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Semiconductor Manufacturing International Corp
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[Foreign Language] Welcome to Semiconductor Manufacturing International Corporation's Fourth Quarter 2021 Webcast Conference Call. Today's call will be simultaneously streamed through the Internet and conference. [Operator Instructions]
[Foreign Language] Without further ado, I would like to introduce Ms. Guo Guang Li, Board Secretary, Joint Company Secretary to speak.
[Foreign Language] Greetings. Welcome to SMIC's Fourth Quarter 2021 Webcast Conference Call. Attending today's call are Dr. Gao Yonggang, Acting Chairman; Dr. Zhao Hai Jun, Co-Chief Executive Officer; and Dr. Liang Mong Song, Co-Chief Executive Officer.
[Foreign Language] Let me remind you that today's presentation includes forward-looking statements that do not guarantee future performance but represent our estimates and are subject to risks and uncertainties. Please refer to the forward-looking statements in our earnings announcement. Please note that today's earnings statement is presented in accordance with International Financial Reporting Standards, IFRS, and all currency figures are in U.S. dollars unless otherwise stated.
[Foreign Language] First of all, we invite Dr. Gao Yonggang to speak.
[Foreign Language]
[Interpreted] We wish you a prosperous New Year. The year 2021 is an exceptional year in SMIC's development history. The global shortage of chips and the strong demand for local and endogenous manufacturing brought the company a rare opportunity, while the restrictions of the entity list send many obstacles to the company's development. Focusing on the primary task of ensuring operation continuity, meeting customer demand and alleviating the supply chain shortage, the company rose to the challenge, tackle difficulties precisely and achieved sound performances.
[Foreign Language]
[Interpreted] Facing the evolution of the epidemic, the complex external environment and the rapidly changing industry dynamics, 2022 will remain a year of challenges and opportunities for the company. While industry is still in a state of demand outstripping production capacity overall, demand has been slowing down in some application areas, and there is a gradual shift from capacity shortage across the board to a phase of structural shortage. How to follow the development trend of the industry? Dynamically balance the existing traditional and incremental demand and feel the structural gap of the supply chain is an important task for the company this year.
Around this task, the company will consistently adhere to compliant operations, continuing internationalization and deeply integrate into the global ecosystem in order to service customers across the globe, continue to strengthen strategic cooperation with customers and suppliers, steadily advance capacity expansion projects, secure the existing volume, expand incremental volume and build our competitive advantage in IC ecosystem on higher ground.
[Foreign Language]
[Interpreted] Next, we will report our unaudited financial results for the fourth quarter and full year of 2021, followed by our guidance for the first quarter and full year of 2022. Unless otherwise stated, the following financial data is presented in accordance with IFRS.
[Foreign Language]
[Interpreted] Both revenue and gross margin for the fourth quarter reached record highs. Revenue was $1,580 million, up 11.6% sequentially and 61% -- 61.1% year-over-year. Gross margin was 35%, up 1.9 percentage points sequentially and 17 percentage points year-over-year. Profit attributable to the company and noncontrolling interests were $534 million and $45 million, respectively.
[Foreign Language]
[Interpreted] Moving to the balance sheet. At the end of the fourth quarter, the company had total assets of $36.1 billion, of which total cash on hand was $16.4 billion, including cash and cash equivalents related restrict cash and financial assets. Total liabilities were $10.7 billion, of which total interest-bearing debt was $6.8 billion. Non-interest bearing debt was $3.9 billion. Total equity was $25.4 billion. Total debt to equity was 26.6% and net debt to equity was negative 38%.
[Foreign Language]
[Interpreted] In terms of cash flow in the fourth quarter, we generated $950 million cash from operating activities. Net cash used in investing activities were $1,735 million. Net cash from financing activities were $1,847 million.
[Foreign Language]
[Interpreted] Next, I will recap the company's 2021 unaudited results. The main financial indicators of the company increased significantly over the previous year and reached record highs. Revenue was $5,443 million, up 39.3% year-over-year. Gross margin was 30.8%, up 7.2 percentage points year-over-year. Operating margin was 25.6%, up 17.6 percentage points year-over-year. Net margin attributable to the company was 31.3%, up 13 percentage points year-over-year. EBITDA margin was 70.2%, up 15.9 percentage points year-over-year. In terms of CapEx, we accelerated the speed and intensity of execution in the fourth quarter and completed CapEx of $4.5 billion for the full year.
[Foreign Language]
[Interpreted] For the first quarter 2022, our guidance is as follows: revenue is expected to grow 15% to 17% sequentially, and gross margin is expected to be in the range of 36% to 38%. Non-IFRS operating expenses and profit attributable to non-controlling interest are expected to increase sequentially.
[Foreign Language]
[Interpreted] Looking into 2022, under the assumption of a relatively stable external environment, the growth rate of annual revenue is expected to be better than average of the foundry industry, and the gross margin is expected to be higher than our level in 2021. In order to continuously expand existing fabs and roll out of the 3 new projects, it is still a high investment year in 2022, and the CapEx is expected to be about $5 billion. This concludes the brief update and the financial status. Thank you.
[Foreign Language]
Thank you, Dr. Gao. Next, I will hand the call to Dr. Zhao Hai Jun to comment on market operations and technology platforms.
[Foreign Language]
[Interpreted] Happy Chinese New Year, and thank you all for joining today's earnings call. The key phrase for the automotive, power and electronics end user industries in 2021 was chip shortage. The structural incremental growth brought by the industry upgrade increased demand related to distance connectivity brought by the epidemic. Local life production preference brought by the supply chain shifts have led to demand outstripping supply, volume and price increase synchronously in the semiconductor supply chain with rapid rise of the IoT, electric vehicles and new energy applications. At the same time, inventory buildup due to supply chain security concerns, bottleneck issues due to product structural shortages and expansion surges driven by continuous tight manufacturing capacity also continue throughout 2021 and basically defines the landscape for 2022.
[Foreign Language]
[Interpreted] In the past year, the company has made persistent efforts to meet customer demand and alleviate shortages in the supply chain in the face of the huge challenges posed by the entity list. Externally, the company has maintained open communication with suppliers cooperated closely with customers and effectively understood the demands and development of end user companies and the entire [ system ] industry. Internally, we reach consensus on development with the Board of Directors, quickly launched the construction of new fabs and capacity, streamlined management processes and advanced marketing, selling, planning, procurement and operations side-by-side.
[Foreign Language]
[Interpreted] With everyone's efforts, annual revenue crossed from $3.9 billion in 2020 to $5.4 billion in 2021, making us the fastest-growing company among the top 4 pure-play foundries in the world that year. And many financial indicators such as gross margin, operating margin and net margin also hit record highs. The company has added 100,000 8-inch equivalent wafers per month capacity and completed construction of the fab shell in Beijing [ Xinxin ] in October last year.
[Foreign Language]
[Interpreted] In the fourth quarter of 2021, the company's single quarter revenue exceeded $1.5 billion for the first time. Revenue and gross margin grew in all regions and new product tape-outs and diversified reserves were also active.
[Foreign Language]
[Interpreted] In terms of mature technology, the 8 major product platforms laid out in the past 4 years have strong market competitiveness and have precisely penetrated the existing traditional and incremental markets. For the full year, revenues for high-voltage driver, MCU, ultra-low-power logic and specialty memory grew the fastest, while other platforms also encounter strong market demand, but were constrained by capacity. In terms of applications, IoT and consumer electronics both saw significant growth.
[Foreign Language]
[Interpreted] Since 28-nano technologies have steadily progressed and product platforms such as logic, RF and low power are being mainly used in smartphones, smart home and consumer electronics applications such as digital TV, set top box, Wi-Fi and router. Under the continuous efforts on due preparation effect of diversified customer base and multiproduct platforms, capacity utilization continued before. Marginal benefits of output continually increased and our technical mode has been further consolidated.
[Foreign Language]
[Interpreted] There are opportunities and challenges in 2022 following the robust market of the previous year. The mobile phone and consumer product market led development momentum and are becoming stable markets with supply and demand gradually reaching equilibrium. There are structural capacity gaps in incremental markets such as IoT, electric vehicles and mid- to high-end analog. Demand for application platforms such as RF, MCU and power management remains strong. The shift from a pure capacity supply market to a technology innovation and customer experience service-driven market is a greater test of the company's strategic positioning, speed of technology innovation, quality and compliance of product platforms and customer stickiness.
[Foreign Language]
[Interpreted] SMICs product platforms and capacity built up over the years are concentrated in specialized areas, which are currently the industry structural gaps. Next, we will seek progress in a steady manner while consolidating the existing platforms. We will make great efforts to increase the proportion of technological innovation and focus on improving product quality, boost the competitiveness of customer products, improve their experience, secure existing volume and expand the incremental volume.
[Foreign Language]
[Interpreted] Our production expansion planning and capacity allocation will be closely focused on this goal. At the beginning of 2022, the groundbreaking of the new fab in Shanghai Linkong will be the start of a new chapter for the company this year. The 2 projects in Beijing [ Xinxin ] and Shenzhen are progressing steadily and are expected to be put into production by the end of this year. In 2022, we plan to add more capacity than in 2021. At present, the equipment delivery lead time is further lengthened, and we may experience some delay in the expansion schedule of new capacity, but we will maintain strategic cooperation with our suppliers and strive to deliver the capacity according to the step target. When these 3 new projects are in full production, the company will be able to multiply its production capacity.
[Foreign Language]
[Interpreted] Finally, we would like to thank all our employees, customers, suppliers, investors and the community for their trust and support. We wish you and your families an happy and prosperous new year. Thank you.
[Foreign Language] Thank you, Dr. Zhao. Next is our Q&A session. Questions will be answered by Dr. Gao and Dr. Zhao. Chinese questions will be answered in Chinese. English questions will be answered in English. [Operator Instructions]
I would now like to open up the call for Q&A. Operator, please assist.
[Operator Instructions] First question comes from the line of Randy Abrams from Credit Suisse.
Yes. The first question on your 2022 outlook and pricing trend. If you could give your view on the industry growth rate for 2022 since you're comparing your growth to outgrow the industry? And then the second part of that question, for your first quarter 15% to 17% growth, how much is from pricing versus units? And do you expect the price trend to continue to push higher after first quarter or might start to flatten out?
Randy, thank you again for the first question. And the first question, you are asking about this 15% growth forecast for the first quarter this year and how much comes from the pricing and how much from the wafer out. And we do not comment on exactly on wafer pricing, and we use ASP -- it's normalized ASP across the whole company. It's one of the criteria to [indiscernible] the question. And basically, on the first quarter, we will see a little bit more than 10% growth in the ASP on average. And additionally, we will see 6.5% with the total wafer out increment. But for this normalized the ASP, it's not just a higher price but also from the allocation to more advanced technologies. That means that single wafer, they are with a more complicated process, so the ASP also get a growth.
And second part of the question is that what's the expectation of forecast for the trend of the pricing, whether or not we will see even higher price raising in the following quarters. And our comments this way, we closely communicate with our customers. We believe currently more like we are already locking the price for very long term. And this year, we do not see too much additional price raising, but we will consolidate the price we already settled on last year, per [indiscernible] at our conference quarterly. And we mentioned that SMIC is slower in pursuing the price raising. So basically, on our price raising happens a couple of quarters behind the peers in that foundry industry. So we see that the price start getting higher in the fourth quarter last year and the first quarter of this year. Not like the other peers, let me see this kind of a jump a couple of quarters ahead of SMIC. So we still enjoy this kind of price raising but later than the others. That's why it showed up the fourth quarter and the first quarter.
Okay. No, great. I appreciate that color. And the second question is for your gross margins. The base you had was 36% to 38%. You're guiding 2022 just higher than 31%, which was last year. Should we model it coming back down? Or is there any reason if operation is stable, you could maintain or improve the first quarter level? And then I'm curious from the mix side, do you see further mix improvement through the year? You mentioned pricing consolidate, but could we see further mix improvement? Or is that more stable across nodes now?
Yes, Randy. You point out the difficult part in our forecast. In the first quarter, we forecast the number 36% to 38% type of gross margin. But the forecast of the whole year on average is just higher than last year. And you know that the last year, we just announced the average gross margin for last year only around 31%. So that means, we forecast a lower average gross margin than the first quarter, for the year, lower than the first quarter. That because 2 factors. The first one is that we take into account the additional depreciation from the CapEx we already spending in the last 3 years. And the machine will move in, we will build up additional capacity. The machine arrived in the fourth quarter last year. They will move into the depreciation in the third quarter and fourth quarter.
This is the first factor relatively easier to calculate from the CapEx we already spent. The second factor we take into consideration is the potential for the market and the supply chain. SMIC currently is still on the entity list. We are still meeting quite a lot of difficulties. We know that at this moment, we can maintain the normal operation. We can maintain this -- sustain the continuity of manufacturing, but we really leave of some space for any potential. That's the reason that we do not put everything to the full scale. That's the reservation for our forecast.
Okay. And final question. The depreciation for the year, what's the guidance?
[Foreign Language]
Let me help with the translation. So this year's depreciation is expected to be higher than last year, but the increased magnitude is expected to be lower than last year. So it is expected to exceed $2 billion for this year.
Next question comes from the line of Szeho Ng from China Renaissance.
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Next question comes from the line of Leping Huang from Huatai Securities.
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Next question comes from Andrew Lu of Sinolink Securities.
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Next question comes from the line of [ Ke Zhang from EBS ].
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Next question comes from the line of [ Siao Fae Chang from HDI ].
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The last question comes from the line of [ Jin Hao from Guosen Securities ].
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[Foreign Language] I would now like to hand the call back to Ms. Guo for closing remarks.
[Foreign Language] Thank you all for participating in today's conference call. Thank you for your trust and support.
[Foreign Language] This concludes SMIC's fourth quarter webcast conference call. We thank you for joining us today.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]