2025-05-15 15:05Summary of Conference Call Records Companies and Industries Involved - Companies: SMIC (中芯国际, 0981.HK), Hua Hong Semiconductor (华虹半导体, 1347.HK) - Industry: Semiconductor Manufacturing Key Points and Arguments SMIC Performance Overview - Q1 Revenue: SMIC's Q1 revenue was $2.2 billion, a year-on-year increase of 28%, but the quarter-on-quarter growth was only 1.8%, below expectations [1][2][4] - Net Profit: The net profit was $180 million, slightly below the market consensus of $221 million, affected by government subsidies and exchange rate impacts [1][4] - Gross Margin Guidance: The gross margin guidance for Q2 is 18%-20%, lower than the market expectation of 21% [1][4] - ASP Decline: Average Selling Price (ASP) decreased by 9% due to production issues and equipment stability problems [1][5] Hua Hong Semiconductor Performance Overview - Q1 Revenue: Hua Hong's Q1 revenue was approximately $500 million, with a year-on-year growth of less than 18% [1][2][8] - Net Profit Decline: Net profit dropped significantly by 88% to $3.75 million, primarily due to depreciation from new production lines and product mix adjustments [1][8] - Capacity Utilization: Despite challenges, capacity utilization remained above 100% [1][8] Advanced Process Contribution - Underperformance: The advanced process segment's contribution was below expectations due to production issues and delays in product structure [5][9] - Production Issues: Two production incidents occurred, one due to equipment maintenance errors and another related to the stability of newly introduced equipment [6][7] Market Dynamics and Future Outlook - US-China Tariff Negotiations: The impact of US-China tariff negotiations on SMIC is minimal, with direct tariff risk accounting for about 1% of revenue [3][11] - Revenue Projections: SMIC expects revenues of $9.6 billion, $11.9 billion, and $14.6 billion for 2025, 2026, and 2027, respectively, with net profits projected to grow significantly [3][19] - Hua Hong Expansion Plans: Hua Hong plans to release 40,000 wafers by the end of 2025 and aims for full capacity release by mid-2027 [3][26] Challenges and Risks - Production Stability: Ongoing issues with equipment stability may impact production yields and ASP in the first half of 2024 [7][10] - Market Sentiment: Despite short-term challenges, both companies are expected to benefit from the trend of localization and increased domestic demand [10][14] Valuation and Investment Potential - SMIC Valuation: Current valuation is at 2x PB, with potential for growth as performance improves and product shipments accelerate [21][25] - Hua Hong Valuation: Hua Hong's valuation is expected to remain above 1x PB, with significant improvements anticipated in profitability and ASP in the coming years [39][40] Key Performance Indicators to Monitor - Capacity Expansion: Focus on the pace of capacity expansion and technological breakthroughs [41] - Pricing Power: Monitoring ASP trends and cost control measures [41] - Market Demand: The overall semiconductor market dynamics influenced by AI and macroeconomic factors [41] Conclusion - Both SMIC and Hua Hong Semiconductor face short-term challenges but have strong long-term growth potential driven by domestic demand and technological advancements. Monitoring key performance indicators will be crucial for assessing future investment opportunities.