FAST NEWS: SMIC Forecasts 15% Drop in Fourth-Quarter Revenue

The latest: Semiconductor Manufacturing International Corp. (SMIC)(0981.HK; 688981.SH) said Thursday it expects its revenue will fall 13% to 15% quarter-on-quarter in the fourth quarter, and its gross margin will range from 30% to 32% for the period, much lower than the 38.9% in the third quarter.

Looking up: Benefiting from a small increase in average unit selling prices, the company reported sales of $1.907 billion in the third quarter, up 0.2% quarter-on-quarter and 34.7% year-on-year.

Take Note: The company expects that weak demand from the smartphone and consumer markets, combined with new U.S. export controls, will adversely affect its production and operations, dragging down its sales.

Digging Deeper: As a leading force in China’s drive to build up its chip sector, SMIC has become a lightning rod for U.S. politicians. It was included on the U.S. Commerce Department’s entity list as early as  December 2020, limiting its ability to import American products. In recent months the U.S. has restricted the supply of American semiconductor equipment to Chinese companies even more, barring the export of any equipment needed to make 14-nanometer chips or smaller. Previous restrictions only applied to 10-nanometer or lower technology. The U.S. also enacted a “Chips and Science Act” in August, committing $52.7 billion in subsidies and tax deductions to eligible chipmakers worldwide with the caveat that such companies cannot build manufacturing facilities in China in the next decade. SMIC indicated that it will maintain close communication with its suppliers, while it continues to clarify some definitions in the new rules.

Market Reaction: SMIC’s Hong Kong-traded shares initially rose 3.7% on Friday, but later gave back most of those gains and closed up 0.5% at HK$16.76 by the midday break. The stock currently trades near the lower end of its 52-week range.

Translation by Jony Ho

To subscribe to Bamboo Works free weekly newsletter, click here