China's SMIC opens its books for $714 million IPO filing
by Mike Clendenin, EETimes
Silicon Strategies
02/12/2004, 6:13 AM ET
TAIPEI, Taiwan -- Leading Chinese foundry Semiconductor Manufacturing International Corp. laid bare its financial history on Thursday (February 12, 2004), in a filing with the US Securities and Exchange Commission that seeks to raise $714 million in an initial public offering of shares on the New York Stock Exchange.
In a lengthy document covering three years of operations, the company disclosed details concerning revenue, profitability, average selling prices per wafer, utilization and plans for capital expenditure.
It also addressed risk factors associated with its rapid expansion plans and a lawsuit recently filed by rival Taiwan Semiconductor Manufacturing Co. that alleges industrial espionage, corporate raiding, and patent infringement.
SMIC said it will spend $1.95 billion and $1.37 billion on capacity expansion in 2004 and 2005, respectively. Some of the money will come from its IPO, but the company will also need to rely on future offerings of equity, equity-linked securities and debt securities, as well as bank loans, the firm said. It also plans an IPO in Hong Kong, and has received conditional approval.
When the semiconductor industry started to show signs of life late last summer, SMIC felt it. The company crossed the threshold to profitability in the fourth quarter, making about $10 million, the company said.
However, for the year, revenues came in at $365 million and losses totaled $66 million. SMIC shipped 476,451 wafers with an ASP of $733. Net margin was 7.5 percent in the fourth quarter and utilization averaged 97 percent.
At the end of 2002, 49.8 percent of SMIC's wafers were memory, while 41.7 percent were logic. By the end of 2003, the mix favored logic, at 57.3 percent to 38.2 percent.
SMIC also made rapid gains in introducing new process technology. At the end of 2002, the company earned nothing from 0.15-micron and 0.13-micron manufacturing processes and only 4.7 percent of its wafers used 0.18-micron technology. But by the end of last year, 0.18-micron accounted for 22 percent of wafers, 0.15-micron for 9.9 percent and 0.13-micron for 11.8 percent.
Such a rapid ramp-up is part of what drew the attention of TSMC. In its lawsuit, the Taiwan-based foundry alleged that SMIC has lured away key personnel and tapped their expertise of TSMC processes to accelerate its learning curve.
The suit further alleges that "outright theft" of IP has enabled SMIC "to price its products at a substantial discount to what would have otherwise been possible had SMIC incurred its own research-and-development and ramp-up expenses."
Specifically, TSMC claims that some of those patents were used to fabricate a 0.18-micron chip for Broadcom Corp. Examination of the chip "revealed identical or nearly identical structures....that TSMC believes could only have been fabricated using TSMC's proprietary process steps," the lawsuit says.
In its filing, SMIC had to acknowledge the lawsuit as a potential material risk to its operations. "If we are unable to successfully defend pending patent and trade secret litigation by TSMC, we may be required to pay damages, obtain a license from TSMC or discontinue sales of certain of our products in the United States," the company said in the SEC filing.
The company also acknowledged that its aggressive expansion plans pose significant challenges, ranging from getting new equipment in a timely manner to managing three fab clusters " in Shanghai, Tianjin, and Beijing.
The task includes "integrating personnel with diverse business backgrounds, combining different corporate cultures and managing a geographically dispersed organization," SMIC said. "Operating in three different locations also requires us to liaise with three different sets of local and municipal governmental authorities, which places additional administrative burdens on our management. As a result of these factors, we may be unable to complete successfully this integration in a timely manner, which could adversely affect our operating results."
As of December 2003, SMIC's capacity hit 49,000 wafers per month, with 9,000 wafers -- nearly 20 percent -- capable of being patterned with copper interconnects. By the end of this year, SMIC is set to have manufacturing capacity for 114,750 8-inch wafer equivalents per month and 10,000 copper interconnects. In 2005, that increases to 170,000 wafers per month and 15,000 copper interconnects, the company said. |
