SMIC and Huahong Semiconductor saw a decline in net profit in the first quarter

SMIC and Huahong Semiconductor both saw a year-on-year decline in net profit in their first quarter financial reports

SMIC (688981. SH) and Huahong Semiconductor (688347. SH) both experienced a year-on-year decline in net profit in the first quarter of 2024, but revenue indicates that the market is recovering.

On the evening of May 9, 2024, China’s two major wafer foundry giants, SMIC and Huahong Semiconductor, released their first quarter financial reports. According to financial report data, SMIC’s revenue in the first quarter of 2024 was 1.75 billion US dollars, a month on month increase of 4.3% and a year-on-year increase of 19.7%. The net profit in the first quarter was 71.8 million US dollars, a year-on-year decrease of 68.9%. In the first quarter, Huahong Semiconductor’s sales revenue was 460 million US dollars, a year-on-year decrease of 27.08% and a slight increase of 1% compared to the previous quarter. The net profit attributable to the parent company was 31.8 million US dollars, a year-on-year decrease of 79.1% and a month on month decrease of 10.17%.

As of the 10th, SMIC’s stock price was reported at 43.27 yuan per share, a decrease of 1.03%; Huahong Semiconductor’s stock price report: 31.87 yuan/share, a decrease of 1.02%.

When analyzing the first quarter performance, the management of SMIC believes that in the first quarter of 2024, the willingness of global customers to stock up has increased, and the company’s sales revenue was $1.75 billion, a month on month increase of 4.3%; The gross profit margin is 13.7%, which is better than the guidance. Shipment of 1.79 million 8-inch equivalent wafers, a 7% increase compared to the previous period; The capacity utilization rate is 80.8%, an increase of four percentage points compared to the previous period.

In terms of gross profit, SMIC’s gross profit for the first quarter of 2024 was $240 million, a decrease of 12.8% month on month and 21.3% year-on-year. The gross profit margin in the first quarter of 2024 was 13.7%, the fourth quarter of 2023 was 16.4%, and the first quarter of 2023 was 20.8%.

For the decrease in gross profit margin, SMIC stated that it was mainly due to an increase in depreciation. In the first quarter of 2024, SMIC’s depreciation and amortization amounted to 746 million US dollars, a month on month increase of 6.5% and a year-on-year increase of 18.1%.

Compared to its peers, TSMC, UMC, and GlobalFoundries have all released their first quarter financial reports. Among them, TSMC’s combined revenue in the first quarter was RMB 132.455 billion, a year-on-year increase of 16.5%, a month on month decrease of 5.3%, and a net profit of RMB 50.397 billion, a year-on-year increase of 8.9%, and a month on month decrease of 5.5%; In the first quarter, Liandian’s revenue was approximately $1.71 billion, a year-on-year increase of 0.8%, and its net profit was $327 million, a year-on-year decrease of 35.4%; Global Foundries achieved a revenue of $1.549 billion in the first quarter, a decrease of 16% compared to the previous quarter and the same period last year. Its net profit was $134 million, a decrease of 47% compared to the same period last year.

Analysis firm Counterpoint pointed out that due to weak demand in the automotive and industrial application sectors and adjustments in customer inventory, the performance guidance for Liandian and GlobalFoundries in 2024 is relatively low, but they both accounted for 6% of the global market share in the fourth quarter of 2024. SMIC’s market share declined from 6% in the third quarter to 5% in the fourth quarter of 2023, and its market share in the first quarter of 2024 is expected to catch up with Liandian and GlobalFoundries.

However, Counterpoint also pointed out that SMIC expects an increase in demand for smartphone related components in the short term. However, due to the uncertainty of demand sustainability, SMIC’s outlook for the whole year is cautious, which is in line with the sluggish sentiment of the mature node foundry market with a 28 nm process and above, which is mainly aimed at the vast consumer electronics and industrial control chip markets.

Huahong Semiconductor continued to experience a decline in revenue and net profit in the fourth quarter in terms of performance. The company’s revenue in the fourth quarter of 2023 was $455 million, a year-on-year decrease of 27.7%; The net profit attributable to the parent company was $35.386 million, a year-on-year decrease of 77.8%.

However, in terms of production capacity, Huahong Semiconductor’s monthly production capacity in the first quarter was 391000 8-inch equivalent wafers. The overall capacity utilization rate was 91.7%, an increase of 7.6 percentage points from the previous quarter.

From the specific product sales situation, Huahong Semiconductor’s sales revenue of embedded non-volatile memory in the first quarter was 119.2 million US dollars, a year-on-year decrease of 50.2%, mainly due to the decrease in average sales prices and demand for MCU and smart card chips; The sales revenue of independent non-volatile memory was 31.1 million US dollars, a year-on-year decrease of 2.3%; The sales revenue of discrete devices was 143.3 million US dollars, a year-on-year decrease of 38.4%, mainly due to the decrease in demand and average sales prices of IGBT, super junction, and general MOSFET products. The sales revenue of logic and RF, as well as analog and power management chips, is showing a growth trend.

Regarding this, Tang Junjun, President and Executive Director of Huahong Semiconductor, believes that the overall semiconductor market has not yet emerged from the downturn, and due to seasonal and annual maintenance effects, the first quarter is a traditional off-season for contract manufacturing enterprises. However, Huahong Semiconductor’s production capacity utilization, sales revenue, and gross profit margin in the first quarter have all achieved a month on month increase, verifying that the market demand for the company’s characteristic processes is generally improving.

Tang Junjun said, “The company’s first 12 inch production line will operate this year on the basis of a monthly production capacity of 94500 pieces. The second 12 inch production line is also under construction and is expected to be completed and put into operation by the end of the year.”

For the second quarter of 2024, Huahong Company provided performance guidance, with an expected main business revenue of approximately $470 million to $500 million and a gross profit margin of approximately 6% to 10%.

Previously analyzed by Everbright Securities, it was pointed out that Huahong Semiconductor has technological advantages in its unique processes. However, considering the weak downstream business conditions, ASP and capacity utilization are temporarily under pressure, coupled with the release of new capacity driving increased depreciation. It is expected that the company’s profitability will continue to be under pressure in 2024 and 2025, and the net profit attributable to shareholders for the next two years will be lowered to $216 million and $293 million, respectively.

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