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China Semiconductors_ China Foundry Makers-SMIC holding up well; Hua Hong still struggling in profitability despite full UTR
-·2024-11-15 03:17

Summary of the Conference Call on China Semiconductors Industry Overview - The conference call focused on the semiconductor industry in China, specifically the performance of two major foundry companies: SMIC (Semiconductor Manufacturing International Corporation) and Hua Hong Semiconductor. Key Points Company Performance - SMIC: - Reported a record high revenue of US2.17billionfor3Q24,representinga142.17 billion** for 3Q24, representing a **14% quarter-over-quarter (QoQ)** increase and a **34% year-over-year (YoY)** increase, aligning with market estimates [11][29]. - Achieved a gross margin (GM) of **20.5%**, exceeding guidance due to strong domestic consumer IC demand, which rose **43% QoQ** [11][29]. - Forecasts flat to slight QoQ revenue growth with stable GM for 4Q24, indicating steady demand in China [11]. - **Hua Hong**: - Reported 3Q24 revenue of **US526 million, down 7% YoY but up 10% QoQ [11][29]. - Experienced an operational loss of US17millionduetopricingpressures,particularlyinIGBTandsuperjunctionproducts,despiteachievingfullutilizationofitsproductioncapacity[11][29].Managementanticipatesslightrecoveryinaveragesellingprice(ASP)in4Q24[14].CapitalExpenditureandTechnologyDevelopmentSMICscapitalexpenditure(capex)decreasedby4017 million** due to pricing pressures, particularly in IGBT and super junction products, despite achieving full utilization of its production capacity [11][29]. - Management anticipates slight recovery in average selling price (ASP) in 4Q24 [14]. Capital Expenditure and Technology Development - SMIC's capital expenditure (capex) decreased by **40% QoQ** to **US1.18 billion in 3Q24, primarily due to technology restrictions on key equipment, but it continues to expand its 12-inch capacity [13]. - Hua Hong is progressing with its new 12-inch fab in Wuxi, with trial production expected to complete by 4Q24 and full ramp-up aimed by the end of 2025. The projected spending for its second 12-inch fab is around US2billiontoUS2 billion to US2.5 billion annually for 2024 and 2025 [13]. ASP Trends - SMIC's ASP increased by approximately 13.6% QoQ in 3Q24, driven by higher shipments in consumer electronics and a favorable product mix [14]. - In contrast, Hua Hong's ASP decreased by 4% QoQ, facing pressure on power discrete products, although PMIC and analog products remained resilient [14]. Market Outlook and Analyst Ratings - The competitive landscape in China's foundry market is intensifying, particularly in the 12-inch trailing edge process, with SMIC being the only domestic player capable of producing 28nm chips [28]. - Analysts maintain a Neutral rating on SMIC and a Sell rating on Hua Hong, with target prices raised to HK30forSMICandHK30** for SMIC and **HK18 for Hua Hong, reflecting their respective earnings projections and market conditions [15][28]. Earnings Estimates - For Hua Hong, earnings estimates for 2024 were raised by 12% due to better-than-expected 3Q24 results, but estimates for 2025 and 2026 were cut by 11% and 6% respectively due to increasing depreciation pressure [28]. - For SMIC, earnings estimates for 2024 and 2025 were cut by 33% and 9% respectively, while the 2026 estimates were raised by 11% due to expected benefits from domestic demand growth amid US-China decoupling [28]. Additional Insights - The ongoing competition and rising depreciation costs are expected to limit gross margin and earnings upside for Hua Hong, despite achieving peak utilization rates [28]. - The overall demand in China remains steady, but the potential for ASP pressure exists as more mature node capacity ramps up in the market [28]. This summary encapsulates the critical insights from the conference call regarding the performance and outlook of the semiconductor industry in China, particularly focusing on SMIC and Hua Hong.