SMIC Reports 2005 Fourth Quarter Results

The following statements are forward looking statements which are based on current expectation and which involve risks and uncertainties, some of which are set forth under "Safe Harbor Statements" above.

    -- Wafer shipments expected to increase between 2% to 4%.
    -- Utilization is expected to be approximately 92% to 94%.
    -- Blended ASP QoQ expected to be approximately flat.
    -- Gross margins expected to be roughly at the same level as 4Q05.
    -- Operating expense as a percentage of sales expected to be in the 16% to
       18% range.
    -- Non-operating interest expense expected to be approximately $14.0
       million due to the additional draw down of existing credit facilities.
    -- Capital expenditures of approximately $250 million to $300 million.
    -- Depreciation and amortization of approximately $225 million.
    -- With the adoption of FASB 123R beginning in January 2006, stock based
       compensation charge of approximately $7.2 million, of which
       approximately $4.2 million will be charged to operating expenses and
       $3.0 million to cost of sales.

                           6.  Recent announcements

    -- SMIC-Manufactured, Guoxin-Designed Chip Wins Technology Innovation
       Award [2006-01-18]
    -- SMIC and ARC International To Jointly Bring Configurable Processors to
       China [2006-01-09]
    -- SMIC Adopts Mentor Graphics' Eldo Simulator for Analog Circuits for its
       0.13-micron and Below Process Nodes [2006-01-06]
    -- Infineon and SMIC Extend Agreement into 90nm Manufacturing [2006-01-06]
    -- SMIC Extends NROM Technology License Agreement With SAIFUN [2006-01-04]
    -- SMIC Announces LDO Linear Voltage Regulator IP Series [2005-12-21]
    -- SMIC Obtains Euro 85 Million Long Term Credit Facility [2005-12-14]
    -- SMIC starts volume production of 0.18um Color-VGA CMOS Image Sensor
       (CIS) wafers            [2005-12-07]
    -- SMIC Announces Availability of 0.18um EEPROM Process Technology and
       EEPROM IP Design Platform [2005-12-02]
    -- Change of Address of Principal Place of Business [2005-12-01]
    -- SMIC and Magma Announce RTL-to-GDSII Reference Design Flow for 0.13-
       Micron SoCs          [2005-11-15]
    -- SMIC starts volume production of LCOS backplane wafers for 1080P Rear
       Projection HDTV market [2005-11-11]
    -- SMIC reports 2005 third quarter results [2005-10-28]
    -- VeriSilicon and SMIC Jointly Announce Standard Design Platform for
       SMIC's Advanced 0.13-micron CMOS Process Technology [2005-10-28]
    -- SMIC Holds 2005 Technology Symposium in Shenzhen [2005-10-13]
    -- SMIC and CYIT Successfully Manufacture 0.13um 3G Handset Chips [2005-
       10-12]
    -- SMIC Enters into Joint Development Effort with Luminescent for its 65nm
       and Below Process Nodes [2005-10-06]

                        Please visit SMIC's website at
     
http://www.smics.com/website/enVersion/Press_Center/pressRelease.jsp
           for further details regarding the recent announcements.


                         Consolidated Balance Sheets
                               (In US dollars)

                                              As of the date of
                                      December 31, 2005 September 30, 2005
                                         (unaudited)       (unaudited)

    ASSETS
     Current assets:
     Cash and cash equivalents          $585,796,887      $576,766,591
     Short term investments               13,795,859         5,581,511
     Accounts receivable, net of
      allowances of $1,091,340 and
      $284,091 respectively              241,333,914       212,822,764
     Inventories                         191,237,636       182,850,604
     Prepaid expense and other
      current assets                      15,300,591        12,583,729
     Assets held for sale                         --                --

     Total current assets              1,047,464,887       990,605,199

     Land use rights, net                 34,767,518        38,136,980
     Plant and equipment, net          3,285,631,131     3,284,892,971
     Aquired intangible assets, net      195,178,898       202,843,555
       Long-term investment               17,820,890        18,340,174
         Other Non-current assets          2,552,407                --

     TOTAL ASSETS                     $4,583,415,731    $4,534,818,879

     LIABILITIES AND STOCKHOLDERS'
      EQUITY
      Current liabilities:
       Accounts payable                  $62,318,432      $259,796,976
       Accrued expenses and other
        current liabilities               92,916,030        93,576,700
       Short-term borrowings             265,481,082       266,589,185
       Current portion of promissory
        note                              29,242,001        19,577,936
       Current portion of long-term
           debt                                                          246,080,580              246,080,580

            Total  current  liabilities                    896,038,125              885,621,377

        Long-term  liabilities:
          Promissory  note                                          103,254,436              116,748,925
          Long-term  debt                                            494,556,385              444,566,420
          Other  long-term  payable                            24,686,398                15,039,304

          Total  long-term  liabilities                  622,497,219              576,354,649

          Total  liabilities                                  1,518,535,344          1,461,976,026

        Commitments

        Minority  interest                                          38,781,863                38,605,893

        Stockholders'  equity:

        Ordinary  shares.$0.0004  par
          value,  50,000,000,000
          shares  authorized,  shares
          issued  and  outstanding
          18,301,680,867  and
          18,282,217,408,  respectively                    7,320,674                  7,312,888
        Warrants                                                                    32,387                        32,387
        Additional  paid-in  capital                  3,291,407,447          3,290,310,978
        Notes  receivable  from
          stockholders                                                                  --                    (247,137)
        Accumulated  other
          comprehensive  income                                        138,978                      794,214
        Deferred  stock  compensation                    (24,881,919)            (31,025,668)
        Accumulated  deficit                                  (247,919,043)          (232,940,702)

        Total  stockholders'  equity                  3,026,098,524          3,034,236,960

        TOTAL  LIABILITIES  AND
        STOCKHOLDERS'  EQUITY                            $4,583,415,731        $4,534,818,879


                                          Consolidated  Statement  of  Operations
                                                                    (In  US  dollars)

                                                                                      For  the  three  months  ended
                                                                            December  31,  2005  September  30,  2005
                                                                                        (unaudited)                (unaudited)

        Sales                                                                    $333,051,413              $309,959,083

          Cost  of  sales                                                    287,156,674                281,908,983
          Cost  of  sales  -  Amortization  of
            deferred  stock  compensation                          2,937,243                    2,777,550

          Gross  profit                                                        42,957,496                  25,272,550

        Operating  expenses:
          Research  and  development                                23,746,620                  19,229,715
          General  and  administrative                              8,121,786                    9,121,980
          Selling  and  marketing                                        5,699,526                    4,071,957
          Amortization  of  acquired
            intangible  assets                                            10,639,905                  10,660,670
          Amortization  of  deferred
            stock  compensation*                                          3,548,051                    3,134,817
          Total  operating  expenses                                51,755,888                  46,219,139


          Loss  from  operations                                        (8,798,392)              (20,946,589)

          Other  income  (expenses):
            Interest  income                                                  4,119,974                    3,277,964
            Interest  expense                                            (11,791,740)              (10,333,503)
            Other.net                                                              2,214,436                    1,453,794
            Total  other  income  (expenses),
              net                                                                      (5,457,330)                (5,601,745)

        Share  of  loss  of  affiliate
          company                                                                      (395,013)                                --

        Net  loss  before  income  taxes                        (14,650,735)              (26,548,334)

        Income  tax                                                                    151,636                            6,068

        Minority  interest                                                    (175,970)                      438,934

        Net  loss                                                                (14,978,341)              (26,115,468)

        Deemed  devidends  on  preference
          shares                                                                                    --                                  --

        Loss  atrributable  to  holders  of
          ordinary  shares                                              $(14,978,341)            $(26,115,468)

        Loss  per  share,  basic                                              (0.0008)                      (0.0014)

        Loss  per  ADS,  basic                                                  (0.0410)                      (0.0718)

        Loss  per  share,  diluted                                          (0.0008)                      (0.0014)

        Loss  per  ADS,  Diluted                                              (0.0410)                      (0.0718)

        Ordinary  shares  used  in
          calculating  basic  loss  per
          ordinary  share  (in  millions)                                18,251                          18,180

        Ordinary  shares  used  in
          calculating  diluted  loss  per
          ordinary  share  (in  millions)                                18,251                          18,180



        *Amortization  of  deferred  stock
            compensation  related  to:
          Research  and  development                                  1,217,349                    1,125,943
          General  and  administrative                              1,681,284                    1,403,732
          Selling  and  marketing                                            649,418                        605,142

          Total                                                                        3,548,051                    3,134,817


                                        CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS
                                                              (In  US  dollars)


                                                                                              For  the  three  months  ended
                                                                                December  31,  2005      September  30,  2005
                                                                                          (Unaudited)              (Unaudited)
        Operating  activities

          Loss  attributable  to  holders  of
            ordinary  shares                                              $(14,978,341)          $(26,115,468)
          Deemed  dividends  on  preference
            shares                                                                                    --                                --
          Net  loss                                                                (14,978,341)            (26,115,468)
          Adjustments  to  reconcile  net  income
            to  net  cash  providedby  (used  in  )
            operating  activities:
            Minority  interest                                                    175,970                    (438,934)
          Gain  on  disposal  of  plant  and
            equipment                                                              (1,776,513)              (1,245,543)
          (Reversal  of  )  Bad  debt  expense                          807,249                      174,729
          Depreciation  and  amortization                      201,358,428              192,347,054
          Amortization  of  acquired  intangible
            assets                                                                    10,639,905                10,660,671
          Amortization  of  deferred  stock
            compensation                                                          6,485,294                  5,912,367
          Non-cash  interest  expense  on
            promissory  notes                                                  2,037,607                  1,033,022
          Loss  on  long-term    investment                              519,284                      784,556
          Changes  in  operating  assets  and
            liabilities:
          Accounts  receivable                                          (29,318,399)            (16,865,479)
          Inventories                                                            (8,387,032)              (6,348,289)
          Prepaid  expense  and  other  current
            assets                                                                    (5,937,696)                2,864,683
          Accounts  payable                                                  (5,242,931)              24,244,703
          Accrued  expenses  and  other  current
            liabilities                                                          17,817,242                12,330,949

          Net  cash  provided  by  operating
            activities                                                          174,200,067              199,339,021

          Investing  activities:

          Purchases  of  plant  and  equipment              (208,688,953)          (188,180,850)
          Purchases  of  aquired  intangible
            assets                                                                    (3,749,999)              (2,663,628)
          Purchase  of  short-term  investments            (12,183,063)              (5,217,982)
          Proceeds  paid  for  long-term
            investment                                                                            --                (9,600,000)
          Sale  of  short-term  investments                        3,983,468                  2,412,898
          Proceeds  received  from  living
            quarter  sales                                                        7,948,629                  4,614,394
          Proceeds  from  disposal  of  fixed
            assets                                                                      2,630,000                                --

          Net  cash  used  in  investing
            activities                                                        (210,059,918)          (198,635,168)

          Financing  activities:

          Proceeds  from  short-term  borrowings            64,320,752                91,918,751
          Proceeds  from  long-term  debt                          49,909,022                74,985,000
          Repayment  of  promissory  notes                        (5,000,000)                              --
          Repayment  of  short-term  borrowings            (65,347,912)            (49,330,000)
          Repayment  of  long-term  debt                                            --            (124,769,718)
          Proceeds  from  exercise  of  employee
            stock  options                                                            762,710                      561,806
          Collection  of  notes  receivables  from
            employees                                                                    247,137                        40,492
          Preceeds  from  government  grant                                      --                  6,456,486

          Net  cash  provided  by  financing
            activities                                                            44,891,709                    (137,183)

          Effect  of  exchange  rate  changes                            (1,562)                    (92,258)

          NET  INCREASE  (DECREASE)  IN  CASH  AND
            CASH
              EQUIVALENTS                                                          9,030,296                      474,412

          CASH  AND  CASH  EQUIVALENTS,  beginning
            of  period                                                            576,766,591              576,292,179

          CASH  AND  CASH  EQUIVALENTS,  end  of
            period                                                                $585,796,887            $576,766,591

 





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