SMIC and Hua Hong Semiconductor grew significantly last quarter, thanks to domestic substitution

On November 12, 2019, Chinese mainland foundry duo SMIC and Hua Hong semiconductor released their third-quarter 2019 financial reports on the same day, benefiting from domestic substitution, and both achieved growth compared to the previous quarter.

SMIC has further shortened the gap in advanced technologies, and the research and development of FinFET technology has continued to move forward. The first-generation FinFET has been successfully mass-produced, and will contribute meaningful revenue in the fourth quarter; the research and development of the second-generation FinFET is progressing steadily, and customer introduction is progressing smoothly . At the same time, the demand from customers in China is strong, and the revenue accounts for 60.5%. The company said that it will fully benefit from the extensive business opportunities brought about by the market’s migration to the 5G standard, make adjustments and restart growth.

As a leader in featured technology, Hua Hong Semiconductor’s MCUs, super junctions, IGBTs, general-purpose MOSFETs, power management chips and analog products have strong revenue and will play an indispensable role in 5G innovation. At the same time, the demand from customers in China was strong, and the revenue accounted for 62.2%. The 12-inch wafer fab in Wuxi started production this quarter, and several customers’ products have been verified online, and the yield rate of two products has reached 90%.

1. Analysis of SMIC’s third quarter financial report in 2019

The financial report shows that the company achieved revenue of US$816 million in the third quarter, an increase of 3.2% month-on-month; gross profit was US$170 million, an increase of 12.3% month-on-month; gross profit margin was 20.8%, while in the second quarter was 19.1%.

From the point of view of net profit, this quarter made a profit of 85 million US dollars, while the previous quarter was a loss of 25.82 million US dollars; while the profit in the same period last year was only 7.6 million US dollars.

From the perspective of R&D investment, R&D expenditures in this quarter were US$185 million, an increase of 1.5% from US$182 million in the previous quarter.

In terms of process nodes: 4.3% for 28nm, 18.5% for 40/45nm, 29.3% for 55/65nm, 1.3% for 90nm, and 6.6% for 110/130nm , 150/180 nm is 35.8%, 250/350 nm is 4.2%. It can be seen from the data that the proportion of advanced process revenue has declined slightly. The total proportion of 40/45 nanometer and 28 nanometer in this quarter is 22.8%, a decrease of 0.2 percentage points from 23% in the previous quarter, but compared with the same period last year. 25.8% decreased by 3 percentage points.

From the perspective of application fields, the communication field is still the largest, reaching 46.1%, a decrease of 2.8 percentage points from the previous quarter; consumer electronics 34.9%, an increase of 3.8 percentage points from the previous quarter, automotive/industrial 4.8 percentage points %, a decrease of 1.9 percentage points from the previous quarter, 5.6% for computers and 8.6% for others.

From the perspective of regional markets, revenue from mainland China and Hong Kong exceeded 60%, reaching 60.5%, an increase of 3.6 percentage points from the previous quarter; revenue from North America fell again, from 27.5% in the previous quarter. % fell to 24.7% compared to 32.3% in the first quarter; the Eurasian region’s share fell to 14.8% from 15.6% in the previous quarter.

In terms of production capacity, SMIC’s monthly production capacity exceeded 1.33 million wafers this quarter, equivalent to 8-inch wafers, a decrease of 120,000 wafers from the previous quarter, mainly due to the company’s sale of its 8-inch wafer fab in Avezzano, Italy. The quarterly production capacity is 130,000 pieces. At the same time, we also found that Shanghai’s 8-inch production capacity has decreased by 10,000 pieces quarterly; while the total quarterly production capacity of Tianjin and Shenzhen plants has increased by 10,000 pieces, and the production capacity of Beijing’s 12-inch plant is also expanding.

In terms of wafer shipments, 1.32 million wafers were equivalent to 8-inch wafers in this quarter, an increase of 2.4% from the 1.28 million wafers in the previous quarter and the same as the 1.32 million wafers in the same period last year.

This year, the company’s capacity utilization rate continued to climb, with a capacity success rate of 97% this quarter, 91.1% in the previous quarter, and only 89.2% in the first quarter.

In terms of the price per 8-inch wafer, it was US$621 this quarter, an increase of 8% from US$616 in the previous quarter.

From the perspective of capital expenditures, the third quarter of 2019 was US$190 million, a sharp drop from US$908 million in the previous quarter, which was about 20% of the previous quarter; capital expenditures in the first three quarters totaled US$1.54 billion, mainly Machines and equipment for the Shanghai 300mm fab and for the FinFET R&D line. Full-year capital expenditures are expected to be $2.1 billion.

2. Analysis of Hua Hong Semiconductor’s third quarter financial report

The financial report shows that the company achieved revenue of $239 million in the third quarter, an increase of 3.9% from the previous quarter; gross profit was $74 million, an increase of 3.6% from the previous quarter; gross profit margin was 31%, compared with 21% in the second quarter.

From the perspective of net profit, the current period was 44.42 million US dollars, down 11% from the previous month; the current net profit rate was 18.6%.

From the perspective of process nodes, the revenue from processes of 0.35um and above is still the main force of the company’s revenue, accounting for 49.70%, compared with 56.1% in the previous quarter; the revenue from processes of 0.13um and below accounted for 33.3%. 9%, compared with 32.10% in the previous quarter; 0.15um/0.18um process revenue accounted for 15%, compared with 10.90% in the previous quarter; 0.25um process revenue accounted for 1.4, Compared to the previous quarter it was 0.9%. Specifically, revenue from processes of 0.35um and above was US$119 million, a year-on-year decrease of 0.7%, due to the decrease in smart card chips and general-purpose MOSFET products, but the increase in superjunction products; from 0.13um and below Process revenue was US$80.9 million, down 1.9% year-on-year, and demand for smart cards and logic products decreased; revenue from 0.15um/0.18um process was US$35.9 million, up 2% year-on-year, mainly due to increased demand for analog products; 0.25um process revenue was $3.2 million, down 14.3% year-over-year, primarily due to lower demand for smart cards. It can be seen that the demand for the company’s super-junction products is strong.

From the perspective of technology platforms, discrete device platforms became the largest revenue source this quarter, accounting for 39.1%; embedded non-volatile memory platforms remained second, accounting for 36.2%; analog and power management platforms Accounting for 13.5%; logic and radio frequency platform accounting for 9.8%; independent non-volatile memory platform accounting for 1.3%; other 0.1%. Specifically, thanks to the growth of superjunction and general-purpose MOSFET and IGBT products, the revenue of the discrete device platform reached US$90.3 million, a year-on-year increase of 10.9%; the revenue of the embedded non-volatile memory platform was US$88.2 million, A decrease of 1.5% year-on-year, mainly due to the decrease in demand for smart card chips, partially offset by an increase in demand for MCU products; revenue from analog and power management platforms was $36.5 million, a decrease of 3.5% year-on-year, mainly due to LED lighting Demand for NAND decreased, but analog products increased; standalone non-volatile memory revenue of $1.8 million decreased significantly by 72.1% year-over-year, mainly due to lower demand for flash and EEPROM products.

In terms of application fields, 61.1% are in the consumer electronics field, 25.2% in the industrial and automotive fields, 9.9% in the communications field, and 3.8% in the computer field. The consumer electronics segment was still the company’s largest revenue source in this quarter, but due to the decrease in demand for smart cards, it decreased by 6.8% year-on-year; the industrial and automotive segments benefited from increased demand for MCUs, super junctions, general-purpose MOSFETs and RF products , revenue reached US$60.2 million, a significant increase of 24.2% year-on-year; revenue in the communications field was US$23.6 million, a year-on-year decrease of 4%, mainly due to the decrease in demand for logic products, partially offset by the increase in demand for smart card chips; Revenue was $9.2 million, down 20.5% year-over-year, mainly due to lower demand for flash memory and general-purpose MOSFET products.

From the perspective of regional revenue, China’s revenue accounted for a strong performance, reaching 62.2%; US revenue continued to decline, accounting for 14.8%; Asia (excluding China and Japan) accounted for 12. 4%; Europe accounted for 7.2%; Japan accounted for 3.4%. Specifically, revenue from China was US$149 million, an increase of 8% year-on-year. The reason for the analysis was mainly due to the increase in demand for MCU products; due to the decrease in demand for general-purpose MOSFET and flash memory products, revenue from the United States decreased by 12% year-on-year. Only US$35.3 million; revenue from Japan was US$8.1 million, down 43% year-on-year, mainly due to lower demand from a single customer; revenue from Europe fell 7% year-on-year to US$18.2 million due to lower demand for smart cards ; Revenue from Asia (excluding China and Japan) was US$29.6 million, down 3.3% year-on-year, mainly due to lower demand for logic products, partially offset by increased demand for MCU and general-purpose MOSFET products.

In terms of production capacity, Hua Hong Semiconductor’s total production capacity for the current period was 525,000 pieces, which was the same as the previous quarter.

From the perspective of capacity utilization, it continued to climb, from 93.2% in the previous quarter to 96.5%, and 87.3% in the first quarter.

In terms of wafer shipments, Hua Hong Semiconductor shipped 524,000 wafers this quarter, up 7.2% from 489,000 in the previous quarter and down 1.1% from 530,000 in the same period last year. .

From an approximate price per 8-inch wafer, it was $456 this quarter, compared with $470 last quarter.

From the perspective of capital expenditure, Hua Hong Semiconductor’s current expenditure reached 460 million US dollars, doubling from the previous quarter. This was mainly due to the increase in expenditures at the Wuxi base, which reached US$430 million this quarter, an increase of 130% from the previous quarter.

Author: Zhao Yuanchuang

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