Dolphin Core Perspective:
On the evening of February 10, Beijing time, SMIC (0981.HK/688981.SH) released its fourth quarter 2021 financial report (as of December 2021) after hours, and the key points are as follows:
1. Overall performance: The revenue side meets the guidelines, and the gross profit margin exceeds expectations. Although SMIC delivered record quarterly revenue in the quarter, the market has relevant expectations for the company's revenue. The most eye-catching thing about the company's financial report is the gross profit margin. The company's gross margin for the quarter also reached a record high of 35% and once again exceeded market expectations (33.8%).
2. Take a closer look at the three core indicators: revenue, gross margin and capacity utilization. The revenue side was split through volume-price, and while SMIC's shipments still grew, price was the main driver of the company's revenue growth this quarter. Under the cost split, the price is also the most critical factor in the improvement of gross profit margin. Although the cost side has risen, the price increase has been passed on to a new high in gross profit margin. In terms of capacity utilization, the company experienced a slight decline in capacity expansion in the quarter, but remained at a record high of 99.4%.
3. Business progress: The proportion of processes of 28nm and below has reached a new high, and domestic substitution continues. The proportion of processes of 28nm and below reached a new high, accounting for nearly 20%. The increase in the proportion of this node process reflects that the company is still expanding in terms of production capacity, while other customers have the ability to make up for the demand gap of H manufacturers. Chinese mainland and Hong Kong continued to increase revenue, with the company accounting for nearly 70% of revenue in the region. At the same time, it also reflects that the domestic substitution of Chinese semiconductors has not stopped and is constantly improving.
4. Guidance for the next quarter: SMIC expects revenue growth of 15-17% sequentially and gross margin of 36-38% in the first quarter of 2022. Both of the two indicators significantly exceeded the original expectations of the market with no revenue growth (1.579 billion) and declining gross profit margin (32.97%), and there was a misjudgment of SMIC's first-quarter performance. SMIC's revenue and gross margin, both of which are expected to reach new highs in the next quarter.
Overall view:
SMIC, the overall quarter handed over a good "answer sheet". Although the quarterly revenue side did not give a performance that exceeded expectations, the bright performance of gross margin brought the market performance more than expected results.
Through the spin-off of Longbridge Dolphin Jun, the gross profit margin exceeded expectations mainly from the excellent performance of the price rise. The rise in prices is driven by price increases at the industry level and the structural improvement of the company's products. The proportion of 28nm and below reached a new high, not only allowing the market to see the saturation of the company's customers, but also seeing that the company is still expanding production. The increase in the proportion of domestic customers reflects the continuation of the long logic of domestic substitution.
Compared with the fourth quarter financial report, SMIC is more surprising that the company has given more eye-catching guidance for the next quarter. SMIC revenue is expected to grow by 15-17% sequentially in the next quarter. Combined with the guidance previously given by UMC (shipments remained, prices increased by about 5%), SMIC is expected to achieve a volume-price increase in the next quarter. At the same time, the guidance of gross profit margin of 36-38% in the next quarter reflects the company's optimism that prices will continue to increase in the next quarter. Based on the company's guidance, SMIC is expected to make another record in the next quarter.
For details of this financial report, please refer to the following:
First, about SMIC, what to know?
SMIC is the largest chip manufacturing company in Chinese mainland, with the most advanced process technology and the largest production capacity in mainland China. Judging from SMIC's financial report, the company is a pure chip manufacturer, accounting for more than 90% of wafer revenue in the business. So, in the context of China and the United States, which continues to pay attention to and increase the semiconductor industry, how to view SMIC now?
The study of SMIC has two perspectives: short-, medium-term and long-term:
1) Long-term perspective: the deterministic trend of domestic substitution of semiconductors. The gap between supply and demand in China's semiconductor market supports the long logic of domestic substitution of chip manufacturing companies such as SMIC. As Longbridge Dolphin Jun talked about in "SMIC (Part 1) on the Leading Attack "Core" Technique", "In the 35% of the global semiconductor sales market, China only supplies 15% of the world's wafers, and there is a huge supply and demand gap in the Chinese market."
2) Short- and medium-term perspective: The performance driven by the industry boom has been released. The imbalance between supply and demand in the entire semiconductor industry has boosted the prosperity of the industry. The demand side is facing the emergence of new demand such as new energy, 5G, and IoT, while the supply side has been affected by the epidemic shutdown, shipping, etc., and the semiconductor industry as a whole is in short supply, promoting the industry to enter the price increase cycle. In the case of chip price increases, chip manufacturing companies such as SMIC have achieved double increases in revenue and profitability, bringing about a period of release of performance.
As a listed company, SMIC is still most concerned about the company's business progress and performance. Among them, the three major indicators that affect the performance are mainly revenue, gross profit margin and capacity utilization, which is also the data that SMIC is most concerned about. Chip price increases, directly bring about the growth of the company's revenue, but also in the cost structure to improve the company's gross profit margin level. Similarly, as the world's leading chip manufacturing company, SMIC's financial report data can also reflect the changes in the entire chip manufacturing industry, such as whether chip price increases are still continuing, and whether there is a shortage of raw material costs.
Regarding this financial report, Longbridge Dolphin Jun mainly pays attention to the following issues:
1. Overall performance vs market expectations: Did SMIC's three core indicators, revenue, gross margin and capacity utilization, exceed expectations?
2. Specific sources of revenue growth: How much did the company contribute to revenue growth, volume and price in the quarter?
3. The source of gross profit margin improvement: The company's gross profit margin increased in the quarter, how did the price and cost change? Will the price increase of raw materials still have an impact?
4. Business development: Under the general direction of chip autonomy, what is the progress of domestic substitution? What is the capacity of SMIC's process nodes?
5. Business performance: What are the changes in SMIC's operating surface this quarter? Are inventory and receivables reasonable? What about EBITDA?
Second, the following is a detailed analysis of the Longbridge Dolphin Jun
First, the core indicators look at SMIC: revenue, gross margin and capacity utilization
Core Indicator 1: Revenue side
SMIC reported revenue of $1,580 million in the fourth quarter of 2021, up 11.6% sequentially, in line with the Company's guidance (11-13%). The Company's revenue growth during the quarter was impacted by both higher wafer shipments and higher prices. Among them, the growth of wafer shipments comes from the company's expansion of production, while the price increase is mainly driven by the high prosperity of the industry and the improvement of the production capacity structure.
Source: Company financial report, Longbridge Dolphin Research
From the perspective of volume and price, the main drivers of SMIC's revenue growth in the quarter were:
In terms of volume, SMIC's wafer shipments (equivalent 8 inches) reached 1,723,000 units in the quarter, an increase of 0.2% month-on-month.
In terms of price, SMIC's single wafer revenue (equivalent 8 inches) for the quarter was $917, up 11.4% sequentially. From the perspective of volume-price splits, the main driving force for the company's revenue growth in the quarter was the increase in price. SMIC's single-wafer revenue rose to $900 for the first time, reflecting the continued improvement in wafer prosperity from the price side.
Core metric 2: Gross margin
SMIC's gross margin for the fourth quarter of 2021 was 35%, up 1.9pct sequentially, exceeding market consensus expectations (33.8%). The company's quarterly gross profit margin exceeded expectations, mainly due to the increase in product prices.
Split the company's cost structure and analyze the sources of SMIC's gross margin improvement in the quarter:
Chip gross profit = wafer revenue per chip - fixed cost per chip - variable cost per chip
1) Monolithic wafer revenue: SMIC's single wafer revenue (equivalent 8 inches) for the quarter was $917, up $94/piece sequentially.
2) Single-piece fixed cost (depreciation and amortization): The single-piece fixed cost (equivalent 8 inches) was $228 for the quarter, an increase of $16/piece sequentially.
3) Monolithic variable costs (other manufacturing costs): Single-chip variable costs (equivalent 8 inches) were $368 this season, up $29/piece sequentially.
4) Single-piece gross profit: SMIC's single-piece gross profit (equivalent 8 inches) for the quarter was $321, up $49/piece sequentially.
Through cost splitting, SMIC's fixed costs and variable costs of chips rose in the quarter, while the increase in quarterly gross profit was mainly due to prices.
The rise in the fixed cost of single pieces is mainly due to the release of the company's new production capacity, and the company is still in the process of capacity expansion. The increase in variable costs is mainly affected by costs such as materials. The final increase in gross profit margin indicates that the company has passed on the increase in cost items through price increases.
Core Indicator 3: Capacity Utilization
The capacity utilization index not only reflects SMIC's quarterly operations, but also reflects the prosperity trend of the entire wafer manufacturing industry. The boom in the wafer manufacturing industry has led to the continuous full production of SMIC and many other manufacturers in its peers.
SMIC's capacity utilization rate was 99.4% in the fourth quarter of 2021, and in two consecutive quarters, the capacity utilization rate of the company exceeded 100%, and the company's capacity utilization rate fell slightly in the quarter, which was factored in the company's expansion of production. Combined with the 105% capacity utilization rate previously announced by UMC, the entire wafer manufacturing industry is still at a historically high capacity utilization level.
But at the same time, we can also see the difference that UMC's capacity utilization rate can still be maintained at 105% in the quarter, while SMIC has shown a slight decline, and the differences between the two manufacturers also have different expansion rhythms and customer structures. SMIC currently focuses on customers in China and Hong Kong, while UMC has more international customers and is more dispersed in terms of customer regional distribution.
Second, at the business level, look at SMIC
After reading the three core indicators, Longbridge Dolphin Jun and everyone took a comprehensive look at SMIC's quarterly business:
2.1 In terms of various downstream markets: the proportion of other sectors such as automobiles continues to increase
SMIC's smartphone revenue continued to decline to 31.2% during the quarter, and the impact of the smartphone business on the company's performance gradually became smaller. Among the various segments, other business revenue became the company's largest source of income, accounting for 32.4% of the company. Among these other businesses, it mainly includes application areas such as automobiles and industry, reflecting the strong demand driven by new energy vehicles.
Judging from the proportion of SMIC's downstream counterparts, with the increase in demand for automobiles and IoT, the proportion of smart phones in the semiconductor industry has shown a lower mood, and the silicon content of new application areas has increased, driving the demand for the semiconductor industry.
2.2 Each process node: 28nm and below hit a record high
SMIC's revenue from 28nm and below hit a record high of 18.6% in the quarter, compared to just 5% in the year-ago quarter.
In 20Q4, there was only 5% of the proportion, which was mainly due to the restriction of H manufacturers, and H manufacturers, as the company's large customers in China, affected the relevant production capacity in shipment restrictions. Today, 28nm and below continue to hit a record high, indicating that 1) the production capacity side: the company's production capacity of 28nm and below is still expanding; 2) demand side: the demand gap withdrawn by H manufacturers has been filled by other customers.
2.3 In terms of the size of each wafer: the proportion of 12 inches remains above 60%.
In terms of wafer size, the general market will be 90nm and below into the 12-inch wafer category, long bridge dolphin Jun according to this situation analysis.
SMIC's 12-inch wafer revenue ratio declined slightly during the quarter and remained above 60%. From the perspective of the trend of increasing the proportion of production capacity, SMIC's future focus is still on 12-inch wafers, and the revenue proportion of 12-inch products has increased from less than half of the past to more than 60%.
SMIC's 12-inch wafer revenue increased significantly in the fourth quarter to $894 million, up 78.6% year-over-year. 12-inch wafer revenue hit a record high, mainly due to the expansion of 12-inch production capacity and the increase in product prices.
2.4 Distribution by region: when domestic substitution is carried out
SMIC's share of customer revenue in mainland china and Hong Kong rose again to 68.3% in the quarter, close to the all-time high of 20Q3. After the restrictions on H manufacturers, the proportion of mainland and Hong Kong regions once fell to about 55%, and now it is back to nearly 70%. On the one hand, it shows that SMIC's current customer structure is relatively stable, mainly domestic customers; on the other hand, it shows that other domestic customers have filled the gap of H manufacturers. The long logic of semiconductor domestic substitution is in and continues to improve.
Third, the operating data to see SMIC:
3.1 Operating expenses: The expense ratio remains stable
From an operating expense perspective, SMIC's operating expenses were $133 million in the fourth quarter, which was relatively stable compared to the previous quarter.
Split operating expenses for the quarter, research and development expenses of $172 million, general and administrative expenses of $104 million and consumer and marketing expenses of $0.08 billion, of the three expenses, research and development expense ratios remained at around 11% for three consecutive quarters, and the proportion of general and administrative expenses increased slightly mainly due to the increase in expenses related to the trial operation of the new plant in Shenzhen.
3.2 Operating Indicators: Inventory and accounts receivable maintain a reasonable water level
From the perspective of operating indicators, it is mainly observed from the company's inventory and accounts receivable:
SMIC inventory of $1,194 million, up 8% sequentially;
SMIC's accounts receivable increased 12.1% sequentially to US$1.215 billion.
Combining the relationship between inventory & receivables and revenue on the balance sheet, inventory/revenue and receivables/income were 75.6% and 76.9%, respectively, in the fourth quarter. From the perspective of operating indicators, the proportion of inventories and accounts receivable has remained at a relatively reasonable water level.
3.3 EBITDA indicators: standing on a new level
From EBITDA's perspective, SMIC's EBITDA before ABITDA reached $1.167 billion in the fourth quarter, near an all-time high.
Looking at the spin-off indicators, SMIC's EBITDA mainly came from the release of operating profit and depreciation and amortization, and the quarter-on-quarter improvement was mainly due to the increase in the company's operating profit. The profit margin for the quarter (before EBITDA) was measured to reach a record high of 73.8% in the same period of history, standing at a new level of more than 60%.
Longbridge Dolphin SMIC Historical Article Retrace:
Earnings season
On November 12, 2021, the conference call "After exceeding expectations, but facing a sharp decline, what did SMIC management exchange?" 》
November 11, 2021 earnings report review "Don't question the cycle to the top, SMIC is still bullish!" 》
What does management think of SMIC's 21Q2 earnings report on August 6, 2021? 》
August 5, 2021 Financial Report Review "SMIC: The Rising Power of China's "Core"
depth
July 16, 2021 SMIC Part 2: The Underrated Chinese "Core"
July 9, 2021 "SMIC (Part 1): On the Dragon's "Core" Technique"
live broadcast
November 12, 2021 SMIC (00981. HK) 2021 Third Quarter Results Call
August 6, 2021 SMIC (00981.HK) Q2 2021 Results Call
May 14, 2021 SMIC (00981.HK) Q1 2021 Results Call