Chinese semiconductor industry

tphuang said:

Since I doubt the price per wafer has really gone up. More likely went down. I think this is likely due to two factors:
1) Higher Finfet sales as % of overall sales -> its Finfet production likely fully booked and slowly increasing in capacity
2) Achieving higher wafer prices on more advanced process like 12/14nm through getting higher yield and more complexity on them

thoughts?

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hvpc said:

Your theory on higher FinFET sales resulting in higher ASP makes sense. But that’s not it.

There were several questions regarding the ASP during the investor call. The answer from SMIC CFO(?) was that it’s partially due to lower 8” order/utilization and higher price from rush orders for new products in 12”.

I recommend you listen to the call…(1hr). They also talked about their strategy on what product to focus on for their new fabs.

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From SMIC presentation





I see that there has been a big drop in revenue from US customers. From the graph it seems about a 40% drop. This drop has been both sudden and mostly localized on US customers.

This may explain in part the Q1 results. Moving to new customers, even when they potentially are already there, is a multi-quarter process in this industry.

On the positive side, I'm impressed that they are still not in the red. Indeed they are at break-even with a 68% utilization. This is quite impressive. Samsung and Intel, for instance, are well in the red under similar or even better capacity utilization. This means that SMIC is a healthy and well organized company, with very good cost control.

Another positive point is that they foresee a +5% guidance for Q2 (BTW Q1 guidance was -10% to -12% QoQ and actual result was -9.8%, so guidance seems reliable).

Apart from their technological/capacity changes we are discussing often here, there is also another process ongoing, that is moving out of US customers. It will be a transitory period, but in the meantime it has an impact on financial numbers.

What is the story here? 3.000 employees and offices in Japan and California ...

mrandolph said:

What is the story here? 3.000 employees and offices in Japan and California ...

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Huawei can do it and I can do it..lol

Just business decision. China lack of IC engineers so they can find job fast.

At work so very quickly. CXMT still using American products for its production lines? Do not like the sound even one bit of it.

Chinese chipmaker plans listing after clearing US export controls​

CXMT plans to use American equipment that can make less sophisticated chips for phones, servers and electric vehicles, bypassing the tightened requirements for exports of advanced chip tools.


Non paywall source:

hvpc said:

Your theory on higher FinFET sales resulting in higher ASP makes sense. But that’s not it.

There were several questions regarding the ASP during the investor call. The answer from SMIC CFO(?) was that it’s partially due to lower 8” order/utilization and higher price from rush orders for new products in 12”.

I recommend you listen to the call…(1hr). They also talked about their strategy on what product to focus on for their new fabs.

Click to expand...

I will go through that, but my typical impression of earnings call (from my own company) is that there are often things you can't share. In this case, SMIC has made the decision to keep its Finfet status completely secret. Including the recent one to not breakdown revenue by its fabs/JVs. Anything that might give away its Finfet status seems to be muted. Some people aren't Chinese social media think they can't produce better than 28nm node. Would cause a lot of unwanted attention if they start talking about FinFET

european_guy said:

From SMIC presentation

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View attachment 112458

I see that there has been a big drop in revenue from US customers. From the graph it seems about a 40% drop. This drop has been both sudden and mostly localized on US customers.

This may explain in part the Q1 results. Moving to new customers, even when they potentially are already there, is a multi-quarter process in this industry.

On the positive side, I'm impressed that they are still not in the red. Indeed they are at break-even with a 68% utilization. This is quite impressive. Samsung and Intel, for instance, are well in the red under similar or even better capacity utilization. This means that SMIC is a healthy and well organized company, with very good cost control.

Another positive point is that they foresee a +5% guidance for Q2 (BTW Q1 guidance was -10% to -12% QoQ and actual result was -9.8%, so guidance seems reliable).

Apart from their technological/capacity changes we are discussing often here, there is also another process ongoing, that is moving out of US customers. It will be a transitory period, but in the meantime it has an impact on financial numbers.

Click to expand...

sorry, what do you mean they broke even? I saw 20% margins from them. Will have to see how Q2 looks, but higher guidance is always good. US economy is pretty bad right now, so I'm not sure the lower US sales is due to economic downturn or conscious decision to move away. After all, Q4 was a high in US sales, so maybe things are just reverberating their way back.

tphuang said:

I will go through that, but my typical impression of earnings call (from my own company) is that there are often things you can't share. In this case, SMIC has made the decision to keep its Finfet status completely secret. Including the recent one to not breakdown revenue by its fabs/JVs. Anything that might give away its Finfet status seems to be muted. Some people aren't Chinese social media think they can't produce better than 28nm node. Would cause a lot of unwanted attention if they start talking about FinFET

Click to expand...

SMIC CEO/CFO have fiduciary responsibilities to tell the truth. They can withhold info, but not lie. So when they said the higher ASP is temporary due to an intentional decision to not cut price to win low end business, resulting in under utilization of 8” capacity, I’d tend to believe them. They said the ASP will drop in Q2 as 8” utilization return to higher level. Besides, I don’t think SMIC finfet had a drastic uptick in yield or extra capacity between 4Q22 and 1Q23, so the dynamics behind the higher ASP in Q1 shouldn’t be related to finfet.

tphuang said:

sorry, what do you mean they broke even? I saw 20% margins from them. Will have to see how Q2 looks, but higher guidance is always good. US economy is pretty bad right now, so I'm not sure the lower US sales is due to economic downturn or conscious decision to move away. After all, Q4 was a high in US sales, so maybe things are just reverberating their way back.

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@european_guy is referring to the operating profit of of $83,283,000 to the tune of ~6% operating profit margin.

hvpc said:

@european_guy is referring to the operating profit of of $83,283,000 to the tune of ~6% operating profit margin.

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In this report，it is mentioned that SMIC received 382 million RMB subsidy from the gov in this time period

tonyget said:

In this report，it is mentioned that SMIC received 382 million RMB subsidy from the gov in this time period

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Yes, but this goes under the voice "Other income, net 192,627" and is not included in operating profit.

Operating profit, differently from gross margin) also includes R&D, decreased to $167.7 million in 1Q23 from $197.5 million in 4Q22, about -15% to allow operating profit to still be positive at 6% as pointed out by @hvpc

Also a good saving on general and administrative costs -21%

hvpc said:

SMIC CEO/CFO have fiduciary responsibilities to tell the truth. They can withhold info, but not lie. So when they said the higher ASP is temporary due to an intentional decision to not cut price to win low end business, resulting in under utilization of 8” capacity, I’d tend to believe them. They said the ASP will drop in Q2 as 8” utilization return to higher level. Besides, I don’t think SMIC finfet had a drastic uptick in yield or extra capacity between 4Q22 and 1Q23, so the dynamics behind the higher ASP in Q1 shouldn’t be related to finfet.

@european_guy is referring to the operating profit of of $83,283,000 to the tune of ~6% operating profit margin.

Click to expand...

I see. That I agree with and I saw the comment about not cutting prices to win low end businesses. I think we are all saying the same thing here. The proportion of their FinFET capacity to overall capacity was likely higher this quarter, because their FinFET capacity likely remained unchanged whereas their price sensitive mature process business saw noticeable lower sales.

I guess that's what I was trying to point to the fact that there is such a high domestic demand for their FinFET capacity that they will likely always be able to sell out whatever they can produce. It's not like HW has other options.

One thing I would point to is that their Qualcomm and Broadcomm business is unlikely to be the most low end business. I would think they are probably mostly through immersion process (please correct me if i'm wrong here). Using what @european_guy posted, the US region revenue was down 40%, which would indicate significantly lower revenues from both QCOM and AVGO, since they account for something like 10% of SMIC revenue IIRC. So, that doesn't jive perfectly with their claims that the higher ASP is only due to not cutting prices to win low end business

Update on the development of what looks like a calibration platform for lithography projection objectives.

Displacement measurement analysis in distortion detection of lithography projection objective

Du Jing, Liu Junbo, Quan Haiyang, Hu Song*
State Key Laboratory of Optical Technologies on Nano-Fabrication and Micro-Engineering, Institute of Optics and Electronics, Chinese Academy of Sciences, Chengdu, Sichuan 610209, China

2023