Hong Kong-listed shares of Semiconductor Manufacturing International Corp. (SMIC) fell in morning trade as the chip maker reported a decline in profits and margins amid sluggish demand. The company’s Shanghai-listed shares also experienced a significant drop.
Share Declines
The chip maker’s Hong Kong-listed shares declined by 6.6% early on Friday, ultimately falling 4.1% to 22.45 Hong Kong dollars (US$2.87). Similarly, its Shanghai-listed shares dropped by 3.1% to 55.23 yuan (US$7.58).
Third-Quarter Performance
SMIC’s third-quarter performance reflected a notable decrease in net profit when compared to the previous year. According to an exchange filing from the Shanghai-based foundry, their net profit for the quarter fell by 80% to $94.0 million. This figure deviated significantly from the $184.0 million that analysts had expected, according to a FactSet poll.
Additionally, SMIC reported a decline in revenue for the third quarter, capturing only $1.62 billion as compared to $1.91 billion during the same period last year. This result fell short of both consensus views and the company’s own guidance, which projected approximately $1.96 billion to $2.00 billion in revenue.
Gross Margin Decrease
Another worrying trend seen in SMIC’s third-quarter results was the significant decrease in gross margin. The company’s gross margin fell to 19.8% from 38.9% the previous year.
Lack of Market Growth
During an earnings call following the release of the results, Zhao Haijun, SMIC’s co-chief executive, expressed disappointment with the lack of projected growth in chip demand.
“We haven’t seen drivers and momentum for significant growth in the market,” Haijun commented during the call.
SMIC Raises Capex Forecast for 2023, Expects Market Stabilization in 2024
After facing weak demand and supply-chain issues in the chip-making industry, Semiconductor Manufacturing International Corporation (SMIC) is optimistic about the future. The company anticipates market stabilization in 2024 and has plans to enhance its capacity.
Despite earlier expectations of flat spending compared to the $6.35 billion allocated in 2022, SMIC has now raised its capex forecast for the year to around $7.5 billion. The majority of these funds will be dedicated to expanding capacity and developing new infrastructure for semiconductor fabrication plants.
SMIC’s CEO, Zhao Haijun, cites supply-chain improvements as one of the reasons for the capex increase. He suggests that geopolitical issues no longer pose a significant threat to their supply chain, indicating a substantial increase in equipment flow to fab facilities by year-end.
An analyst from Kaiyuan Securities, Liu Xiang, notes in a research report that SMIC’s consistent investment in production capacity reflects their confidence in the industry and its potential for future growth.
While SMIC expects a 1% to 3% growth in fourth-quarter revenue compared to the previous quarter, the company acknowledges that its gross margin will be affected by the addition of new capacity.
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