The off-season is not light, SMIC 20Q1 may reach a record high in a single season.

On April 7, Semiconductor Manufacturing International Corporation raised the Q1 performance guidance from 0% to 6% Q8%, income from 8.9% to 906 million US dollars, a year-on-year growth rate of 38.05% to 40.63%. The gross profit margin guideline was raised from 21% to 27%, an increase of 1.2% to 3.2% from the previous year.

How's the score? We need to find a reference and first look at the ratio of SMIC to ourselves.Traditionally, Q1 is the traditional off-season in wafer foundries, but 20Q1 SMIC's "off-season is not weak". According to the company's revenue growth of 6% to 8% month-on-month, SMIC's Q1 revenue is $898.1 million, exceeding the 2018 Q2 peak of $890.7 million, and the median gross profit margin of 26% has gradually returned to the all-time high level. SMIC's gross profit margin has reached 30% + in history.

Let's take a look at the industry leader Taiwan Semiconductor Manufacturing Co Ltd. Taiwan Semiconductor Manufacturing Co Ltd will announce 20Q1 results on April 16, but judging from the monthly results announced by the company in January and February, Taiwan Semiconductor Manufacturing Co Ltd's growth momentum is also very fast, with January revenue of US $3.45 billion reaching 34% of its first-quarter revenue (NT $1.03383 billion, up 33% from a year earlier) and February revenue of US $3.1 billion. Taiwan Semiconductor Manufacturing Co Ltd's cumulative revenue from January to February 2020 was about 65.5%, an increase of 41.8% over the same period last year, the highest growth rate since 2016. Taiwan Semiconductor Manufacturing Co Ltd expects revenue of between $10.2 billion and $10.3 billion in the first quarter of this year.

Taiwan Semiconductor Manufacturing Co Ltd's monthly revenue in 2020

From the perspective of revenue growth, Semiconductor Manufacturing International Corporation performed well and was basically able to keep up with Taiwan Semiconductor Manufacturing Co Ltd, who was in the first echelon; but from the revenue volume, we can clearly see the huge gap between SMIC and Taiwan Semiconductor Manufacturing Co Ltd. Taiwan Semiconductor Manufacturing Co Ltd works for SMIC for almost a quarter a month.

The mature process is hot, causing an increase in contract fees.

Since Semiconductor Manufacturing International Corporation gave his previous guidance on Feb. 13, the outbreak has affected the economy and production in China. Despite the negative impact of the epidemic, Semiconductor Manufacturing International Corporation still achieved performance growth, mainly due to:

On the one hand, Semiconductor Manufacturing International Corporation's production and operation management is strictly in place, so far there is no infection, and the epidemic situation has not affected production.

On the other hand, Semiconductor Manufacturing International Corporation mature process downstream Internet of things and power device demand and 14nm production line brought new demand superimposed to form a strong driving force. 65/55nm process orders were hot in the first quarter, and a number of scarce products such as CIS and NORFlash crowded out production capacity, causing an increase in contract fees at the end of 2019. At the same time, downstream customers are expected to step up replenishment in order to maintain inventory levels, worried that the supply chain will be affected by the epidemic.

In addition to the increase in gross profit margin, in addition to the increase in contract fees due to the hot demand for production capacity, another reason may be that the FinFET production line has not yet begun depreciation, while 14nm has contributed $7.69 million in revenue in 4Q19, and the expansion of FinFET production line revenue is expected to be another reason for the company's gross profit margin improvement.

2019Q4 14nm has begun to contribute revenue

Be optimistic about SMIC's long-term logic

April 3, 2020 is the 20th anniversary of the founding of Semiconductor Manufacturing International Corporation. Semiconductor Manufacturing International Corporation started from 250nm to 14nm FinFET mass production today, the second generation FinFET process has entered the customer introduction stage.

Looking to the future, the company is expected to benefit from the triple kinetic energy of "new application drive + domestic substitution + advanced process breakthrough".Performance growth against the trend:The company has long benefited from the birth of new applications represented by AIoT by 5G, which drives the demand for electronic components, the accelerated pace of domestic substitution promoted by the Sino-US trade war, and the continuous breakthrough in advanced processes. Semiconductor Manufacturing International Corporation, as a representative of the strength of contract manufacturing in the mainland, is expected to achieve sustainable development.

Perhaps we can look at SMIC in the eyes of foreign institutions from another perspective:On February 20, 2020, Semiconductor Manufacturing International Corporation successfully completed the pricing of five-year US dollar corporate bonds in the global capital market, raising US $600 million with a coupon rate of 2.693%.This issue marks the company's return to the international bond market after a lapse of six years.With the international rating of BBB-, it has obtained the coupon level of A-rating companies in the TMT industry, reflecting the high recognition of Semiconductor Manufacturing International Corporation's credit structure, financial strategy and industrial development in the global capital market in recent years. Semiconductor Manufacturing International Corporation's financing ability and pricing benchmark in the global capital market have stepped onto a new level.