Higher Q4 sales don’t lift China’s SMIC out of the red

Semiconductor Manufacturing International Corp. (SMIC), China’s largest chip maker, reported a net loss of $14.8 million for the fourth quarter of 2005, despite recording a 14 percent increase in revenue during the period.

SMIC’s fourth quarter revenue was $333.1 million, up from $291.8 million in revenue during the same period last year. However, the contract chip maker’s net loss widened by 33.5 percent compared to the same period last year, when it reported a loss of $11.2 million.

Company executives largely blamed the fourth-quarter loss on production of DRAM (dynamic RAM) chips, which accounted for 31.3 percent of revenue during the fourth quarter. DRAM chips are less profitable to manufacture than other types of memory or logic chips, such as processors, which can command a premium.

Offering a better mix of products will help SMIC return to profitability and the company is moving in this direction by working to phase out production of some DRAM chips. “We can reach the break-even point with a utilization rate as low as 80 percent if we have the right product mixture,” said Richard Chang, the company’s president and chief executive officer, during a conference call with financial analysts.

SMIC, which is based in Shanghai, reported a utilization rate of 93 percent during the fourth quarter, compared to 95 percent one year ago.

Looking ahead, SMIC said it expects to see wafer shipments rise from 2 percent to 4 percent during the first quarter, with the company’s utilization rate between 92 percent to 94 percent. For the full year, SMIC expects to spend $1.1 billion on capital expenditures, saying this figure will be adjusted based on market conditions.

SMIC has not reported a profit since the third quarter of 2004. However, the company expects to break into the black this year, Chang said. “The whole year [of 2006] will be profitable,” he said.

Chang predicted SMIC would likely return to profitability during the third quarter of 2006, and said the company would work hard to achieve this goal earlier.