(Yicai) Aug. 11 -- Chinese semiconductor makers Semiconductor Manufacturing International and Hua Hong Semiconductor have both been hard hit by the downturn in the sale of mobile phones, personal computers and other consumer electronics this year, but business may pick up in the second half as demand grows in the auto sector.

SMIC’s net profit plunged 21.7 percent in the three months ended June 30 from the same period last year to USD403 million, according to its latest financial report. While revenue plummeted 18 percent to USD1.5 billion. Its gross profit margin shrank 19.1 percentage points to 20.3 percent.

Sales did increase 6.7 percent in the second quarter from the low of USD1.4 billion in the first quarter and the narrowing of the gross margin slowed, but earnings did not improve significantly, the Shanghai-based firm said.

Similarly, Hua Hong logged a 6.4 percent dive in net profit in the second quarter from a year earlier to USD78.5 million, while revenue gained 1.7 percent to USD631.4 million, the Shanghai-based firm said in its earnings report. Its gross margin contracted 5.9 percentage points to 27.7 percent.

The narrowing gross margin was mainly due to the depreciation of assets, higher electricity costs and the low price of its products, said Tang Junjun, president and executive director of the company.

Sluggish sales of mobile phones and PCs and other consumer electronics are the main reason for the firms’ disappointing performance. In the second quarter, global PC shipments fell 15 percent from a year earlier and that of smartphones tumbled 8 percent, according to industry analyst Counterpoint.

Encouraging Signs

But there is growing demand for chips in the automotive sector. Last year, Hua Hong’s revenue from its industrial and automotive chips business was second only to its consumer electronics business. Its insulated gate bipolar transistor was its main product in the automotive field.

In the second quarter, demand increased for its IGBT, microcontroller units and super junction chips, accounting for 75 percent of the firm's China revenue and offsetting the decline in demand for other products.

There are also some encouraging signs in the consumer electronics market that might help the foundry sector recover. In the second quarter, PC shipments jumped 8 percent from the previous quarter, indicating that the PC market might pick up in the second half. And the smartphone market is also expected to rebound as new models are released, which will accelerate the replacement cycle.

SMIC is expecting revenue to expand between 3 percent and 5 percent in the third quarter from the second quarter and for its gross margin to narrow to between 18 percent and 20 percent, it said.

Revenue in the third quarter is likely to be between USD560 million and USD600 million, and the gross margin to lie between 16 percent to 18 percent, Hua Hong said. Both are a contraction from the second quarter.

SMIC’s share price [SHA:688981] closed down 3.2 percent at CNY46.92 (USD6.48) today and Hua Hong Semiconductor [HKG:1347] slumped 8.9 percent to HKD20.80 (USD2.66).

Editor: Kim Taylor