BEIJING, CHINA – DECEMBER 04: A logo hangs on the Beijing branch building of Semiconductor Manufacturing International Corporation (SMIC) on December 4, 2020 in Beijing, China. (Photo by VCG/VCG via Getty Images)
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Semiconductor Manufacturing International Corporation on Friday warned of intense competition in the chip industry after first-quarter earnings missed expectations.
“Competition in the industry is increasingly intense and commodity pricing basically follows market trends,” SMIC said Friday during the company’s earnings call.
“The company fulfills its obligations [long-term view] through building quality technology platforms that jump here in mainland China by one to two generations,” said SMIC.
SMIC, China’s largest contract chip maker, is seen as critical to Beijing’s ambitions to reduce foreign dependence in its domestic semiconductor industry as the US continues to curb China’s technological might. SMIC lags behind Taiwan TSMC and South Korea’s Samsung Electronics, according to analysts.
The company’s first quarter net incomee fell 68.9% from last year to $71.79 million, compared to LSEG’s average analyst estimate of $80.49 million.
Gross margin fell to 13.7% quarter – the lowest the company has seen in nearly 12 years – according to LSEG data.
Revenue for the first quarter was $1.75 billion, up 19.7 percent from a year earlier, as customers stocked up on chips, SMIC said. That easily beat LSEG’s estimate of $1.69 billion.
“In the first quarter, the I.K [integrated circuits] The industry was still in the recovery stage and customer inventory gradually improved. Compared to three months ago, we have noticed that our customers worldwide are more willing to build inventory,” SMIC said on Friday.
Customers are stockpiling to prepare for competition and meet market demand, the company said, adding that it was unable to fulfill some rush orders in the first quarter as some production lines were operating at near maximum capacity.
SMIC’s chips are found in cars, smartphones, computers, IoT technologies and more. More than 80% of its revenue in the first quarter came from customers in China, it said.
Preparation for competition
In a bid to boost competitiveness and increase market share, the company said it is prioritizing areas such as capacity building and R&D activities for investment.
“[To] ensure that the company maintains its leading position in the intense market competition and maximizes the protection of investors’ interests… the company plans to pay no dividends for the year 2023,” SMIC said.
“We believe that as long as there is customer demand along with our technology and readiness, we can ultimately be bigger, better and stronger despite intense competition.”
The company expects second-quarter revenue to rise 5% to 7% from the first quarter on strong demand, while gross margin could further decline to between 9% and 11%.
“Along with the scale-up of production capacity, depreciation is expected to increase quarter-on-quarter. Therefore, gross margin is expected to decline sequentially,” SMIC said.