SMIC (688981.SH) and Hua Hong Semiconductor (688347.SH) both saw their net profits decline year-on-year in the first quarter of 2024, but revenue shows that the market is picking up.

On the evening of May 9, 2024, China's two major foundry giants, SMIC and Hua Hong Semiconductor, released their first-quarter results. According to financial data, SMIC's revenue in the first quarter of 2024 was $1.75 billion billion, up 4.3 per cent from the previous quarter and 19.7 per cent from a year earlier, and its net profit in the first quarter was $71.8 million billion, down 68.9 per cent from a year earlier. Huahong Semiconductor's first-quarter sales revenue was $0.46 billion, down 27.08 percent year-on-year and up 1 percent month-on-month, while its net profit was $31.8 million, down 79.1 percent year-on-year and down 10.17 percent month-on-month.

As of press time on the 10th, SMIC's stock price was reported at 43.27 yuan per share, a decrease of 1.03; Hua Hong Semiconductor's stock price was reported at 31.87 yuan per share, a decrease of 1.02.

when analyzing the first quarter results, SMIC's management believes that in the first quarter of 2024, the willingness of global customers to stock up has increased. The company's sales revenue was 1.75 billion billion US dollars, up 4.3 from the previous month; the gross profit margin was 13.7, which was better than the guidance. 1.79 million 8-inch equivalent wafers were shipped, up 7 percent month-on-month, while capacity utilization was 80.8 percent, up four percent month-on-month.

In terms of gross profit, SMIC's gross profit in the first quarter of 2024 was $0.24 billion, down 12.8 percent from the previous quarter and 21.3 percent from the previous quarter. Gross margin was 13.7 percent in the first quarter of 2024, 16.4 percent in the fourth quarter of 2023 and 20.8 percent in the first quarter of 2023.

As for the decline in gross margin, SMIC said it was mainly due to increased depreciation. In the first quarter of 2024, SMIC's depreciation and amortization was $0.746 billion billion, up 6.5 percent month-on-month and 18.1 percent year-on-year.

compared with the same industry, TSMC, Liandian and GlobalFoundries have also released their first-quarter financial reports. among them, TSMC's consolidated revenue in the first quarter was 132.455 billion billion yuan, up 16.5 percent from the same period last year, down 5.3 percent from the previous month, and its net profit was 50.397 billion billion yuan, up 8.9 percent from the same period last year, down 5.5 percent from the previous month, year-on-year decline of 35.4 per cent; GlobalFoundries first-quarter revenue was $1.549 billion, down 16 per cent month-on-month and year-on-year, and net profit was $0.134 billion per cent, down 47 per cent from a year earlier.

analysis agency Counterpoint pointed out that due to weak demand in automotive and industrial applications and customer inventory adjustment, Liandian and GlobalFoundries2024's performance guidelines are relatively low, but they both occupy 6% of the global market share in the fourth quarter of 2024. SMIC's market share fell from 6% in the third quarter to 5% in the fourth quarter of 2023, and its market share in the first quarter of 2024 is expected to catch up with Liandian and GlobalFoundries.

However, Counterpoint also pointed out that SMIC expects demand for smartphone-related components to increase in the short term. However, due to the uncertainty of the sustainability of demand, SMIC's full-year outlook is cautious, which echoes the downturn in the mature node foundry market of 28 nm process and above, which is mainly aimed at the vast consumer electronics and industrial control chip market.

Hua Hong Semiconductor continued its fourth-quarter revenue and net profit both shrinking in terms of performance. The company's revenue in the fourth quarter of 2023 was $0.455 billion billion, down 27.7 percent from a year earlier, while net profit attributable to its parent was $35.386 million billion, down 77.8 percent from a year earlier.

However, in terms of production capacity, Hua Hong Semiconductor's monthly production capacity in the first quarter was 391000 8-inch equivalent wafers. The overall capacity utilization rate was 91.7 per cent, up 7.6 percentage points from the previous quarter.

judging from the specific product sales situation, the sales revenue of embedded non-volatile memory of huahong semiconductor in the first quarter was 0.1192 billion us dollars, down 50.2 percent from the same period of last year, mainly due to the decline in the average sales price and demand of MCU and smart card chips. Sales revenue of independent non-volatile memory was 31.1 million billion us dollars, down 2.3 percent from the same period last year. Sales revenue of discrete devices was 0.1433 billion billion us dollars, down 38.4 percent, this was mainly due to lower demand and average selling prices for IGBT, super-junction, and general-purpose MOSFET products. Revenue from sales of logic and RF and analog and power management chips showed growth.

in this regard, Tang junjun, president and executive director of huahong company, believes that the overall semiconductor market has not yet got rid of the downturn, and due to the influence of seasonality and annual maintenance, the first quarter is the traditional off-season for contract manufacturing enterprises. however, huahong semiconductor's capacity utilization rate, sales revenue and gross profit margin all increased month on month in the first quarter, verifying the overall good market demand for the company's characteristic technology.

Tang Junjun said: "The company's first 12-inch production line will operate on the basis of a monthly production capacity of 94500 pieces throughout this year, and the second 12-inch production line is also under construction and is expected to be completed and put into production by the end of the year."

For the second quarter of 2024, Hua Hong has given performance guidance. It is estimated that the main business income will be between US $0.47 billion and US $0.5 billion, and the main business gross profit margin will be between 6% and 10%.

Everbright Securities pointed out in previous analysis that Hua Hong Semiconductor's characteristic process has technical advantages. However, considering that the downstream boom is still weak, ASP and capacity utilization are temporarily under pressure, and depreciation is increased due to the release of new capacity. It is expected that the company's profitability will continue to be under pressure in 2024 and 2025, and the net profit forecast for the two years will be lowered to US $0.216 billion and US $0.293 billion.