SMIC: Respectable Earnings, But No Respect 中芯国际：收益可观，但不被追捧
Investors once held out big hopes for China’s biggest chip maker SMIC (HKEx: 981; NYSE: SMI) when it went public back in 2004, but reaction to its latest earnings continue their more recent indifference to this giant that seems unable to earn respect from anyone. That’s my main conclusion after SMIC released second-quarter results that showed an encouraging return to profitability, as well as third-quarter guidance that looked stable despite the weaker Chinese and global economies. SMIC’s US-traded shares were largely unchanged after the report came out, dipping 1.6 percent and reflecting to me what looks like investor indifference over this disappointing giant that once held so much potential.
In all fairness, SMIC shares have staged a minor rally over the last month, after the company previously raised its second-quarter guidance. Still, I have to conclude that investors have mostly lost interest in this stock, which may be a mistake as I think it could someday realize the potential that got so many people excited in its earlier days.
Let’s take a look at the actual numbers, which saw SMIC’s second-quarter revenue rise 20 percent to a new record, as its gross margin improved significantly. (results announcement) Perhaps most importantly, the company also reported a profit after 2 quarters of losses. It predicted modest revenue growth in the third quarter, with margins holding relatively stable — outlook that seems relatively good considering the weakness of the Chinese and global economies.
When you look at the competition, SMIC’s current gross margin of about 22 percent still trails far behind industry leader TSMC (Taipei: 2330), which reported a second-quarter figure of 48.6 percent. But SMIC’s margin was actually identical to UMC (Taipei: 2303), the industry’s second largest player and a relatively respected company.
SMIC is posting its latest reports about a year after a damaging internal power struggle saw its competent CEO pushed out by another top executive, who also ended up leaving the company. The company found another competent chief executive who took over about a year ago (previous post), and since then it seems like SMIC’s has performance has gradually improved, as evidenced by its return to profitability and forecast for stable growth and margins despite all the economic uncertainty.
All that said, SMIC still does remain problematic because of its control by state-run entities, which always have the potential to meddle in company affairs for their own political reasons. Still, based on what we’ve seen in the last few quarters under the new leadership, SMIC seems like it could be on relatively solid footing and well positioned for growth if and when the global economy ever improves. Only time will tell if it may finally be set to realize its potential, or whether it ultimately disappoints investors once again like it has so many times before.
Bottom line: SMIC’s latest results point to steady improvement despite a weak Chinese and global economies, possibly setting the stage for a rally in its stock.
Related postings 相关文章:
