SMIC Revenue Jumps 34% as Utilization Hits 97.3% and China Takes 91% of Sales

SMIC posted third-quarter revenue of $3.19 billion, up 33.9% from $2.38 billion a year earlier, with gross margin of 29.9% beating its own forecast. The figures came in unaudited results filed with the Hong Kong stock exchange on Thursday. China supplied 90.8% of revenue, up from 86.2% a year earlier.

Quarter-over-quarter, revenue rose 6.1% from $3.006 billion in the second quarter. Gross margin widened from 25.3% in the prior quarter and 22% a year ago. SMIC attributed the improvement to higher fab utilization and a change in product mix. In August, the company had guided revenue growth of just 2% to 4% and a gross margin of 26% to 28%, so the actual result cleared both targets by a wide margin.

For the fourth quarter, SMIC guides revenue up 4% to 6% sequentially. It expects gross margin to fall back into the 26% to 28% range.

How full are the fabs?

Wafer utilization climbed to 97.3% from 93.7% in the second quarter. The rise came even as monthly capacity expanded to 1,116,750 8-inch-equivalent wafers from 1,096,500. Shipments grew 5.7% sequentially to 3.03 million 8-inch-equivalent wafers. Utilization a year earlier stood at 95.8%.

The fuller loading is the direct driver of margin, according to the company's own filing. SMIC runs nearly full across a growing capacity base while spending less on expansion than earlier in the year.

Where did the revenue mix shift?

End markets moved away from smartphones toward industrial, automotive and computing chips. The Americas fell to 7.8% of revenue from 10.8% a year ago, while China rose to 90.8% from 86.2%.

• Industrial and automotive chips: 19.3% of wafer revenue, up from 11.9% a year earlier
• Computers and tablets: 18.3%, up from 15.2%
• Smartphones: 14.3%, down from 21.5%

The shift shows domestic Chinese demand now carries almost the entire order book. Smartphone silicon, once the largest single category at 21.5%, has ceded its lead within a year.

What happened to profit and spending?

Profit attributable to shareholders fell 10.6% sequentially to $428.4 million despite the stronger operating result. The cause was other income, which swung to a $32.1 million loss from a $275.9 million gain, mainly on lower gains from associates that are investment funds. The profit figure was still more than double the $191.8 million recorded a year earlier.

Research and development spending rose 23.9% from the second quarter to $258.4 million. Capital spending moved the other way, falling to $1.09 billion from $1.84 billion. SMIC ended the quarter with $8.3 billion of cash and cash equivalents against $14.9 billion of debt.

Management hosts a results call on Friday at 8:30 a.m. Hong Kong time.

What does the guidance signal?

The fourth-quarter outlook implies sequential growth on top of an already record quarter, with revenue up roughly a third year over year if guidance holds. The guided margin pullback to 26% to 28% suggests the company expects the utilization and mix tailwinds of the third quarter to ease rather than persist.