Welcome to Semiconductor Manufacturing International Corporation's Second Quarter 2021 Webcast Conference Call. Today's call will be live streamed through the Internet at SMIC's website. Webcast playback will also be available approximately 1 hour after the event. Please be advised that your dial ins are in listen only mode. However, At the conclusion of the management's presentation, we will have a question and answer session.
At which time, you will receive instructions on how to participate. Today's conference call will proceed in both Chinese and English. Without further ado, I would like to introduce Ms. Guo Gan, the Board Secretary for the forward looking statement.
Greetings. Welcome to SMIC's Q2 2021 Earnings Call. Today's call is hosted by Doctor. Zhao Haijun, Co Chief Executive Officer and Doctor. Gao Yonggang, Chief Financial Officer.
The call will last about 60 minutes. The management will provide their commentary in Chinese and Investor Relations team will provide English interpretation. During the subsequent Q and A session, we will accept questions in both Chinese and English. These forward looking statements that do not guarantee future performances, 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 statements use International Financial Reporting Standards, IFRS, and all currency figures are in U. S. Dollars unless otherwise stated. However, we will also reference financial measures that do not conform to IFRS In order to help investors compare SMIC's past performance, these non IFRS measures may differ from similar data presented by other companies. Please refer to the tables in our announcement.
I will now hand the call to CFO, Doctor. Gao Yonggang for financial highlights and guidance. Thank you all for joining our Q2 earnings webcast. Today, I will first highlight our 2nd quarter and first half of twenty twenty one unaudited results, then give the 3rd quarter guidance and second half outlook. Please be reminded that all earnings figures in the following statements are prepared in accordance with International Financial Reporting The company's key financial metrics were better than expected in the second Revenue in the 2nd quarter was CNY1344 1,000,000, an increase of 21.8% quarter over quarter an increase of 43.2% year over year.
Gross margin was 30.1%, up 7.4 percentage points quarter over quarter and up 3.6 percentage points year over year. Main reasons for the growth in Q2 were shipment increase, product mix optimization and pricing adjustment. 2nd quarter profit from operations was RMB538 1,000,000, an increase of 300 31.4% quarter over quarter and an increase of 731.6% year over year, among which Proceeds of CNY231 million are from the disposal of SJ Semiconductor. If excluding the proceeds from the disposal, 2nd quarter profit from operations grew 145.8% quarter over quarter and 373.8 percent year over year. Profit for the period attributable to SMIC was CNY688 1,000,000, an increase of 332.9 percent quarter over quarter and 398.5 percent year over year.
Profit attributable to non controlling interest were RMB20 1,000,000. Moving to the balance sheet. At the end of the second quarter, Total assets were RMB32.2 billion. Among that, total cash on hand, including cash and cash equivalents, Related restricted cash and financial assets was RMB15.5 billion. Total liabilities was RMB9.4 billion, while total equity was RMB22.8 billion.
Total debt was RMB6 1,000,000,000 lower than total cash on hand And net debt was negative RMB9.4 billion after deducting cash on hand. Total debt to equity was 26.5 percent And net debt to equity was negative 41.3%. In terms of cash flow in the second quarter, We generated RMB1039 million of cash from operating activities. Net cash used in investing activities Based on 2nd quarter results, I will summarize an audited results of the first half of twenty twenty one. Revenue in the first half was 2,000 RMB448,000,000, an increase of 33% year over year.
Gross profit was RMB655,000,000, an increase of 36% year over year. Gross margin was 26.8%, an increase of 0.6 percentage points year over year. Profit for the period attributable to SMIC was RMB 847,000,000, an increase of 3 19% year over year. Now for the Q3, our guidance is as follows. Revenue is expected to grow 2% to 4% sequentially And gross margin is expected to range from 32% to 34%.
Non IFRS OpEx and profit attributable to non controlling interest are expected to increase sequentially. Based on the first half results and the second half outlook and under the uncertain Assumption of a relatively stable external environment, we now raise our annual revenue growth target and gross margin target to be around 30%, expected to decrease to around 5 percentage points due to depreciation and amortization allocated to more output. This year's CapEx, depreciation and amortization are carrying out as planned. Annual EBITDA is Expected to be above RMB3 1,000,000,000. The company still faces impact brought by the entity list, Thank you, Doctor.
Gao for the financial update. I will now hand the call to our Co CEO, Doctor. Zhao Haijun Welcome to today's earnings webcast. With the recurring epidemic, the stay at home economy demand for Internet of has continued to bring market opportunities to the IC industry. The demand requirements mainly come from 3 areas.
First, the existing traditional demand has remained solid. 2nd, various product upgrades and enhancements Generate incremental demand, such as the migration of 4 gs to 5 gs products, the rise of electric vehicles and charging stations, Short range connectivity for smart homes, the development of carbon neutrality and other trends have together resulted in a substantial increase of single product silicon content and overall demand. 3rd, the landscape of the IC industry has also shifted. The demand for domestic indigenous manufacturing has increased substantially. The incremental buildup of demand of these Three components has resulted in capacity short supply in semiconductor manufacturing and the bottleneck issues of peripheral chips are particularly
prominent.
SMIC is facing longer procurement cycle times and uncertainty in operational continuity and capacity I missed the hot market due to supply chain risk brought by the entity list. During these past few months, the company made more efforts, Research and refine in EverLink and discover some proven methods and paths continue to overcome difficulties and furthermore exceeded original revenue expectations. Today, we will cover the highlights of the Q2 from 2 main aspects. First is the company's business. In terms of mature technology, we are steadily and firmly working to satisfy our customers with High quality, function competitive products.
The 7 major applications and 8 key platforms that we have been laying out Over the past few years, are the precise areas where there are prominent bottleneck issues. With limited Capacity. We remain consistent in our capacity allocation principle, giving priority to long term In terms of advanced technology, The development of product platforms continues and the effectiveness of customer engagement and product diversification reservation are gradually emerging. Utilization rate of advanced technology climbed in 2nd quarter and its performance was better than expected. Its adverse impact to the company's overall gross margin is expected to reduce from 10 percentage points to about 5 percentage points this year.
However, due to the impact of the macro environment, the speed of capacity expansion is constrained And economies of scale has not yet been achieved for the advanced technology. In the Q2, revenue increased to RMB1344 1,000,000 grew RMB240 1,000,000 compared to Q1, up 22% sequentially and 43% year over year, driven by both mature and advanced business in which FinFET and 28 nano combined revenue grew 158% sequentially and contribution rose to 14.5% of total wafer revenue. Overall revenue contribution by application in the Q2 for smartphones, smart home, consumer electronics and other applications were 32%, 12%, 25% and 31%, respectively. Revenue of each application segment increased, respectively, with different magnitude. Among these, consumer electronics revenue increased about 50%, demonstrated the stay at home economy driving the rising of new formats, new models and new applications.
Looking more closely, digital cameras, traditional home appliances and other related applications With the fastest growing applications for consumer electronics, their revenue doubling sequentially. From a platform perspective, high voltage driver chips for large and small screens continued a rapid growth trend from the Q1 With revenue growing by about 56% sequentially, while CIS, specialty memory, BCD Power Management and other platforms also performed well. By geography, The aforementioned is the status of the company's business. Next, We will report on the status of our export license applications and capacity expansion. Since being placed on the entity list last year, SMIC has been proceeding forward through difficult circumstances, and the entire company has been working hard, devoting a lot of Human, Material and Financial Resources for this.
In terms of operation continuity, we are actively working with our suppliers to In terms of capacity expansion, its progress is rolling out as planned. By the end of the second quarter, Our overall 8 inches equivalent capacity was 562,000 wafers per month, with an increase of about 21,000 wafers from the end of the previous quarter. However, Uncontrollable factors such as license approvals, supply chain tightness and logic impacted by the epidemic have also ineligibly affected And logistics impacted by the epidemic have also inevitably affected the equipment arrival times. The company will make every effort to optimize the internal procurement process and speed up the efficiency of That concludes the Q2 highlights. Next, we will share our thoughts on the second half of this year.
Revenue in Q2 was RMB1344 1,000,000, an increase of 22% quarter over quarter. The significant growth mainly came from increased capacity and utilization, higher ASP and porting shipments. Some shipments poured in from Q3 to Q2 as per customers' urgent demand. Thus, in the Q3, revenue is not expected to With the changes in the market and the company's precise tackle on difficulties, we revised the full year target upwards and expect annual revenue growth target and annual gross margin target to be around 30%. However, uncertainties still exist, Coupled with factors such as the U.
S. Entity listing, the epidemic and global industry chain During this period, our achieved progress is inseparable from the support of all employees and also attributable to the efforts We launched an equity incentive program in the Q2 to retain Talend's, synergize the growth of In line with the pace of capacity expansion, in the first half of this year, we recruited nearly 1,000 employees from campus In which over 100 of them hold doctoral degrees, young and high quality fresh blood lay a foundation for the company's The company also welcome talents who are willing to join the IC industry. We also understand that people have high expectations for us, but there is no shortcut or leaping forward Thank you, Doctor. Zhao. Next is our Q and A Chinese questions will be answered in Chinese.
English questions will be answered in English. As usual, please limit your questions to 2 per person. Questions will be answered by Doctor. Zhao and Doctor. Gao.
I would now like to open up the call for Q and A. Operator, please assist.
Thank you. First question comes from the line of Randy Abrams of Credit Suisse. Please go ahead.
Okay. Yes, thank you and congratulations on the good results, especially considering The first question I wanted to ask on the sales guidance for Q3 and also for the 2021. For Q3, could you split out the 2% to 4% between shipment and ASP? And then for 2021, the 30% guidance seems to imply a up to 10% decline in 4th quarter. I wanted to see if you're factoring just conservatism due to the restriction or if you see any limitation on capacity or demand or any change in demand for Q4?
Hi Randy, thank you for the questions. Your questions mainly asked that The job in the Q4 based on the calculation from the Q3, the first thing first, the Q3 already ongoing, We can see the wafers are moving everything. The confidence is very high that we can meet that forecast. The Q4 actually from capacity point of view we have a larger capacity in Q4 than 3rd. And the forecast is based on the caution.
We still see certain Uncertainty there and so that we put a certain forecast to cover this kind of uncertainty. If you say the best case and we resolved all the uncertainty issues, the 4th quarter shouldn't be worse than the 3rd quarter. That's true. But from this point at this point and we want to forecast the 4th quarter With a certain type of caution, so come up with the results, Shao san, you mentioned.
And one just one follow-up to the first question. Is the uncertainty relating to the entity list, just on either material Or tools or is it more of a more of an uncertainty in terms of the customer orders?
We can't go to detail on this kind of uncertainty Yes, from both sides, from supply chain point of view for certain type of Supplies of equipment parts, that's one of the things we're working very hard to resolve quickly and another thing is that for certain customers And you know for certain capacities we do have customer change and we are working on that part
And if I could ask just a second question on the CapEx. In the first half, you spent about $1,300,000,000 but maintained the $4,300,000,000 Do you still see the Quimin, because you mentioned some arrival delays. Do you still see the planned 8 inches I think the 45 ks and the 10 ks, 12 Does that still look on track in the overall $4,300,000,000 or you need to resolve some licenses to reach that? And then, and the follow-up to that is, do you have further planned to expand Beijing or Shenzhen, where you have kind of big Do you have kind of a next phase to meet next year's demand?
Yes, Randy. Based on the shipment schedules and given by our suppliers, we do have a lot of machines coming in, in the Q4 this year. And in the meantime, we are also building up the 5 shares and other facilities in Beijing and Shenzhen. Taking into the account of both facilities building up and the machines arrival times, we believe that the CapEx Just now you mentioned that US4.3 billion dollars roughly around there. So we still believe that this year's the CapEx spending Even though the first half year, the number is much less than the Proportional ratio.
Okay. And just a final, do you have a rough plan on Additional capacity, just to kind of meet some of the demand, if you expect continued strength, like for the next phase, how much To add on 8 inches 12
inches For this year, we still stick to 45,000 wafers incremental For the capacity monthly 10,000 wafers 12 inches mainly in Beijing, for this year the forecast still maintained the same It's still too early to forecast next year.
Okay. All right. Fair enough. Thanks a lot.
Thanks, Randy.
Thank you for the questions. Next question comes from the line of Ziho Ng of China Renaissance. Please ask your
Okay. Mr. Xiny, Congratulations.
Thank you for the questions. Next question comes from the line of Leping Wang of Huatai Securities. Please go ahead. Thank you for the questions. Next question will come from the line of Zhu Jin Song of Haitong.
Please go ahead. Thank you for the questions. Next question comes from the line of Charlie Chan of Morgan Stanley. Please ask your question. Thank you.
That concludes the Q and A session today. I would now like to hand the call back to Ms. Kuo for closing remarks.
Thank you all for participating in today's conference call. Thank you for your trust and support. This concludes SMIC's 2nd quarter earnings conference call. We thank you for joining us today.