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

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Hello, and welcome to the SMIC Third Quarter 2026 webcast conference call. Joining us on today's call are Dr. Zhao Haijun, Co-Chief Executive Officer, and Dr. Wu Junfeng, Senior Vice President and Person in Charge of Finance.

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I should remind everyone that this presentation includes forward-looking statements, which are not promises of future results but reflect what the company expects and carry inherent risks and uncertainties. Kindly see the forward-looking statement included in our earnings announcement. Also be aware that the earnings statement today follows International Financial Reporting Standards, or IFRS, and unless otherwise noted, currency amounts are stated in US dollars.

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I'll now pass the call over to Dr. Wu Junfeng, who will walk us through the company's financial status.

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To start, I'll share our unaudited third-quarter results, and then I'll walk through our guidance for the fourth quarter.

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For the third quarter, here is what the results looked like. Revenue came in at $3,190 million, which represents a 6.1% increase from the prior quarter. Gross margin stood at 29.9%, a rise of 4.6 percentage points quarter over quarter. Profit from operations reached $710 million. EBITDA totaled $2,040 million. The EBITDA margin was 63.9%. Profit attributable to the company amounted to $428 million.

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Turning to the balance sheet, when the third quarter closed, total assets for the company stood at $59.1 billion, and total cash on hand within that figure came to $13.4 billion. Total liabilities amounted to $20.4 billion, including total debt of $14.9 billion. Total equity came in at $38.7 billion. The debt to equity ratio was 38.5%, while the net debt to equity ratio was 3.9%.

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When we look at cash flow for the third quarter, operating activities brought in $1,182 million in net cash. Investing activities used $2,104 million in net cash. Financing activities generated $910 million in net cash.

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Looking ahead to the fourth quarter of 2026, here is the guidance we're providing. We expect revenue to grow 4%-6% on a sequential basis, and for gross margin, we anticipate it will land somewhere in the 26%-28% range.

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This concludes the financial status. Thank you.

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Thank you, Dr. Wu. Dr. Zhao Haijun will now take over to share some remarks about operations.

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Hello, everyone. Thank you for attending SMIC's third quarter 2026 earnings call.

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During Q3, total company revenue reached an all-time record of $3.19 billion, which was up 6.1% from the prior quarter. Versus three months earlier, we've seen that the added growth in customer pull-in demand for AI peripheral chips, including BCD, specialty memory, and controller, came in stronger than we originally anticipated, pushing third quarter revenue past the top end of our guidance range; on volume, the company sped up qualification of new production lines and shifted existing capacity around flexibly. For the first time, quarterly shipments topped 3 million 8-inch equivalent standard logic wafers, rising 5.7% sequentially. Regarding pricing, prices agreed with customers were rolled out in phases. Product mix kept getting better, and blended wafer ASP increased 1.8% quarter-over-quarter.

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Moving on, let's examine how revenue broke down for the company in the third quarter. Looking at regional revenue, China represented 90.8%, America 7.8%, and Eurasia 1.4%. Sequentially, revenue from China rose 7%, largely because demand growth from Chinese customers was higher than the company's overall level. To satisfy that customer demand, the company shifted capacity in response. In terms of size, 12 in and 8 in wafer revenue made up 79% and 21% respectively, with the mix holding steady. Sequentially, wafer revenue from 12 in grew 9% and from 8 in grew 4%, backed by strong customer demand and the company's capacity expansion, which is focused mainly on 12 in production lines.

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Looking at wafer revenue by application, smartphones made up 14%, computers and tablets 18%, consumer electronics 41%, connectivity and IoT 7%, and industrial and automotive 19%. In terms of absolute revenue, smartphone and consumer electronics fell 8% and 1% quarter over quarter, with demand still soft. Demand across the broader market for computers and tablets, industrial and automotive, and connectivity and IoT was largely flat. That said, the company gained from reshuffling in the domestic supply chain and from its forward-looking platform deployment, with relative revenue rising 26%, 26%, and 18% respectively on a quarter-over-quarter basis; for instance, the company already has a comprehensive BCD low, medium, and high voltage portfolio in place across industrial and automotive applications, providing a diverse range of differentiated devices and processes, supporting up to automotive Grade zero. This product portfolio spans BMS, AFE, SBC, digital isolator, isolated sensing and power, and smart power switches, so as to fully capture incremental demand, particularly demand for high value-added products.

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During Q3, gross margin for the company rose 4.6 percentage points on a sequential basis, reaching 29.9%. The primary driver was urgent pull-in requests from customers. To help meet those shipment needs, the company cut back in a corresponding way on engineering and R&D wafer runs, while monthly capacity was lifted by another 20,000 wafers measured on an 8 in equivalent standard logic wafer basis. Utilization rate went up 3.6 percentage points quarter-over-quarter, hitting 97.3%. Output climbed by a high single digit percentage quarter-over-quarter, and that significantly diluted per wafer unit cost; it more than offset the drag on gross margin from a 2.3% quarter-over-quarter increase in depreciation expense, producing a sequential gain in gross margin and surpassing the top end of guidance.

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The fourth quarter is tracking the usual seasonal trend. Even so, we expect the company's results to stay resilient. Mobile and certain consumer orders have been soft, but we have shifted capacity with flexibility across multiple platforms toward specialty memory, BCD, and other products that are high-demand and high-value-added. Looking at the fourth quarter, the company anticipates shipment volume will hold steady. Product mix changes, together with market-based pricing, will push blended ASP higher. We expect revenue to rise 4%-6% quarter over quarter. Meanwhile, cost pressures keep building from depreciation, raw materials, and other items. On top of that, the company is raising engineering and R&D wafer runs during the fourth quarter. Consequently, with capacity continuing to grow, utilization rate will dip slightly. As a result, the company's gross margin should come in flat against prior quarter guidance of 26%-28%.

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Looking at unaudited results for the first three quarters plus the midpoint of our fourth quarter guidance, we expect full-year revenue above $12 billion, which works out to almost 30% growth compared with a year ago. Gross margin should come in near 26%, up about 5 percentage points, while total depreciation is set to rise roughly 30% year over year. Meanwhile, the global equipment supply chain is still tight, lead times have stretched out, and when some equipment will actually arrive is still unclear. That won't affect how we carry out this year's expansion plan, but it could make full-year CapEx implementation bumpy.

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When we look out over the period ahead that we can reasonably see, visibility into the industry comes down mainly to a couple of things. The first is that demand tied to AI should stretch out the semiconductor upcycle, and that comes alongside changes in where growth shows up and in how the cycle behaves. The second is that localization keeps spreading across the whole industry chain. With that as the backdrop, our company draws on its strategic relationships with customers and keeps pace with how Chinese customers innovate, which strengthens our edge in specialty and customized processes. So we add capacity in line with what customers demand, and we build a leading position through a product mix that is high value-added and high quality, work to keep EBITDA steady, meaning our ability to generate operating cash, and sharpen how well we control costs and how efficiently we operate; all of this will make our business more resilient through cycles and help us deliver high-quality sustainable growth.

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And to wrap up, we want to express our genuine gratitude to every customer, supplier, investor and member of the community for your understanding and the strong support you have given us. Thank you, everyone.

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Thanks, Dr. Zhao. Now we move to the Q&A portion. Dr. Zhao and Dr. Wu will take your questions. If you ask in Chinese, the answer will come in Chinese. If you ask in English, the answer will come in English. Each person should keep it to 2 questions. At this point I'd like to open the call for Q&A. Operator, please assist.