News China's SMIC Foundry Fumbles, 80% Decline In Profit

[Admin]

SMIC's profit in Q3 of this year was just 20% of what it was in Q3 of 2022.

China's SMIC Foundry Fumbles, 80% Decline In Profit : Read more

 

[Order 66]

I can't say I'm all that surprised, with the massive reduction in sales that the whole PC industry had from its pandemic highs.

 

[George³]

Of course, this site is not about economics, and maybe because of that, when it publishes news related to finance, it misses some words. Which change the information. The cash flow is not reduced by 80%, there are simply increased development and implementation costs and what has decreased is the net profit. The term "net profit" should be present here instead of just profit.

 

[The Historical Fidelity]

Of course, this site is not about economics, and maybe because of that, when it publishes news related to finance, it misses some words. Which change the information. The cash flow is not reduced by 80%, there are simply increased development and implementation costs and what has decreased is the net profit. The term "net profit" should be present here instead of just profit.

Profit is the amount of revenue minus operating costs and any reinvestment costs. No need for “net profit” as it’s a given. Only when “gross profit” is used, then you must differentiate with “net profit”. Otherwise “net profit” is assumed.

 

[shady28]

I can't say I'm all that surprised, with the massive reduction in sales that the whole PC industry had from its pandemic highs.

Yep, consumer electronics in general, smartphones in particular.

"Oct 16 (Reuters) - The global smartphone market contracted by 8% to its lowest third-quarter level in a decade on subdued demand for major brands including Apple (AAPL.O) and Samsung (005930.KS) in most developed markets, according to data from Counterpoint Research.

The data, shared exclusively with Reuters, showed that the share of the top five brands, which also include Chinese firms Xiaomi (1810.HK), Oppo and Vivo, had fallen to a three-year low."

Global smartphone market slumps to lowest Q3 level in decade - Counterpoint

The global smartphone market contracted by 8% to its lowest third-quarter level in a decade on subdued demand for major brands including Apple and Samsung in most developed markets, according to data from Counterpoint Research.

www.reuters.com

 

[George³]

It is good that there is a link to the original news, which is longer and contains information that is missing in the material published here. Economics is a complex subject and can lead to incorrect conclusions when there are certain shortages.

 

[ivan_vy]

"Revenue: $1.621 billion, vs. $1.625 billion expected"
so almost hit target, could be lower Net income due higher than expected cost of BOM and equipment caused by sanctions and bigger spending in R&D. Still on good numbers.
Also not having advance node is not so big deal as tech can be backported to some extent and also depends where is their TAM, I mean, if they sell billions of mid-range chips don´t need cutting edge tech but good enough will suffice.
The important thing is not lose the cadence, is not so important to be a generation behind as long as the gap remains at 3-4 years top, not everyone buys the cutting edge, it makes no sense in Economies of scale, best bang-for-the-buck will determine if the keep going.

 

[bit_user]

In China, inflation hasn't been a problem, but consumers are decreasing spending as they focus on paying off debt.

I've hear China has been in a deflationary spiral, lately. That explains reduced spending due to people sitting back and waiting for prices to fall some more. Of course, it's triggered by reduced spending to begin with, so there are pretty much always external factors involved.

According to the CNBC article, revenue is only down 15%. So, that 80% figure is probably misleading to some.

 

[George³]

Revenue: $1.621 billion, vs. $1.625 billion expected

According to the CNBC article, revenue is only down 15%.

I think you can work out for yourself if it's 15%. I don't understand numbers, but it doesn't seem like more than 0.25% to me.

 

[bit_user]

"Revenue: $1.621 billion, vs. $1.625 billion expected"
so almost hit target,

Hitting their target doesn't mean their fortunes are good - just that they're not worse than they previously expected.

The key things to watch are like year-on-year revenue, and then compare this with their competition.

not having advance node is not so big deal as tech can be backported to some extent

Backporting results in expensive chips that run hot and/or at reduced clockspeeds. It's hardly a good solution.

not everyone buys the cutting edge, it makes no sense in Economies of scale, best bang-for-the-buck will determine if the keep going.

While there's plenty of business on older nodes, if China's access to newer nodes is restricted, then so is the competitiveness of products requiring those chips which do benefit from being on the latest, greatest node.

Being behind the curve has another downside, which is that they'll have to compete with yields and wafer pricing on uber-mature, refined nodes like TSMC's N7. Margins on such nodes are clearly lower. I'd bet TSMC makes most of its revenues on the couple generations at the leading edge. That probably funds most of their R&D, and then the business they do on older nodes is probably very profitable for them.

 

[bit_user]

I think you can work out for yourself if it's 15%. I don't understand numbers, but it doesn't seem like more than 0.25% to me.

You're confusing year-on-year revenues with expected revenues.

They don't make revenue projections by always blindly assuming they'll be the same as that quarter from last year. Revenue projections are their best guess, made (I think) last quarter. If trends are pointing to lower revues, their projection could indeed be down. If business is looking good, they'll be up.

 

[George³]

You're confusing year-on-year revenues with expected revenues.

They don't make revenue projections by always blindly assuming they'll be the same as that quarter from last year. Revenue projections are their best guess, made (I think) last quarter. If trends are pointing to lower revues, their projection could indeed be down. If business is looking good, they'll be up.

If we look on numbers of AMD by the years, there are also years of reduced revenue, and search for articles like this I think that doesn't exist article with such smoke title 😉

 

[The Historical Fidelity]

If we look on numbers of AMD by the years, there are also years of reduced revenue, and search for articles like this I think that doesn't exist article with such smoke title 😉

You are technically correct, however it’s apples to oranges to compare a fabless architectural design firm with a mass microchip manufacturer. Noticable reductions in profit in the latter space in the past have hindered a company from being able to move to a smaller node (global foundry). However GF seems to have found a profitable niche in making specialized and application optimized process nodes on their 12nm and greater nodes after they ended their competition with TSMC in the leading edge segment. This is definitely an option for SMIC to take.

 

[jp7189]

I think you can work out for yourself if it's 15%. I don't understand numbers, but it doesn't seem like more than 0.25% to me.

The specific numbers are:
3Q22 $1.90B
3Q23 $1.62B
So, down significantly year over year.
2Q23 $1.56
So, up slightly quarter over quarter.

 

[jp7189]

CNBC seems to be spinning this very negatively. Here's the summary text from the actual SMIC announce:
The Management Comments
In the third quarter of this year, Company’s revenue was $1.62 billion, up 3.9% sequentially, which was at
the midpoint of the guidance; gross margin was 19.8%, down 0.5 percentage points comparing to the
previous quarter. The Company’s overall shipments continued to increase, up 9.5% sequentially. Since the
total capacity as the denominator increased to 796 thousand wafers, the utilization rate decreased by 1.2
percentage points to 77.1%.
The Company expects the fourth quarter’s revenue to grow by 1% to 3% sequentially; the gross margin will
be dragged by the continuous depreciation pressure of the new capacity, which is expected to be in the
range of 16~18%.
The full-year capital expenditures are expected to be raised to around $7.5 billion.

 

[bit_user]

You are technically correct, however it’s apples to oranges to compare a fabless architectural design firm with a mass microchip manufacturer.

Right. The key point @George³ is that a fabless semiconductor company has economics similar to a software company (i.e. low capital expenditures, large profit margins), whereas a semiconductor fab is massively capital-intensive, has lower margins, and has more difficulty absorbing swings in the market. Software vs. manufacturing: get it?

GF seems to have found a profitable niche in making specialized and application optimized process nodes on their 12nm and greater nodes after they ended their competition with TSMC in the leading edge segment. This is definitely an option for SMIC to take.

I'm sure they are, but that's less lucrative and wouldn't address China's technological gap.

 

[ivan_vy]

Hitting their target doesn't mean their fortunes are good - just that they're not worse than they previously expected.

The key things to watch are like year-on-year revenue, and then compare this with their competition.


Backporting results in expensive chips that run hot and/or at reduced clockspeeds. It's hardly a good solution.


While there's plenty of business on older nodes, if China's access to newer nodes is restricted, then so is the competitiveness of products requiring those chips which do benefit from being on the latest, greatest node.

Being behind the curve has another downside, which is that they'll have to compete with yields and wafer pricing on uber-mature, refined nodes like TSMC's N7. Margins on such nodes are clearly lower. I'd bet TSMC makes most of its revenues on the couple generations at the leading edge. That probably funds most of their R&D, and then the business they do on older nodes is probably very profitable for them.

I dont think failing .004 billion spells doom for any business, is not YoY but the target for that period.
Maturing nodes and backporting is what Intel did with its 10nm.
Being in the bleeding edge and having halo products is great and gives a bigger profit margin, but don't disdain ecomny of scale, Xiamoi grew fivefold from 2015 to 2021, no needed to beat Apple, now with plenty of cash can spend tons on R&D.