"Star Market Daily" news on November 8th (Reporter Guo Hui) - "Consistent with previous observations, in the first half of the year, domestic customers, to compete for market share, built up inventory, while foreign customers, for geopolitical reasons, hedged against market risks, pulling forward shipments from the third quarter to the second quarter. In the third quarter, the net increase in 12-inch shipments filled the decrease in 8-inch shipments, leading to a relatively flat quarter-on-quarter shipment. In terms of prices, with the accelerated rise in localized demand, some 12-inch nodes have good prices, and optimization adjustments to the product mix led to a quarter-on-quarter increase in the average selling price of the company in the third quarter." At the earnings conference held today (November 8th) by Semiconductor Manufacturing International Corporation, the co-CEO Zhao Haijun reviewed the company's operational performance in the third quarter of this year.

Combining the above two factors, Semiconductor Manufacturing International Corporation's revenue in the third quarter increased by 14% quarter-on-quarter, reaching $2.17 billion. This is also the first time that Semiconductor Manufacturing International Corporation's quarterly revenue has exceeded $2 billion, setting a new historical record. At the same time, the comprehensive gross margin in the third quarter rose to 20.5%, an increase of 6.6 percentage points quarter-on-quarter.

Domestic customers entering the high-end product market are expected to have stable revenue in Q1 next year.

In terms of sales revenue by region, China, USA, and the Eurasian region accounted for 86%, 11%, and 3% respectively. Compared to the second quarter, the revenue share of China increased by 6.1 percentage points, while the revenue shares of the USA and Eurasian region decreased quarter-on-quarter.

Zhao Haijun interpreted this as, due to geopolitical considerations and response to the demand from the Chinese market, some overseas customers pulled forward shipments to the second quarter to a certain extent, while Chinese customers gradually entered the high-end product market with accelerated local and export demand, leading to an increase in revenue share. high-end product market. However, Zhao Haijun emphasized that Semiconductor Manufacturing International Corporation's actual sales revenue from overseas customers in Europe and the USA has not decreased in absolute terms.

Zhao Haijun pointed out that in terms of sales revenue to overseas customers in Europe and the USA, Semiconductor Manufacturing International Corporation did not see an absolute decrease.

Taking the European market as an example, despite its overall economic downturn and relatively high market inventory, Semiconductor Manufacturing International Corporation's long-term agreement shares with customers are not significant. Most of these enterprise customers are growing companies, so the ups and downs on shipments are relatively stable. It is expected that Semiconductor Manufacturing International Corporation's overall revenue in the first quarter of next year will also be relatively stable.

In terms of final application classification, the proportions of smart phones, computers and tablets, consumer electronics, internet and wearables, industrial and autos are 25%, 16%, 13%, 8%, 8% respectively. Zhao Haijun stated that the market demand for consumer categories is gradually recovering, with upgraded features of consumer products being implemented and exported, maintaining good demand.

Zhao Haijun also mentioned that the industry has not yet bottomed out, with the weakest links concentrated in the industrial and autos sectors. As the inventories of major automotive suppliers in Northern Europe and customers of Chinese photovoltaic and battery industries are further depleted, it is expected that next year will bring good revenue growth for Semiconductor Manufacturing International Corporation and other peers.

Looking ahead to next year, for Semiconductor Manufacturing International Corporation, except for industrial and autos where growth prospects are not clear yet by application classification, the other four application areas (smart phones, computers and tablets, consumer electronics, internet and wearables) are currently projected to grow next year, although prices are expected to soften.

When viewed by size classification, due to early shipments in the second quarter, 8-inch revenues accounted for a decreased 21.5% in Q3. Good demand for BCD process platforms has brought in orders, driving up the utilization rate of 8-inch capacity. The 12-inch segment is nearly fully loaded, with newly released capacity quickly validated and put into production, increasing revenue share to 78.5%.

Zhao Haijun mentioned that the fourth quarter is usually a low season for wafer foundry industry, as customers review their sales plans at the beginning of the year but have weak intentions for stocking and receiving goods in the fourth quarter. However, after negotiations with customers, Semiconductor Manufacturing International Corporation's shipments in the fourth quarter will not be greatly affected.

Semiconductor Manufacturing International Corporation is expected to release approximately 0.03 million 12-inch wafers' monthly capacity in the fourth quarter, but the validation of the new capacity will take time, leading to an anticipated decrease in capacity utilization rate and shipments in the fourth quarter. Zhao Haijun stated that he hopes to enhance the average selling price through product portfolio optimization to ensure that fourth-quarter revenue remains unaffected and achieves stable to slightly increasing growth, resulting in relatively stable gross margin.

Based on the performance in the first three quarters and the guidance for the fourth quarter, Semiconductor Manufacturing International Corporation's annual revenue is expected to be around $8 billion, with a revenue growth rate of approximately 27%, outperforming the average of comparable peers. The full-year gross margin is estimated at around 17%, and the end-of-year monthly capacity is expected to reach around equivalent of 0.9 million 8-inch wafers.

The industry as a whole is facing oversupply, with power devices being seen as new opportunities.

At today's (November 8th) earnings conference, Zhao Haijun discussed three main trends regarding the future short-term changes in the industry: first, the localization replacement speed will decrease, as domestic autos, smart phone, and other terminal manufacturers want to establish relationships with multiple suppliers. When the proportion of supply reaches about one-third, the remaining demand will not change significantly; second, besides previously announced projects, new projects in the wafer foundry industry are decreasing; third, there is a peak in this year's order increase, and there will still be an increase next year, but it will be less than this year.

Zhao Haijun believes that due to macroeconomic and geopolitical influences, there is currently a significant industry-wide overcapacity. He stated that the industry's capacity utilization rate needs to reach 85% or higher to be considered a recovery. However, the comparable average capacity utilization rate of peers in the semiconductor manufacturing international corporation is only around 70% this year, indicating a substantial overcapacity overall, and it is expected that this situation will not see a significant improvement next year.

Zhao Haijun mentioned the need to communicate fully with terminal customers to develop new products at this time. This is to respond to market changes by enhancing product technical specifications and quality.

Zhao Haijun revealed at the earnings conference that in order to meet customer demands, they will accelerate the layout of power device capacity to fully support the development of the auto industry and new energy markets.

Zhao Haijun stated that power devices and discrete devices have oversupplied capacity worldwide, and the decision to increase power device capacity is because the semiconductor manufacturing international corporation noticed that the production capacity for power products in the industry is mainly from facilities built before 2000 or repurposed from logic or storage product production. These capacities struggle to meet the new requirements of customers in terms of product quality and industrial control capabilities.

"The semiconductor manufacturing international corporation will not increase capacity or investment due to the addition of power device production. Instead, they will reallocate a portion of the previously announced logic circuit capacity to produce power devices. The company will transfer existing back-end processing, bonding, logic circuit, and other process capabilities to power products, which is the direction of future collaborations with customers," Zhao Haijun explained.

Zhao Haijun mentioned that the semiconductor manufacturing international corporation has been involved in the layout of BCD products for decades, including collaborations with industry leaders. The accumulation of quality, platform, and product in the BCD sector is very comprehensive, not inferior to any company in the industry. With the further development of process nodes, the system becomes more complex. Together with the application of AI, in scenarios like AIoT and datacenters, there are new requirements for energy management, voltage management, and quality management reaching a new level, with demand expected to double. It is believed that BCD will have excellent development.