Semiconductor Manufacturing International's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Semiconductor Manufacturing International Corporation (SMI)

Q1 2012 Earnings Call

May 10, 2011 8:30 PM ET

Executives

En-Ling Feng – Senior Director, IR

Tzu-Yin Chiu – CEO

Gary Tseng – CFO

Analysts

Randy Abrams – Credit Suisse

Steven Pelayo – HSBC

Patrick Liao – Nomura Securities

Patrick Liao – Normura International

Szeho Ng – BNP

Eric Chen – Daiwa Security

Rick Hsu – J.P. Morgan

Presentation

Operator

Welcome to the Semiconductor Manufacturing International Corporation First Quarter 2012 Webcast Conference Call. Today’s conference call is led by Dr. T.Y. Chiu, Chief Executive Officer; Mr. Gary Tseng, Chief Financial Officer; and Mr. En-Ling Feng, Senior Director or Investment Relations.

Today’s webcast conference call will be simultaneously streamed through the internet at MSIC’s website.

(Operator instructions)

The earnings press release is available for download at www.smics.com. Webcast 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, Senior Director of Investor Relations, for the cautionary statement.

En-Ling Feng

Good morning and good evening. Welcome to SMIC’s first quarter 2012 earnings conference call. For today’s call, our CEO T.Y. Chiu will first provide some general remarks then our CFO, Gary Tseng, will present 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 the quarterly financial presentation are available for your to download at www.smics.com under investor relations, event and the presentation section.

Please also be reminded of the Safe Harbor statement, which provides as follows. SMIIC’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 April 27, 2012.

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

Tzu-Yin Chiu

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

Let me first talk about the solid progress we have been making on our vast utilization over the past few months. Revenue grow above 15% quarter-over-quarter as overall utilization reached about 74% in the first quarter of 2012, improved from 66% in the fourth quarter 2011.

We see this momentum continue as utilization further increased into the second quarter. This continuous growth is primarily due to new product ramp-up, for example, connectivity chips, mobile phones and the set-top box as well as a demand increase for some of our existing products, such as power management IC, E-squared prom and others.

I mentioned in the past, our near-term strategy is to focus on boosting overall fab utilization and efficiency, which we have performed quite well as illustrated by our first quarter result.

Our Beijing 12-inch fab, which was preparing for ramp-up in the first quarter, is experiencing strong loading with a 40% quarter over quarter increase in 65/55 revenue. Beijing’s growth driver was mainly from smartphone and networking applications. Furthermore, we expect Beijing 65/55 revenue to grow additional 50% in the second quarter as we complete qualification for 65 nano products. In the area of broadband tablet connectivity, that will enter production soon. And we also target to enlarge the Beijing 65/55 capacity at 30% this year.

Fab specific, our Shanghai 8-inch aluminum fab loading is also strong. Not only driven by powered [inaudible] IC, CMOS image sensor in embedded EE. We have successfully transferred the CMOS image sensor in the embedded EE for our Shanghai 8-inch Fab to Tianjin Fab. And time of type capacity enabling such compatible process capability between Tianjin and the Shanghai Fab will better our flexibility in order to accommodate customer demand.

A number of products has completed qualification as Tianjin Fab in the first quarter and will enter into full production in the second quarter. Therefore, we will also see a strong utilization improvement in Tianjin Fab in the second quarter.

There are ways in which we are tackling our short term strategy. And now I would like to address our longer term differentiation strategy. To share an example of our differentiation strategy at work, our – each [inaudible] differentiation is well underway and has resulted in good demand.

We offer aggressive [inaudible] and best of class power consumption for imbedded embedded EEPROM. This low-power cost effect foundry is used to address smart card market both contactless and the dual interface applications. That’s why at the collateral mobile product applications that requires extremely low power consumption as well as imbedded non-volatile memory.

In addition, we have also developed a high-speed version, which will be ready this year. As a result our imbedded EEPROM will see increasing interest from the customers and the order for this technology are forecasted to grow healthily this year.

From quarter one to quarter three, the embedded EEPROM shipments are targeted to – are more than doubled. Operationally, besides working on our normal service indexes, we’re emphasizing efficiency enhancement. This is our efforts our Shanghai 8-inch Fab wafer out will grow by more than 15% as compared to our [inaudible] plant, however, with minimal investment.

This is done through equipment productivity improvement as well as to reactivate some of the low [EDA] tools back into production. Already we this result for our enhanced manufacturing efficiency in quarter one. While our revenue increased 15%, our gross margin improved by 14% and the operational margin improved by greater than 20%.

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