SMIC Financial Report: SMIC's revenue in fiscal year 2024 reached 57.796 billion yuan, a record high, an increase of 27.72%

The "chip king" SMIC (688981.SH, 00981.HK) recently disclosed its annual report, achieving operating income of 57.796 billion yuan in 2024, a year-on-year increase of 27.72%; net profit attributable to shareholders of listed companies (referred to as "net profit") was 3.699 billion yuan, a year-on-year decrease of 23.31%.

The "chip king" SMIC (688981.SH, 00981.HK) disclosed its annual report on the evening of March 27, achieving operating income of 57.796 billion yuan in 2024, a year-on-year increase of 27.72%; net profit attributable to shareholders of listed companies (referred to as "net profit") was 3.699 billion yuan, a year-on-year decrease of 23.31%.

This is the first time that SMIC's revenue has exceeded 50 billion yuan, setting a record high. But at the same time, the company's net profit has declined for two consecutive years. In 2023, affected by high inventories in the semiconductor industry and sluggish macroeconomics, the company's net profit fell by more than 60%, and the decline narrowed in 2024.

The core contradiction facing SMIC right now is the increase in wafer volume and the decrease in price. In 2024, SMIC's wafer sales will increase by nearly 37%, exceeding 8 million pieces, but the average selling price will drop from 6,967 yuan in 2023 to 6,639 yuan, a drop of 328 yuan.

After the annual report was released, on March 28, SMIC's A shares and H shares fell 1.43% and 3.38% in early trading, respectively. Looking at the timeline in a longer time, SMIC's H shares have performed strongly over the past year, with a cumulative increase of more than 220%, and an increase of more than 52% this year alone. The current total market value of Hong Kong stocks is HK$388.3 billion. The A-share stock price has increased by about 110% in the past year. However, since the strong market started in late September last year, it has continued to fluctuate and fall. The stock price has fallen by 3.67% so far this year, and the current total market value is 727.5 billion yuan.

Record revenue

SMIC's main business is wafer foundry business, and its revenue comes from five major business directions (smartphones, computers and tablets, consumer electronics, Internet and wearables, industry and automobiles). In 2024, except for computers and tablets, the revenue of other industries will increase.

Wind data shows that consumer electronics is the sector with the largest revenue growth, with revenue of 20.338 billion yuan in the period, a year-on-year increase of 99.51%; followed by the smartphone sector with revenue of 14.953 billion yuan, a year-on-year increase of 36.92%; smart wearables, industrial and automotive sectors had smaller growth rates, with year-on-year growth of 9.05% and 8.08% respectively; computer and tablet revenue fell 17.77% year-on-year.

Image source: Wind

The overall recovery of the semiconductor industry is the main reason for SMIC's revenue growth. "In 2024, the global semiconductor industry as a whole showed signs of recovery, and the recovery trend of the industrial chain was basically established," the company said in its financial report.

However, the situations of various market segments within the industry chain show certain differences. Among them, in the world's leading industry fields, the demand for intelligence and high-speed computing performance has driven the explosive growth of related industries, and is the main driving force for the increase in the overall semiconductor market size. The replacement trend of products such as smartphones, personal computers, wearable devices, and consumer electronics has caused terminal demand to show a slow growth trend. In the field of automotive electronics, "with the increasingly fierce competition in the electric vehicle market, the inventory digestion of automotive chips has gradually slowed down, and the demand for semiconductors in this field has entered a cyclical adjustment stage."

As the leading wafer foundry in mainland China, SMIC's revenue growth also benefits from local customers.

The 2024 financial report shows that the proportion of SMIC's revenue in China will further increase to 84.6%. From 2021 to 2023, this proportion was 69.9%, 74.2% and 80.1% respectively.

The capacity utilization rate has also increased. In 2023, SMIC's capacity utilization rate was about 75%, and the full-year capacity utilization rate in 2024 reached 85.6%, an increase of about 11 percentage points year-on-year.

Angel investor and senior artificial intelligence expert Guo Tao pointed out that at present, the trend of domestic substitution of IC is obvious. In order to reduce supply chain risks, local customers have increased their orders to SMIC. Geopolitical factors have accelerated the increase of localization demand. The company's 12-inch production capacity is tight, and the newly expanded capacity has been fully utilized, and the product portfolio has been optimized.

Wafer volume increases and price decreases

It should be noted that while SMIC's revenue set a new record, its net profit came under pressure, and it fell into the dilemma of "increased revenue but not increased profit."

On the one hand, the decline in capital income is a major factor leading to the decline in SMIC's profits. The annual report shows that the company's interest income will decrease from 5.199 billion yuan in 2023 to 3.884 billion yuan in 2024. The interest income mainly comes from demand deposits and time deposits. Its interest income in 2023 is higher, mainly due to the increase in US dollar deposit rates.

On the other hand, the more important reason is that in 2024, SMIC's operating costs will be 47.051 billion yuan, a year-on-year increase of 33.12%, exceeding the 27.7% increase in revenue. According to SMIC's explanation, the increase in operating costs is mainly "due to changes in product mix and increased depreciation."

Correspondingly, the company's gross profit margin in 2024 was 18.59%, a year-on-year decline of 3.3 percentage points, falling to the lowest level in nearly eight years. The gross profit margins from 2021 to 2023 were 29.30%, 38.30% and 21.89% respectively.

"At present, the semiconductor price war has not completely become a thing of the past. Although the industry is recovering, mature processes are still facing price competition pressure." Guo Tao told Times Finance. SMIC's foundry wafers are mainly 8 inches and 12 inches. The 2024 annual report shows that the company's wafer sales (equivalent to 8-inch standard logic) increased from 5.867 million pieces last year to 8.021 million pieces this year, a year-on-year increase of 36.7%; but the average selling price of wafers fell from 6,967 yuan in 2023 to 6,639 yuan, a year-on-year decrease of 328 yuan.

At the fourth quarter 2024 earnings briefing, SMIC Co-CEO Zhao Haijun talked about the outlook for 2025 and said that localized production has brought more market demand, but homogeneous competition means that structural excess production capacity will still face fierce competition even when the market recovers.

He pointed out that the company has enhanced its core competitiveness and bound customers by creating leading technologies, and has resisted price pressure by adding new products. The company has maintained a consistent pricing strategy, following the market and not actively reducing prices, but will also face price competition with strategic customers when necessary to maintain the company's market share and competitive advantage in various fields.

Regarding the business plan for 2025, SMIC introduced in its financial report, "At the beginning of the year, based on extensive communication with industry chain partners, everyone generally believed that in addition to the continued rapid growth of artificial intelligence, the demand in various application fields in the market remained flat or grew moderately. The external environment brought certain uncertainties to the second half of the year, and competition among peers has intensified."

Assuming there are no major changes in the external environment, the company's guidance for 2025 is: sales revenue growth is higher than the average of comparable peers, and capital expenditure is the same as the previous year (that is, approximately US$7.33 billion).

On the same day, SMIC announced that in view of the fact that it will still maintain a large-scale capital expenditure in 2025, in order to ensure the company's normal production and operation and future development needs, the company will not distribute profits in 2024. The plan has been reviewed and approved by the company's board of directors and needs to be submitted to the company's 2025 annual general meeting of shareholders for review. Since its listing on the Science and Technology Innovation Board in July 2020, the company has not distributed dividends. As of the end of 2024, the company has 263,400 registered shareholders.