3 6 Ke·2025-08-12 02:55Core Viewpoint - SMIC's Q2 financial report slightly exceeded expectations, showing a slowdown in revenue and gross profit decline compared to previous quarters, but still better than the company's guidance and market expectations [1][8]. Financial Performance - In Q2 2025, SMIC achieved revenue of $2.21 billion, a year-on-year increase of 16.2%, but a quarter-on-quarter decline of 1.7% [3]. - The revenue breakdown shows that 12-inch wafer products contributed $1.59 billion (76.1% of total revenue), while 8-inch wafer products generated $499 million (23.9% of total revenue), with the latter showing a quarter-on-quarter growth of 6.6% [3]. - The Chinese market accounted for over 80% of revenue, with Q2 revenue from China at $1.86 billion, a 1.9% decline quarter-on-quarter [3]. Gross Profit and Margins - SMIC reported a gross profit of $450 million in Q2, a year-on-year increase of 69.7%, but a quarter-on-quarter decline of 11.1%, resulting in a gross margin of 20.4% [5][6]. - The decline in gross margin was attributed to production volatility and changes in product mix, leading to a decrease in average selling price (ASP) by 6.4% [5][6]. Operating Expenses - Operating expenses increased by 24.0% quarter-on-quarter and 9.3% year-on-year, primarily due to rising R&D and management costs [7]. - R&D expenses rose by 22.1% quarter-on-quarter, reflecting ongoing challenges in advanced process yields [7]. Market Reaction and Future Outlook - Despite the slightly better-than-expected results, SMIC's stock fell 8.2% in Hong Kong and 4.3% in A-shares on the day following the report, indicating market skepticism [2][9]. - For Q3, SMIC expects revenue growth of 5%-7% and a gross margin of 18%-20%, but expressed concerns about visibility for Q4 due to potential adjustments in smartphone market demand [9][10]. Strategic Considerations - The shift towards mature processes raises concerns about future earnings volatility, especially if demand driven by policy incentives diminishes [11]. - The company's ability to advance in technology and maintain competitive positioning is critical, given the capital-intensive nature of the semiconductor industry [13][14]. Valuation Insights - SMIC's current price-to-book (PB) ratio is 2.4x, compared to an average of 1.9x for peer companies, suggesting a relatively high valuation [15]. - The A-share PB is currently at 4.6x, reflecting market expectations, but there is potential for further valuation increases if domestic substitution trends strengthen or if advancements in technology occur [15].