SAN JOSE, Calif. – Chinese foundry provider Semiconductor Manufacturing International Corp. (SMIC) has revised the business model for its fab arrangements in Chengdu and Wuhan.
Previously, the fabs in Chengdu and Wuhan had their own sales efforts. Now, SMIC will assume the direct sales responsibilities for those two fabs in China.
The move could pave the way for the eventual sale of those fabs. At the same time, SMIC confirmed that it plans to obtain a $100 million capital injection from one of its investors, China’s Datang Telecom. Reports have been circulating about the cash infusion from Datang for some time.
After several years in the red, SMIC is looking to become profitable. In recent times, SMIC took steps in those directions by naming a new CEO, cutting its headcount and accelerating its advanced process technology efforts.
Business is strong right now, but the company is falling further behind its rivals in technology. Leading-edge foundries have been ramping up their 45-/40-nm processes for some time. SMIC plans to ramp up its 45-/40-nm process by year’s end.
In the second quarter of 2010, announced on Tuesday, SMIC posted its first quarterly profit in three years and doubled its capital spending. 2010 annual capital expenditures are expected to range from $700-to-$750 million.
In its results, SMIC, however, benefitted from a one-time gain from rival Taiwan Semiconductor Manufacturing Co. Ltd. TSMC gained a 10 percent stake in SMIC as a result of an out-of-court settlement of a legal dispute between TSMC and SMIC. SMIC had been using TSMC’s trade secrets and infringing that company’s patents.
Still, at present, business is strong at SMIC. During a conference call on Tuesday, David Wang, CEO of SMIC, said the company is completely sold out of fab capacity for the third quarter. Asked if he was concerned about recent reports about softness in the market, Wang said: ''We don’t see any issues for Q3. We don’t feel pressured or impacted for Q4.’’
Still, the question is clear: Can SMIC sustain its profitable status? And in addition, what will happen to its fab arrangements?
For some time, SMIC has managed Cension Semiconductor Manufacturing International and Wuhan Xinxin Semiconductor Manufacturing Corp. Cension, based in Chengdu, China, is actually owned by the Chengdu municipal government. Wuhan Xinxin, based in Wuhan, China, is actually owned by the Wuhan municipal government.
Cension and Wuhan Xinin have handled their own sales via a commission basis. Going forward, SMIC will directly handle the sales of Cension and Wuhan Xinin, according to the company. Officials from SMIC said the moves will ''deepen its relationships with customers.’’
For some time, though, silicon foundry vendor SMIC has been in talks with Texas Instruments Inc. about taking over the operation of the 200-mm fab in Chengdu, according to sources.
As reported in March, SMIC (Shanghai, China) plans to end an agreement to manage the 200-mm wafer fab in Chengdu, according to reports. SMIC has been talking to TI about taking over the fab.
SMIC set up the 200-mm wafer fab, Cension, to be managed by SMIC and backed by investors and the Chengdu government. The Chengdu fab is losing money, prompting SMIC to seek other buyers of that plant. It is unclear what the future will hold for the Wuhan plant.