Semiconductor Manufacturing International Corporation(00981): Riding on the tailwind of "national subsidy", can it withstand the cycle?

Corporation20% Semiconductor Manufacturing International Corporation2024PCCorporation benefits from the push for localization and other demand factors such as transfer orders; 3) Semiconductor Manufacturing International Corporation already has the capability to enter the 10nm and below technology. Therefore, from the perspective of certainty and growth, Semiconductor Manufacturing International Corporation is currently superior to TSMC, and the market also gives Semiconductor Manufacturing International Corporation a relatively higher valuation.Influenced by the demand for localization, the company's impact from the semiconductor cycle has weakened. Revenue continued to grow, with gross margin stabilizing around 20%. Semiconductor Manufacturing International Corporation gradually revealed its profitability, bringing more expectations to the market. Here is a detailed analysis: 1. Core indicators for Semiconductor Manufacturing International Corporation: revenue, gross margin, and capacity utilization rate Core Indicator 1: Revenue In the fourth quarter of 2024, Semiconductor Manufacturing International Corporation achieved revenue of $2.207 billion, an increase of 1.7% compared to the previous quarter, within the guidance range (growth of 0-2% compared to the previous quarter). The company's shipment volume decreased slightly this quarter, while prices continued to rise significantly. Analyzing the factors that influenced the revenue growth of Semiconductor Manufacturing International Corporation this quarter from the perspectives of volume and price: Volume: The wafer shipment volume (equivalent to 8 inches) of Semiconductor Manufacturing International Corporation reached 1,992 thousand pieces this quarter, a decrease of 6.1% compared to the previous quarter. Price: The revenue per wafer (equivalent to 8 inches) for Semiconductor Manufacturing International Corporation this quarter was $1,108, an increase of 8.3% compared to the previous quarter. Looking at the breakdown of volume and price, the revenue this quarter has improved mainly due to the increase in product prices, while the shipment volume of the company's products has decreased. The increase in the average product price this quarter is mainly due to the increase in the proportion of 12-inch product shipments, structurally raising the company's average product price. Additionally, the company's capital expenditures increased to $1.66 billion this quarter, a 40.8% increase from the previous quarter. This increase is influenced by seasonal factors at the end of the year and the accelerated pace of importing some equipment due to export restrictions in Western countries. For the first quarter of 2025, Semiconductor Manufacturing International Corporation has provided guidance for a 6-8% sequential growth in revenue, corresponding to $2.34-2.38 billion, better than market expectations (falling to $2.13 billion compared to the previous quarter). With the drive from downstream 12-inch wafer demand, the company's revenue continues to rise. Core Indicator 2: Gross Margin In the fourth quarter of 2024, Semiconductor Manufacturing International Corporation's gross margin was 22.6%, an increase of 2.1 percentage points compared to the previous quarter, exceeding market expectations (19.1%) and the upper end of the guidance range (18-20%). Analyzing the reasons for the change in the gross margin of Semiconductor Manufacturing International Corporation this quarter: Gross Margin = Wafer Revenue - Fixed Costs per Wafer - Variable Costs per Wafer 1) Wafer Revenue: The revenue per wafer (equivalent to 8 inches) for Semiconductor Manufacturing International Corporation this quarter was $1,108, an increase of $85 per wafer compared to the previous quarter. 2) Fixed Costs per Wafer (Depreciation and Amortization): The fixed cost per wafer (equivalent to 8 inches) this quarter was $396, an increase of $72 per wafer compared to the previous quarter. 3) Variable Costs per Wafer (Other Manufacturing Expenses): The variable cost per wafer (equivalent to 8 inches) this quarter was $462, a decrease of $28 per wafer compared to the previous quarter. 4) Gross Margin per Wafer: The gross margin per wafer (equivalent to 8 inches) for Semiconductor Manufacturing International Corporation this quarter was $251, an increase of $41 per wafer compared to the previous quarter. Through the cost breakdown, it is found that the main source of the increase in gross margin this quarter comes from the increase in average product prices. Although the unit fixed costs (depreciation and amortization) increased this quarter, the unit variable costs decreased, ultimately driving the increase in the company's gross margin per wafer this quarter. The recent increase in gross margin for Semiconductor Manufacturing International Corporation is mainly driven by the increase in average selling prices. Changes in shipment volume will also affect the company's unit cost items at the scale level. For the first quarter of 2025, Semiconductor Manufacturing International Corporation continues to provide guidance for a gross margin of 19-21%, better than market expectations (18.4%). Although the semiconductor cycle has yet to fully recover, the company benefits from the drive of domestic demand and the increase in the proportion of 12-inch wafers, leading to an overall stable and positive gross margin trend. Under the impact of the previously high capital expenditures, the depreciation and amortization situation of the company will increase. The expansion of the company's production capacity can also to some extent dilute the company's unit costs. The increase in the proportion of 12-inch wafers, driving the average selling price up, is the main reason for the recent increase in gross margin. Core Indicator 3: Capacity Utilization Rate The capacity utilization rate indicator not only reflects the operating conditions of Semiconductor Manufacturing International Corporation in the quarter but also reflects the overall semiconductor industry.Trends in the vitality of the circular manufacturing industry. During relatively sluggish periods in the semiconductor industry, paying attention to capacity utilization indicators can help understand the supply and demand changes within companies and the industry.In the fourth quarter of 2024, Semiconductor Manufacturing International Corporation's capacity utilization rate was 85.5%, which saw a slight decline from the previous quarter. The Dolphin believes that the current demand still shows structural characteristics, with relatively good demand for 12-inch wafers, while demand for 8-inch wafers remains weak, directly impacting the company's capacity utilization rate for this quarter. 2. Business aspects of Semiconductor Manufacturing International Corporation After looking at the three core indicators, let's take a comprehensive look at Semiconductor Manufacturing International Corporation's quarterly business performance: 2.1 Various downstream markets In this quarter, the revenue from Smartphone business of Semiconductor Manufacturing International Corporation accounted for 24.2%, although it has decreased proportionally, the quarterly revenue is still around 500 million US dollars. The proportion of revenue from consumer electronics business this quarter continued to maintain a relatively high level of 40.2%, which is the company's largest source of revenue. Under the influence of subsidy policies, the company's revenue from consumer electronics has shown a significant increase in the past two quarters (combined with Qualcomm's IoT business, which also saw a 36% growth year-on-year). The company has segmented its other businesses, with the proportion of revenue from computer and tablet business increasing to 19.1% this quarter, while the proportion of industrial and automotive business remains at 8.2%. Driven by subsidy policies, the computer and tablet business of the company has continued to increase, while the industrial and automotive business remains stable. Taking into account the performance of various downstream businesses, the revenue growth of the company this quarter is mainly driven by consumer electronics and computer and tablet businesses, both benefiting from the push of subsidy policies. With the reinforcement of the subsidy policy in 2025, the company's smartphone business is also expected to see a rebound. 2.2 Various wafer sizes Since the first quarter of 2022, Semiconductor Manufacturing International Corporation no longer discloses the revenue distribution of each process node, but only the revenue distribution of 8-inch and 12-inch wafers, which makes it difficult to see the changes in revenue for each node. This quarter, the proportion of revenue from 12-inch wafers continued to reach a new high for Semiconductor Manufacturing International Corporation, at 80.6%. Specifically looking at the proportion of the two sizes and the company's revenue, the revenue from 12-inch chips for Semiconductor Manufacturing International Corporation this quarter saw a 4.4% increase compared to the previous quarter, while the revenue from 8-inch wafers saw an 8.3% decrease. Overall, the current semiconductor market (consumer electronics and PC products) has a good demand for 12-inch wafers, while the demand for 8-inch wafers remains weak. With the increase in the proportion of 12-inch wafers, the company's product shipping average price and gross profit margin have both steadily increased. 2.3 Distribution in various regions Semiconductor Manufacturing International Corporation has re-adjusted the distribution of regional revenue, from the original "North America/China Mainland and Hong Kong/Europe and Asia" to the current "China region/United States region/Euro-Asia region". Due to the adjustment in accounting standards, there are slight differences in the data. Looking at the regional revenue for this quarter, the revenue from the China region continued to increase to 89.1%, making the domestic market increasingly important for the company's performance. In January, the US BIS once again issued a semiconductor ban, expanding the scope of restrictions, which will further drive the demand for semiconductor companies to shift orders to domestic manufacturing plants, leading to an expected further increase in revenue from the China region. The shift of demand towards domestic manufacturing, mainly for 12-inch wafers, has also boosted the company's operational performance. Although the traditional semiconductor industry has not shown significant signs of recovery, the demand for domestic manufacturing is an important driving force for the company at present. 3. Financial data of Semiconductor Manufacturing International Corporation 3.1 Operating expenses From the perspective of operating expenses, the operating expenses of Semiconductor Manufacturing International Corporation this quarter were 285 million US dollars, slightly higher mainly due to an increase in research and development expenses and administrative expenses. The operating expenses for this quarter remain at 12.9%. Breaking down the operating expenses for this quarter, research and development expenses were 217 million US dollars, general and administrative expenses were 167 million US dollars, and sales and marketing expenses were 10 million US dollars. The increase in general and administrative expenses is mainly due to the expenses related to the opening of new factories in the fourth quarter. 3.2 Operating indicators: Looking at the operating indicators, we mainly observe the company's inventory and accounts receivable: Semiconductor Manufacturing International Corporation had a inventory of 2.958 billion US dollars, an increase of 2.8% compared to the previous quarter; Semiconductor Manufacturing International Corporation's accounts receivable this quarter were 840 million US dollars, a decrease of 10.5% compared to the previous quarter. Taking into account the relationship between inventory & accounts receivable and revenue in the balance sheet, the inventory/revenue and accounts receivable/revenue for this quarter were 134% and 38.1% respectively. From the perspective of operating indicators, Semiconductor Manufacturing InteThe inventory ratio of National Corporation has slightly increased. As the traditional semiconductor industry has not yet experienced a full recovery, the current business operation of the company also shows a structural characteristic of "strong demand for 12-inch wafers, weak demand for 8-inch wafers", which has an impact on the inventory.Combining the company's inventory and capacity utilization data, we can basically see the trend of the company's business changes. When the inventory/revenue ratio exceeded 100% at the end of 2022 and continued to rise, the company clearly lowered its capacity utilization rate. However, as downstream customer demand improved and inventory began to be depleted, the company gradually increased its capacity utilization rate. In the current quarter, when the inventory ratio of the company did not continue to decline, the company also lowered its capacity utilization rate to 85.5% again. 3.3 EBITDA Indicator: From the perspective of EBITDA, Semiconductor Manufacturing International Corporation's pre-tax profit before interest, taxes, depreciation, and amortization was $1.28 billion in the current quarter, continuing to rise. Breaking down the indicators, Semiconductor Manufacturing International Corporation's pre-tax profit before interest, taxes, depreciation, and amortization mainly comes from the release of operating profit and depreciation and amortization. Calculated profit margin (pre-tax profit before interest, taxes, depreciation, and amortization) in the current quarter remains at 58%. Due to the heavy asset nature of the manufacturing industry, most of the company's profits are eroded by depreciation and amortization. This article is reprinted from the "Dolphin Research" official account, edited by GMTEight: Li Fo.