Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Semiconductor Manufacturing International Corporation (NYSE:SMI)

Q2 2012 Earnings Call

August 8, 2012 8:30 p.m. EDT

Executives

En-Ling Feng – Senior Director of IR

T.Y. Chiu – Chief Executive Officer

Gareth Kung – Chief Financial Officer, SVP

Analysts

Steven Pelayo – HSBC

Patrick Liao – Nomura Securities

Dan Heyler – Bank of America Merrill Lynch

Rick Hsu – J.P. Morgan

Operator

Welcome to the Semiconductor Manufacturing International Corporation's second quarter 2012 webcast conference call. Today's conference call is chaired by Dr. T.Y. Chiu, Chief Executive Officer; Mr. Gareth Kung, Chief Financial Officer; and Mr. En-Ling Feng, Senior Director of Investor Relations.

Today's webcast conference call will be simultaneously streamed through the internet at SMIC's website. Please be advised that your dialers are in listen-only mode. However, at the conclusion of the management presentation, we will be having a question-and-answer session, upon which you will receive further instructions as to how to participate.

The earnings press release is available for download at www.smics.com. Webcast playback will also be available approximately one hour after the event at www.smics.com. Without further ado, I would like to introduce to you Mr. En-Ling Feng, Senior Director of Investor Relations for the cautionary statement. Sir, please go ahead.

En-Ling Feng

Hello, everyone. Welcome to SMIC's second quarter 2012 earnings conference call. For today's call, our CEO T.Y. Chiu will first provide some general remarks. Then our CFO Gareth Kung will present the financial commentary. This will be followed by our Q&A session. As usual, our call will be approximately 60 minutes in length. The earnings press release and quarterly financial presentations are available for you to download at www.smics.com under Investor Relations in the Events & Presentation section.

Please also be reminded of the Safe Harbor Statement which provides as follows. SMIC's statements of its current expectations are forward-looking statements subject to significant risks and uncertainties. The actual results may differ materially from those contained in such forward-looking statements. Information as to those factors that could cause actual results to vary can be found in SMIC's Form 20-F filed with the United States Securities and Exchange Commission on April 27, 2012.

I will now turn the call over to our CEO, T.Y. Chiu, for the opening remarks.

T.Y. Chiu

Thank you, En-Ling. Greetings to everyone. Thank you for joining us for our earning webcast.

I'm very pleased to report a solid second quarter results with revenue $421 million. This is a new sales record for SMIC, with a quarter-to-quarter increase of 26.8% and a growth of 19.7% over the same period last year. We have a positive operating profit and a net profit of $7.1 million.

SMIC has benefited from strong customer demand across the board, and in particular, an 87% quarter-to-quarter increase in our 65nm/55nm revenue. Also we are experiencing a strong demand increase for our specialty processes including power management IC, EEPROM, and others. As a result, the overall revenue growth exceeded our original guidance.

I would also like to point out that -- our significantly higher gross margin of 24% compared to 12% in the first quarter. This is primarily due to increased utilization as well as enhanced efficiency in all of our fabs. We are pleased with our progress in improving efficiency. As such, we are making progress in lowering our breakeven utilization. We are enjoying good overall fab utilization as a result of industry demand improvement and our own emphasis and effort. The second quarter overall utilization was 95% as compared to 74% in the first quarter.

Our Shanghai 8-inch fab is heavily utilized, mainly driven by power management IC and other specialty ICs. We continue to allocate more capacity for this increasing power management IC demand. In the meantime, through efficiency improvement, we have been able to augment capacity by about 11,000 wafers per month, a 15% increase, with virtually no CapEx.

Our Beijing 12-inch fab achieved record-high utilization and revenue level, of which the revenue in the second quarter grew 45% quarter over quarter. Beijing's growth driver were mainly smartphone networking, tablet and connectivity applications. Also in the second quarter we have aligned the equipment in our Beijing fab for greater flexibility in order to handle the strong 65nm orders. We currently foresee that our Beijing fab's 65nm/55nm shipment will continue to increase into the third quarter, primarily driven by demand from our mobile phone and other consumer customers.

At our Tianjin fab, we transferred a significant amount of loading from our Shanghai 8-inch fab with excellent results. Tianjin fab has significantly increased loading in the second quarter and we expect the Tianjin fab to continue to be heavily loaded in the third quarter.

Apart from macro reasons, the increase in demand and utilization is also driven by fundamental performance improvement which include our customer service, product mix, yield improvement, cycle time and defect density level. These enhancements effectively helped us in gaining customer confidence and recognition. For example, with our precision execution on 65nm products for one of the leading customers, we are now considered by them as a top-tier foundry based on our control of excursions, yield and cycle time performance. This results in accomplishing a stronger partnership with these leading customers and more advanced technology business.

Regarding the overall demand for our advanced technology, we are currently expecting that the number of new tape-out for 65nm and below will grow 30% from the second quarter into the third quarter. A large part of the expected growth was driven by our consistent track record and delivery quality -- delivering quality products for our customers, and thus they are expanding their product portfolios to be sourced from SMIC.

Over the last three quarters we have successfully regained the confidence of our confidence, ensured good loading for our mature fabs, ramped up our Beijing operation to meet strong demand, and manage a demand surge in our fab in Wuhan. I must thank our excellent team for executing with precision and with much improved efficiency.

Regarding our differentiation strategy, we're enjoying the return of our investment in specialty technology as evidenced from the increasing demand in PMIC and embedded non-volatile technologies. A number of other technologies are being actively pursued and we will increase our resources and investments. We're making good progress, and for confidentiality reasons, we will report at the appropriate time.

Now let me make some comment regarding the China market. Our China revenue continues to grow along with China semiconductor market. In the second quarter of 2012, our China revenue grew 28% quarter to quarter, equivalent to about 33% of our total revenue in the second quarter of 2012. The overall demand in China is still relatively strong, primarily driven by feature phones, smartphones, tablets and set-top box. We are now seeing more positive signal such as Chinese customers entering top-tier cell phone supply chain and migrating into more advanced technology area.

In addition to the advanced nodes, some of our specialty process are widely adopted by Chinese customers, which includes smart card, smart meter for power grid and CIS, et cetera. We would expect China semiconductor market to continue its momentum in the future.

On the advanced technology front, we continue to attract interest from a large number of customers, and the feedback on our technology readiness has been very positive. However, end-customers' market position has slowed the pace of the loading. We remain cautiously optimistic that good volume will come in -- during the second half of the year.

Our 32nm/28nm development is on schedule as planned. Our plan is to provide both high-K metal gate and poly/SiON process. And we target to have the process ready in the late 2013. Meanwhile, we have also established a fact-finding team on the 20nm process and target to have the technology ready in the middle of 2015. Our strategy right now is to push for these programs and simultaneously speed up its development.

With a steady R&D investment in our 28nm/20nm and enthusiastic response to our advanced production nodes, we're preparing for the future capacity need of our partners -- for our partners. On May 15 we have announced that we have entered into a cooperation framework with Beijing municipal government, informing a joint venture to build a new advanced fab in Beijing with up to 20nm capability. With this JV arrangement, the funding needed for the future expansion will be significantly reduced while SMIC will still be able to support a strong demand forecasted. The capacity expansion will be initiated, will be initiated, after 2014 and will be paced with clear customer demand and technology readiness.

At the conclusion of the second quarter, we are pleased with our progress today in 2012 and will continue our strategic execution in capturing growth opportunities via technology advancement and value-added differentiation. We are currently expect the overall macro growth momentum approaching the end of 2012 to be slower than the first half. Although the macro environment is uncertain, we believe our position has been much improved and we aim to see further improvement in the future.

I thank you for your continued support and look forward to updating you again in the near future. Before I finish, let me welcome our new CFO, Gareth Kung, who rejoined the company a month ago and will be a great contributor of expertise and professionalism as we continue pursuing the growth opportunity that lie ahead for SMIC. I would also like to express thanks to our former CFO, Gary Tseng, for his hard work and dedication.

I would now hand over the call over to our CFO, Gareth, for overall business and financial commentary.

Gareth Kung

Thank you, T.Y., and thank you everyone for joining us today. I'm really excited to be a part of SMIC again. I look forward to meeting many of you in the future. I will now take a few moments to summarize our second quarter 2012 financial results and provide our third quarter 2012 guidance. You may also refer to our quarterly financial presentation on our website. Please note that all currency figures are in US dollars unless otherwise stated.

In the second quarter, SMIC had upbeat performance as we successfully delivered a record high quarterly revenue and achieved a turnaround both operationally and financially. Specifically, for the second quarter of 2012, total revenue increased 26.8% quarter over quarter to $421.8 million due to robust demand across the board, especially for our 65nm node and our special processes for power management ICs.

Wafer revenue from our managed fab Wuhan Xinxin was $41.6 million in the second quarter, contributing $9.9 million of our total revenue. Excluding wafer revenue from the managed fab for both quarters, our revenue increased -- sorry, revenue increased 22.5% quarter over quarter.

Second quarter gross margin was 24.1% compared to the previous quarter 12% -- major drivers for second quarter gross margin achievement. The improvement of 12.1% quarter over quarter was a result of increased utilization and shipments as well as our continued improvement in manufacturing efficiency, particularly increases in equipment daily moves and reduction in wastage and manufacturing overheads.

In terms of operating expenses, the overall OpEx was $88 million, factoring in government grants of $16 million. Therefore, the normalized OpEx for the same quarter was $104 million compared to $93.9 million in the first quarter. This increase was mainly due to the increase in R&D expenses for advanced technology development and midyear bonuses. The R&D cost of 45nm/40nm will come down after third quarter when we move into volume production towards the fourth quarter of this year.

In the second quarter, our operating income improved from a loss of $50.3 million in the first quarter to an income of $13.7 million, which reflected an overall improvement in the operational efficiency. The gain attributable to holders of ordinary shares was $7.1 million in the second quarter of 2012. The fully diluted EPS was $0.01 per ADS.

Moving to balance sheet, at the end of second quarter of 2012, our debt-to-equity ratio was 50%. It went up slightly as we drew down part of our syndicated loans during the quarter. In terms of equity, our share count increased from 27.5 billion to 32 billion shares as the convertible preferred share issued to CIC and Datang in June last year have recently been fully converted into ordinary shares, as the carrying expiration period of one year. We're also pleased to note that in July, our CEO, T.Y., had personally purchased 3.5 million shares in the secondary market as well.

In terms of cash flow, we generated $109.4 million of operating cash compared to $35.8 million in the first quarter of 2012, due to increased revenue and VAT refunds. Overall cash and cash equivalents at end of second quarter were $290.7 million compared to $200.6 million in the previous quarter.

To look at our revenue by application, Consumer Application were the largest contributor to revenue growth, having increased to $201.6 million in the second quarter, which represents a sequential growth of 50.9%. Meanwhile, Communication grew 7.8% sequentially to $173.2 million. Geographically, revenue from the US and China grew 29.2% and 27.7% respectively. In terms of technology, 90nm and below increased 69.6%, contributing 41.7% of our wafer revenue in the second quarter.

With regard to capacity, our Shanghai 8-inch fab increased from 79,200 8-inch wafer per month to 84,600 by end of the quarter -- by end of second quarter, mainly due to our continued capacity realignment and more allocation for niche technology such as PMIC and EE -- reached 90,000 wafers, 8-inch wafers, per month.

At the Beijing fab, our overall capacity increased from 30,000 12-inch wafers per month with the first quarter to 34,000 in the second quarter, due to fab equipment realignment and critical capacity addition for our 65nm capacity. By end of second quarter, we have capacity of 17,500 12-inch wafers per month for 65nm, which we plan to ramp up to 24,000 towards the end of 2012 due to tremendous demand on our 65nm node. The critical capacity expansion in Shanghai and Beijing fabs has been mainly achieved by equipment efficiency improvement and realignment with minimal CapEx requirements.

In the second quarter, there was no change to our Tianjin fab's capacity. The overall utilization significantly improved from 74.1% in the first quarter to 95.2% in the second quarter. We're pleased to see that all fabs were highly utilized across the board in the same quarter.

Looking ahead at the third quarter 2012, we are guiding our revenue to increase 4% to 6% because of continued increase in demand from customers across the board. Gross margin is expected to range from 22% to 24%. We expect our operating expenses to range from $93 million to $96 million, excluding foreign exchange effects and government grants.

Last but not least, for the CapEx of 2012, we have revised upwards to between $550 million to $600 million, depending on the equipment moving schedule. The additional CapEx will mainly be spent on the collaboration project with IBM on the 24nm technology development, 65nm CapEx expansion and 8-inch specialty processes, [de-bottled] tools, [more sharp] technology upgrade, R&D equipment and also construction of a living quarters. The additional CapEx will be mainly funded by own cash generation and loans.

We'd like to assure the Street that our -- we'd like to assure the Street that our investment priority right now is to focus on technology development rather than capacity building. However, we are revising CapEx at this time solely because we have seen clear positive dynamics from our relations with our customers and solid operational improvement in the past quarters. Thus, we are confident that reasonable capital investment will enable us to better capture growth opportunities and maximize shareholders' returns.

I would now hand the call back to En-Ling for the Q&A session.

En-Ling Feng

Thank you, Gareth. I would now like to open up the call for Q&A. As usual, please be reminded to limit your questions to two per person. Operator, please assist. Thank you.

Question-and-Answer Session

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions].

The first question comes from the line of Dan Heyler from Bank of America. Please ask your question.

T.Y. Chiu

Hello, Dan.

Operator

Mr. Heyler, your line is open.

We are not getting any response from Mr. Heyler. We will move on to the next person.

The next in queue is Steven Pelayo from HSBC. Please ask your question.

Steven Pelayo – HSBC

Great. Thank you. Let's see. First questions are really going to be just more financials, so I don’t know, maybe more to Gareth. But I'm trying to understand your gross margin improvements quarter on quarter. You're talking about better utilization rates and better efficiencies and leveraging capacity and realigning it better. But realistically, gross margins were up about 1,200 basis points quarter on quarter, about a thousand of that was because depreciation costs within cost of goods sold was down 14% quarter on quarter. That doesn’t really sound like increased efficiency. So, can you explain a little bit more what's going on within cost of goods sold relative to depreciation? And then also maybe talk a little about more some of those efficiencies and some of the non-depreciation costs of cost of goods sold and how you're seeing gains there.

Gareth Kung

Yes.

T.Y. Chiu

Steve.

Gareth Kung

Hi, Steve. Yes. Regarding the depreciation on cost of goods sold, you see that actually there are some reduction there. But actually that is mainly because our fab is right now fully loaded and therefore actually more of the depreciation have been captured in the [product progress] inventory that is expected to be shipped out in Q3. So that explains why there's a decline in the depreciation in the cost of goods sold.

In terms of overall improvement in gross margin, as you rightly pointed out, there are really two major reasons for that. One is because of the high utilization that bring down the average cost of manufacturing costs per wafer. And the other thing is the team in the last few quarters have made a lot of efforts and progress in terms of improving the productivity in the fab, by getting rid of some wastage, improving the equipment moves, improving the cycle time. And that all helped to contribute to this big improvement in gross margin.

Steven Pelayo – HSBC

Maybe I can follow up later. I guess I'm still confused how shipments can increase 25% quarter on quarter and depreciation can go down on the 14%. I understand that you have a lot of [whip] in the fab and that you kind of pushed to 3Q, but still that significant a number to have that big of a decline seems a bit of a surprise. We'll follow up with that later on.

I guess the next question is relative to your other income line, obviously up quite a bit, I think about 30% or so quarter on quarter. I think you're dealing with higher interest costs from more debt. Could you give us some guidance for that going forward?

Gareth Kung

In terms of the interest expense, we see actually it may go up marginally in Q3 because of the drawdown of some additional loans, but it will not be a big increase.

Steven Pelayo – HSBC

Okay. And then I'll just sneak in one final one. I'm surprised that your com business was only up by I think about 8% quarter on quarter, kind of underperforming the corporate average. I think you have some large customers there with Broadcom and Qualcomm. So, could you talk a little bit about what's going on within why com was relatively underperformer? And I think consumer was the one that was a big outperformer, if I remember correctly. What are the shifts that are going on there?

T.Y. Chiu

Yeah. Let me say that it depends a little of how the categorization of the products. In our categorization on product, we depend a lot of that on the customer's feedback, that could be some WiFi product, some customers that decide to put in the consumer because it goes into PC. Some other put it into communication because they put it in the hand phone. That's one factor.

There is a second factor, is that we have a surged demand on our -- from one of our particular customers on NOR flash, and there was a fast increased revenue in that particular area. And that particular categorization goes into consumer.

Steven Pelayo – HSBC

Excellent. Thanks. I'll get back in the queue.

Operator

Thank you very much. The next question comes from the line of Patrick Liao from Nomura Securities. Please ask your question.

Patrick Liao – Nomura Securities

Hi, good morning. Two questions here. Firstly, about the CapEx, I think, Gareth, you mentioned, if I'm wrong, that collaboration with IBM 28nm or 24nm or 32nm? I think I missed that part. And also about the impact for cash with your increasing CapEx. This is the first question.

Gareth Kung

Yeah, I think the CapEx relating to our collaboration with IBM for the 32nm/28nm technology.

T.Y. Chiu

28nm in particular. To be more specific, it is a joint development program on the 28nm.

Patrick Liao – Nomura Securities

Okay, clear. And then for CapEx increasing, how the feeling for the cash position? I know you guys [do funding successfully] before, and how about idea for cash impact with the rising CapEx? [I think this could be] [inaudible].

Gareth Kung

Yeah. Actually, we're forecasting our cash balance to be -- stay relatively stable in the next two quarters, because we're going to fund most of this CapEx through our operating cash.

Patrick Liao – Nomura Securities

Okay. Okay, that's good. And the second question is about the idea of your advanced technology progress. Could you give us some color for your 45nm sales growth moving forward or maybe a sense of likely how much percentage by the end of the year for sales? [If that would be likely to get a sense, 45nm].

T.Y. Chiu

Okay. I think we are making very good progress on the 45nm. We have got many, many enthusiastic feedback from both our major US customers and across the board in other area. As we have said that we have always planned that the 45nm/40nm ramp-up will be in the second half of the year, and this is still on track. There may be some of our original major customers, their end-customer may have slowed down a little bit, but our -- we are aiming to still to get to the mid-single digit revenue by the end of the year.

Patrick Liao – Nomura Securities

Okay. Thanks so much. I'll get back to queue.

Operator

Thank you very much. The next question comes from the line of Dan Heyler from Bank of America. Please ask your question.

Dan Heyler – Bank of America Merrill Lynch

Thanks for that. Can you hear me now?

T.Y. Chiu

Yes.

Dan Heyler – Bank of America Merrill Lynch

Great. So, yeah, to add a question on your Beijing fab, I understand -- if I understood you correctly, you had mentioned about a joint venture fab with the Beijing government, helping the funding there. And I believe you said 20nm. So I wanted to know how you're going to get the funding for 28nm and 32nm ramp in 2014.

T.Y. Chiu

Okay. What I meant, maybe let me make clear, is that this particular fab will cover technology down to 20nm, okay? It wasn't just for 20nm. And the starting ramp time is -- from the 2014, and that we -- our plan is that it should ramp up over a number of years. And because it is a joint venture fab, the -- how do you say -- the amount of cash from SMIC itself will be reduced. And that is one of the main targets we are trying to achieve. It is a relatively long-term plan and the ramp rate will definitely depend on our customer demand as well as our technology readiness. So in the initial phase, definitely we will add additional 40nm as well as 28nm to this fab.

Does that answer your question?

Dan Heyler – Bank of America Merrill Lynch

Yeah, that clarifies it. Thank you. And I wonder then what you thought the cost of the project would be, both if you could give us what you think the R&D development costs are going to be for 28nm and 32nm and what you think the cost to the fab would be for the first phase.

T.Y. Chiu

Okay. In the -- of course, at this point of time, the discussion is still ongoing, so I'm not privy to give you the detail at point of time.

Dan Heyler – Bank of America Merrill Lynch

Okay.

T.Y. Chiu

But we will report it as soon as the detail of the JV is available.

Dan Heyler – Bank of America Merrill Lynch

Okay, that's great. If I can just squeeze in one more, than I -- I appreciate your strategy on focusing on specialty technologies and you showed a lot of success in the power management ICs and EE initiatives. I wondered how much more capacity you have to continue to roll out that strategy and how much efficiencies that you can get from your existing infrastructure, and whether or not you should be spending more along the lines of mature technologies since this seems to be one of the focus of the company. Thank you.

T.Y. Chiu

Okay. At this moment, indeed we are seeing very high demand in this area and we intend to expand our revenue and the specialty area as well. And we are, through -- in the short term we are going through efficiency improvements, but in the long term we're considering other potential avenues to increase our total capacity for the 8-inch. So at that time, whenever that detail is available, then we will report them as soon as possible.

Dan Heyler – Bank of America Merrill Lynch

Okay. So you'd prefer maybe M&A over new equipment, is that right?

T.Y. Chiu

At this moment, we will refrain from discussion.

Dan Heyler – Bank of America Merrill Lynch

Okay. Fair enough. Thanks.

Operator

Thank you. The next question comes from the line of Rick Hsu from J.P. Morgan. Please ask your question.

Rick Hsu – J.P. Morgan

Yes, hi. Good morning. Yes, this is Rick. Okay. My first question is about your margin guidance for Q3, because obviously your top line will continue to grow by about mid single digit, but your gross margin is not going to expand further. So I want to understand the reason why for that. Is it because of the rise in depreciation? And also, could you give us some color of your 3Q, 4Q depreciation cost?

Gareth Kung

Yeah. The reason we -- the reason we're guiding the margin in the way we did is because actually one reason for that is our fab 8 -- our -- the 12-inch R&D fab in Shanghai, actually we're planning to get into [inaudible] production in September. So, some of the R&D expenses, which is capturing R&D expenses, will move into production costs. That has an impact on our gross margin.

I'm sorry, your second question is?

Rick Hsu – J.P. Morgan

Second question is your depreciation, could you give some guidance about your depreciation cost, how it's going to shape out in Q3 and Q4?

Gareth Kung

Actually it will be quite consistent. Our depreciation cost in Q2 is $140 million and we see it to be quite steady in the next few quarters.

Rick Hsu – J.P. Morgan

So basically it's flattish in the next few quarters?

Gareth Kung

That's correct, yeah.

Rick Hsu – J.P. Morgan

If I can ask one more question, can you talk about your Q4 visibility? Are you going to see a down quarter like your peers are seeing?

T.Y. Chiu

Okay. No, Q4, there isn't enough clarity at this point of time, but definitely we -- Q4 traditionally has seasonality and that tends to push the utilization rate down. But we believe that we should be able to more or less maintain the same very modest, very, very modest growth.

Rick Hsu – J.P. Morgan

Okay. Thank you so much. Yeah, I'll go back to queue.

Operator

Thank you. The next question comes from the line of Steven Pelayo from HSBC. Please ask your question.

Steven Pelayo – HSBC

Yeah, I guess if I could just follow up a little bit on the depreciation guidance. So the portion that's in cost of goods sold that impacts your gross margin will be stable at kind of this $91 million per quarter run rate? Do I understand that correctly?

Gareth Kung

No. Actually when I mentioned about the total will remain stable, we talk about the total amount which is, you know, for -- in Q2, we're talking about $140 million.

Steven Pelayo – HSBC

Right.

Gareth Kung

So, some of it will be in the -- some in the inventory. And I'm referring to this total amount to be relatively stable in the next few quarters.

Steven Pelayo – HSBC

Okay. So what about your guidance then for this specific amount within cost of goods sold?

Gareth Kung

I think that -- actually I'm not guiding this amount because actually that depends on the move -- the changes in the utilization effect in the next few quarters.

Steven Pelayo – HSBC

Okay. And then just quick thoughts on 40nm. Could you just -- 40nm/45nm, still very small, going to be mid-single digits I guess exiting this year. Could you just talk about the breadth of customers? Is this really still kind of led by one or two US customers? Is it broadening out some of your Chinese customers? Could you speak a little bit more about your 40nm efforts?

T.Y. Chiu

Yes. Present, of course we start with a small number and are broadening out to a much larger base. Our initial customer set are small indeed, but we are getting a fairly large NTO, new tape-out, from across the board, both in US as well in China. The number of customers is greater than five.

Steven Pelayo – HSBC

Greater than five. Thank you.

T.Y. Chiu

At this point of time. Yeah.

There are continued interest from new as well as existing customers as well.

Steven Pelayo – HSBC

All right. And then just last question is this concern out there about excess inventories maybe building in the first half of this year, maybe even some in the third quarter, causing a correction in the fourth quarter and the first quarter. This has already started people worrying more and more about some excess capacity and increased pricing pressures. So, how do you think about your utilization rates as you go kind of in the slower fourth quarter, first quarter? And are you starting to see any more increased pressures on pricing?

T.Y. Chiu

I think indeed we have seen the industry, other player in this industry, announcing a reduce in the utilization. We are indeed also seeing some slowdown in the economy and we are concerned about the macroeconomic situation of worldwide. As I said, however, we hope that, and we are still modeling our fourth quarter as a flattish quarter and maybe with a very, very modest revenue growth.

Steven Pelayo – HSBC

Thank you.

Operator

Thank you. I would now like to hand the call back to CEO, Dr. Chiu, for closing remarks.

T.Y. Chiu

In closing, I would like to take this opportunity to thank all of our shareholders, customers, employees and suppliers for their trust and support. I also thank the analysts who participated today for their questions and comments. See you next time. Bye-bye.

Operator

Thank you, sir. This is the end of SMIC's second quarter earnings conference call. We thank you for joining us today.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Semiconductor Manufacturing International's CEO Discusses Q2 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts