SMIC’s new CEO, Tzu-Yin Chiu, has cut capex from $1bn to $800m blaming “the severe macroeconomic conditions out there” and stating “we are preparing for a long industry downturn.”
The decision follows a Q2 loss of $3.8m, a 6% decline in Q2 revenues to $352m and a gross margin of 14.3% compared to 18.6% in Q1.
"This decline was in part due to our customer transition to 65nm and 45nm and largely due to unexpected changes in some of our customers' programmes - including some customers skipping 65nm to work on 45nm and one customer abandoning their lower-end baseband business," says SMIC CFO Gary Tseng.
The company expects Q3 revenues to fall 14%-17% and Q3 gross margin to be in the range of 0%-3%.
"Looking into the third quarter, the overall demand from both international and domestic customers is weaker than expected due to relatively soft end-market consumption and high inventory," says Tseng.
SMIC’s expansion of its Beijing fab will now be to 30k wpm instead of the originally planned 45k. The Shanghai fab will not be expanded. The Tianjin 8 inch fab will be expanded from 34k wpm to 39k at the end of the year.
H1 capex was $670m. Total 2011 capex is now $800m. Overall capacity increased 2% Q2 on Q1 to 190k wpm.
Q2 fab utilisation was 75%. SMIC says it needs 85-90% utilisation to be profitable.
David Wang, the previous CEO who was voted off the board in July following the death of former Chairman Jiang Shang Zhou, had returned the congenitally loss-making company to profit.
"Our visibility into fourth quarter demand is currently limited, and the overall global economic outlook also contributes to uncertainty," adds Tseng, "we currently do not see any particular strengths from customer demand for back-to-school and holiday seasons, so we currently remain cautious on our overall second half 2011 outlook."