FAST NEWS: SMIC forecasts continued gross margin decline

The Latest: Semiconductor Manufacturing International Corp. (SMIC)(0981.HK; 688981.SH) on Thursday reported a 68.9% year-on-year drop in its third-quarter profit to $71.79 million, as its gross margin plunged by 7.1 percentage points to 13.7%.

Looking Up: The company, whose first-quarter revenue rose 19.7% year-on-year to $1.75 billion, expects its second-quarter revenue to grow 5% to 7% from the first quarter, due to continued demand from some customers for early shipments in the second quarter.

Take Note: The company’s gross margin is expected to continue to fall to between 9% and 11% in the second quarter, as depreciation is expected to rise in line with the increase in capacity scale.

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,” 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. SMIC’s results have suffered since last year due to unfavorable factors, and it forecasts that its gross margin will continue to face downward pressure.

Market Reaction: SMIC’s Hong Kong shares rose on Friday and closed up 2% at HK$16.34 by the midday break, near the lower end of their 52-week range.

Translation by A. Au

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