“Science and Technology Innovation Board Daily”, May 10 (Reporter Guo Hui) “The integrated circuit industry as a whole was recovering in the first quarter. Customer inventories gradually improved. Compared with the situation three months ago, the company saw an increase in the willingness of global customers to prepare goods, dealing with the uncertainty of the market environment with inventory certainty.” At the results conference call held by SMIC today (May 10), the company's co-CEO Zhao Haijun said so.

Zhao Haijun said that looking at the domestic market, some customers have gained more market share, so they need to “drop the bag for safety” by pulling goods in advance, and some customers are also actively preparing inventory with the industry to seize opportunities to meet rapidly changing market demand; while in terms of foreign customers, some customers have raised their inventory to an ideal level in advance due to geopolitical considerations, so they have also prepared goods to a certain extent.

Downstream customers have increased their stocking. Financial reports show that in the first quarter of this year, SMIC's capacity utilization rate was 80.8%, an increase of 4 percentage points over the previous quarter. In addition, sales revenue for the first quarter was 1.75 billion US dollars, up 4.3% from the previous quarter, and has achieved four consecutive quarters of growth; 1.79 million 8-inch equivalent wafers were shipped in the first quarter, an increase of 7% over the previous quarter.

Zhao Haijun revealed at the performance conference that in the first quarter of this year, SMIC received some express orders. Some production lines were close to full load and were unable to fully meet all orders, so priority was given to guaranteeing express orders related to market share (that is, consumer electronics such as mobile phones), and after coordination with customers, the delivery time of computer and tablet products was delayed backwards. Demand for other standard products is generally relatively stable.

In terms of OEM prices, as new production capacity in mainland China continues to be launched, competition in the industry is becoming more and more intense, and prices for bulk products are on the market. Zhao Haijun said that at present, SMIC's price is constrained by two factors: first, the overall production capacity of SMIC's 12-inch production line has been at full capacity since February, and when some orders cannot be completed, this part of the price will be relatively stable; second, in the face of industry competition, SMIC will also choose to follow the market and launch with customers, face market competition with customers, prioritize customer market share, and are usually standard products, such as display drivers, CMOS image sensors, etc.

Zhao Haijun mentioned that in contrast to some 12-inch production capacity being in short supply, 8-inch production is still at a low point, and it is expected that the industry will not return to a healthy level until the middle of next year. “Since the 8-inch cable is a small number of diverse products, it is not very price sensitive, so there will be no continuous price reduction.”

“It is expected that the 12-inch production line will continue to be fully loaded for some time. As Youshang continues to expand production capacity for products of the same type, it is not ruled out that the price of standard products will drop further in the future, but the impact of the price reduction of standard products is also expected to be diluted by other products that do not reduce prices.” That's what Zhao Haijun said.

Looking ahead to the second quarter of this year, Zhao Haijun said that it can be seen that demand for early delivery from some customers continues, and shipments are expected to continue to rise. The company has offset the impact of price cuts by reducing costs and increasing efficiency, but with the expansion of production capacity, depreciation is rising from quarter to quarter, and gross margin is expected to decline sequentially.

Specifically, when it comes to downstream markets and applications, first, the international consumer market is recovering. Low-power Bluetooth, MCU and other products that haven't been delivered for a long time are now being ordered, and there are many urgent orders; secondly, this year is a sports year, and sales of set-top boxes and TV products are picking up; furthermore, in the smartphone market — especially Chinese mobile phone manufacturers, this year, they have set up production capacity one after another, and production capacity is in short supply.

“Revenue in the first quarter surpassed the guidelines, and is expected to continue to grow in the second quarter. Therefore, the first half of the year is expected to increase by 20% compared to the same period. However, the company is still carefully and closely observing whether customers overdraft demand in the second half of the year ahead of schedule; the second half of the year has not yet fully understood.” Zhao Haijun said.

According to the revenue guidance given by SMIC, the second quarter is expected to increase by 5% to 7% month-on-month. For the whole year, without significant changes in the external environment, the company aims to increase sales revenue above the average of comparable peers.

SMIC is currently at a stage where it continues to invest heavily and expand its 12-inch high-quality production capacity. Zhao Haijun said that with the release of chip production capacity and the rise in revenue scale, the corresponding depreciation pressure will exist for some time to come. The Q2 gross margin guideline is between 9% and 11%. “It takes time for new construction projects to bring economic benefits on an economic scale. This is an industry law.”