Chipmaker Semiconductor Manufacturing International Corp (0981) plans to reduce capital expenditure for fiscal 2008 from US$700 million (HK$5.46 billion) in the 2007 financial year, faced with sharp falls in prices for memory chips used in computers."We expect the DRAM business to report a loss of US$20 million to US$30 million in the fourth quarter, which will offset the net profit in the logic business. So we will still see some losses in the fourth quarter," said SMIC chief executive Richard Chang Ru-gin, in an online conference call yesterday.
Capex for the third quarter ended September 30 was US$139 million.
SMIC also plans to increase production capacity for non-DRAM- related (dynamic random access memory) products. It will scale down the computer-memory chip business.
Company secretary and Hong Kong representative Anne Chen Wai-yui said yesterday that SMIC had been negatively affected by a dramatic drop in the price of DRAM chips, from US$4 to as low as US$1 in the first quarter, adding that such a steep fall had not been seen in 20 years.
Chen said SMIC will place more importance on higher-margin flash- memory products. DRAM chip sales accounted for 23.6 percent of total revenue in the third quarter, down from 28.9 percent in the previous quarter.
"Cutting capital spending will help the company at least in two ways," said Rick Hsu, an analyst at Nomura Securities. The initiative would help improve pricing power, while reduction in spending will give SMIC a high utilization rate. "The company is likely to see an improved logic pricing trend next year, which should help to offset DRAM volatility," Hsu said.
Macquarie analyst Warren Lau said he does not expect "any improvement in the future."
SMIC yesterday reported a net loss of US$25.6 million for the three months to September. Revenue was up by 4.4 percent to US$391.3 million, from US$374.8 million in the second quarter.
SMIC shares closed yesterday at 88 HK cents, down 1.12 percent.
