SMIC Reports 2008 Third Quarter Results (Revenue up 10%)
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SMIC Reports 2008 Third Quarter Results (Revenue up 10%)

All currency figures stated in this report are in US Dollars unless stated otherwise. The financial statement amounts in this report are determined in accordance with US GAAP.

SHANGHAI, China, Oct. 29 /Xinhua-PRNewswire/ -- Semiconductor Manufacturing International Corporation (NYSE: SMI) ("SMIC" or the "Company"), one of the leading semiconductor foundries in the world, today announced its consolidated results of operations for the three months ended September 30, 2008.

 

 

    Third Quarter 2008 Highlights:
    -- Overall revenue increased to $375.9 million in 3Q08, up 9.6% from 2Q08.
       Specifically, advanced logic sales from 0.13 micron and 90 nanometer
       technology nodes have increased by 23.3% in 3Q08 quarter-on-quarter.
    -- Simplified average selling price ("ASP") increased by 2.1% from $853 in
       2Q08 to $871 in 3Q08.
    -- Gross margin improved to 7.2% in 3Q08 compared to 6.1% in 2Q08.
    -- The Company reduced net loss to $30.3 million in 3Q08 as compared to
       the net loss of $45.6 million in 2Q08.

 

Commenting on the quarterly results, Dr. Richard Chang, Chief Executive Officer of SMIC remarked, "In terms of the third quarter performance, I am pleased to see a 9.6% quarter-over-quarter increase in the total revenue. The revenue growth is primarily due to higher logic demand as well as higher ASP from change in product mix. Our total logic wafer shipments in the third quarter increased 9.9% quarter-over-quarter and logic sales accounted for 87.4% of our total revenue in the third quarter. In terms of customers, revenue contribution from fabless customers increased by 10.5% quarter-over-quarter and 16.2% year-over-year. In terms of applications, we have experienced stronger sales in the communications sector, resulting in a 13.9% quarter-over-quarter increase in third quarter. In addition, sales in consumer applications also increased by 10.9% in the third quarter. DRAM as a percentage of our total revenue continued to decline to 2.4% in the third quarter. As a result of the depreciation and amortization expense of $198 million, we recorded a net loss of $30.3 million. Depreciation and amortization expense as a percentage of revenue decreased by 5% against the previous quarter. Moreover, starting 2009, the depreciation expense of our Shanghai 200mm facilities will drop to almost half within two years, which will further improve our bottom line. Our EBITDA margin improved from 42.5% in the second quarter to 45.5% in the third quarter.

During the third quarter, we continued to make progress in our key strategic initiatives. First, the conversion of DRAM capacity into logic is still on track with estimated completion by the end of this year. We expect that, once completed, our Beijing 300mm logic capacity at 2008 year-end will have increased more than 50% since the beginning of 2008.

In terms of our advanced technology node development, I am pleased to announce that SMIC has received all needed export licenses to enter into 32nm research and development in both logic and flash, starting January 1, 2009. In terms of our 65nm technology development, more than 20 products have already taped-out and are qualifying in different stages. Our 45nm collaboration with IBM is on schedule in accordance to plan, and we expect to qualify the technology and begin risk production in the second half of 2009.

We are pleased to see our Chinese customers making strong progress and advancing their technology nodes. Our China shipment quantity grew 28% in the third quarter, and our greater China revenue contributed to 31% of our overall revenue in the third quarter. As we have announced previously, as a result of technology collaboration with us, one of our Chinese customers successfully introduced the demodulator chip for China's high-definition TV application. This was the first and the most comprehensive chip solution on the Chinese DTV market. In addition, another Chinese customer introduced mobile TV solutions based on the China Multimedia Mobile Broadcasting (CMMB) standard. CMMB was initiated by the Chinese government and now covers 37 cities. China has also recently begun building the infrastructure for the fully commercialized use of the TD-SCDMA network. Chinese customers are working together with SMIC to produce TD-SCDMA chips. TD-SCDMA has been under pilot testing and currently covers 10 cities in China, and is expected to expand to another 28 cities in the near future. Moving forward, we intend to continue to strengthen our geographical focus in domestic China by collaborating with local fabless design houses.

Under the current business environment, we are working hard to tightly control costs and intend to hold back any capacity expansion until we have clear visibility of end-customer demand."

Conference Call / Webcast Announcement

Date: October 30, 2008

Time: 8:30 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 2008 third 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.

About SMIC

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 0.35um to 65nm and finer line technologies. Headquartered in Shanghai, China, SMIC has a 300mm wafer fabrication facility (fab) under pilot production and three 200mm wafer fabs in its Shanghai mega-fab, two 300mm wafer fabs in its Beijing mega-fab, a 200mm wafer fab in Tianjin, a 200mm and a 300mm fab under construction in Shenzhen, and an in-house assembly and testing facility in Chengdu. SMIC also has customer service and marketing offices in the U.S., Europe, and Japan, and a representative office in Hong Kong. In addition, SMIC manages and operates a 200mm wafer fab in Chengdu owned by Cension Semiconductor Manufacturing Corporation and a 300mm wafer fab in Wuhan owned by Wuhan Xinxin Semiconductor Manufacturing Corporation

 

    For more 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 estimated completion of our conversion of DRAM capacity into logic by the end of this year, percentage increase in our Beijing 300-mm logic capacity by the end of 2008, the expected timing for qualifying our technology and risk production in connection with our 45nm collaboration with IBM, the expected expansion of TD-SCDMA to another 28 cities in the near future, future collaborations with local fabless design houses, our intention to hold back on capacity expansion, our expectation for fourth quarter 2008 revenue, and statements under "Capex Summary" and "Fourth Quarter 2008 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, the current global financial crisis, 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, orders or judgments from pending litigation, 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 27, 2008, especially in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections, 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.

Material Litigation

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.

The Company has vigorously denied all allegations of misappropriation. The Court has made no finding that TSMC's claims are valid, nor has it set a trial date.

On September 13, 2006, the Company announced that in addition to filing a response strongly denying the allegations of TSMC in the United States lawsuit, it filed on September 12, 2006, a cross- complaint against TSMC seeking, among other things, damages for TSMC's breach of contract and breach of implied covenant of good faith and fair dealing.

On November 16, 2006, the High Court in Beijing, the People's Republic of China, accepted the filing of a complaint by the Company and its wholly-owned subsidiaries, SMIC (Shanghai) and SMIC (Beijing), regarding the unfair competition arising from the breach of bona fide (i.e. integrity, good faith) principle and commercial defamation by TSMC ("PRC Complaint"). In the PRC Complaint, the Company is seeking, among other things, an injunction to stop TSMC's infringing acts, public apology from TSMC to the Company and compensation from TSMC to the Company, including profits gained by TSMC from their infringing acts.

TSMC filed with the California court in January 2007 a motion seeking to enjoin the PRC action. In February 2007, TSMC filed with the Beijing High Court a jurisdictional objection, challenging the competency of the Beijing High Court's jurisdiction over the PRC action.

In March 2007, the California Court denied TSMC's motion to enjoin the PRC action. TSMC appealed this ruling to California Court of Appeal. On March 26, 2008, the Court of Appeal, in a written opinion, denied TSMC's appeal.

In July 2007, the Beijing High Court denied TSMC's jurisdictional objection and issued a court order holding that the Beijing High Court shall have proper jurisdiction to try the PRC action. TSMC appealed this order to the Supreme Court of the People's Republic of China. On January 7, 2008, the Supreme Court heard TSMC's appeal. On June 13, 2008, the Supreme Court denied TSMC's appeal and affirmed the jurisdiction of the Beijing High Court.

On August 14, 2007, the Company filed an amended cross-complaint against TSMC seeking, among other things, damages for TSMC's breach of contract and breach of patent license agreement. TSMC thereafter denied the allegations of the Company's amended cross-complaint and subsequently filed additional claims that the Company breached the Settlement Agreement by filing an action in the Beijing High Court. The Company has denied these additional claims by TSMC.

On August 15-17, 2007, the California Court held a preliminary injunction hearing on TSMC's motion to enjoin use of certain process recipes in certain of the Company's 0.13 micron logic process flows. On September 7, 2007, the Court denied TSMC's preliminary injunction motion, thereby leaving unaffected the Company's development and sales. However, the court required the Company to provide 10 days' advance notice to TSMC if the Company plans to disclose logic technology to non-SMIC entities under certain circumstances, to allow TSMC to object to the planned disclosure.

On March 11, 2008, TSMC filed an application for a right to attach order in the California Court. By its application, TSMC sought an order securing an amount equal to the remaining balance on the promissory notes issued by the Company in connection with the Settlement Agreement. The Company opposed the application. A hearing was held on April 3, 2008. On June 24, 2008, the Court denied TSMC's application.

In May 2008, TSMC filed a motion in the California Court for summary adjudication against the Company on several of the Company's cross claims. The Company opposed the motion and on July 25, 2008, the Court granted in part and denied in part TSMC's motion.

On June 23, 2008, the Company filed with California court a cross-complaint against TSMC seeking, among other things, damages for TSMC's unlawful misappropriation of trade secrets from SMIC to improve its competitive position against SMIC.

On July 10, 2008, the California Court held and granted part of a preliminary injunction hearing on TSMC's motion to enjoin disclosure of information on certain process recipes in the Company's 0.30 micron logic process flows to 3rd parties.

Under the provisions of SFAS 144, the Company is required to make a determination as to whether or not this pending litigation represents an event that requires a further analysis of whether the patent license portfolio has been impaired. We believe that the lawsuit is at a preliminary stage and we are still evaluating whether or not the litigation represents such an event. The Company expects further information to become available to us which will aid us in making a determination. The outcome of any impairment analysis performed under SFAS 144 might result in a material impact to our financial position and results of operations. Because the case is in its preliminary stages, the Company is unable to evaluate the likelihood of an unfavorable outcome or to estimate the amount or range of potential loss.

Summary of Third Quarter 2008 Operating Results

Amounts in US$ thousands, except for EPS and operating data

 

                                    3Q08     2Q08      QoQ     3Q07      YoY
    Revenue                      375,945  342,919     9.6 % 391,398    -3.9 %
    Cost of sales                348,721  322,077     8.3 % 349,148    -0.1 %
    Gross profit                  27,224   20,842    30.6 %  42,250   -35.6 %
    Operating expenses            40,451   60,750   -33.4 %  62,435   -35.2 %
    Loss from operations         (13,227) (39,908)  -66.9 % (20,185)  -34.5 %
    Other income expenses, net   (15,631)  (5,193)  201.0 %  (4,342)  260.0 %
    Income tax expenses           (4,499)  (2,046)  119.9 %    (966)  365.7 %
    Net loss after
            income taxes         (33,357) (47,147)  -29.2 % (25,493)   30.8 %
    Minority interest              3,094    1,603    93.0 %     859   260.2 %
    Loss from equity investment      (26)     (85)  -69.4 %    (919)  -97.2 %

    Loss attributable to
     holders of
     ordinary shares             (30,289) (45,629)  -33.6 % (25,553)   18.5 %

    Gross margin                    7.2 %    6.1 %            10.8 %
    Operating margin               -3.5 %  -11.6 %            -5.2 %

    Net loss per ordinary share
     - basic(1)                  (0.0016) (0.0025)          (0.0014)
    Net loss per ADS - basic     (0.0814) (0.1227)          (0.0690)
    Net loss per ordinary share
     - diluted(1)                (0.0016) (0.0025)          (0.0014)
    Net loss per ADS - diluted   (0.0814) (0.1227)          (0.0690)

    Wafers shipped (in 8"
     wafers)(2)                  431,660  402,114     7.3 % 458,466    -5.8 %


    Capacity utilization           90.5 %   92.2 %            94.1 %


    Note:
    (1) Based on weighted average ordinary shares of 18,612 million (basic)
        and 18,612 million (diluted) in 3Q08, 18,589 million (basic) and
        18,589 million (diluted) in 2Q08 and 18,523 million (basic) and 18,523
        million (diluted) in 3Q07
    (2) Including copper interconnects


    -- Overall revenue increased to $375.9 million in 3Q08, up 9.6% QoQ from
       $342.9 million in 2Q08 due to an increase in logic sales from 0.13
       micron technology nodes and below; and down 3.9% YoY from $391.4
       million in 3Q07.
    -- Simplified ASP increased by 2.1% from $853 in 2Q08 to $871 in 3Q08.
    -- Cost of sales increased to $348.7 million in 3Q08, up 8.3% QoQ from
       $322.1 million in 2Q08 due to the increase in wafer shipments.
    -- Gross profit increased to $27.2 million in 3Q08, up 30.6% QoQ from
       $20.8 million in 2Q08 and down 35.6% YoY from $42.3 million in 3Q07.
    -- Gross margins increased to 7.2% in 3Q08 from 6.1% in 2Q08.
    -- Total operating expenses decreased to $40.5 million in 3Q08 from $60.8
       million, a decrease of 33.4% QoQ primarily due to a decrease in both
       research & development expenses and general administrative expenses.
    -- R&D expenses decreased to $17.8 million in 3Q08, down 52.7% from $37.7
       million, primarily due to an increase in government subsidies received
       in 3Q08.
    -- G&A expenses decreased to $10.8 million in 3Q08 from $13.3 million in
       2Q08 primarily due to a decrease in legal expenses.
    -- Selling & marketing expenses increased to $5.6 million in 3Q08, up
       28.1% QoQ from $4.4 million in 2Q08, primarily due to certain tax
       expenses in connection with the selling activities.


    Analysis of Revenues

    Sales Analysis
    By Application                              3Q08      2Q08          3Q07
    Computer                                    5.4 %     7.9 %        22.7 %
    Communications                             53.0 %    51.1 %        50.0 %
    Consumer                                   32.8 %    32.4 %        18.3 %
    Others                                      8.8 %     8.6 %         9.0 %
    By Service Type                             3Q08      2Q08          3Q07
    Logic(3)                                   87.4 %    85.7 %        66.8 %
    DRAM                                        2.3 %     3.6 %        23.6 %
    Management services                         2.4 %     2.6 %         3.1 %
    Mask making, testing, others                7.9 %     8.1 %         6.5 %
    By Customer Type                            3Q08      2Q08          3Q07
    Fabless semiconductor companies            55.1 %    54.6 %        45.5 %
    Integrated device manufacturers (IDM)      26.1 %    25.7 %        40.0 %
    System companies and others                18.8 %    19.7 %        14.5 %
    By Geography                                3Q08      2Q08          3Q07
    North America                              58.6 %    55.1 %        44.7 %
    Asia Pacific (ex. Japan)                   34.6 %    34.7 %        26.4 %
    Japan                                       2.1 %     3.6 %        10.1 %
    Europe                                      4.7 %     6.6 %        18.8 %
    Wafer Revenue Analysis
    By Technology (Logic, DRAM
    & copper interconnect only)                 3Q08      2Q08          3Q07
    0.09 m                                     19.4 %    18.4 %        26.7 %
    0.13 m                                     25.1 %    22.9 %        28.6 %
    0.15 m                                      2.0 %     2.1 %         2.0 %
    0.18 m                                     33.9 %    37.7 %        28.8 %
    0.25 m                                      0.5 %     0.6 %         1.0 %
    0.35 m                                     19.1 %    18.3 %        12.9 %
    By Technology (Logic Only)(1)               3Q08      2Q08          3Q07
    0.09 m                                     19.4 %    16.4 %        13.7 %
    0.13 m (2)                                 23.2 %    21.8 %        22.7 %
    0.15 m                                      2.0 %     2.2 %         2.7 %
    0.18 m                                     35.0 %    39.6 %        41.0 %
    0.25 m                                      0.5 %     0.6 %         1.4 %
    0.35 m                                     19.9 %    19.4 %        18.5 %

    Note:
    (1) Excluding 0.13 m copper interconnects
    (2) Represents revenues generated from manufacturing full flow wafers
    (3) Including 0.13 m copper interconnects


    Capacity*

    Fab / (Wafer Size)                                     3Q08         2Q08
    Shanghai Mega Fab (8")                               88,000       86,000
    Beijing Mega Fab (12")                               36,000       40,500
    Tianjin Fab (8")                                     30,000       28,000
    Total monthly wafer fabrication capacity            154,000      154,500

    Note:
    * Wafers per month at the end of the period in 8" wafers


    Shipment and Utilization

    8" equivalent wafers                         3Q08       2Q08        3Q07
    Wafer shipments including
    copper interconnects                      431,660    402,114     458,466

    Utilization rate(1)                         90.5 %     92.2 %      94.1 %



    Note:
    (1) Capacity utilization based on total wafer out divided by estimated
        capacity

    -- Wafer shipments increased 7.3% QoQ to 431,660 units of 8-inch
       equivalent wafers in 3Q08 from 402,114 units of 8-inch equivalent
       wafers in 2Q08, and down 5.8% YoY from 458,466 8-inch equivalent wafers
       in 3Q07.
    -- Logic shipments increased by 9.9% QoQ to 396,169 units of 8-inch
       equivalent wafers in 3Q08 from 2Q08 and up 32.1% YoY from 3Q07.


    Detailed Financial Analysis

    Gross Profit Analysis

    Amounts in US$ thousands         3Q08     2Q08      QoQ     3Q07      YoY
    Cost of sales                 348,721  322,077     8.3 % 349,148    -0.1 %
       Depreciation               165,641  153,783     7.7 % 151,720     9.2 %
       Other manufacturing costs  176,329  160,938     9.6 % 189,069    -6.7 %
       Deferred cost amortization   5,886    5,886             5,886
       Share-based compensation       865    1,470   -41.2 %   2,473   -65.0 %

    Gross Profit                   27,224   20,842    30.6 %  42,250   -35.6 %

    Gross Margin                     7.2 %    6.1 %            10.8 %


    -- Cost of sales increased to $348.7 million in 3Q08, up 8.3% QoQ from
       $322.1 million in 2Q08.
    -- Gross profit increased to $27.2 million in 3Q08, up 30.6% QoQ from
       $20.8 million in 2Q08 and down 35.6% YoY from $42.3 million in 3Q07.
    -- Gross margins increased to 7.2% in 3Q08 from 6.1% in 2Q08.


    Operating Expense Analysis

    Amounts in US$ thousands              3Q08   2Q08     QoQ   3Q07     YoY
    Total operating expenses            40,451 60,750  -33.4% 62,435  -35.2%
      Research and development          17,838 37,684  -52.7% 25,906  -31.1%
      General and administrative        10,761 13,328  -19.3% 23,836  -54.9%
      Selling and marketing              5,578  4,356   28.1%  4,901   13.8%
      Amortization of intangible assets  6,906  6,899    0.1%  7,751  -10.9%
      (Income) Loss from disposal of
       properties                         (632)(1,517)     --     41      --


    -- Total operating expenses decreased to $40.5 million in 3Q08 from $60.8
       million, a decrease of 33.4% QoQ primarily due to a decrease in both
       research & development expenses and general administrative expenses.
    -- R&D expenses decreased to $17.8 million in 3Q08, down 52.7% from $37.7
       million primarily due to an increase in government subsidies received
       in 3Q08.
    -- G&A expenses decreased to $10.8 million in 3Q08 from $13.3 million in
       2Q08 due to a decrease in legal expenses.
    -- Selling & marketing expenses increased to $5.6 million in 3Q08, up
       28.1% QoQ from $4.4 million in 2Q08, primarily due to certain tax
       expenses in connection with the selling activities.


    Other Income (Expenses)

    Amounts in US$                3Q08     2Q08       QoQ     3Q07    YoY
    thousands
    Other expenses             (15,631)  (5,193)   201.0 %  (4,342)   260.0 %
      Interest income            2,542    4,059    -37.4 %   2,819     -9.8 %
      Interest expense         (11,088) (15,279)   -27.4 % (14,791)   -25.0 %
      Other, net                (7,085)   6,027        --    7,629        --

    -- Interest expense decreased in 3Q08 as compared to 2Q08 due to a lower
       average loan balance as well as an increase in the capitalized interest.
    -- The increase in Other, net is due primarily to a a foreign exchange
       loss of $7.0 million related to non-operating activities recorded in
       3Q08 as compared to a gain of $2.5 million in 2Q08.  Combined with the
       foreign exchange gain from operating activities, the company recorded
       total foreign exchange loss of $4.6 million in 3Q08 as compared to a
       gain of $7.8 million in 2Q08.



    Liquidity

    Amounts in US$ thousands                         3Q08               2Q08

    Cash and cash equivalents                     392,881            480,265
    Restricted cash                                 3,000             91,130
    Short term investments                         50,646             32,326

    Accounts receivable                           285,874            262,418
    Inventory                                     233,022            252,394
    Others                                         72,272             64,767
    Total current assets                        1,037,695          1,183,300

    Accounts payable                              301,712            345,801
    Short-term borrowings                         212,600            242,908
    Current portion of long-term debt             340,355            341,630
    Others                                        177,736            159,958
    Total current liabilities                   1,032,403          1,090,297

    Cash Ratio                                       0.3x               0.5x
    Quick Ratio                                      0.7x               0.8x
    Current Ratio                                    1.0x               1.1x



    Capital Structure

    Amounts in US$ thousands                             3Q08           2Q08

    Cash and cash equivalents                         392,881        480,265
    Restricted cash                                     3,000         91,130
    Short-term investment                              50,646         32,326

    Current portion of promissory note                 29,493         29,242
    Promissory note                                    37,762         37,441

    Short-term borrowings                             212,600        242,908
    Current portion of long-term debt                 340,355        341,630
    Long-term debt                                    692,131        695,292
    Total debt                                      1,245,086      1,279,830


    Shareholders' equity                            2,721,561      2,749,470

    Total debt to equity ratio                          45.7 %         46.5 %



    Cash Flow

    Amounts in US$ thousands                             3Q08           2Q08

    Net cash from operating activities                110,119        147,211
    Net cash from investing activities               (162,773)      (320,120)
    Net cash from financing activities                (34,668)       146,927

    Net change in cash                                (87,384)       (26,055)


    Capex Summary
    -- Capital expenditures for 3Q08 were $242 million.
    -- Total capital expenditures for 2008 are expected to be around $790
       million.  The capital expenditure is incurred primarily for the
       expansion of 8-inch fab capacity, the conversion of the Beijing fab
       from DRAM to logic production and R&D activities.
    -- We plan to hold back any capacity expansion in 2009 until we have more
       visibility of end-customer demands.  Currently, the planned capex for
       2009 is around $200 million.

 

Fourth Quarter 2008 Guidance

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.

 

    -- Revenues expected to decline 25% to 29% from 3Q08.
    -- Operating expense as a percentage of revenue expected to be around the
       mid-teens.
    -- Capital expenditure expected to be approximately $165 million to $195
       million.


    Recent Highlights and Announcements
    -- SMIC Reiterates 2008 Third Quarter Revenue Guidance [2008-9-28]
    -- SMIC S2/FAB 8 passes the ISO 27001 Information Security Management
       System Certification [2008-9-26]
    -- SMIC 2008 Technology Symposium held in Shanghai [2008-9-19]
    -- Announcement of Unaudited Interim Results for the Six Months Ended
       June 30, 2008 [2008-9-19]
    -- Spansion Extends SMIC Agreement to Include 43nm MirrorBit ORNAND2
       Technology [2008-8-21]
    -- SMIC President and CEO Dr. Richard Chang to Run Anchor Leg of Beijing
       Economic and Technical Development Area Portion of Olympic Torch Relay
       [2008-8-8]
    -- Telepath Collaborated with Infineon and SMIC to Successfully Enable
       Diverse Mobile TV Devices for the 2008 Summer Olympic Games [2008-8-4]
    -- SMIC Reports Results for the Three Months Ended June 30, 2008
       [2008-7-28]

 

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

 

            Semiconductor Manufacturing International Corporation
                                BALANCE SHEET
                               (In US dollars)

                                                     As of the end of
                                             Sep 30, 2008        Jun 30, 2008
                                             (unaudited)         (unaudited)

    Assets
     Current assets
      Cash and cash equivalents              $392,881,020        $480,265,390
      Restricted Cash                           3,000,000          91,129,665
      Short term investments                   50,645,536          32,325,653
      Accounts receivable, net of
       Allowances of $4,697,378
       and $4,491,881 at September
       30, 2008 and June 30, 2008
       respectively                           285,873,827         262,418,476
      Inventories                             233,022,657         252,393,858
      Prepaid expense and other current
       assets                                  52,768,850          43,757,844
      Receivable for sale of plant and
       equipment and other fixed assets        19,503,560          19,503,560
      Assets held for sale                              -           1,505,287

     Total current assets                    1,037,695,450      1,183,299,733

      Land use rights, net                      74,437,989         56,973,227
      Plant and equipment, net               3,106,399,766      3,073,939,856
      Acquired intangible assets, net          212,611,259        219,542,603
      Deferred cost                             52,977,956         58,864,395
      Equity investment                         11,444,506          9,570,309
      Other long-term prepayments                2,379,500          2,431,307
      Deferred tax assets                       43,971,049         44,482,712

     Total Assets                           $4,541,917,475     $4,649,104,142

    Liabilities and Stockholders'
     Equity
     Current liabilities:
      Accounts payable                         $301,711,981      $345,801,391
      Accrued expenses and other current
       liabilities                              147,725,420       130,233,266
      Short-term borrowings                     212,600,414       242,907,613
      Current portion of promissory note         29,492,873        29,242,001
      Current portion of long-term debt         340,355,129       341,630,053
      Income tax payable                            517,682           482,264
      Total current liabilities               1,032,403,499     1,090,296,588

     Long-term liabilities:
      Promissory note                           37,762,091         37,440,879
      Long-term debt                           692,131,401        695,291,528
      Long-term payables relating to
       license agreements                       28,037,163         43,488,864
      Deferred tax liabilities                     621,029            621,029
      Total long-term liabilities              758,551,684        776,842,300

     Total liabilities                      $1,790,955,183     $1,867,138,888

     Minority interest                         $29,401,201        $32,495,675

     Stockholders' equity:
      Ordinary shares $0.0004 par value,
      50,000,000,000 shares authorized,
      shares issued and outstanding
      18,619,884,481 and 18,592,920,335
      at September 30, 2008 and June
      30, 2008, respectively                     7,447,954          7,437,168
     Additional paid-in capital              3,323,364,177      3,320,932,081
     Accumulated other comprehensive
      loss                                        (199,305)          (137,073)
     Accumulated deficit                      (609,051,735)      (578,762,598)

     Total stockholders' equity              2,721,561,091      2,749,469,578

     Total liabilities and
      stockholders' equity                  $4,541,917,475     $4,649,104,142

            Semiconductor Manufacturing International Corporation
                     CONSOLIDATED STATEMENT OF OPERATIONS
                               (In US dollars)

                                                For the three months ended
                                              Sep 30, 2008      Jun 30, 2008
                                              (unaudited)       (unaudited)

    Sales                                      $375,944,833      $342,919,148

    Cost of sales                               348,720,498       322,076,702

    Gross profit                                 27,224,335        20,842,446

     Operating expenses:
      Research and development                   17,838,076        37,684,073
      General and administrative                 10,760,722        13,328,153
      Selling and marketing                       5,578,365         4,356,161
      Amortization of acquired intangible
       assets                                     6,906,344         6,898,279
      Income from sale of plant and
       equipment and other fixed assets            (632,029)       (1,516,754)
      Total operating expenses                   40,451,478        60,749,912

      Loss from operations                      (13,227,143)      (39,907,466)

     Other income (expenses):
      Interest income                             2,541,743         4,058,901
      Interest expense                          (11,087,893)      (15,279,685)
      Foreign currency exchange (loss)
       gain                                      (7,022,913)        2,478,287
      Other income, net                             (62,216)        3,549,159
      Total other expenses, net                 (15,631,279)       (5,193,338)

      Net loss before income tax, minority
       interest and loss from equity
       investment                               (28,858,422)      (45,100,804)

      Income tax expense                         (4,499,387)       (2,046,464)
      Minority interest                           3,094,474         1,602,964
      Loss from equity investment                   (25,803)          (85,122)

      Net loss                                 ($30,289,138)     ($45,629,426)

    Net loss per share, basic                       (0.0016)          (0.0025)
    Net loss per ADS, basic                         (0.0814)          (0.1227)
    Net loss per share, diluted                     (0.0016)          (0.0025)
    Net loss per ADS, diluted                       (0.0814)          (0.1227)
    Ordinary shares used in calculating
     basic loss per ordinary share           18,612,441,880     18,59,202,067
    Ordinary shares used in calculating
     diluted loss per ordinary share         18,612,441,880    18,589,202,067

            Semiconductor Manufacturing International Corporation
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                               (In US dollars)

                                                For the three months ended
                                              Sep 30, 2008       Jun 30, 2008
                                              (unaudited)        (unaudited)
    Operating activities
     Net loss                                  ($30,289,138)     ($45,629,426)

    Adjustments to reconcile net loss to
     net cash provided by (used in)
     operating activities:
     Minority interest                           (3,094,474)       (1,602,964)
     Deferred tax                                   511,663        (6,223,931)
     Gain on disposal of plant and
      equipment                                    (632,029)       (1,516,754)
     Depreciation and amortization              188,387,781       187,912,371
     Amortization of acquired intangible
      assets                                      6,931,344         6,898,279
     Share-based compensation                     2,368,706         3,293,295
     Non cash interest expense on
      promissory notes                            1,522,485         1,839,073
     Loss from equity investment                     25,803            85,122
    Changes in operating assets and
     liabilities:
     Accounts receivable, net                   (23,455,351)       21,513,042
     Inventories                                 19,371,201       (36,234,839)
     Prepaid expense and other current
      assets                                     (9,608,778)       (6,011,332)
     Accounts payable                           (57,377,721)       33,225,078
     Accrued expenses and other current
      liabilities                                15,422,174       (10,301,330)
     Income tax payable                              35,418           (34,187)

    Net cash provided by operating
     activities                                 110,119,084       147,211,497

    Investing activities:
     Purchase of plant and equipment           (220,937,580)     (204,346,529)
     Proceeds from disposal of plant and
      equipment                                   3,920,056             9,157
     Proceeds received from sale of
      assets held for sale                        1,004,594           642,452
     Purchases of acquired intangible
      assets                                    (14,670,000)      (22,443,824)
     Purchase of short-term investments        (154,185,792)      (94,846,471)
     Purchase of equity investment               (1,900,000)                -
     Sale of short-term investments             135,865,909        91,994,718
     Change in restricted cash                   88,129,665       (91,129,665)

     Net cash used in investing
      activities                               (162,773,148)     (320,120,162)

    Financing activities:
     Proceeds from short-term borrowing          84,680,413       208,437,613
     Proceeds from long-term debt                         -       227,024,023
     Repayment of promissory notes                        -       (15,000,000)
     Repayment of long-term debt                 (4,435,051)     (170,780,962)
     Repayment of short-term debt              (114,987,613)     (103,000,000)
     Proceeds from exercise of employee
      stock options                                  74,176           246,496

     Net cash (used in) provided by
      financing activities                      (34,668,075)      146,927,170

     Effect of exchange rate changes                (62,231)          (73,428)

    Net Decrease in cash and cash
     equivalents                               (87,384,370)       (26,054,923)

    Cash and cash equivalents, beginning
     of period                                  480,265,390       506,320,313

    Cash and cash equivalents, end of
     period                                     392,881,020       480,265,390

 

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