Welcome to Semiconductor Manufacturing International Corporation fourth quarter 2021 webcast conference call. Today's call will be simultaneously streamed through the Internet and conference. Please be advised that if you join the meeting by phone, your dial-ins are in listen-only mode. However, after the conclusions of the management's presentation, you will have a question and answer session. At this time, you will receive instructions on how to participate. [Non-English content] Without further ado, I would like to introduce Miss Guo Guangli, Board Secretary, Joint Company Secretary to speak.
[Non-English content] Greetings. Welcome to SMIC 4th quarter 2021 Webcast Conference Call. Attending today's call are Dr. Gao Yong Gang, acting chairman, Dr. Zhao Hai Jun, Co-Chief Executive Officer, and Dr.
Liang Meng Song, Co-chief Executive Officer. [Non-English content] 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 US dollars unless otherwise stated. [Non-English content] First of all, we invite Dr. Gao Yong Gang to speak.
[Non-English content]
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 indigenous manufacturing brought the company a rare opportunity, while the restrictions of the entity list set 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, tackled difficulties precisely and achieved sound performance.
[Non-English content]
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 fill 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 the IC ecosystem on higher ground.
[Non-English content]
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.
[Non-English content]
Both revenue and gross margin for the fourth quarter reached record highs. Revenue was $1,580 million, up 11.6% sequentially, and 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 non-controlling interests were $534 million and $45 million respectively.
[Non-English content]
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 restricted 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 -38%.
[Non-English content]
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.
[Non-English content]
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.
[Non-English content]
For the first quarter 2022, our guidance is as follows. Revenue is expected to grow 15%-17% sequentially, and gross margin is expected to be in the range of 36%-38%. Non-IFRS operating expenses and profit attributable to non-controlling interests are expected to increase sequentially.
[Non-English content]
Looking into 2022. Under the assumption of a relatively stable external environment, the growth rate of annual revenue is expected to be better than the average of the foundry industry, and the growth margin is expected to be higher than our level in 2021. In order to continuously expand the existing fabs and roll out of the three 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 updates and financial status. Thank you.
[Non-English content]
Thank you, Dr. Gao. Next, I will hand the call to Dr. Zhao Haijun to comment on market operations and technology platforms.
[Non-English content]
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. Localized production preference brought by the supply chain shift have led to demand outstripping supply. Volume and price increased 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 continued throughout 2021 and basically defines the landscape for 2022.
[Non-English content]
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 streamline management processes and advance marketing, selling, planning, procurement and operations side by side.
[Non-English content]
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 four pure play foundries in the world that year. Many financial indicators, such as growth margin, operating margin and net margin also hit record highs. The company has added 100,000 eight-inch equivalent wafers per month capacity and completed construction of the fab shell in Beijing, Jingcheng in October last year.
[Non-English content]
In the fourth quarter of 2021, the company's single-quarter revenue exceeded $1.5 billion for the first time. Revenue and growth margin grew in all regions, and new product tape outs and diversified reserves were also active.
[Non-English content]
In terms of mature technology, the eight major product platforms laid out in the past four 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 encountered strong market demand but were constrained by capacity. In terms of applications, IoT and consumer electronics both saw significant growth.
[Non-English content]
FinFET and 28nm technologies have steadily progressed, and product platforms such as logic, RF, and low power are being mainly used in smartphones 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 multi-product platforms, capacity utilization continued to be full. Marginal benefits of output continually increase, and our technical moat has been further consolidated.
[Non-English content]
There are opportunities and challenges in 2022 following the robust market of the previous year. The mobile phone and consumer product market lacks 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 completeness of product platforms, and customer stickiness.
[Non-English content]
SMIC's product platforms and capacity built up over the years are concentrated in specialized areas which are currently the industry's 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.
[Non-English content]
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 Lingang will be the start of a new chapter for the company this year. The two projects in Beijing, Jingcheng, 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 lengthen, and we may experience some delay in the expansion schedule of new capacity. We will maintain strategic cooperation with our suppliers and strive to deliver the capacity according to the set target. When these three new projects are in full production, the company will be able to multiply its production capacity.
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 a happy and prosperous New Year. Thank you.
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. Please limit your questions to two per person. I would now like to open up the call for Q&A. Operator, please assist.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star one and wait for your name to be announced. If you'd like to clear a request, you can press the pound or hash key. First question comes from the line of Randy Abrams from Credit Suisse. Please go ahead.
Okay. Yes. Two questions on the results. 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. The second part of that question, for your first quarter 15%-17% growth, how much is from pricing versus units? Do you expect the price trend to continue to push higher after first quarter or might start to flatten out?
Hi, Randy. Thank you again for the first question. The first question you are asking about this 15% growth forecast for the first quarter this year, how much come from the pricing and how much from the wafer out. We do not comment on exactly the wafer pricing, and we use ASP as a normalized ASP across the whole company as one of the criteria to field this question. Basically, on the first quarter, we will see a little bit more than 10% growth in the ASP on average. Additional, we will see 6.5% with the total wafer out increment. But for this normalized, the ASP is not just a higher price, but also from the allocation to more advanced technologies.
That means the single wafer they are with a more complicated process, so the ASP also get a growth.
Okay.
And you-
The second part of the question.
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 or price raising in the following quarters. Our comments this way, we closely communicate with our customers. We believe currently, more or less, we already lock in the price for very long term. This year we do not see too much additional price raising, but we'll consolidate the price we already settled on last year. Previously at our conference quarterly, we mentioned that SMIC is slower in pursuing the price raising. Basically on our price raising happens a couple quarters behind the peers in the foundry industry.
We see that the price starts getting higher in the first quarter last year and the first quarter of this year. Not like the other peers, they may see this kind of jump a couple quarters ahead of SMIC. We still enjoy this kind of price rising, but later than the others. That's why it shows up in the first quarter and the first quarter.
Okay. No, great. Appreciate that color. The second question is for your gross margins, the base you had was 36%-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 operations stable you could maintain or improve the first quarter level? 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?
Yeah. Randy, you point out the difficult part in our forecast. On the first quarter of our forecast, the number 36%-38% type of gross margin. The forecast of the whole year on average is just higher than last year. You know that last year we just announced the average gross margin for last year only around 31%. That means we forecast a lower average gross margin than the first quarter for the year, lower than the first quarter. That's because two factors. The first one is that we take into account the additional depreciation from the CapEx we already spent in the last three years, and that 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. You know, as I see currently 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 some space for any potential. This is the reason that we do not put everything to the full scale. That's the reservation for our forecast.
Okay. Final question, the depreciation for the year, what's the guidance?
[Non-English content]
Mm-hmm.
Let me help with the translation. This year's depreciation is expected to be higher than last year, but the increased magnitude is expected to be lower than last year. It is expected to exceed $2 billion for this year.
Okay, great. Thanks a lot. Congratulations.
Thanks, Randy.
Thank you for the questions. Next question comes from the line of Siho Um from China Times. Please go ahead.
[Non-English content]
[Non-English content]
Mm-hmm.
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
Thank you for the question. Next question comes from the line of Leping Huang from Huatai Securities. Please go ahead.
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
Thank you for the questions. Next question comes from Andrew Lu of Sinolink Securities. Please go ahead.
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content] Andrew Lu.
Thank you for the questions. Next question comes from the line of Ke Zhang from EBS. Please ask your question.
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
Thank you for the questions. Next question comes from the line of Xiaofei Zhang from Haitong. Please go ahead.
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
Ok.
Thank you. The last question comes from the line of Jian Hu from Guosen Securities. Please ask your question.
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
Thank you for the questions. [Non-English content] I would now like to hand the call back to Ms. Guo for closing remarks.
[Non-English content] Thank you all for participating in today's conference call. Thank you for your trust and support.
[Non-English content] This concludes SMIC's fourth quarter webcast conference call. We thank you for joining us today.