(Yicai Global) Feb. 10 -- Shares of Semiconductor Manufacturing International fell after the major Chinese chip foundry predicted revenue and gross margin to shrink this year on weaker product prices.

SMIC’s stock [SHA: 688981] finished 1.2 percent lower at CNY43.07 (USD6.32) in Shanghai today, while the firm’s Hong Kong-traded shares [HKG: 0981] ended down 4.3 percent at HKD17.24 (USD2.20).

For the first quarter of this year, SMIC predicted a 10 percent to 12 percent drop in revenue, representing USD1.43 billion to USD1.50 billion, Shanghai-based SMIC said in an earnings forecast published late yesterday. Its gross margin will contract to between 19 percent and 21 percent.

Looking ahead to the full year, SMIC said revenue will fall by a low-teens percentage, with a gross margin of about 20 percent. Depreciation is expected to increase by more than 20 percent on year and capital expenditure will remain roughly flat compared with 2022. Also, monthly capacity increase by year-end is expected to be similar to that of last year.

In the last quarter of 2022, gross profit fell 6.2 percent on year and 30 percent from the previous three months to USD518.7 million. Revenue rose 2.6 percent from a year earlier to USD1.6 billion, while gross margin contracted 6.9 percentage points from a quarter earlier to 32 percent, SMIC said.

Last year, net profit tallied USD1.8 billion, up 6.8 percent from 2021, with revenue climbing 34 percent to USD7.3 billion. The gross margin was 38 percent, shattering the previous record.

Capital expenditure totaled USD6.4 billion in 2022 as the full-year capacity utilization ratio reached 92 percent with a monthly output of 714,000 pieces of 8-inch equivalent wafers in the fourth quarter, according to SMIC.

By the end of 2022, SMIC Shenzhen entered into production, with SMIC Jingcheng kicking off pilot production. Meanwhile, construction of the main fab shell of SMIC Lingang was completed and work began on SMIC Xiqing. Mass production at SMIC Jingcheng is expected to be postponed by one to two quarters due to equipment delays, the firm said.

Chip capacity has recovered significantly from 2019 and the first half of 2020 following the easing of Covid-19, Zhao Haijun, SMIC’s co-chief executive, said on an earnings conference call.

Despite a steady recovery in demand, product prices may not reach the peak of early 2020, he cautioned. As such, SMIC needs to make its products and technologies more competitive and firmly tied to end-customers, instead of relying on low-price competition.

Editor: Peter Thomas