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Electronics

China's SMIC vows to step up its chip technology as profits sag

Chipmaker aims to gain ground on rivals with government-backed R&D

China's SMIC plays a key role in its country's ambition to build a competitive semiconductor industry (Photo by Cheng Ting-fang)

TAIPEI Chinese contract chipmaker Semiconductor Manufacturing International Corp. has vowed to bring its chip technologies up to speed with the help of government support, despite deteriorating profits and a slowing mobile market.

Co-chief Executive Liang Mong-song, brought in by SMIC last October from Samsung Electronics, said he will accelerate development of advanced chip technologies to capture future growth.

"We have not captured the great opportunity in China because of lack of technology readiness," he said in an earnings teleconference on Feb. 9. "In order to sustain growth in the long run, we must drive technology development." Liang said he has revised SMIC's research and development plan, and hopes to deliver results sooner than previously planned.

SMIC is the world's No. 4 contract chipmaker by revenue. The state-backed company plays a key role in China's ambition to build up its own chip industry and cut dependence on foreign suppliers.

Liang, who has also worked for the world's biggest contract chipmaker, Taiwan Semiconductor Manufacturing Co., added that SMIC is set to test its 14-nanometer FinFET process technology in early 2019. The technology is similar to TSMC's 16nm process technology, which Apple adopted for its iPhone 7 core processor chips in 2016. SMIC had previously hoped to turn out the new technology in 2020, but has struggled to formulate a feasible strategy.

On Jan. 30, SMIC announced a $10.24 billion joint venture backed by China Integrated Circuit Industry Investment Fund and Shanghai IC Fund, two government investment vehicles, to build a facility mainly for 14nm process technology, which China does not yet have.

Despite government financing for its technology development, the company sees a grim business outlook.

"Looking forward to 2018, we will continue to confront increasing competition, pricing pressure, and slow growth in certain end-markets," said Zhao Haijun, the company's other co-chief executive.

"The year 2018 will also be challenging for our profitability, as our customers face competition in the communications and consumer space," Zhao added.

Key customers Spreadtrum Communications, the mobile chip arm of Tsinghua Unigroup, and fingerprint chip provider Fingerprint Cards are both struggling to stay afloat amid fierce competition in a slowing handset market, said Rick Hsu, an analyst at Daiwa Capital Markets.

Another customer, Huawei chip division Hisilicon Technologies, moved some orders to TSMC in 2017 because SMIC's chipmaking technology was not yet ready to meet demand.

For the current quarter through March, SMIC forecasts revenue of between $842 million and $858 million, including a one-time gain of $150 million from a technology licensing fee from the new joint venture.

In October-December, SMIC saw revenue fall3.4% on the year to $787.17 million, while operating profit dived 93% from a year ago to $3.17 million.

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