March 29, 2019
- Revenue was US$3,360.0 million in 2018, an increase of 8.3% from US$3,101.2 million in 2017. Excluding the recognition of technology licensing revenue, revenue increased by 3.1% from US$3,101.2 million in 2017 to US$3,196.2 million in 2018.
- Gross profit was US$746.7 million in 2018, compared to US$740.7 million in 2017. Gross margin was 22.2% in 2018, compared to 23.9% in 2017. Excluding the recognition of technology licensing revenue, gross margin was 18.2% in 2018, compared to 23.9% in 2017.
- Earnings before interest, tax, depreciation and amortization was a record high of US$1,164.4 million in 2018, compared to US$1,117.7 million in 2017, representing an increase of 4.2%.
- Revenue from China-region customers grew to 57.0% of total revenue excluding technology licensing in 2018, compared to 47.3% in 2017, representing a revenue growth of 24.3%.
- The net debt to equity ratio remained low at –4.5% as of December 31, 2018.
LETTER TO SHAREHOLDERS
In 2018, the global political and economic environment was complex with many uncertainties. Influenced by the saturation of the smart phone markets and global trade frictions, the growth of the IC industry slowed down and the pressure of price competition increased. The industry is facing great challenges, and yet, with this environment, the Company managed to make remarkable progress, thanks to the dedication and teamwork of all SMIC’s employees. The Company recorded historic high revenue of US$3.36 billion for the year of 2018, representing a year-on-year increase of 8.3%. Earnings before interest, tax, depreciation and amortization amounted to US$1.16 billion, representing a year-on-year increase of 4.2%. For the year of 2018, revenue from PRC-based customers excluding technology licensing revenue increased 24.3% as compared to that of the previous year.
2018 was a year of accelerated research and development(“R&D”). We invested over US$0.6 billion in R&D activities, far exceeding the industry average of R&D expenses in terms of revenue. We would like to express our heartfelt gratitude to all the members of our R&D team for their round-the-clock hard-work, enabling us to achieve significant breakthroughs in the research and development of advanced technology, demonstrating noteworthy improvement in the efficiency of our R&D efforts. We have completed the development of 28nm HKC+ and 14nm FinFET technology, and have begun customer engagement. It is expected that the mass production will commence in 2019. We also successfully developed the PRC’s first 14nm masks. With the most advanced mask production capacity in the PRC, we can provide 14nm mask services for our customers this year.
2018 was the sixth year in which we have sponsored the “SMIC Liver Transplant Program for Children.” The Company announced in June 2018 that it had donated RMB2.40 million to China Soong Ching Ling Foundation for the project. For the past six years, the Company has donated over RMB13.50 million and our business partners in the industry have donated RMB7.50 million to this program, accumulating a total donation of RMB21 million; through which, 350 afflicted and impoverished children from across the country have successfully received treatment and are able to enjoy their new lives.
In 2019, SMIC will operate under the dual pressures of uncertainties surrounding the external environment and the adjustment of the Company in this critical year of transition. We shall continue to focus on advancing our technology, building up platforms and developing business partnerships in order to fulfill our commitments to providing competitive services to our customers. Bearing in mind the saying that good honing gives a sharp edge to a sword and bitter cold adds keen fragrance to plum blossom, we will continue to work together and forge ahead, investing in R&D and providing enhanced customer service to strengthen the Company’s overall competitive edge in order to lead SMIC to become a leading world-class semiconductor foundry in the near future. We remain committed to diligently and carefully execute our business plan for the best interests of all of our shareholders. We would like to again express our sincere gratitude to our shareholders, customers, suppliers, and employees for their continued care and support of SMIC.
Chairman of the Board and Executive Director
Zhao Haijun, Liang Mong Song
Co-Chief Executive Officers and Executive Directors
Shanghai, China March 29, 2019