SMIC Shares Decline as Profit & Amid Weak Chip Profits

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Profit and Margin Decline:

SMIC, a Chinese chip maker, faces a stock decline as its third-quarter net profit drops by 80% to $94.0 million, significantly below analysts’ expectations. The company’s gross margin fell from 38.9% to 19.8%.

Share Performance:

Hong Kong-listed shares of SMIC plummeted up to 6.6%, while Shanghai-listed shares declined by 3.1%. The overall market response reflects concerns about the chip maker’s financial performance.

Market Challenges and Expectations:

SMIC attributes its financial struggles to a lack of anticipated growth drivers in the chip market. The global economic slowdown and supply-chain issues have contributed to weak demand, affecting the company’s revenue, which declined to $1.62 billion.

Future Plans and Capex Increase:

Despite the challenges, SMIC expresses confidence in the industry’s future growth. The company plans to enhance its production capacity and infrastructure, leading to an increased capital expenditure forecast of around $7.5 billion for the year.

Market Stabilization and Outlook:

SMIC anticipates market stabilization in 2024 and envisions growth opportunities. The company expects fourth-quarter revenue to grow by 1% to 3%, although new capacity additions may put pressure on its gross margin.

Supply Chain Improvements:

SMIC’s co-chief executive, Zhao Haijun, highlights supply-chain improvements, noting that geopolitical issues impacting the company’s supply chain have eased. This improvement is expected to boost equipment flow to semiconductor fabrication plants by year-end.

Analyst Perspective:

Analyst Liu Xiang from Kaiyuan Securities sees SMIC’s continuous production capacity expansion as a sign of confidence in the semiconductor industry and its potential for future growth.

In summary, SMIC grapples with challenges in a subdued chip market but remains optimistic about its future, focusing on capacity expansion and navigating supply-chain improvements. The market’s response underscores the industry’s sensitivity to global economic dynamics and demand fluctuations.

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