Semiconductor Manufacturing CEO Discusses Q3 2010 Results – Earnings Call Transcript
Semiconductor Manufacturing International Corporation (
)
Q3 2010 Earnings Call Transcript
November 2, 2010 8:30 pm ET
Executives
En-Ling Feng – Director, IR
David Wang –President and CEO
Gary Tseng – CFO
Analysts
Randy Abrams – Credit Suisse
Pranab Sarmah – Daiwa Capital Markets
Dan Heyler – Banc of America-Merrill Lynch
Steven Pelayo – HSBC
Rick Hsu – JP Morgan
Presentation
Operator
Compare to:
Previous Statements by SMI
»
Semiconductor Manufacturing International Corporation Q2 2010 Earnings Call Transcript
»
Semiconductor Manufacturing International Corporation Q1 2010 Earnings Call Transcript
»
Semiconductor Manufacturing International Corporation Q4 2009 Earnings Call Transcript
»
Semiconductor Manufacturing International Corporation Q3 2009 Earnings Call Transcript
Welcome to the Semiconductor Manufacturing International Corporation’s third quarter 2010 webcast conference call. Today's conference call is chaired by Dr. David N.K. Wang, Chief Executive Officer and President; Mr. Gary Tseng, Chief Financial Officer; and Mr. En-Ling Feng, Director, Investor Relations.
Today's webcast conference call will be simultaneously streamed through the Internet at SMIC's website. Please be advised that the dial-ins are in listen-only mode. However, at the conclusion of the management presentation, we will be having a question-and-answer session, upon which you will receive further instructions as to how to participate. The earnings press release is available for download at www.smics.com. Webcast playback will also be available approximately one hour after the event at www.smics.com.
Without further ado, I would like to introduce you to Mr. En-Ling Feng, Director, Investor Relations, for the cautionary statement.
En-Ling Feng
Good morning and good evening. Welcome to SMIC's third quarter 2010 earnings conference call. For today's call, we have our CEO, David Wang; and our CFO, Gary Tseng.
As usual, our call will be approximately 60 minutes in length. The earnings press release and quarterly financial presentation are available for you to download at www.smics.com under the Financial Information section in the Investor Relations tab.
Please also be reminded of the Safe Harbor statement, which provided as follows. SMIC's statements of its current expectations are forward-looking statements, subject to significant risks and uncertainties. The actual results may differ materially from those contained in such forward-looking statements. Information as to those factors that could cause actual results to vary can be found in SMIC's Form 20-F filed with the United States Securities and Exchange Commission on June 29, 2010.
For today's agenda, our President and CEO, Dr. David N.K. Wang, will speak on SMIC's key initiatives and comment on our business. Following that, CFO, Gary Tseng, will walk us through our third quarter 2010 financial results and fourth quarter 2010 guidance. Then we will open the call for Q&A.
I will now turn the call over to our CEO, Dr. David Wang.
David Wang
Thank you, En-Ling. Good morning and good evening to everyone. Thank you for joining us. First, I am pleased to report that SMIC is profitable this quarter on both operating and net income levels due to the good overall market environment and SMIC’s internal improvements. With only 3% capacity increase year-over-year, we were able to grow our revenue 27% and our gross margin from 0.8% in Q3 last year to 24.5% this year.
As our fundamentals and corporate culture improved, customers are increasingly seeking enduring partnerships with us. As an example, our recent technology symposiums held in various locations worldwide have all seen more participants than in previous years. Our US symposium had even four times the attendance of the previous one. Highlighting our technology development, we are putting more effort and resources to drive our technology to narrow the gap with the leading players.
Revenue contribution from 65-nanometer doubled compared to the second quarter. Our 40-nanometer low-leakage technology process was frozen on schedule with a leading customer's endorsement. We are accelerating our other 45-nanometer programs, targeting revenue in the second half of 2011. Our 32-nanometer development has begun, and we are in advanced discussions with customers on collaboration.
Businesswise, North America continues to contribute more than half of our revenue with healthy growth from increased leading node revenue contribution. The Chinese fabless industry is estimated to grow 29% this year, outpacing worldwide growth according to our supply research. With the Chinese fabless industry growth, SMIC’s strong sales in the service infrastructure in China and our doubled IP investment this year compared to last year, we continue to grow our China sales. Our Q3 China revenue has grown from 28.7% of our total revenue in Q2 to 32.2% in Q3.
Operationally, our key performance index shows better operations across all fabs, including daily moves, lining yield, cycle time, and the defect density control. Recently we commenced a nine-month qualification period for a customized 65-nanometer technology to just four months with very positive customer feedback on timing and the chip performance. These efficiencies and the core competencies will enable SMIC to progress well for the long-term.
To update you on our managed fabs, we have officially terminated the management business with Chengdu Cension in October. Regarding the management business with Wuhan Xinxin, we have just signed a cooperation framework agreement on October 29 with Wuhan East Lake Hi-Tech Development Zone Administrative Committee. The details are still under discussion, and we will update further after the project is finalized. Until then, our business model with Xinxin remains unchanged. In conclusion, the third quarter is profitable, and we are gaining momentum in all areas.
Now I will hand the call over to our CFO, Gary Tseng, to update us on the financial results. Thank you.
Gary Tseng
Thank you, David. Good morning and good evening to everyone. I will now take a few moments to outline our financial results for the third quarter ended September 30, 2010, and then I will provide our fourth quarter 2010 guidance. You may also refer to our quarterly financial presentation on our website. Please note that all currency figures are in US dollars unless otherwise stated.
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