Semiconductor Manufacturing International Corporation

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Semiconductor Manufacturing International Corporation or SMIC, is an IC foundry headquartered in Shanghai.

Among the "Big 4" foundries (TSMC, UMC, Chartered, and SMIC), SMIC ranks third in terms of revenues but is dead last in terms of profitability. Since a profitable FY2004, SMIC has been profitable in only two quarters since - once due to a tax credit of approximately $18M USD, and once due to some $42M in "disposal gains" resulting from a sale of equipment to one of its own Joint Venture projects in central China. From an operational perspective the company has struggled mightily - 4Q06 gross margins declined to 6.6% from 8.9% in 3Q06. Excluding one-time events, SMIC posted a net loss of $40M USD in 4Q06, slightly worse than its loss of $35.1M in 3Q06. The company had $363.6M in cash in 4Q06, down approximately $192M from 3Q06. Total debt as of 4Q06 was $961.4M USD.

Unfortunately for SMIC it is hemmoraghing employees almost as quickly as it is cash. A massive brain drain has been a constant thorn in SMIC's side as employees flee en masse an environment that, according to insiders, stifles employee ambition along with creative and autonomous thought. A lack of competent managers and supervisors has left the non-engineering (marketing, finance, IR, etc) side of the company particularly hard hit; this is evident in the lack of focus that has plagued SMIC for the last several years and in the tens of millions of dollars the company loses each quarter in foreign exchange losses.

Rampant rumors concerning a possible private equity-led buyout of the company caused a recent runup in SMIC's stock (though it has since pulled back). While current management has a proven track record of nothing but multi-million dollar losses and a thoroughly confusing and clouded corporate strategy, most acknowledge that despite its struggles the company still has real potential given its positioning in mainland China and its relationship with the Chinese government.