Shanghai-based wafer foundry Semiconductor Manufacturing International Corp. (SMIC) today reported sales for the six months ended June 30 increased by 29.5 percent to $528.3 million from $407.9 million for the same period in 2004, mainly due to the increase in the company’s manufacturing capacity.

Wafer shipments jumped by 63.7 percent to 615,411 8-inch wafer equivalents from 375,859 8-inch wafer equivalents between these two periods

SMIC’s cost of sales increased by 78.6 percent to $506.8 million for the six months ended June 30, from $283.8 million for the six months ended June 30, 2004.  This increase was primarily due to the significant increases in sales volume, depreciation expenses as SMIC continues to increase capacity due to the installation of new equipment and manufacturing labor expenses due to the increase in headcount. Other factors included an increase in the amount of direct and indirect materials purchased corresponding to the increase in wafers shipped. In addition, deferred stock compensation expenses relating to employees involved in the manufacturing of wafers increased to $6.2 million for the six months ended June 30, from $5.2 million for the six months ended June 30, 2004, primarily due to additional stock options granted and restricted share units awarded to new and existing employees involved in this activity.

As a part of a settlement with TSMC, the company has allocated $10.3 million of the total settlement amount to amortization of acquired intangible assets for the six months ended June 30.
SMIC also reported a net loss of $70.4 million for the six months ended June 30 compared to net income of $61.6 million for the six months ended June 30, 2004.

Looking ahead to Q3, SMIC updated its guidance to reflect wafer shipments expected to increase between 6 and 7 percent sequentially. Blended ASP in Q3 is expected to increase by 3 to 5 percent sequentially, the company said.

The company updated its guidance due to longer equipment lead-times, the installation and qualification of equipment for advanced technology nodes, originally scheduled for Q3 have been scheduled for Q4 and lower ASP for DRAM products, resulting in an increased inventory charge.
As a result, gross margins for Q3 are now expected to increase between 7 to 9 percent sequentially. Furthermore, capital expenditures are expected to be in the range of $120 million to $160 million and depreciation and amortization in the range of $190 million to $200 million.
SMIC maintained that it expects utilization to increase to the range of 90 to 93 percent.

Richard R. Chang, CEO of SMIC noted in a statement that the company was able to continue growing its rev

“We saw our average selling prices decline due to the slowdown in the overall semiconductor industry, as well as general pricing softness. However, we began to see business conditions improving in the second quarter of 2005, a trend which we believe will continue through the rest of the year, as we improve our product mix and shift production towards more advanced technology nodes,” he continued.

“In order to meet the additional demands from our customers we are increasing our 2005 capital expenditure budget to $1.1 billion. We will also continue to invest in improving our technology portfolio to consolidate our position among the top foundries,” Chang said.

“In addition to our core foundry competency, we are continuously looking for other ways to take advantage of our unique position here in Mainland China. Our CMOS imaging sensor module project with Toppan Printing Co. Ltd. began moving in equipment into our new Fab 9 facility in August and is scheduled to begin pilot production in October. Our testing and assembly project with United Test and Assembly Center Ltd. in Chengdu is expected to begin moving in equipment later this month with the commencement of pilot production shortly thereafter. We have also initiated a project to rework reclaimed wafers into solar power modules in our new Fab 10 facility. We anticipate moving in equipment in the fourth quarter of 2005,” he concluded