BEIJING, February 7 (TMTPost)-- Latest financial results of Semiconductor Manufacturing International Corporation (SMIC) reflected ongoing recovery of demand for semiconductors even though China’s top chipmaker recorded significant yearly fall in profit.

Credit：Visual China

For the quarter ended December 31, 2023, SMIC posted revenue of US$1.68 billion with a year-over-year (YoY) increase of 3.5% , beating Wall Street expectation of US$1.66 billion and also slightly more than the company’s guidance. The figure suggested SMIC sales rose 3.6% from the previous quarter, marking a quarter-over-quarter (QoQ) gaining streak over a year. Net income in the last quarter plunged 54.7% YoY to US$174.68 million, still topping analyst estimated US$139.1 million. The quarterly gross profit dropped 47% YoY to US$275.0 million, compared with US$321.6 million in the quarter ended September. The gross margin decreased to 16.4% , down from 32.0% in the previous quarter and 19.8% the same period a year earlier, though the margin was roughly in line with the guidance.  

For the year 2023, SMIC revenue stood at US$6.32 billion, down 13% YoY, and annual gross margin was 19.3%, basically in line with the company’s guidance provided in the beginning of 2023. Looking forward the first quarter of 2024, SMIC expected revenue to be flat to up 2% sequentially, and the quarterly gross margin to be in the range of 9% to 11%. Assuming there are no significant changes in the external environment, SMIC expected revenue growth in the full year to be no less than the industry average in the same markets, recording around mid-single-digit YoY percentage growth, and the capital expenditure for the year to maintain roughly flat compared to 2023.

SMIC noted its significant YoY decline in profit took place amid the bottom of the cycle that the semiconductor industry experienced over the past year, specifically, the weak demand in the global market and elevated industry inventories with slowdown of de-stocking. In addition, fierce competition within the industry resulted in dropping average capacity utilization. Capacity utilition in the fourth fell 2.7 points YoY to 76.8%, compared with 77.1% a quarter ago. SMIC forecast showed the utilization would drop further to 75% in the current quarter.

Smartphone and computer and tablet remained major source of SMIC income. Revenue from smartphone accounted for 30.2% of the company’s overall wafer revenue in the fourth quarter, up from 25.9% in the previous quarter and 28.6% from a year earlier. Computer and tablet generated 30.6% of SMIC’s wafer revenue in the December quarter, compared with 29.2% in the third quarter and 19.9% the same quarter of 2022. There are signs that the semiconductor industry may reover the coming year, driven by increased demand from smartphones, computers and other consumer electronics.

The less-than-expected decline in profit mirrored strong demand for handsets of Huawei Technologies Ltd, which partially offset weakness of the whole market. SMIC is believed to plays a key role in Huawei’s staggering 5G comeback with launch of new smartphone flagship months ago.  Huawei surprisingly launched a presale for Mate 60 Pro priced at RMB6,999 (US$960) on August 29 2023 even it has not officially released the model. While Huawei didn’t provide details about technical specifications or whether the phone supports the 5G network, Chinese media outlets said online tests proved Mate 60 Pro can deliver the internet speed of 5G. Multiple reports attributed Mate 60’s 5G connectivity to Kirin 9000s chipset, which was deemed as evidence that Huawei managed to defy years of U.S. sanctions.

Apple first became the leading smartphone vendor in Chinese smartphone market with the highest ever market share of 17.3% in 2023, but its shipment in the fourth quarter dropped 2.1% YoY ,data from the International Data Corporation (IDC) late January showed. In the fourth quarter, Huawei returned to the top five ranking by shipments after more than two years, according to IDC. Huawei’s shipments surged 36.2% YoY and its market share accordingly strode to the fourth with a share of 13.9%, up 3.6 percentage points from a year ago. Huawei is the only company in the top five that recorded positive YoY growth of shipments in the last quarter.

Huawei ranked first in China in terms of smartphone sales during the initial two weeks of 2024, overtaking arch rivals like Apple, OPPO, vivo and Xiaomi, according to Counterpoint Research, a global technology market research firm.This is the first time for Huawei’s to ascend to the top spot since the sanctions imposed by the U.S. government in 2019 have continuously eroded its sales share.

The Huawei Mate 60 series, powered by its in house Kirin 9000S chip, is a key driver of Huawei’s recent success, Counterpoint report said earlier this month, adding that the strong brand loyalty and the successful launch of the HarmonyOS operating system also fueled the success. The report estimated that China’s high-end smartphone market grew by 27% in 2023. While Apple maintained the leadership in the market with its outstanding performance in the first half of 2023, its market share began to be eroded by Huawei and other Chinese brands from the third quarter of the year. Counterpoint also expects Chinese brands will continue their efforts to capture shares in the high-end market.