Semiconductor Manufacturing International Corporation (0981.HK) Earnings Call Transcript & Summary

[Foreign Language] Welcome to the Semiconductor Manufacturing International Corporation's Third Quarter 2025 Webcast Conference Call. Today's call will be simultaneously streamed through the Internet and telephone. [Operator Instructions] Without further ado, I would like to introduce Ms. Guo Guangli, Senior Vice President and Board Secretary, to host the webcast.

[Interpreted] Greetings. Welcome to SMIC's Third Quarter 2025 Webcast Conference Call. Attending today's call are Dr. Zhao Haijun, Co-Chief Executive Officer; Dr. Wu Junfeng, Senior Vice President and Person in charge of Finance. Let me remind you that today's presentation may contain forward-looking statements that do not guarantee future performance, but represent the company's expectations and are subject to inherent risks and uncertainties. Please refer to the forward-looking statements in our earnings announcement. Please note that today's earnings statement is presented in accordance with International Financial Reporting Standards, IFRS, and currency figures are in U.S. dollars, unless otherwise stated. I will now hand the call to Dr. Wu Junfeng to introduce the company's financial status.

[Interpreted] First, I will report our unaudited results for the third quarter followed by our guidance for the fourth quarter. The third quarter results are as follows: revenue was $2,382 million, up 7.8% sequentially. Gross margin was 22%, up 1.6 percentage points sequentially. Profit from operations was $351 million. EBITDA was $1,430 million. EBITDA margin was 60%. Profit attributable to the company was $192 million. Moving to the balance sheet. At the end of the third quarter, the company had total assets of $49.4 billion, of which, total cash on hand was $11.4 billion. Total liabilities were $16.4 billion, of which total debt was $11.5 billion. Total equity was $33.1 billion. Debt-to-equity ratio was 34.8%, and net debt-to-equity ratio was 0.4%. In terms of cash flow, in the third quarter, net cash generated from operating activities was $941 million, net cash used in investing activities was $2,062 million. Net cash used in financing activities was $490 million. For the fourth quarter 2025, our guidance are as follows: revenue is expected to be flat to up 2% sequentially, and gross margin is expected to be in the range of 18% to 20%. This concludes the financial status. Thank you.

[Interpreted] Thank you, Dr. Wu. Next, I will hand the call to Dr. Zhao Haijun to comment on operations.

[Interpreted] Morning, everyone. Thank you for attending SMIC's Third Quarter 2025 Earnings Webcast Conference Call. In the third quarter, the company's revenue was $2,382 million, a sequential increase of 7.8%. By the end of the third quarter, the monthly capacity reached 1 million wafer level, totaling 1,023,000 standard logic 8-inch equivalent wafers. Wafer revenue from 12-inch and 8-inch accounted for 77% and 23%, respectively, with proportion stable. The utilization rate was 95.8%, and wafer shipment continued to increase by 4.6% sequentially to 2,499,000 standard logic 8-inch equivalent wafers, mainly because the industrial chain has been reshuffling at an accelerated pace, and distributors continuously stocked up and replenished their inventory. The company actively collaborated with customers to ensure their shipments. Blended wafer price increased by 3.8% sequentially, mainly due to the product mix change with higher growth in shipments for complex process products. In the third quarter, in terms of revenue by region, China, America and Asia accounted for 86%, 11% and 3%, respectively. The absolute revenue from China region increased by 11% sequentially, mainly due to the customers' demand for shipment pull-in, driven by the accelerated industrial chain reshuffling as mentioned earlier, coupled with the continuous expansion of the domestic market. To support urgent needs, the company adjusted its capacity allocation, leading to fluctuations in the quarterly revenue proportion by region. By application, wafer revenue from smartphone, computer and tablets, consumer electronics connectivity and IoT, industrial and automotive accounted for 22%, 15%, 43%, 8% and 12%, respectively. Among that, consumer electronics increased by 15% sequentially, primarily because during the phase when domestic companies have accelerated their replacement of overseas peers' market share. The company's customers with long-term-oriented partnership have seized opportunities in the industrial chain. Therefore, supply chain demand remained robust for various electronic products, such as diversified home appliance. In the third quarter, the company's gross margin was 22%, increased by 1.6 percentage points sequentially, mainly because the utilization rate increased. The increase in output offset the impact of rising depreciation. According to the unaudited results, for the first 3 quarters, the company's revenue reached $6,838 million, up 17.4% comparing to the same period last year. The gross margin was 21.6%, up 5.3 percentage points comparing to the same period last year, and the capital expenditure totaled $5.7 billion. The fourth quarter follows traditional seasonal pattern. Customers slowed down their stock up. However, the effect of industry reshuffling and iteration continues, leading to a busier-than-expected season, thus, the company's fourth quarter revenue is expected to be flat to up 2% sequentially, and the overall production line continues to keep fully loaded. The gross margin is expected to be in the range of 18% to 20%, the same level as the guidance for the third quarter. According to this guidance, the company's full year revenue is expected to exceed $9 billion, marking a new milestone in its revenue scale. In terms of product platforms, the company has continued to strengthen its layout. So far this year, specialty technologies have demonstrated steady progress across multiple platforms. 28-nanometer ULP logic process has entered production, providing customers with lower power consumption and higher quality solutions. Continuous technology iterations in CIS and ISP processes have enhanced light sensitivity capability, image quality and signal-to-noise ratio. While optical process platforms have been developed to cover a broader range of wave bands, the embedded memory platforms has been expanded from consumer to automotive grade and industrial MCU fields. Specialty memories like NOR Flash and NAND Flash have delivered high reliability platform with higher density, smaller size and lower power consumption. Additionally, the company has seized the growth opportunities in automotive chip market by launching multiple specialty processes, such as automotive grade of sensors, BCD, MCU, RF, memory and display, providing customers with system-level solutions. So far this year, excluding AI, other major application fields have achieved moderate growth or return to stability. During the reshuffling and iteration in the domestic industrial chain, the company has worked together with customers to seize opportunities and become a reliable supplier, thus ensuring sustainable orders for the company, both present and in the foreseeable future. Currently, the company's production lines are still in short supply overall, and the shipment volume cannot meet customer needs. I will conclude my presentation here as we anticipate the successful completion of 2025. Finally, we sincerely thank all customers, suppliers, investors and community for your strong support. Thank you all.

[Interpreted] Thank you, Dr. Zhao. Next is our Q&A session. Questions will be answered by Dr. Zhao and Dr. Wu. Chinese questions will be answered in Chinese. English questions will be answered in English. [Operator Instructions] I would now like to open up the call for Q&A. Operator, please assist.

[Interpreted] [Operator Instructions] Your first question comes from Leping Huang of Huatai Securities.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Interpreted] Your next question comes from [indiscernible] of Orient Securities.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Interpreted] Your next question comes from Ziyuan Wang of Citic Securities.

[Foreign Language]