BEIJING, CHINA – DECEMBER 04: A logo hangs on the building of the Beijing branch of Semiconductor Manufacturing International Corporation (SMIC) on December 4, 2020 in Beijing, China. (Photo by VCG/VCG via Getty Images)
VCG | China Optical Group | Getty Images
International Semiconductor Manufacturing Company Samsung on Friday warned of intense competition in the chip industry after first-quarter earnings fell short of expectations.
“Competition in the industry is becoming increasingly fierce and pricing of commodity products basically follows market trends,” SMIC said Friday during the company's earnings call.
“The company is achieving its (long-term vision) by building high-quality technology platforms that leapfrog here in mainland China by a generation or two,” SMIC said.
SMIC, China's largest chipmaker, is seen as crucial to Beijing's ambitions to cut foreign dependence in the domestic semiconductor industry, as the United States continues to curb China's technological strength. SMIC lags behind Taiwan TSMC And South Korea's Samsung Electronics, according to analysts.
The company's first-quarter net income fell 68.9% from a year earlier to $71.79 million, compared to the average LSEG analyst estimate of $80.49 million.
Gross margin fell to 13.7% in the quarter — the lowest the company has ever recorded in nearly 12 years — according to LSEG data.
SMIC said first-quarter revenue was $1.75 billion, up 19.7% from a year earlier, as customers stockpiled chips. This easily exceeded LSEG's estimate of $1.69 billion.
“In the first quarter, the integrated circuit industry was still in the recovery stage and customers' inventory gradually improved. Compared with three months ago, we noticed that our global customers became more willing to build inventory,” SMIC said. Friday.
Customers are building inventory to prepare for competition and respond to market demand, the company said, adding that it was unable to fill some rush orders in the first quarter as some production lines were operating almost at maximum capacity.
SMIC chips are found in cars, smartphones, computers, Internet of Things technologies, and more. It said more than 80% of its revenue in the first quarter came from customers in China.
Preparing for competition
In a bid to build competitiveness and increase market share, the company said it is prioritizing areas such as capacity building and research and development activities for investments.
“(To) ensure that the company maintains its leading position in the fierce market competition and maximizes the protection of investors’ interests… the company plans not to pay dividends for 2023,” SMIC said.
“We believe that as long as there is customer demand coupled with our technology and capability readiness, we can ultimately be bigger, better and stronger despite the fierce competition.”
The company expects second-quarter revenue to rise 5% to 7% from the first quarter due to strong demand, while gross profit margin may decline to between 9% and 11%.
“Along with the increase in energy volume, consumption is expected to rise quarter-on-quarter. Therefore, gross profit margin is expected to decline sequentially,” SMIC said.
