China's SMIC reports another loss

China's largest chipmaker has been stung by lower DRAM prices, but still plans to expand and will continue its switch to production of more logic chips

Semiconductor Manufacturing International (SMIC), China's largest chipmaker, fell short of its bid to turn a profit in 2007, ending the year with a $40 million loss. But that won't stop the company from expanding in 2008.

SMIC saw revenue of $1.5 billion during 2007, an increase of 5.8 percent over the previous year. But higher sales weren't enough to offset a slide in DRAM prices, and the company ended the year with a loss, albeit one that was slightly narrower than the $44.1 million loss recorded by the company in 2006.

SMIC turned in a fourth-quarter loss of $22.2 million on revenue of $395.3 million. By comparison, the company reported a profit of $143,000 for the fourth quarter of 2006, thanks to an exceptional one-time gain from the sale of used equipment.

Once seen as a potential rival to Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, SMIC has struggled to turn a profit. Part of the problem is that, as the company built a series of new chip plants in China, it turned to DRAM companies for orders in a bid to fill these production lines. But DRAM is a brutal business with razor-thin margins, and recent declines in memory prices have hurt SMIC's bottom line.

SMIC is trying to wean itself off DRAM as a source of revenue, but the switch to production of more logic chips, which generally command higher prices and have better margins, hasn't happened fast enough to pull the chipmaker out of the red.

DRAM represented 23.6 percent of SMIC's revenue during the fourth quarter, compared to 38.6 percent during the same period last year. By comparison, logic chips represented a greater percentage of SMIC's fourth-quarter revenue, rising from 57.4 percent in 2006 to 67.4 percent last year.

Despite reporting another annual loss, SMIC continues to expand. The company announced plans to build a 200-millimeter production line and a 300-millimeter fabrication plant in Shenzhen, a southern Chinese city that lies next to Hong Kong. Construction will begin during the first half of 2008, the company said.