China chip maker SMIC seen posting flat Q2 profit
Tuesday July 27, 4:44 am ET
By Doug Young
HONG KONG, July 27 (Reuters) - China's largest chip maker, Semiconductor Manufacturing International Corp. (SMIC) (HKSE:0981.HK - News), is expected to report a flat second-quarter profit versus the first quarter and may point to a looming slowdown in demand.
SMIC (NYSE:SMI - News), which makes chips for clients including Samsung Electronics Co. Ltd. (KSE:005930.KS - News) and Texas Instruments Inc. (NYSE:TXN - News), raised US$1.8 billion in an initial public offering in March after turning profitable in the fourth quarter.
Shares in the world's number-five contract chip maker debuted below their offer price and have slid steadily downward, for a total loss of 42 percent.
A build-up in global chip inventories and stagnating demand has led to a sell-off in global semiconductor stocks.
SMIC, which is using its IPO proceeds to expand capacity, is expected to feel the pain sooner than better-established rivals led by Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan:2330.TW - News) and United Microelectronics Corp. (Taiwan:2303.TW - News), analysts said.
"I do anticipate that when they give out third-quarter guidance, shipments will probably be below original expectations," said Rick Hsu, analyst at Nomura in Taipei.
Hsu said he had originally forecast shipment and sales growth in the low 20-percent range for the third quarter from the second, but will probably revise his model.
The worldwide semiconductor industry has boomed over the last year after a two-year downturn. But recent words of caution from a number of players, including bellwether Intel Corp. (NasdaqNM:INTC - News), have many saying the boom has peaked or will do so shortly.
Analysts expect global chip sales to grow about 25 percent this year. Growth will drop dramatically or even reverse next year as the industry slows, they say.
Headed by Taiwanese industry veteran Richard Chang, SMIC is expected to report on Friday a second-quarter net profit of US$26.7 million, based on a poll of four analysts surveyed by Reuters.
That would compare with a first-quarter net profit of US$27.5 million before a one-time non-cash dividend paid to holders of preferred shares. Profits attributable to shareholders were US$8.6 million.
Analysts expect full-year profits of about US$115 million, implying the second half will be slightly stronger than the first as it adds production.
SMIC, which this month announced plans for a US$175 million plant, could also require new capital as soon as next year, said Pranab Sarmah, an analyst at Daiwa Institute of Research.
But others said the industry slowdown could dampen SMIC's aggressive expansion plans, delaying the need for fund-raising.
"They still have a bit of loan capacity from the Chinese banks, even though the government is trying to tighten credit," said Deutsche Securities analyst Johnny Chen. "But if there is an earlier downturn ... they might not need that much money anyway." |
