SMIC Reports 2015 Third Quarter Results

SHANGHAI, Nov. 10, 2015 /PRNewswire/ -- November 10, 2015. Semiconductor Manufacturing International Corporation (NYSE: SMI; SEHK: 981) ("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, 2015.

Third Quarter 2015 Highlights

• Revenue was a record high of $569.9 million in 3Q15, increased 4.3% QoQ from $546.6 million in 2Q15 and increased 9.2% YoY from $521.6 million in 3Q14.
• Gross profit was a record high of $182.4 million in 3Q15, increased 3.4% QoQ from $176.4 million in 2Q15 and increased 35.1% YoY from $134.9 million in 3Q14.
• Gross margin was 32.0% in 3Q15, compared to 32.3% in 2Q15 and 25.9% in 3Q14.
• Net profit for the period attributable to SMIC was $82.6 million in 3Q15, as compared to $76.7 million in 2Q15 and $47.5 million in 3Q14. Excluding the gain of commitment to grant shares and warrants in 2Q10, profit for the period attributable to SMIC was a record high in 3Q15.

Fourth Quarter 2015 Guidance: 

The following statements are forward looking statements which are based on current expectations and which involve risks and uncertainties, some of which are set forth under "Safe Harbor Statements" below. The Company expects:

• Revenue to increase by 3% to 6% quarter over quarter.
• Gross margin to range from 28% to 30%.
• Non-GAAP operating expenses excluding the effect of employee bonus accrual, government funding and gain from the disposal of living quarters to range from $142 million to $147 million.
• Non-controlling interests of our majority-owned subsidiaries to range from positive $33 million to positive $36 million (losses to be borne by non-controlling interests).

Dr. Tzu-Yin Chiu, SMIC's Chief Executive Officer and Executive Director, commented, "SMIC has achieved another quarter of record-high revenue and earnings in Q3; undeterred by the industry correction, our utilizations remain high as we guide an additional growth quarter in Q4. We have successfully diversified our products as well as our customer base and have shown resilience in the face of seasonally weaker market trends.

We have started to book small 28nm revenue contributions in Q3 this year. We continue to expand our differentiated portfolio; and I am pleased to announce our 95ULL SPOCULL technology (SMIC Poly Contact for Ultra Low Leakage); when comparing to conventional 0.13LL technology this 8-inch SPOCULL technology can pack 2 times the logic density and three times the SRAM density. We believe this new technology will be very suitable for applications such as ultra-low power MCU, high performance analog, RF, and other IOT related applications.

I am also pleased to announce that we newly received an investment-grade credit rating from Moody's, in addition to an investment-grade credit rating from S&P. Domestically, we have received a triple A rating from a Chinese rating agency, China Chengxin International Credit Rating Co. These signify the recognition and acknowledgement of SMIC's credible and improving financial health.

We have achieved a strong 2015 so far, our best historically in terms of revenue, profitability and utilization. We expect growth again in the fourth quarter, which would represent 4 consecutive quarters of growth in 2015. With our Q4 guidance, our 2015 revenue is expected to grow more than 10% year over year."

Conference Call / Webcast Announcement

Date: November 11, 2015
Time: 8:30 a.m. Shanghai time
Dial-in numbers and pass code:

The call will be webcast live with audio at http://www.smics.com/eng/investors/ir_presentations.php or http://edge.media-server.com/m/p/m8ujveyy.

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 ("SMIC"; NYSE: SMI; SEHK: 981) is one of the leading semiconductor foundries in the world and the largest and most advanced foundry in mainland China. SMIC provides integrated circuit (IC) foundry and technology services at 0.35-micron to 28-nanometer. Headquartered in Shanghai, China, SMIC has a 300mm wafer fabrication facility (fab) and a 200mm mega-fab in Shanghai; a 300mm mega-fab and a second majority owned 300mm fab under development for advance nodes in Beijing; and 200mm fabs in Tianjin and Shenzhen. SMIC also has marketing and customer service offices in the U.S., Europe, Japan, and Taiwan, and a representative office in Hong Kong.

For more information, please visit 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 under "Fourth Quarter 2015 Guidance", "CapEx Summary" and the statements contained in the quotes of our CEO regarding our fourth quarter guidance are based on SMIC's current assumptions, expectations and projections about future events. SMIC uses words like "believe," "anticipate," "intend," "estimate," "expect," "project," "target" and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements 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 the cyclical nature of the semiconductor industry, changes in demand for our products, competition in our markets, our reliance on a small number of customers, orders or judgments from pending litigation, intensive intellectual property lawsuits in semiconductor industry and financial stability in end markets, general economic conditions and fluctuations in currency exchange rates.

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 filed with the SEC on April 28, 2015, especially the consolidated financial statements, and such other documents that SMIC may file with the SEC or The Hong Kong Stock Exchange Limited ("SEHK") from time to time, including current reports 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 may be 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.

About Non-Generally Accepted Accounting Principles ("Non-GAAP") Financial Measures

To supplement SMIC's consolidated financial results presented in accordance with IFRS, SMIC uses in this press release non-GAAP operating expenses which consist of total operating expenses as adjusted to exclude the effect of employee bonus accrual, government funding and gain from the disposal of living quarters. This earnings release also includes fourth quarter 2015 guidance for non-GAAP operating expenses. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with IFRS.

SMIC believes that use of these non-GAAP financial measures facilitates investors' and management's comparisons to SMIC's historical performance. The Group's management regularly uses these non-GAAP financial measures to understand, manage and evaluate the Group's business and make financial and operational decisions.

The accompanying table has more information and reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure. A reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis.

• Revenue increased by 4.3% QoQ from $546.6 million in 2Q15 to $569.9 million in 3Q15 mainly due to an increase of wafer shipments in 3Q15.
• Cost of sales was $387.5 million in 3Q15, up 4.7% QoQ from $370.2 million in 2Q15. The increase was mainly due to the same reason as the revenue increase.
• Gross profit was $182.4 million in 3Q15, an increase of 3.4% QoQ from $176.4 million in 2Q15.
• Gross margin was 32.0 % in 3Q15, as compared to 32.3% in 2Q15.
• Operating expenses were $108.1 million in 3Q15, a decrease of 6.6% QoQ from $115.7 million in 2Q15, mainly due to the reasons stated in Operating Expenses (Income) Analysis below.

• Monthly capacity increased to 268,750 8-inch equivalent wafers in 3Q15 from 255,750 8-inch equivalent wafers in 2Q15, primarily because our new 8-inch fab in Shenzhen entered into mass production in 3Q15.

Detailed Financial Analysis

• Cost of sales was $387.5 million in 3Q15, up 4.7% QoQ from $370.2 million in 2Q15.
• Depreciation within the cost of sales decreased 1.7% to $94.3 million in 3Q15, compared to $95.9 million in 2Q15.
• Other manufacturing costs within the cost of sales increased 6.9% to $291.4 million in 3Q15, compared to $272.6 million in 2Q15. The increase was mainly due to an increase of wafer shipments in 3Q15.
• Gross profit was $182.4 million in 3Q15, an increase of 3.4% QoQ from $176.4 million in 2Q15.
• Gross margin was 32.0% in 3Q15, as compared to 32.3% in 2Q15.

• R&D expenses increased by $7.2 million QoQ to $62.4 million in 3Q15, compared to $55.2 million in 2Q15. Excluding the funding of R&D contracts from the government, R&D expenses increased by $6.4 million QoQ to $72.0 million in 3Q15. The change was mainly due to higher R&D activities in 3Q15. Funding of R&D contracts from the government was $9.6 million in 3Q15, compared to $10.4 million in 2Q15.
• Other operating income increased from $0.7 million in 2Q15 to $16.8 million in 3Q15, mainly because of the gain realized from the disposal of certain living quarters in 3Q15.

• The change in foreign exchange gains or losses was mainly due to a devaluation of RMB against USD in 3Q15. Foreign monetary assets mainly consist of cash and cash equivalent and accounts receivables in RMB. And foreign monetary liabilities mainly consist of loans, accounts payables and other payables in RMB. The Group is in net foreign monetary asset position.
• The change in other gains or losses, net was mainly caused by 1) the lower revenue from our schools in 3Q15 due to summer vacation and 2) the lower gains from investment in the financial products sold by banks in 3Q15.
• The change in fair value change was due to gain arising from the put option, which was granted by Jiangsu Changjiang Electronics Technology Co., Ltd ("JCET"), to sell the shares of Suzhou Changjiang Electric Xinke Investment Co., Ltd ("Changjiang Xinke") to JCET, pursuant to an investment exit agreement entered into by SilTech Shanghai (a subsidiary of SMIC), JCET and Jiangsu Xinchao Technology Group Co., Ltd (a substantial shareholder of JCET).
• The change in share of profit (loss) of investment using equity method was mainly due to the loss attributable to Changjiang Xinke.

As of September 30, 2015, the assets classified as held-for-sale balance of $111.4 million were living quarter units, which the Group has committed to sell to its employees in the future.

Capex Summary

Recent Highlights and Announcements

Please visit SMIC's website at http://www.smics.com/eng/press/press_releases.php  and http://www.smics.com/eng/investors/ir_filings.php
for further details regarding the recent announcements.

Note:

(1) Non-GAAP operating expenses are defined as operating expenses adjusted to exclude the effect of employee bonus accrual, government funding and gain from the disposal of living quarters. SMIC reviews non-GAAP operating expenses together with operating expenses to understand, manage and evaluate its business and make financial and operational decisions. The Group also believes it is useful supplemental information for investors and analysts to assess its operating performance. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact our net profit for the period. In addition, because non-GAAP financial measures are not calculated in the same manner by all companies, they may not be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should not consider the non-GAAP operating expenses in isolation from or as an alternative to operating expenses prepared in accordance with IFRS.

The following table sets forth the reconciliation of the non-GAAP operating expenses to its most directly comparable financial measure presented in accordance with IFRS, for the periods indicated.

As at the date of this announcement, the directors of the Company are:

Executive Directors
Zhou Zixue (Chairman)
Tzu-Yin Chiu (Chief Executive Officer)
Gao Yonggang (Chief Financial Officer)

Non-executive Directors
Chen Shanzhi (Li Yong Hua as his Alternate)
Zhou Jie
Ren Kai

Independent Non-executive Directors
William Tudor Brown
Sean Maloney
Lip-Bu Tan
Carmen I-Hua Chang

By order of the Board
Semiconductor Manufacturing International Corporation
Dr. Tzu-Yin Chiu
Chief Executive Officer
Executive Director

Shanghai, PRC
November 10, 2015

* For identification purposes only

Contact:

Investor Relations
+86-21-3861-0000 ext. 12804
ir@smics.com