SMIC CEO: China foundry vendor back on track

New thinking at SMIC
More importantly, Wang also instilled some new business practices at SMIC: It is looking for sustained profitability. Right now, SMIC also has a better product and customer mix than before, Wang said. And to help matters, SMIC recently received a capital injection from Datang Telecom of China.

Under the previous regime, SMIC was trying to ''get big before it was solid,’’ he said. Now, SMIC ‘’needs to get strong before it gets big.’’

Thanks to a settlement with a rival, SMIC recently posted its first quarterly profit since 2007.  SMIC's sales hit $381.1 million in the second quarter, up 8.4 percent from $351.7 million in the first quarter and up 42.5 percent compared to the like period a year ago. Net income attributable to holders of ordinary shares was $96.0 million in the second quarter, compared to loss of $181.9 million in the first quarter and a loss of $97.4 million a year ago.
 
The profit was driven by a one-time gain of $105.9 million of commitment to grant shares and warrants. The gain came from securities issued to TSMC as part of a settlement in a suit last year.SMIC also doubled its capital spending. 2010 annual capital expenditures are expected to range from $700-to-$750 million.

At present, however, there is a slowdown in the IC market. Going forward, Wang is still bullish despite the slowdown, saying SMIC is seeing good demand. ''I think we’re in a pretty good cycle,’’ he said.

Wang said the company has restored customer confidence after the IP snafu with TSMC.  Several customers that were reluctant to do business with SMIC have switched gears and ''now they are approaching us,’’ he said.

One of the advantages for SMIC is clear: It has a large manufacturing base in the world’s largest consumer market in China. SMIC has fabs in Beijing, Taijin, and Shanghai.

But one of the challenges is that SMIC is lagging in terms of technology.  At present, SMIC is ramping up its leading-edge technology: a 65-nm process.

Wang acknowledged that SMIC is at least five years behind the competition at 65-nm and two-to-three years behind at 45-nm. The goal for the company is to narrow the gap between SMIC and its rivals.  

To do so, SMIC will require massive capital and technical prowess to narrow the gap. It has licensed some technology from IBM Corp., but the challenge is to put the process into mass production.

Recently, SMIC has moved its low-leakage 65-nm process technology into volume production at its 300-mm facility in Beijing. It is also working on the transition to 55-nm technology, which is due in pilot production by the third quarter of 2011.
SMIC is also working on a 55-nm general purpose process, which is due in pilot production in the fourth quarter of 2011.  

SMIC is also working on a 45-/40-nm low leakage process, which is due in pilot production in the fourth quarter of 2011. SMIC is also working on a 45-/40-nm general purpose process, which is due in pilot production in the second quarter of 2012.

SMIC licensed the 45-nm process from IBM in 2007. SMIC is also devising a 32-nm process, which was also licensed from IBM.SMIC is also working on analog and mixed-signal. It is devising a bipolar-CMOS-DMOS (BCD) process.