SMIC China posts 80% drop in profit in third quarter
BEIJING, CHINA – DECEMBER 04: A logo hangs on the building of the Beijing branch of Semiconductor Manufacturing International Corporation (SMIC) on December 4, 2020 in Beijing, China. (Photo by VCG/VCG via Getty Images)
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China’s largest chip maker SMIC on Thursday posted an 80% drop in profit in the third quarter as weakness in global demand hit refineries hard.
Net income for the quarter ended in September fell 80% compared to a year ago – more than the 64% drop posted in the second quarter of 2019, according to company figures.
Here are SMIC’s third-quarter results compared to LSEG’s consensus estimates:
- Income: $1.621 billion, compared to $1.625 billion
- Net income: $93.98 million, vs $165.1 million expected
SMIC, or Semiconductor Manufacturing International Co., posted revenue of $1.62 billion in the third quarter of the year, down 15% year over year. Net income for the period was $93.98 million, well below analysts’ expectations of $165.1 million.
SMIC is China’s largest foundry, manufacturing semiconductor chips that other companies design. The company is seen as a key hope in Beijing’s ambitions to boost its domestic semiconductor industry and catch up with rivals such as Taiwan’s TSMC and South Korea’s Samsung – even as the US continues to ban technology China’s chip manufacturing and exporting.
“In the Chinese market, the high product inventory problem that started in the third quarter of last year has been mitigated and the inventory has decreased to a very healthy level,” SMIC said in its earnings call on Friday morning.
“But American and European customer deposits – they will remain at historically high levels,” the company said.
A continued decline in demand for some chips that go into consumer products, such as memory, has hurt SMIC, as well as the likes of its Asian rivals TSMC and Samsung.
Consumers have been cutting back on purchases of consumer goods as inflation has risen. As a result, smartphone and PC makers have been grappling with excessive chip inventories and prices for memory chips have fallen.
SMIC, which also makes automotive chips, said that investments for such chips “are now at a very high level after short supply for three years” and this has led major customers “to – tighten their orders.”
“After more than one year of ups and downs in the market, buyers have experienced the shift from aggressive expansion two years ago to defensive this year,” SMIC said.
Data from the Semiconductor Industry Association said global semiconductor sales for September increased 1.9% compared to a month ago, showing signs of chip recovery. Globally, September sales fell 4.5% from a year ago.
“Global semiconductor sales increased month-on-month for the seventh consecutive time in September, confirming the positive trend that the chip market has had in the middle of this year,” said John Neuffer, president and CEO of Semiconductor Industry Co.
“The long-term outlook for semiconductor demand remains strong, with chips enabling a variety of products that the world depends on and giving rise to new, transformative technologies of the future,” said Neuffer.
SMIC has been in the spotlight for an “advanced” 5G chip in Chinese tech giant Huawei’s new smartphone launched in September.
The US has imposed sanctions on Huawei and SMIC.
In 2019, Huawei was placed on the US trade blacklist, which prevents American companies from doing business with the Chinese company. The US also restricted Huawei’s access to foreign-made semiconductors made with US technologies, and banned its organizations from receiving Huawei equipment or services.
SMIC was also placed on a US trade blacklist in 2020, limiting its ability to acquire US-specific technology by requiring exporters to apply for a sales license to the company.
In a blow to US sanctions, a teardown of Huawei’s latest Mate 60 Pro smartphone has revealed an SMIC-made Kirin 9000s chip that appears to support 5G despite US efforts to cut Huawei from key technologies including 5G chips.
The advanced 7-nanometer processor in Huawei’s new phone showed that China is seeing early progress in building self-reliance in science and technology as it pushes past US efforts to contain Beijing’s rise . Analysts previously said that SMIC technology is several generations behind TSMC and Samsung.
Last year, Washington introduced sweeping export restrictions aimed at cutting China off from advanced chip technology and equipment. These curves have cut SMIC off from major chip-making machines to make the most advanced semiconductors.
SMIC said it expects revenue in the fourth quarter to rise 1% to 3% from the third quarter.