China's biggest chipmaker says a rush of urgent orders from new domestic clients will give its earnings a boost in the second quarter but warns that the outlook for the chip industry this year remains murky.

Semiconductor Manufacturing International Corp. said the new orders will keep its factories busier than in the first three months of the year.

"Our second quarter production utilization rate and shipments will be higher than in the first quarter," SMIC Co-CEO Zhao Haijun said in an earnings call. "Compared with three months ago, although the market is still at the bottom, we have sensed a rebound in confidence from some of our Chinese clients."

Zhao said SMIC experienced a rapid increase in rush orders from new clients, namely domestic chip developers who are hoping to take advantage of shifting tech supply chains to increase their market share. "Our 40-nanometer and 28-nm production lines currently are running at full utilization rate and we are requesting equipment suppliers to speed up the tool delivery for those lines," he said.

SMIC estimated its revenue this quarter will grow by between 5% to 7% from the last quarter's $1.46 billion in light of the rush orders.

The co-CEO warned, however, that the improving utilization rate does not mean a recovery for the overall market. "The demand for industrial and automotive applications is relatively stable, but inventory for the smartphone and consumer electronics industry remains high."

"We can't see very clearly" whether the momentum in the second quarter will extend into next quarter, Zhao said. "The visibility of [the] recovery magnitude for the second half of this year is still not clear and we haven't seen the sign of a full recovery for the market."

Taiwan Semiconductor Manufacturing Co., the world's biggest contract chipmaker and a barometer for the tech industry, had a similar view on the overall market. TSMC last month lowered its full-year revenue guidance from mild growth to decline, saying the market was digesting inventory more slowly than expected.

SMIC said its full-year guidance will remain the same, with 2023 revenue estimated to decline by a low-teens percentage versus 2022. Its gross margin is predicted to be around 20%, compared with last year's 38%, a full-year record for the company.

Zhao said many chipmakers announced plans to build new factories, and equipment suppliers have been prioritizing tool deliveries for other players. "But then there were many players who canceled their orders, so we've been receiving the tools more and more quickly."

"Unlike the others, we don't do order canceling [for equipment]. We don't have big adjustments," Zhao said. "Our plan is to have one plant starting construction and one plant going into operation every year to address the longer-term demand," the co-CEO said, reiterating that capital expenditure this year will be similar to last year's $6.35 billion.

SMIC is under pressure from the ongoing U.S.-China tensions. Japan and the Netherlands have agreed to follow Washington's example and restrict their exports of advanced chip production equipment to China, dealing a blow to Beijing's semiconductor ambitions. SMIC has said its capacity expansion plans will mainly focus on mature, or older generations, of chips and on infrastructure for new plants.

The Chinese contract chipmaker's remarks came as it reported a 48.1% year-on-year plunge in net profit to $231.1 million for the first three months of this year due to a slowing market. Its gross margin was 20.8%, compared with 40.7% at the same time a year ago. Its revenue also declined by 20.6% on the year to $1.46 billion.

By: DocMemory
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