After Hong Kong stocks closed on Thursday, Semiconductor Manufacturing International Corporation announced his Q4 results: revenue was US $839 million, up 2.8 per cent year-on-year and 6.6 per cent month-on-month, while gross profit margin increased by 3 Pct to 23.8 per cent from the previous month. Q4 performance is basically in line with the company's previous expectations: 19Q4 revenue is expected to grow by 2% to 4% month-on-month, and gross profit margin is expected to be 23% to 25%.

1. Business is booming and 20Q1 is not weak in the off-season.

SMIC Q4 gross profit reached US $199 million, a month-on-month increase of 17.4% and a year-on-year increase of 48.7%.The sharp increase in the company's gross profit is mainly due to the strong demand for camera chips and power management chips. The capacity utilization of the company's Q4 has increased by nearly 2 Pct, reaching 98.8%, close to full load.

Traditionally, Q1 is the traditional off-season in fabs, but the 20Q1 SMIC will be "not light in the off-season".20Q1's revenue is better than seasonal, the company said in its earnings report. In fact, the boom in semiconductor manufacturing continues, with wafer leader Taiwan Semiconductor Manufacturing Co Ltd's January revenue reaching 34 per cent of its first-quarter revenue (NT $1.03383 billion, up 33 per cent from a year earlier).

2. Mass production of 14nm as scheduled, SMIC advanced "intermediate players"

In addition to brisk business, SMIC's Q4 financial report should belong to 14nm on schedule and begin to contribute 1 per cent of revenue. According to the financial disclosure, the average monthly production capacity of 14nmQ4 is 6750 pieces (equivalent to 8 inches), while the design capacity of the southern phase of the main core plant of 14nm is 35000 pieces (equivalent 12 inches), and the capacity utilization rate is about 10%.

The next thing SMIC needs to do is to release 14nm's capacity and help the company's revenue to a higher level.Prior to this, the company formulated a three-step plan to gradually climb 14nm production capacity: the first stage mainly focuses on high-end customers and multimedia applications, and the second phase focuses on middle and low-end mobile applications, and is prepared for applications such as AI, mining machines, block chains, etc. The third stage is to achieve high ASP, which will develop RF applications.

It is worth mentioning that, from a large classification, technology stocks include hardware and software, unlike the software industry, where the cost of iteration or even overturning is relatively small. Hardware technology, from the success of technological research and development to mass production and expansion, is obviously more subject to the rigid constraints of time and space, and SMIC needs time to release advanced productive forces.

From Liang Mengsong joined SMIC in 2017 to 2019Q4 to achieve the success of mass production of 14nm, SMIC also rapidly improved the yield of 28nm. SMIC took the last bus to become an "intermediate player" at the beginning of the era of the Internet of things.

SEMI (International Semiconductor Industry Association) global marketing director and Taiwan president Cao Shilun said on February 12 that he is still optimistic about the performance of the global semiconductor industry this year (2020), and this year will continue the high-tech talent training program, while the director of industry research Zeng Ruiyu said that in this year's semiconductor growth trend, 5G, data center, AI and the Internet of things play four major roles.

Among the four major engines driving semiconductor growth in the future, in addition to the high-end chips in the data center, 5G RF chips, AI and Internet of things chips of Chinese enterprises such as BABA and Huawei have all entered the range of SMIC. In other words, SMIC will seize the opportunity of the times this time.

Mass production 14nm, advanced to become an "intermediate player", SMIC comprehensively catch up with and surpass the second echelon of United Microelectronics Corp in the international wafer factory, the hope of grid core is still very great.

3. Capital expenditure will soar by 50% in 2020, and US $2 billion will fully expand 14nm capacity.

In his financial report, Dr. Liang gave a good expectation:The company will resume growth in 2020. At present, revenue in the first quarter is better than that of seasonality. In order to meet the needs of the market and customers, a new round of capital expenditure plan will be launched, and capacity expansion will gradually emerge. We also look forward to the first-generation FinFET robust volume, the second-generation FinFET continuous customer introduction.

The company expects capital expenditure of US $3.1 billion in 2020, up 50% from 2 billion in 2019, of which 2 billion and 500 million yuan are expected to be spent on machinery and equipment in the majority-owned Shanghai 300mm fab (14nm plant) and the majority-owned Beijing 300mm fab, respectively.The capital expenditure planned for the operation of the non-fab plant in 2020 is about 59.9 million yuan, mainly for the construction of employees' living parks.

In a nutshell, the company spends $2 billion of capital expenditure equivalent to 2019 to fully expand 14nm capacity.

4. Summary

There are already several chip companies with a market capitalization of more than 100 billion yuan in China, including Weir shares, Wentai Technology, Huiding Technology, Zhaoyi Innovation, and so on, while Semiconductor Manufacturing International Corporation, as the core asset of China's chip industry, has a market capitalization of more than 100 billion yuan.

What is the core asset? The core asset is not the infinite expansion of 1N, but the key breakthrough of 01N. The core asset is not better with it, but not without it.

The lack or disappearance of the so-called core assets in the market will have little impact on the country and society, so we can only set up another company to continue to do it. Semiconductor Manufacturing International Corporation, a semiconductor foundry, is the foundation of the entire science and technology industry. Under the background of overseas restrictions on semiconductor manufacturing, the lack of semiconductor manufacturing in the mainland will shake the foundation of the science and technology industry. From this point of view, Semiconductor Manufacturing International Corporation is the core asset.