SMIC Expects First 28nm Revenue by Year End
51.1% of SMIC's revenue now comes from China
Alan Patterson
8/12/2015 00:00 AM EDT
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SMIC HQ in Shanghai
The company will start commercial production of its most advanced technology node in the third quarter and expects its first revenue contribution from 28nm in the fourth quarter of 2015, SMIC CEO Tzu-Yin Chiu said on a conference call to announce the company’s second-quarter results.
SMIC has been planning to make
Qualcomm’s Snapdragon processors with its 28nm process. While
Qualcomm wrestles with a business downturn, SMIC said it is engaged with four customers in TVs, set-top boxes and other consumer applications that plan to make chips on SMIC’s latest technology node.
The company said it had to turn some customers away during the second quarter as its utilization rate exceeded 100%. SMIC, whose top rival is Taiwan Semiconductor Manufacturing Co (TSMC), said that it has benefitted from strong demand in China, which for the first time accounted for more than half of SMIC’s revenue during the second quarter this year.
“SMIC has achieved two quarters of consecutive growth in 2015, and we are guiding an additional quarter of growth for the third quarter,” SMIC CEO Chiu said. “With some customers undergoing inventory adjustments, SMIC has successfully ramped up new products, keeping our fabs well utilized.”
While overall smartphone growth has been slowing, SMIC said some Chinese handset customers have been increasing their market share.
SMIC’s sales to customers in China rose consecutively in the second quarter to 51.1% of revenue, while sales to North America dropped by about 9 percentage points to 32.0% during the same period.
The company said it expects sales to North America to improve as it ramps up the 28nm process.
While SMIC forecast that its third quarter sales will rise by as much as 3% from the $546.6 million the company recorded in the second quarter, it declined to offer an outlook for financial results in the final quarter of this year.
The company said it will ramp up two fabs in China during the second half of 2015 to meet customer demand. As a result, SMIC said its utilization rate is likely to drop to the high 90% range starting in the third quarter.
The company reiterated that its capital expenditure for 2015 foundry operations will be $1.5 billion, part of which will come from the Chinese government. SMIC’s planned capex is about a tenth that of TSMC, which in April cut its 2015 capex budget by $1 billion to fall within a range of $10.5 billion and $11 billion.
Playing Catch Up
SMIC needs to catch up with leading foundry rivals such as Samsung and TSMC, which are ramping 14nm and 16nm FinFET technology this year. TSMC has dominated the 28nm node for nearly five years.
SMIC’s most advanced technology node in the second quarter, 40/45nm, accounted for 15.3% of its total revenue, down from 16.0% in the first quarter this year. Its second-quarter revenue from 55/65nm products also dropped to 25.2% from 26.1% in the first quarter, while the company saw sales gains in less advanced 90nm and 0.13um products.
SMIC is planning to make its first 14nm FinFET products by 2020, helped by a Chinese government initiative to boost the domestic semiconductor industry. The company said it may be possible to achieve the target sometime ahead of 2020.
The world doesn’t stand still. In July, TSMC said it is on track with 10 nm development for a volume ramp in the fourth quarter of 2016. The company reiterated expectations for its 7 nm risk production to start in the first quarter of 2017.