Semiconductor Manufacturing International Corporation (981) Q4 FY2025 Earnings Call Transcript & Summary

[Interpreted] Welcome to Semiconductor Manufacturing International Corporation's Fourth 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 Fourth 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 contains forward-looking statements that do not guarantee future performance will 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 fourth quarter and full year of 2025, followed by our guidance for the first quarter of 2026. The fourth quarter results were as follows: Revenue was $2,489 million, up 4.5% sequentially. Gross margin was 19.2%, down 2.8 percentage points sequentially. Profit from operations was $299 million. EBITDA was $1,405 million. EBITDA margin was 56.5%. Profit attributable to the company was $173 million. The company's unaudited results for 2025 were as follows: Revenue was $9,327 million, up 16.2% year-over-year. Gross margin was 21%, up 3 percentage points year-over-year. Profit from operations was $1,110 million. EBITDA was $5,256 million. EBITDA margin was 56.4%. Profit attributable to the company was $685 million. Capital expenditures was $8.1 billion. Moving to the balance sheet. At the end of 2025, the company has total assets of $52.3 billion, of which total cash on hand was $11.9 billion. Total liabilities were $17.3 billion. of which total debt was $12.6 billion. Total equity was $35 billion. Debt-to-equity ratio was 36% and and net debt-to-equity ratio was 1.9%. In terms of cash flow, in 2025, net cash generated from operating activities was $3,194 million Net cash used in investing activities was $6,495 million. Net cash generated from financing activities was $2,676 million. For the first quarter 2026, our guidance are as follows: Revenue is expected to be flat sequentially, and gross margin is expected to be in the range of 18% to 20%. This concludes the financial status. Thank you.

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

[Interpreted] Good morning, everyone, with the Chinese New Year approaching, I'd like to wish you all an early happy New Year. Thank you for attending today's SMIC Fourth Quarter 2025 Earnings Webcast Conference Call. The fourth quarter remained strong despite being the traditional off-season. The company's revenue was $2,489 million, a sequential increase of 4.5% and -- the wafer revenue increased by 1.5% sequentially, while both the wafer shipment and blended ASPs slightly increase sequentially. Other revenue increased by 64% sequentially, mainly due to the bulk shipments of MAX at the end of the year. On the basis of the incremental 16,000, 12-inch wafers capacity in the quarter, the company's utilization rate remained at 95.7%. The overall 8-inch utilization rate exceeded 100% and the overall 12-inch was nearly fully loaded mainly due to the effect of industry reshuffling and iteration continuing. In the fourth quarter, the company's gross margin decreased by 2.8 percentage points sequentially to 19.2%, mainly because of the increase in depreciation. Looking back at the full year of 2025, the semiconductor industry chain shifted to localization from a model of overseas design, overseas production for domestic markets, and the reshuffling effects continue throughout the whole year. Analog products saw the fastest shift, followed by display driver, CIS, memory and then MCU, mixed-signal, logic and et cetera. Chinese local fabless sees the opportunity to gain shares in the supply chain. By targeting customers demand for segmented products, accelerating product verification and ramping of production volume, the company's performance in 2025 reached a new high with a new leap in its production and revenue scale. According to the unaudited financial results, the company's revenue in 2025 increased by 16.2% year-over-year to $9,327 million had a record high. Gross margin was 21% and up 3 percentage points year-over-year. By region, revenue percentage from China, America and Asia in 2025 accounted for 85% of 12% and 3%, respectively, remained flat compared to last year. From the perspective of the absolute revenue based on the aforementioned industrial chain reshuffling and overall market demand growth. Revenue from Chinese customers increased by 18% year-over-year. And revenue from overseas customers increased by 9% year-over-year. By size, wafer revenue percentage from 12-inch and 8-inch accounted for 77% and 23%, respectively, flat compared to last year. From the perspective of the absolute revenue, 12-inch and 8-inch increased by 17% and 18%, respectively. Wafer revenue percentage by application smartphone, computer and tablets, consumer electronics, connectivity and IoT, industrial and automotive accounted for 23%, 15%, 43% and 8% and 11%, respectively, benefiting from accelerated reshuffling of the automotive supply chain as well as the company's platform deployment over the past 2 years. The absolute wafer revenue from industrial and automotive increased by more than 60% year-over-year, benefiting from the boost of national consumer stimulus policies and the growth in international demand driving the increase in China exports. The absolute wafer revenue from consumer electronics increased by more than 30% year-over-year. The company's capital expenditure in 2025 was $8.1 billion, higher than originally projected at the beginning of the year. This was primarily driven by the need to address robust customer demand, changes in the external environment and extended over time of equipment leading to the advanced procurement of planned capacity. Monthly capacity was 1,059,000 standard logic 8-inch equivalent wafers by the end of the year. increased by around 111,000 wafers compared to the end of previous year. Total shipments reached around 9.7 million wafers. And annualized capacity utilization rate increased by 8 percentage points year-over-year to 93.5%. Looking ahead to 2026, the effect of industrial chain reshoring from overseas and domestic customers new products replacing legacy overseas products will persist, creating sustained incremental growth opportunities for the domestic industrial chain. The impact of the memory macro cycle to the industry and foundry sector was discussed during the November earnings conference call. Over the past 2 months, we have engaged in extensive discussions with partners across the industrial chain. Our findings show that the robust demand for memory chips driven by AI has squeezed the supply for other application sectors, such as mobile phones, particularly in the mid to low end markets. Consequently, end user companies in these segments are facing pressure from both tight supply and rising prices for memory chips. Even if end user companies can pass on this cost increase to consumers via end product price rises, such moves will lead to a decline in demand for end products. The combined effect of these factors has resulted in a decline in mid- to low-end others received by foundries. However, orders related to AI membrane and mid- to high-end applications are increasing. In such market environment, leveraging its technological reserves and leading advantages in segmented markets such as BCD, analog, memory, MCU, and meet to high-end display driver together with customers product layout, the company is still well positioned in the current industry development cycle. The company will proactively address urgent market demand to drive continued revenue growth in 2026. Combining the above factors, the company's first quarter guidance is as follows: Revenue is expected to be flat sequentially, and the gross margin is expected to be in the range of 18% to 20%. Based on the premise that there is no significant changes in the external environment. The company's guidance for the year 2026 are -- the revenue growth is expected to be higher than industry average in the same market and the capital expenditure is expected to be roughly flat compared to that of 2025. Let me give some comments for the 2026 company's outlook. Firstly, in the past few years, the company has stepped up investment and accelerated capacity expansion, the company added around 50,000 12-inch capacity in 2025 and continues to expand capacity in 2026. However, due to the impact of external factors, the company has procured some key equipment in advance while the supporting equipment may not be purchased yet. This timing difference has brought an even situation that the procured equipment may not be able to form production lines this year. Based on the current situation, it is estimated that by the end of this year, the increase in monthly capacity will be around 40,000 12-inch equivalent wafers compared to the end of last year. Secondly, in order to actively seize local manufacturing opportunities, the company has maintained a high level of investment which has driven rapid revenue growth, but also placed high depreciation pressure on gross margins. As new fab exists, start-up phase and begin depreciation, the company's 2026 total depreciation is expected to grow around 30% year-over-year. To counter this pressure, the company will focus on internal optimization by striving to maintain high utilization and improve cost efficiency through operational enhancements. From the perspective of current operations management, the core factor influencing changes in gross margin is the increase in depreciation per unit of revenue. For other influencing factors, the company aims to mitigate the impact through proactive management. We firmly believe that jury success is built on a long-term foundation through persistent effort. After 25 years of forging ahead through trials hardships and hard work. We are more confident than ever to participate in support and drive the all around development of the upstream and downstream of the local IC industry. The company will always focus on customer service and market demand, solidly advance the construction of high-quality capacity. Facilitate the synergetic development of the industrial chain, reduce cost and increase efficiency by boosting new productive forces sees the current market opportunities drive the launch and sustainable development of the company and create long-term value for shareholders. Finally, we would like to extend our sincere thanks to friends who care and support the development of the company.

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. Please limit your questions to 2 per person. 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.

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

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

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[Interpreted]. Next question comes from Jian Hu of Guosen Securities.

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[Interpreted] Thank you all very much for your questions. I'll now turn the conference back to Ms. Guo Guangli for closing remarks.

[Interpreted]. Thank you for participating in today's conference call. Thank you for your trust and support.

[Interpreted] This concludes SMIC's Fourth Quarter Webcast Conference Call. We thank you for joining us today.