SMIC crawls back to profitability on tax credit

Semiconductor Manufacturing International Corp. (SMIC), China's largest chip maker, crawled back to profitability during the second quarter with the help of an $18.9 million tax credit.

SMIC, in Shanghai, reported a profit of $2.2 million on second-quarter sales of $361.4 million. A $18.9 million tax credit boosted the company into the black, which it credited to "strategic tax planning." SMIC reported a loss of $40.5 million on sales of $279.5 million during the same period one year ago.

The tax credit was the result of a "tax planning strategy" put in place by SMIC during the second quarter. This strategy created "a temporary difference between the tax and book basis of certain assets." The company did not offer further details.

This is the first time that SMIC has reported a profit since the third quarter of 2004. Executives promised that the company would be profitable for the entire year of 2006, but did not predict a return to profitability until the third quarter. The company posted a loss of $8.7 million on revenue of $351.1 million during the first quarter.

Looking ahead, SMIC is "cautiously optimistic" about the rest of the year, saying some customers have delayed placing orders because of inventory build-ups. Those delays were offset by growing demand from Chinese customers and overseas customers looking to tap growing Chinese demand for chips, it said.

On Friday, SMIC also announced a manufacturing agreement with Qualcomm. Under the terms of that deal, SMIC will produce power-management chips for Qualcomm. Financial terms of the agreement were not disclosed.