Semiconductor Manufacturing International (981) Q4 2011 earnings summary

Executive summary

• FY 2011 revenue fell 15.1% YoY to $1.32B amid weak foundry demand and customer inventory conservatism; gross margin fell to 7.7% and the year ended with a $274.2M net loss.

• Q4 remained loss-making, but management saw a Q1 rebound and targeted continued growth in Q2 as customer confidence improved and Beijing 12-inch production ramped.

• Priorities were higher fab utilization, operational efficiency, differentiated niche products, and a customer-demand-led 45/40 nm ramp while pursuing sustainable profitability.

Financial highlights

• Q4 revenue was $289.6M, down 5.6% QoQ; excluding Wuhan Xinxin managed-fab revenue in both quarters, revenue declined 3.6%.

• Q4 gross margin was -7.4% versus 1.4% in Q3; excluding the $11.4M one-time Elpida settlement, Q4 gross margin was -3.4%.

• Q4 net loss attributable to ordinary shareholders was $165.6M; fully diluted EPS was -$0.30 per ADS.

• FY revenue was $1.32B versus $1.55B in 2010; gross margin was 7.7% versus 19.9%, and net loss was $274.2M.

• Q4 operating expenses were $85.7M; normalized OPEX, excluding government grants and other operating expense, was $95.4M versus $89M in Q3.

Outlook and guidance

• Q1 2012 revenue guidance was +7% to +9% QoQ, with gross margin of 4% to 7% and OPEX of $96M to $99M.

• Q1 growth was expected from higher shipments and rebounding U.S. customers; Beijing 12-inch ramps in communications and consumer, alongside power-management demand, supported optimism.

• Management targeted continued revenue growth in Q2; 45/40 nm was expected to reach 9% of revenue by Q4 2012, with Shanghai 12-inch capacity rising to 9,000–10,000 wafers per month.

• FY 2012 CapEx was planned at $430M, over 80% for 12-inch equipment; spending was expected to be fairly linear, and depreciation $20M–$30M above 2011.

• 32/28 nm process development remained on schedule, with process readiness targeted for 2013; 2012 capacity growth was expected in the mid-single digits.