Semiconductor Manufacturing International Corporation (688981.SH) said at an earnings presentation on Aug. 12 that the biggest inventory adjustment was seen in smartphones, where smartphone terminal companies do not need to purchase additional chips because they still have a lot of inventory, Zhitong Financial APP learned. The company's requirements for gross profit margin, the company said is to follow the market, the entire industry and customer development needs. In terms of price, the company said that the prices of large-screen display driver chips and smartphone-related chips, such as CIS chips and fingerprint identification chips, will decline, the prices of other products will remain stable, and the prices of long-term contract products will not change. For capital expenditure in the next few years, the company will not change its long-term production capacity expansion, development and construction plan, and the investment intensity should remain stable.
According to Semiconductor Manufacturing International Corporation, the largest inventory adjustment seen so far is in the smartphone sector, where sales fell 17% in the first half of 2022, mainly from April to May, according to public data. Smartphone terminal companies still have a lot of inventory, so they don't need to buy additional chips. In the consumer sector, prices in this area have been greatly affected because there is a lot of capacity in the supply chain to supply large panel display driver chips. Demand for other areas, such as industry, automotive, high-end analog and high-end connectivity, is still very strong. Demand from leaders in all areas remains strong. Overseas markets have recovered since last year, so demand is increasing.
The impact of industry cycle adjustment on capacity utilization, the company believes that the first is to look at the end of this year, near the end of this year, terminal company decision-makers will make plans for next year, if the plan for next year is optimistic, they will begin to prepare more inventory and place orders. The second is to see whether overall demand recovers in February next year, depending on the overall economic situation. The company's capacity utilization in the third quarter will be relatively close to that in the second quarter, at a relatively high level, and it is not very clear to see the fourth quarter. The downward cycle puts more pressure on the company's new factory. There are many long-term factories, nodes, product platforms and customers, while the new factory customers have verified fewer products.
In the downward cycle, the company's requirements for gross profit margin are in line with the development needs of the market, the whole industry and customers. for example, the company has set up a factory and is expected to run for more than 20 years after it is built. during this period, there will be a peak season, when the gross margin is very good, as well as the off-season, investment at different time points actually has little impact on the development of the whole 20 years.
In terms of price, the prices of large screen display driver chips and smartphone-related chips, such as CIS chips and fingerprint identification chips, will decline, the prices of other products will be relatively stable, and the pricing of long-term contract products will not change.
With regard to capital expenditure in the next few years, the company believes that the logic of domestic local foundry will remain unchanged for a long time, and there are great prospects for the development of the world's semiconductor industry, especially China's domestic contract industry in the medium to long term. The company does not change the long-term production capacity expansion development and construction plan, the investment intensity should remain stable.
"Quick freeze" each fab faces a different situation. At present, there are many display driver chips, TCON, power management, Wifi in large screen TV, and fingerprint identification, CIS, display driver chips needed in smart phones. For example, mobile phone manufacturers had expected higher targets, but in recent months there has been less demand and more inventory on hand, so they now take only half or 1/3 of their products when they go to the market to get their products. As a result, the inventory of the intermediate design company is very high, and the intermediate company will ask the contract factory not to go offline again, and the transmission of this process has magnification, which is called quick freezing and emergency stop.
The company believes that there are two critical points in time: one is that by the end of 2022, terminal customers will have to make revenue plans for 2023, and they will also predict the production of mobile phones and televisions and how much inventory they need; the other is around February 2023. At that time, we can see the overall macroeconomic trend, and the end customers will adjust the annual plan according to the overall economic situation. So the end of this year and February of the next year is an observation period, and now it is the period of sudden stop of digestive quick freezing.
"healthy capacity utilization" each company has different standards for the healthy level of capacity utilization. On the whole, the company believes that it must be higher than 90% of capacity utilization, which is a relatively healthy level.
The company has mentioned that the doubling of total production capacity by 2025 is based on two considerations. One consideration is that the company's market share in the global generation industry is only 5%, which is very small, and the relationship between supply and demand in the whole industry will not be affected by the company's capacity growth. The second is the company's existing customer volume and the company's newly developed platforms and areas, it is estimated that even if this goal is achieved, it will not be able to fully meet the development needs. As to whether capital expenditure will increase or decrease a little in the coming year, it is too early to answer.
As contract liabilities rose by $500 million in the second quarter, the investment is concerned about whether some new orders are long-term contracts and whether they will face a quick freeze. The company said that those who signed long-term contract prepayments with the company thought they had great potential or were the current leaders in the industry. Now it seems that these places have not been greatly affected, and they are being carried out in accordance with the signed contracts, orders, and prices. Long-term cooperation is very good for the future development of the company, can lock in the future part of the price and production capacity, there will not be too much risk. The advance payment part of the long contract has been carried out very well.