-- The financial statement amounts in this report are determined in accordance with US GAAP.
Second Quarter 2007 Highlights: -- Revenue increased by 3.7% over 2Q06 to $374.8 million, but decreased by 3.5% from $388.3 million in 1Q07. -- Gross margins were 10.3% in 2Q07 compared to 9.5% in 1Q07. -- Net loss of $2.1 million in 2Q07, compared to a net income of $8.8 million in 1Q07. -- Fully diluted EPS was ($0.0056) per ADS. -- Contribution from 90nm production increased to 22.0% of wafer revenue in 2Q07 compared to 14.4% in 1Q07.
Commenting on the results, Dr. Richard Chang, Chief Executive Officer of SMIC stated, "SMIC continued to expand its foundry business in the second quarter of 2007. The Company posted increasing revenues year-on-year, but declining revenues quarter-on-quarter due to difficult pricing pressures in the DRAM market.
Looking at the recent market trends, mobile phone applications continue to grow in demand as well as in variety. We also see strong foundry demand for power management ICs and consumer applications such as personal multimedia players and MP3 and MPEG4 applications.
In terms of technology, we saw an increase in revenues at 90-nanometer to 22% of wafer revenue, up from 14% in the first quarter of 2007, and up from less than 1% in the second quarter of 2006. For the third quarter of 2007, we expect total revenue to increase 2% to 5% while revenue contribution from the 90-nanometer node will continue to increase.
We are currently developing an 8Gb NAND flash product and the 2Gb NAND flash product is expected to reach the market in the second half of this year. This milestone demonstrates SMIC's technological and manufacturing capabilities and strategically positions SMIC as one of the foundry service providers in the NAND flash market.
Our technology roadmap is on track and we are making good progress in the development of the 65-nanometer technology. We expect to enter pilot production for our 65-nanometer logic technology by the end of this year. In addition to the development of the 65-nanometer logic technology, we expect our DRAM product will start to convert to below 90-nanometer by the end of this year.
We remain committed to improving profitability, accelerating our growth and strategically identifying opportunities to enhance shareholder value in our company. We believe the continued prudent development of advanced technology nodes for leading customers will position SMIC for continual growth and improved profitability in the second half of 2007 and the year 2008."
Conference Call / Webcast Announcement Date: July 27, 2007 Time: 7:30 a.m. Shanghai time Dial-in numbers and pass code: U.S. 1-617-597-5342 or HK 852-3002-1672 (Pass code: SMIC).
A live webcast of the 2007 second quarter announcement will be available at http://www.smics.com under the "Investor Relations" section. An archived version of the webcast, along with an electronic copy of this news release will be available on the SMIC website for a period of 12 months following the webcast.
Semiconductor Manufacturing International Corporation (NYSE: SMI) is one of the leading semiconductor foundries in the world and the largest and most advanced foundry in Mainland China, providing integrated circuit (IC) manufacturing service at 0.35 m to 90nm and finer line technologies. Headquartered in Shanghai, SMIC operates three 200mm wafer fabrication facilities in its Shanghai mega-fab, a 200mm wafer fab in Tianjin, and a 300mm mega-fab in Beijing, the first of its kind in Mainland China. SMIC also operates an in-house assembly and testing facility in Chengdu. SMIC has customer service and marketing offices in the U.S., Italy, and Japan as well as a representative office in Hong Kong. In addition, SMIC manages and operates a 200mm wafer fab owned by Chengdu Cension Semiconductor Manufacturing Corporation and one 300mm wafer fab owned by Wuhan Xinxin Semiconductor Manufacturing Corporation. F or additional information, please visit http://www.smics.com .
Safe Harbor Statements
(Under the Private Securities Litigation Reform Act of 1995)
This press release contains, in addition to historical information, "forward-looking statements" within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements, including statements concerning our expectation for third quarter 2007 revenue and continued increase in revenue contribution from 90nm sales, expected timing for products or products in development to reach market or be in commercial production, expected timing for entering pilot production for our 65nm technology, expected timing for our DRAM product to start to convert to below 90nm, SMIC's ability to grow and improve profitability in the second half of 2007 and 2008, and statements under "Capex Summary" and "Third Quarter 2007 Guidance", are based on SMIC's current assumptions, expectations and projections about future events. SMIC uses words like "believe," "anticipate," "intend," "estimate," "expect," "project" and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessarily estimates reflecting the best judgment of SMIC's senior management and involve significant risks, both known and unknown, uncertainties and other factors that may cause SMIC's actual performance, financial condition or results of operations to be materially different from those suggested by the forward-looking statements including, among others, risks associated with cyclicality and market conditions in the semiconductor industry, intense competition, timely wafer acceptance by SMIC's customers, timely introduction of new technologies, SMIC's ability to ramp new products into volume, supply and demand for semiconductor foundry services, industry overcapacity, shortages in equipment, components and raw materials, availability of manufacturing capacity and financial stability in end markets.
Investors should consider the information contained in SMIC's filings with the U.S. Securities and Exchange Commission (SEC), including its annual report on 20-F, as amended, filed with the SEC on June 29, 2007, especially in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections, and its registration statement on Form A-1 as filed with the Stock Exchange of Hong Kong (SEHK) on March 8, 2004, and such other documents that SMIC may file with the SEC or SEHK from time to time, including on Form 6-K. Other unknown or unpredictable factors also could have material adverse effects on SMIC's future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this press release may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this press release. Except as required by law, SMIC undertakes no obligation and does not intend to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Recent TSMC Legal Developments:
On August 25, 2006, TSMC filed a lawsuit against the Company and certain subsidiaries (SMIC (Shanghai), SMIC (Beijing) and SMIC (Americas)) in the Superior Court of the State of California, County of Alameda for alleged breach of the Settlement Agreement, alleged breach of promissory notes and alleged trade secret misappropriation by the Company. TSMC seeks, among other things, damages, injunctive relief, attorneys' fees, and the acceleration of the remaining payments outstanding under the Settlement Agreement.
In the present litigation, TSMC alleges that the Company has incorporated TSMC trade secrets in the manufacture of the Company's 0.13-micron or smaller process products. TSMC further alleges that as a result of this claimed breach, TSMC's patent license is terminated and the covenant not to sue is no longer in effect with respect to the Company's larger process products.