(3) Based on total equivalent wafers out divided by estimated total quarterly capacity.
- Revenue increased 7.2% QoQ from $509.8 million in 1Q15 to $546.6 million in 2Q15 mainly because of an increase of wafer shipments in 2Q15.
- Cost of sales was $370.2 million in 2Q15, up 2.9% QoQ from $359.9 million in 1Q15.
- Gross profit was $176.4 million in 2Q15, an increase of 17.7% QoQ from $149.9 million in 1Q15.
- Gross margin was 32.3% in 2Q15, up from 29.4% in 1Q15, primarily due to an increase in fab utilization in 2Q15.
- Operating expenses were $115.7 million in 2Q15, an increase of 10.8% QoQ from $104.4 million in 1Q15, mainly due to the reasons stated in Operating Expenses (Income) Analysis below.
Analysis of Revenue
| Revenue Analysis |
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| By Application | 2Q15 | 1Q15 | 2Q14 |
| Computer | 4.5% | 3.6% | 2.8% |
| Communications | 49.4% | 44.2% | 41.4% |
| Consumer | 37.7% | 46.3% | 48.0% |
| Others | 8.4% | 5.9% | 7.8% |
| By Service Type | 2Q15 | 1Q15 | 2Q14 |
| Wafers | 95.4% | 96.3% | 95.4% |
| Mask making, testing, others | 4.6% | 3.7% | 4.6% |
| By Customer Type | 2Q15 | 1Q15 | 2Q14 |
| Fabless semiconductor companies | 72.7% | 81.3% | 85.2% |
| Integrated device manufacturers (IDM) | 2.7% | 2.5% | 3.0% |
| System companies and others | 24.6% | 16.2% | 11.8% |
| By Geography | 2Q15 | 1Q15 | 2Q14 |
| North America | 32.0% | 41.1% | 42.0% |
| China(1) | 51.1% | 47.0% | 44.4% |
| Eurasia(2) | 16.9% | 11.9% | 13.6% |
| Wafer Revenue Analysis |
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| By Technology | 2Q15 | 1Q15 | 2Q14 |
| 40/45 nm | 15.3% | 16.0% | 13.2% |
| 55/65 nm | 25.2% | 26.1% | 26.3% |
| 90 nm | 4.8% | 4.6% | 3.4% |
| 0.13 µm | 10.9% | 10.2% | 12.1% |
| 0.15/0.18 µm | 39.9% | 39.7% | 40.2% |
| 0.25/0.35 µm | 3.9% | 3.4% | 4.8% |
Note:
(1) Including Hong Kong, but excluding Taiwan
(2) Excluding China and Hong Kong
Capacity*
| Fab / (Wafer Size) | 2Q15 | 1Q15 |
| Shanghai Mega Fab (8”) | 99,000 | 97,000 |
| Shanghai 12-inch Fab (12”) | 31,500 | 31,500 |
| Beijing Mega Fab (12") | 83,250 | 81,000 |
| Tianjin Fab (8") | 42,000 | 42,000 |
| Total monthly wafer fabrication capacity** | 255,750 | 251,500 |
Note:
* Wafers per month at the end of the period in 8” equivalent wafers, calculated on a 30-day basis for comparison purposes
**Our new 8-inch fab in Shenzhen and 12-inch fab in Beijing have reached an installed capacity of 10,000 and 600 wafers per month but not entered into mass production at the end of 2Q15.
- Monthly capacity increased to 255,750 8-inch equivalent wafers in 2Q15 from 251,500 8-inch equivalent wafers in 1Q15, primarily due to an increase of fab efficiency in our Shanghai 8-inch fab and Beijing 12-inch fab.
Shipment and Utilization
| 8” equivalent wafers | 2Q15 | 1Q15 | QoQ | 2Q14 | YoY |
| Wafer shipments | 731,730 | 692,131 | 5.7% | 648,764 | 12.8% |
| Utilization rate(1) | 102.1% | 99.7% | - | 94.6% | - |
Note:
(1) Based on total equivalent wafers out divided by estimated total quarterly capacity.
Detailed Financial Analysis
Gross Profit Analysis
| Amounts in US$ thousands | 2Q15 | 1Q15 | QoQ | 2Q14 | YoY |
| Cost of sales | 370,210 | 359,871 | 2.9% | 368,291 | 0.5% |
| Depreciation | 95,942 | 100,929 | -4.9% | 106,236 | -9.7% |
| Other manufacturing costs | 272,552 | 257,708 | 5.8% | 260,365 | 4.7% |
| Share-based compensation | 1,716 | 1,234 | 39.1% | 1,690 | 1.5% |
| Gross profit | 176,405 | 149,927 | 17.7% | 143,053 | 23.3% |
| Gross margin | 32.3% | 29.4% | - | 28.0% | - |
- Cost of sales was $370.2 million in 2Q15, up 2.9% QoQ from $359.9 million in 1Q15.
- Depreciation within the cost of sales decreased 4.9% to $95.9 million in 2Q15, compared to $100.9 million in 1Q15. The decrease was mainly due to an increase of utilization in our 12-inch fab in 2Q15.
- Other manufacturing costs within the cost of sales increased 5.8% to $272.6 million in 2Q15, compared to $257.7 million in 1Q15.
- Gross profit was $176.4 million in 2Q15, an increase of 17.7% QoQ from $149.9 million in 1Q15.
- Gross margin was 32.3% in 2Q15, up from 29.4% in 1Q15, primarily due to an increase in fab utilization in 2Q15.
Operating Expenses (Income) Analysis
| Amounts in US$ thousands | 2Q15 | 1Q15 | QoQ | 2Q14 | YoY |
| Operating expenses | 115,728 | 104,423 | 10.8% | 84,861 | 36.4% |
| Research and development, net | 55,202 | 53,453 | 3.3% | 45,080 | 22.5% |
| General and administrative | 52,051 | 42,486 | 22.5% | 35,528 | 46.5% |
| Selling and marketing | 9,159 | 9,205 | -0.5% | 9,018 | 1.6% |
| Other operating income | (684) | (721) | -5.1% | (4,765) | -85.6% |
- R&D expenses increased to $55.2 million in 2Q15, compared to $53.5 million in 1Q15. Excluding the funding of R&D contracts from the government, R&D expenses increased by $6.8 million QoQ to $65.6 million in 2Q15. Funding of R&D contracts from the government was $10.4 million in 2Q15, compared to $5.3 million in 1Q15.
- General and administrative expenses increased to $52.1 million in 2Q15, up 22.5% QoQ from $42.5 million in 1Q15, mainly because of 1) the expansion expenses relating to the two new fab projects – the 8-inch fab in Shenzhen and the 12-inch fab in Beijing and 2) accrued employee bonus increased in 2Q15.
Other Income (expense), Net
| Amounts in US$ thousands | 2Q15 | 1Q15 | QoQ | 2Q14 | YoY |
| Other income (expense), net | 11,943 | 6,125 | 95.0% | (1,105) | - |
| Interest income | 956 | 1,369 | -30.2% | 3,021 | -68.4% |
| Finance costs | (2,416) | (5,010) | -51.8% | (8,231) | -70.6% |
| Foreign exchange gains or losses | 4,960 | 120 | 4033.3% | (1,860) | - |
| Other gains or losses, net | 8,592 | 9,621 | -10.7% | 5,399 | 59.1% |
| Share of profits of associates | (149) | 25 | - | 566 | - |
- The change in finance costs was due to 1) the Group’s repayment of some bank borrowings in 1Q15 and 2) more interest expense was capitalized as part of the costs of assets under construction in 2Q15.
- The change in foreign exchange gains or losses was mainly due to an appreciation of RMB against USD in 2Q15. Foreign monetary assets mainly consist of cash and cash equivalent and accounts receivables in RMB. And foreign monetary liabilities mainly consist of loans, accounts payables and other payables in RMB. The Group is in net foreign monetary asset position.
Depreciation and Amortization
| Amounts in US$ thousands | 2Q15 | 1Q15 | QoQ | 2Q14 | YoY |
| Depreciation and amortization | 124,911 | 125,461 | -0.4% | 138,463 | -9.8% |
Liquidity
| Amounts in US$ thousands | 2Q15 | 1Q15 |
| Cash and cash equivalent | 766,165 | 402,378 |
| Restricted cash | 105,791 | 229,500 |
| Other financial assets(1) | 568,886 | 586,047 |
| Trade and other receivables | 489,675 | 454,383 |
| Prepayment and prepaid operating expenses | 37,507 | 38,969 |
| Inventories | 365,332 | 340,889 |
| Total current assets | 2,333,356 | 2,052,166 |
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| Current tax liabilities | 412 | 33 |
| Accrued liabilities | 132,714 | 124,711 |
| Deferred government funding | 62,368 | 65,200 |
| Short-term Borrowings | 119,727 | 192,775 |
| Trade and other payables | 863,210 | 699,467 |
| Total current liabilities | 1,178,431 | 1,082,18 
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