On the evening of March 28, 2023, SMIC, one of the leaders in China's semiconductor industry, released its 2023 annual financial report. Judging from this financial report, SMIC's future can be said to be mixed.
According to the financial report, SMIC will achieve operating income of 45.25 billion yuan in 2023, a year-on-year decrease of 8.61%, which is not even as high as the revenue generated by TSMC's 28nm chips.
According to the data released by TSMC for the same period in 2023, the revenue for the year was 492.66 billion yuan, of which the revenue brought by 28nm chips was 49.2 billion, accounting for about 10% of TSMC's total revenue that year, exceeding SMIC's annual revenue.
And the main task of the entire semiconductor industry in 2023 is to destock. According to SMIC's financial report, although the market has recovered in the second half of the year, due to the weak global economy, the supply chain inventory of the semiconductor market is still running at a high level.
In 2023, SMIC produced 6.074 million wafers, down 19.1% from the same period last year, including 8-inch and 12-inch products, if it is estimated on average that a 12-inch wafer can cut 700-1000 28nm chips, SMIC produced about 970 million chips last year, but this output did not drive SMIC's profit growth.
For the whole of 2023, SMIC's net profit attributable to the parent company will be 4.823 billion yuan, a year-on-year decrease of 60.25%. Even if the passive dilution of the equity of the associate is differentiated in accordance with the International Financial Reporting Standards (IFRS), the net profit was 6.346 billion yuan, and the net profit still decreased by 48.02% year-on-year, close to 50%. Compared with 2022, TSMC's profit decline in 2023 will only be 6.1%.
According to the annual report, the company's main business income last year was 44.593 billion yuan, of which integrated circuit wafer manufacturing foundry was 40.875 billion yuan, a year-on-year decrease of 9.8%, and the gross profit margin decreased by 17.8 percentage points to 20.1%, and the income from other main businesses was 3.718 billion yuan, a year-on-year increase of 3.5%, and the gross profit margin decreased by 4.6 percentage points to 44.6%.
One of the reasons for this situation is that SMIC has maintained a high level of investment in R&D while its sales volume has declined.
In 2023, the number of wafers sold decreased from 7.098 million in 2022 to 5.867 million in 2023. However, despite the 17.4% decline in sales volume, SMIC has increased the average selling price of its products from RMB6,381 in 2022 to RMB6,967 in 2023 by increasing product value added and optimizing product mix.
In addition, SMIC also adapts to market changes by adjusting its business structure through market research. In 2023, smartphones and computers and tablets will both account for 26.7% of revenue, consumer electronics will account for 25%, while connected and wearables and industrial and automotive will both account for 12.1% and 9.5%, respectively.
In comparison, the data in 2022 shows that the proportions of smartphones, computers and tablets, consumer electronics, connected and wearable, and industrial and automotive correspond to 27%, 17.5%, 26.7%, 18%, and 10.8%, respectively.
In other words, in order to better meet the needs of the market, SMIC has reduced its wafer foundry for wearable devices and new energy vehicles, and has greatly increased its wafer foundry business for computer and tablet companies.
While adjusting its strategy to respond to the market, SMIC still maintained a high level of investment in R&D in 2023, reaching 4.992 billion yuan, 1.1% higher than the same period last year, accounting for 11% of total operating revenue. Although this 1.1% increase is not remarkable, it is important to know that it is a choice made by SMIC when its profits are close to halving.
According to media reports, in 2023, SMIC has completed the research and development of key technology projects including 28nm ultra-low-power platform, 40nm embedded memory process automotive platform, 4X nm NOR Flash process platform, and 55nm high-voltage display drive automotive process platform, and has entered the stage of small-batch trial production.
In the future, the company plans to continue its 12-inch plant and capacity construction plans in 2024, and capital expenditures are expected to remain broadly flat compared to the previous year. This decision reflects the company's strong focus on cost control and operational efficiency while pursuing technology and market expansion.
Moreover, it can also be seen in SMIC's financial report that their customers have gradually de-Americanized, and in 2017, SMIC's revenue in the US market accounted for about 40% of total revenue. Today, SMIC's orders from domestic companies have exceeded 80%.
Of course, this is inseparable from the sanctions imposed by the United States on SMIC since 2020, and their government has been strictly supervising the American technology or equipment used by SMIC. The goal is to prevent SMIC from producing higher-grade chips. SMIC's normal business scope in the international market has also been subject to illegal restrictions by the United States.
According to foreign media, the U.S. blockade of SMIC has "settled and the results are clear", that is, under the sanctions of the United States, SMIC has gradually gotten rid of its dependence on American companies and walked out of its own business path.