SMIC remains on track to 1Q15 sales guidance for low-mid single digit growth and 27-29% GMs with some growth in 2Q15. It noted utilisation has increased from 93% in 4Q14 to be now completely full on a wafer-in basis in 2Q15.
● GM lower in 2H15. The company maintains high GMs in 1H15 with 27-29% in 1Q15 and higher utilisation in 2Q15, though 2H15 GMs will have some impact from (1) Shanghai 28nm ramp at lower yields, (2) Shenzhen 8” ramp, and (3) Beijing start-up costs.
● 28nm to be a mild ramp. SMIC targets 28nm ramp up with QCOM from 2Q15 starts and 3Q15 production and other Chinese customers following a couple quarters after the initial ramp. SMIC still needs to improve yields to get to mass production but would start from 6k WPM in Shanghai contributing up to 10% of sales.
● China providing strong support. The National IC fund took 11% equity stake in SMIC recently. SMIC gets support from (1) R&D grants from the China 5 year plan, and (2) National IC fund is motivated by returns across the portfolio so strengthening SMIC would help the ecosystem.
China providing strong support
The National Government fund took 11% equity stake in SMIC recently as a strategic investment to improve the ecosystem and earn a return on the equity. The company’s top 4 holders have 45% stake
(Datang 19%, China IC Industry Investment fund 11%, CIC 10%,Shanghai Industrial 5%). Funding is coming from 1) R&D grants from the China 5 year plan, 2) National IC fund is motivated by returns across the portfolio so strengthen ing SMIC would help the ecosystem so it could invest through equity and contributions to leading edge technology. The company advises it is still developing baseline technology on FinFET and planning a separate venture for 14nm R&D partnering with other local stakeholders.
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