SMIC's CEO Discusses 2Q2011 Results - Earnings Call Transcript

Semiconductor Manufacturing International Corporation ( SMI)

Q2 2011 Earnings Conference Call

August 10, 2011 8:30 p.m. ET

Executives

En-Ling Feng – Senior Director, IR

T.Y. Chiu – CEO

Gary Tseng – CFO

Analysts

Randy Abrams – Credit Suisse

Steven Pelayo – HSBC

Rick Hsu – J.P. Morgan

Owen Fletcher – Dow Jones

Presentation

Operator

Welcome to the Semiconductor Manufacturing International Corporation's Second Quarter 2011 Webcast Conference Call.

Today's conference call is chaired by Dr. T.Y. Chiu, Chief Executive Officer; Mr. Gary Tseng, Chief Financial Officer; and Mr. En-Ling Feng, Senior Director, Investor Relations.

Today's webcast conference call will be simultaneously streamed to 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 to you Mr. En-Ling Feng, Director, Investor Relations, for the cautionary statement.

En-Ling Feng

Good morning and good evening, everyone. Welcome to SMIC's second quarter 2011 earnings conference call. For today's call, we are happy to have our newly-appointed CEO, T.Y. Chiu, joining us. Dr. Chiu will give a brief opening statement. Then our CFO, Gary Tseng, will give the overall business and the financial commentary. This will be followed by our Q&A session.

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.hk, under the Events & Presentations section.

Please also be reminded of the Safety Harbor Statement which provides as follows. SMIC's statements of its current expectation 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 28, 2011.

I will now turn the call over to our CEO, T.Y. Chiu, for the opening remarks.

T.Y. Chiu

Thank you, En-Ling. Good morning and good evening to everyone. Thank you for joining us.

I'm very honored to be here today as SMIC's new CEO. I've been working in the semiconductor industry for 27 years and all of my 15 years of working experience in Asia has been in the foundry industry. I first joined SMIC in 2001 when we were [piling] for our first [8-inch] operation. I'm very happy to be back in this big family. I'm bringing back to SMIC my operation, R&D and management experience for U.S., Mainland China, Taiwan and Malaysia. I'm confident that we can establish a strong and a cohesive team to address the critical issues at hand.

Our primary target is to achieve profitability while maintaining our momentum in technology development. Within the past few days, my team and I have been working on coming through the situation of the company and assessing how to approach our business strategy that will bring the best value to our stakeholders. I hope to bring clearer direction to SMIC to focus on its specific value-added opportunity, and I hope to share with you more as soon as possible.

Given its criticality to China's semiconductor industry, SMIC has an important role to be independent and international. SMIC still has room for a lot of improvement and for opportunity to capture market globally and have lots of potential to grow its value. We recognize the severe macroeconomic condition out there, and though we hope that the situation may recover quickly, we need to prepare for the worst, and we are preparing for a long industry downturn.

I will work with my team to implement cost reductions, identifying low-hanging fruits and speed up technology and new product development. In that order, we must complete the planning and start to implement within weeks.

At this moment, your continuous support and trust are extremely important to us and we greatly appreciate all of your support. I personally am looking forward to meeting some of you in person, and please do feel free to contact our team anytime for your valuable comment and suggestion.

I will now hand over the call to our CFO, Gary Tseng, for overall business remark and financial commentary.

Gary Tseng

Thank you, T.Y. Good morning and good evening to everyone. I will now take a few moments to highlight our second quarter performance, [outlook of] the year, technology and operation progress, second quarter financial results, and the third quarter guidance. You may also refer to our quarterly financial presentation of our website. Please know that all currency figures are in U.S. dollars unless otherwise stated.

Highlighting our second quarter performance, revenue decreased 4.9% quarter-over-quarter to $352 million. This decline was partially due to our customer transition to 65-nanometer and the 45-nanometer and largely due to unexpected change in a few of our customers' programs, including some customers skipping 65-nanometer to work on 45-nanometer, and one specific customer pending their low-end [inaudible] business. Despite these changes, we have continued to have new [checkout] for 65-nanometer and the customer committed to working with us on their 40, 45-nanometer products which will likely contribute meaningful revenue next year.

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