|Business (see glossary at the end). Fabricates semiconductors based on customers’ own or third parties’
integrated circuit designs
. Developed leading edge integrated wafer manufacturing services, including
copper interconnects capabilities, within three years after founding in April 2000
. One of the leading semiconductor foundries in the worldIndustry trendsCompound annual growth rate
> The worldwide sales compound annual growth rate of the semiconductor foundry industry
. Is projected to be 21.8% from 1998 to 2008
. Compared to 9.5% for the semiconductor industry as a whole for the same period
according to IC Insights, a leading semiconductor industry publicationSemiconductor foundries are key partners to…> Fabless semiconductor companies, which have expanded geographic reach and worldwide sales
> Integrated device manufacturers, which have outsourced manufacturing requirements for complex
semiconductor devices to become more cost competitiveWell positionedSMI believes it is well positioned to benefit from
. Fabless semiconductor company growth and
. Integrated device manufacturer outsourcing
> The China domestic market for electronic information products in China
. Grew from US$20.2 billion in 1999 to US$77.1 billion in 2002
. According to China’s Ministry of Information Industry
> SMI believes its position as a leading foundry in China
. Allows it to meet Chinese semiconductor sourcing demand
. And to meet electronic products for export demand
. SMI’s Fab 1 facility in Shanghai was selected as one of the two “Top Fabs of 2003” by
Semiconductor International, a leading industry publication.
. Ranked second in a readers’ poll of top global foundries of 2003 conducted by Silicon Strategies,
another leading semiconductor industry publication.
. SMI believes it is the only semiconductor foundry to have reached capacity in excess of 40,000
8-inch wafers per month
. Had an aggregate capacity as of December 31, 2003 of 49,000 8-inch wafers per month for wafer
fabrication and 9,000 wafers per month for copper interconnects
. Operates an 8-inch wafer fabrication facilities in the Zhangjiang High-Tech Park in Shanghai,
China and, as a result of a recent (Motorola) acquisition, an 8-inch wafer fab in Tianjin, China.
. Currently constructing 12-inch wafer fabrication facilities in Beijing
. SMI believes it will be the first 12-inch fabrication facility in China.
Manufacturing & service focus
> Semiconductor fabrication services using 0.35 micron to 0.13 micron process technology for
. Logic technologies
(including standard logic, mixed-signal, radio frequency and high voltage circuits)
. Memory technologies
(including dynamic random access memory, static random access memory, flash, electronically
erasable programmable read-only memory and mask read-only memory)
. Specialty technologies
(including liquid crystal on silicon, complementary metal oxide silicon image sensor and
> In addition to wafer fabrication, SMI service offerings include libraries and circuit design blocks,
design support, mask-making and wafer probing.
> Also works with partners to provide assembly and testing services.
Customers and concentration
. Integrated device manufacturers (IDMs): Fujitsu Limited, Infineon Technologies AG, Samsung
Electronics., STMicroelectronics and Texas Instruments
. Fabless semiconductor companies: Broadcom, Elite Semiconductor Memory Technology, Marvell
(Note: customer list “is not intended to identify top customers, but rather to provide a representative
sampling of SMI’s customer base”)
. For the year ended December 31, 2003, SMI’s five largest customers accounted for 57^ of sales
. Sales are dependent upon a small number of customers
No backlog, high fixed costs, cyclical business
. Customers purchase orders are not placed very far in advance of shipping dates
. Because expenses have high fixed cost components — costs can’t be adjusted quickly to
compensate for shortfalls in sales
. The semiconductor manufacturing business is notoriously cyclical
Designed-in products result in long sales cycle
. Sales cycle can last a year or more
. Sales cycles to IDM (integrated device manufacturers) customers can take longer
Dedicated foundry service providers
. SMI’s competitors and potential competitors include TSMC, UMC and Chartered Semiconductor.
(TSMC = Taiwan Semiconductor Manufacturing Company, UMC = United Microelectronics Corp)
. TSMC, UMC and Chartered Semiconductor had market shares of 53%, 24% and 7%, respectively,
in the semiconductor foundry industry in 2003, according to IC Insights
. Both TSMC and UMC have announced plans to build and acquire fabs in mainland China in order
to compete for the growing domestic market in China.
Semiconductor companies — Integrated Device Manufacturers (IDMs)
. IDMs that have established their own foundry capabilities.
. Include Fujitsu Limited, Hynix, IBM, Samsung Electronics Co., Ltd. and Toshiba.
. IDMs are primarily dedicated to fabricating integrated circuits for the end products of their
Basis of competition
. Rather than competing solely on price, SMI intends to compete on process technology,
performance, quality and service
. In more advanced technologies, the competition tends to be greater
SMI is currently the subject of a lawsuit in the United States brought by TSMC in December 2003
. Relating to alleged infringement of five U.S. patents and
. Misappropriation of alleged technical and operational trade secrets relating to methods for
conducting semiconductor fab operations and manufacturing integrated circuits.
Exchange rate risk
> SMI financial statements are prepared in U.S. dollars
. SMI sales are denominated in U.S. dollars
. Operating expenses & capital expenditures are denominated in U.S. dollars, Japanese Yen, Euros
and Renminbi Yuan (conversion rate set by the People’s Bank of China)
> If the dollar falls against the other denominations, then costs increase in US$ terms
> If China were to devalue its currency relative to the US dollar
. Then sales expressed in US$ would decline and SMI products would become more expensive
(in terms of US$)
. The Chinese government remains under international pressure to allow the Renminbi rate to float
Very capital intensive, requires additional financing
SMI expects capital expenditures in 2004 and 2005 to total US$1,950 million and US$1,373 million
. For expansion of operations in Shanghai and Tianjin and
. To complete the construction, equipping and ramp-up of Fab 4, Fab 5 and Fab 6C in Beijing.
. Operating cash flows are insufficient to meet capital expenditure requirements.
Use of IPO proceeds
> $1 billion to SMI
. US$403.0 million of the net proceeds for constructing and ramping up Beijing fabs
. US$600 million of the net proceeds for upgrading the technology and increasing the capacity at
Shanghai and Tianjin fabs.
> $679 mm to selling 55 shareholders, including Motorola* (will own 7.8% post IPO, down from
11.4% pre IPO), Singapore government (less than 1% pre IPO), General Motors (less than 1%
pre IPO) and 52 others
*SMI acquired a fabrication plan from Motorola in January 2004