“The light of domestic chips” SMIC recently released its financial report for the fourth quarter of 2020. From the financial report point of view, both revenue and net profit have achieved year-on-year growth. In 2020, the net profit attributable to the mother will be 4.332 billion yuan, and even a 142% year-on-year increase.
SMIC may therefore change from “SMIC-U” to “SMIC” (“U” means that the listed company has not yet made a profit). From the perspective of various indicators in 2020, SMIC has given good results.
However, the industry is not concerned about its profitability. It is more concerned about when SMIC can complete the localization and de-Americanization of its production line; whether it can enter the era of 7nm process chips as soon as possible, without Huawei’s major customers, in 2021 Can SMIC still achieve rapid growth?
On February 5th, the second day of the financial report announcement, SMIC’s Hong Kong stocks fell sharply. As of 10:11 in the morning, SMIC had fallen 7.69% to HK$25.2, with a market value of HK$150.1 billion.
Profit surges throughout the year, and demand for mature processes is strong
The financial report shows that in the fourth quarter of 2020, SMIC achieved operating income of US$981 million, an increase of 16.9% year-on-year; the attributable profit attributable to the company was approximately US$257 million, an increase of 189.7% year-on-year.
The reason for the year-on-year growth, SMIC stated that due to the increase in the company’s wafer sales and average selling price in the fourth quarter, the investment income from government project funds, investment in joint ventures and financial assets, and the loss of inventory fall prices increased. .
However, it should be noted that although SMIC’s revenue and profit have achieved year-on-year growth in the fourth quarter of 2020, they have declined on a month-on-month basis.
The financial report shows that SMIC’s fourth quarter revenue fell by 9.4% compared with the third quarter. The reason for this decline, SMIC said, was due to the decrease in wafer sales and other revenues.
For the whole year, the unaudited net profit attributable to the parent in 2020 was 4.332 billion yuan, a year-on-year increase of 142%; the unaudited non-net profit in 2020 was 1.697 billion yuan, and the loss in 2019 was 522 million yuan status.
SMIC’s 2020 net profit surged by 142%, indicating that it will achieve profitability, and this means that SMIC’s A-share stock identification will change from “SMIC-U” to “SMIC”. It is understood that the special logo “U” on the Science and Technology Innovation Board represents that the listed company has not yet made a profit. If the issuer realizes profit for the first time, the special logo will be cancelled.
Regarding the satisfactory answers handed over in 2020, SMIC stated that it will mainly benefit from the strong demand in consumer electronics, information and communication industries in 2020, the increase in chip usage, the overall shortage of production capacity in the foundry industry, and the strong demand for mature processes. Revenue has grown.
Zhao Haijun and Liang Mengsong, co-executives of SMIC, said that the current capacity of the foundry industry is tight, especially the strong demand for mature processes. It is expected that the company’s mature production capacity will continue to be fully loaded.
In order to continue to meet customer needs, SMIC expects capital expenditures of US$4.3 billion in 2021, most of which will be used for the expansion of mature processes (above 28nm), and a small part will be used for advanced processes (28nm and below) and Beijing’s new joint venture Project civil engineering and others.
It can be seen that SMIC is full of confidence in the sales of mature technology in 2021.
Even if SMIC has achieved profitability, its net profit has even achieved a surge. However, the industry’s expectations of him go far beyond that.
“Internal Troubles and External Troubles” SMIC Challenges Not Small in 2021
As mentioned above, although the fourth quarter of 2020 achieved year-on-year growth, there was a month-on-month decline. From the perspective of its revenue composition in the fourth quarter of 2020, the revenue share of the 14/28nm process technology in the fourth quarter of 2020 has fallen sharply, accounting for only 5%, while the revenue in the third quarter of 2020 accounted for 14.6%.
According to analysis, this is due to the loss of SMIC’s largest customer of 14nm, Huawei. The inability to supply Huawei in the fourth quarter resulted in a sharp decline in its revenue in advanced manufacturing processes.
It is understood that at the performance briefing meeting in August 2020, Liang Mengsong, the co-CEO of SMIC, responded to whether to cut off the supply of Huawei: SMIC complies with international regulations and does not do anything that violates international regulations. And SMIC has a large number of orders waiting to enter the limited capacity, (this event) will not have a big impact.
At that time, SMIC was complained by investors and netizens: If SMIC cannot supply Huawei, “what do you want?” It is understood that SMIC’s stock price fell at that time.
In fact, from September 14, 2020, SMIC will indeed no longer supply Huawei.
Previously, after Huawei was cut off by TSMC, it had handed over the Kirin 710A entry-level mobile phone mobile chip with 14nm process technology to SMIC. Although the 14nm process technology is not mainstream, it is of great significance, which means that everything from chip design to foundry to mobile phones has been localized.
In addition to losing major customers, SMIC has also been sanctioned by the United States and is facing great uncertainty. Regarding the performance of the next year, SMIC stated that because it was included in the list of entities by the US government, it was restricted in purchasing related products or technologies in the US, which brought uncertain risks to performance expectations. In addition, export license applications must be based on procedures It takes time to go, and there is also a certain degree of uncertainty.
In addition to these “foreign troubles”, SMIC has also been criticized as “chaotic internal management.” The typical event is the change of Liang Mengsong and Jiang Shangyi.
In December 2020, SMIC issued an announcement announcing the appointment of Jiang Shangyi as the vice chairman of the company’s board of directors, the second type of executive director, and a member of the strategy committee, which will take effect on December 15, 2020. However, Jiang Shangyi’s appointment has triggered the sudden resignation of Liang Mengsong, the current co-CEO of SMIC. This incident has also been interpreted by the outside world as “infighting”, “management chaos” and so on.
In fact, in addition to “internal and external troubles”, SMIC has also been placed high expectations by the public: when will it develop a mature 7nm process technology, when will it be able to realize a domestic production line, and when will it be able to beautify it.
It is reported that under the joint research and development of the Chinese Academy of Sciences and SMIC, SMIC already has a process that can match the 7nm process lithography machine. However, it is still in the experimental stage and cannot be mass-produced temporarily.
“SMIC’s performance in 2020 has reached a new high, which is gratifying. But the challenges faced this year are really too great. Internal management, external sanctions, and the absence of Huawei, a super COT customer. This year is not easy for SMIC!” The core research researcher Gu Wenjun analyzed this way.