Matters:
On August 9, 2024, SMIC released the 2024Q2 report and held a performance briefing.
Commentary:
1. Performance: 24Q2 achieved operating income of 1.901 billion dollars (QoQ +8.63%, YoY +21.85%), higher than the previous guidance (24Q2 revenue is expected to increase 5-7% month-on-month); 24Q2's gross margin was 13.9% (QoQ+0.2pct, YOY-6.4pct), higher than the previous guidance (9-11%).
2. Revenue structure: 1) By region (2023Q2→2024Q1→2024Q2): China: 79.6%
→ 81.6% → 80.3%; US region: 17.6% → 14.9% → 16.0%; Eurasia: 2.8% → 3.5% → 3.7%. Due to geopolitical considerations and responding to the needs of the Chinese market, some overseas customers needed to establish inventory to stabilize their market share, so they pulled some products in the second half of the year to the beginning of the first half of the year, so the share of overseas customer revenue increased. 2) By business situation (2023Q2→2024Q1→2024Q2): Smartphones: 26.8% → 31.2% → 32.0%; computers and tablets:
23.8% → 17.5% → 13.3%; Consumer electronics: 26.5% → 30.9% → 35.6%; Internet wear: 11.9% → 13.2% → 11.0%; Industrial and automotive: 11.0% → 7.2% → 8.1%.
3. Company demand situation: 1) With the gradual recovery of mid-range and low-end consumer electronics, every link in the industry chain, from design companies to terminal manufacturers, in order to seize the opportunity to seize more market share, the will to raise inventory is higher than in the previous three months. 2) Due to supply chain cuts and changes brought about by geopolitics, some customers were given the opportunity to enter the industrial chain, which also brought new demand to the company. In order to cope with the changing market, customers have increased their requirements for inventory adjustments, and part of the demand is conveyed to the company through early delivery.
4. Company performance guidelines: 1) 2024Q3: The company expects revenue to increase 13%-15% month-on-month in 2024Q3, and gross margin of 18%-20%. Affected by geopolitics, demand for localization has accelerated, causing chip production capacity in several major market areas to be in short supply. The production capacity of 12-inch nodes is very tight, and prices are improving. The company expanded production by 12 inches this year, and the added value is relatively high. The new production capacity has been fully utilized and brought in revenue to promote the optimization and adjustment of the product portfolio. The 24Q3 ASP is expected to increase month-on-month and drive a month-on-month increase in performance.
2) Year-round guidance: Q4 is usually a traditional off-season. The company's attitude is cautious and optimistic, but there is some uncertainty.
Throughout this year, without major changes in the external environment, the company aims to increase sales revenue above the industry average. Sales revenue in the second half of the year is likely to exceed that of the first half. In terms of production expansion, the 12-inch production capacity is expected to increase by about 0.06 million pieces/month by the end of '24 compared to the end of 23.
Risk warning:
Production expansion falls short of expectations, terminal demand falls short of expectations, and trade friction risks.