Semiconductor Manufacturing International Corp (SMIC), the biggest chipmaker in the Chinese mainland, saw its first quarterly losses in the fourth quarter last year, after becoming profitable a year ago, mainly due to compensation payments made to its competitor Taiwan Semiconductor Manufacturing Corp (TSMC).

Shanghai-based SMIC said Tuesday its revenues in the fourth quarter rose by 6.2 percent to US$291.8 million quarter-on-quarter.

Its annual revenues hit US$975 million in 2004 with US$70.91 million in profits.

It recorded losses of US$11.2 million in the fourth quarter, after paying US$23.2 million in compensation to Taiwan-based semiconductor giant TSMC.

SMIC was accused of infringing on TSMC's patents and stealing trade secrets by the Taiwanese semiconductor firm in December 2003.

The mainland company said on January 30 it had reached a settlement with TSMC, and revealed it would be paying TSMC US$175 million over six years and would therefore postpone the announcement of its annual results.

SMIC's shares on the Hong Kong stock exchange fell to HK$1.51 (19 US cents) yesterday, down 3.23 percent, while its American depository shares on the New York Stock Exchange shed 0.71 percent to US$9.81.

"This may change investors' confidence in SMIC," said Paul Chan, an analyst with CSC Securities in Hong Kong.

He pointed out that the losses, the impacts of the settlement with TSMC, and increasing competition will pose a series of challenges to SMIC.

Richard Chang, chairman and CEO of SMIC, also said the situation this quarter and the whole year will remain very challenging, but there will be some improvement from the second quarter.

SMIC said its capital expenditure will be about US$1 billion this year depending on market conditions and will be mainly used to expand production capacity in its wafer plants in Beijing, Shanghai and Tianjin.

Its production is expected to reach 147,000 pieces equivalent to 8-inch wafers by the end of the year, a 22 percent rise over 2004.

The company predicted its wafer shipments are likely to decrease by 5 to 7 percent year-on-year and utilization will be about 85 percent.

(China Daily March 30, 2005)