Net profit surged by 398.5%, and SMIC’s capacity utilization rate reached 100.4% in Q2.

On August 6, SMIC released its latest financial report, which showed that its second-quarter results significantly exceeded expectations, with both revenue and net profit reaching new highs.

Second-quarter net profit surged by 398.5%.

It was disclosed that SMIC’s second-quarter sales revenue reached US$1.344 billion, up 21.8% quarter-on-quarter and 43.2% year-on-year. The company achieved a net profit of US$688 million, representing a quarter-on-quarter increase of 332.9% and a year-on-year increase of 398.5%. Meanwhile, the gross margin rose from 22.7% in the previous quarter to 30.1%.

△Source: Screenshot of SMIC’s announcement

By region, the financial report shows that in the second quarter, SMIC’s revenue from Mainland China and Hong Kong increased significantly, rising from 55.6% in the first quarter to 62.9%. Meanwhile, the proportion of revenue from North America, Europe, and Asia declined slightly, falling from 27.7% and 16.7% in the previous quarter to 23.3% and 13.8%, respectively.

From the perspective of application categories, in the second quarter, SMIC’s revenue from consumer electronics saw a significant increase, rising from 20.4% in the previous quarter to 25.1%. Meanwhile, the proportion of revenue from smartphones and smart home devices declined slightly, dropping from 35.2% and 13.9% in the previous quarter to 31.6% and 12.4% this quarter, respectively.

△Source: Screenshot of SMIC’s announcement

By technology node, SMIC’s revenue contribution from FinFET/28-nanometer processes surged to 14.5% in the second quarter, up from just 6.9% in the first quarter. Revenue contributions from other process nodes were as follows: 40/45 nanometers (14.9%), 55/65 nanometers (29.9%), 90 nanometers (3.2%), 0.11/0.13 microns (5.9%), 0.15/0.18 microns (28.4%), and 0.25/0.35 microns (3.2%).

Capacity utilization reached 100.4%.

Currently, amid the global chip shortage, SMIC has continued to expand its production capacity and ultimately achieved full capacity utilization in the second quarter.

In the second quarter, SMIC sold a total of 1.7452 million wafers (equivalent to 8-inch wafers), an increase of 12.0% quarter-on-quarter and a year-on-year growth of 21.6%.

In terms of production capacity, the financial report shows that SMIC’s monthly production capacity has increased from 541,000 8-inch equivalent wafers in the first quarter of 2021 to 562,000 8-inch equivalent wafers in the second quarter. SMIC stated that this increase was primarily driven by the expansion of its 8-inch wafer fabrication capacity in the second quarter.

△Source: Screenshot of SMIC’s announcement

As for capacity utilization, calculated by dividing the total equivalent wafer output by the estimated quarterly capacity, SMIC’s capacity utilization rate in the second quarter rose from 98.7% in the previous quarter to an astonishing 100.4%. This means that SMIC has already achieved full-load operations.

During the second-quarter earnings call, Zhao Haijun, Co-CEO of SMIC, also stated, “Our FinFET process has reached full production capacity—15,000 wafers per month—and our customer base is diversified, with various product platforms now adopting this technology. (This portion of) capacity is in high demand, and customers continue to come on board.”

Dr. Zhao Haijun and Dr. Liang Mingsong, Co-CEOs of SMIC, stated: “Since being added to the Entity List last year, SMIC has been forging ahead amid significant challenges. In terms of operational continuity, we have actively collaborated with our suppliers to ensure that our commitments to customers are fulfilled, and the uncertainty risks associated with mature processes have also been further reduced.”

The supply-demand imbalance persists.

As the largest wafer foundry in mainland China, SMIC currently operates a total of seven fab facilities (four 12-inch fabs and three 8-inch fabs).

However, under the backdrop of a complex international situation and the impact of the COVID-19 pandemic, SMIC’s production capacity still falls short of alleviating the chip shortage.
To this end, over the past two years, SMIC has accelerated its capacity expansion. Since 2020, it has successively announced several expansion plans, including increasing the 12-inch chip production capacity at SMIC South, and building two new 12-inch wafer fabs—SMIC Beijing and SMIC Shenzhen.

In July of this year, SMIC disclosed on its investor interaction platform that, in order to meet the growing demand from customers and in line with the company’s capital expenditure plan for this year, it plans to expand its production capacity by adding 10,000 12-inch wafers and 45,000 8-inch wafers.

△Source: Screenshot from the Investor Interaction Platform

The latest news is that SMIC announced at its earnings conference call that semiconductor manufacturers are currently experiencing relatively slow capacity expansion and delivery delays, and the supply-demand imbalance is expected to persist at least through the first half of 2022. SMIC also stated that the total production capacity of its newly expanded 12-inch fab in Beijing and its Shenzhen fab will double compared to the current capacity of the Beijing 12-inch fab.

SMIC further pointed out that, in terms of capacity expansion, we are still proceeding according to plan. However, uncontrollable factors such as permit approvals, shortages in the industrial chain, and logistics disruptions caused by the pandemic have inevitably affected equipment delivery schedules. The company will do its utmost to optimize internal procurement processes and accelerate the efficiency of capacity installation, striving to shorten the procurement cycle as much as possible and achieve full production at an early date.

In addition, SMIC expects that in the coming period, capacity for certain technology nodes in specific niche markets will become increasingly tight, and product prices will remain stable or continue to rise—for example, the 55nm and 40nm processes required for products used in electric vehicles and industrial applications.