FAST NEWS: SMIC’s gross margin plunges, with no bottom in sight

The latest: Semiconductor Manufacturing International Corp. (SMIC)(0981.HK; 688981.SH) on Thursday reported a 76.7% year-on-year drop in its third-quarter profit to $93.98 million, as its gross margin plummeted by 19.1 percentage points to 19.8%.

Looking up: Despite the profit plunge, the company said it now anticipates 2023 capital expenditures of $7.5 billion, 18% higher than the $6.35 billion guidance given at the end of last year.

Take Note: The company forecast its gross margin will continue to fall to between 16% and 18% in the fourth quarter, mainly due to continuous depreciation pressure with its addition of new capacity.

Digging Deeper: As a leading force in China’s drive to build up its chip sector, SMIC has become a lightning rod for U.S. politicians. It was placed on the U.S. Commerce Department’s “entity list” last year, limiting its access to U.S. technology. Japan and the Netherlands have also imposed new restrictions on their exports of advanced chip-making equipment to China, hitting companies like SMIC. Its management said Friday that global demand for chips has not risen as quickly as the company’s expansion of capacity, and that the market is still taking time to absorb all the new capacity from SMIC and its rivals.

Market Reaction: SMIC’s Hong Kong shares dipped on Friday and closed down 6% at HK$22 by the midday break, near the upper end of their 52-week range.

Translation by A. Au

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