FINANCIAL HIGHLIGHTS

Revenue was US$3,115.7 million in 2019, compared to US$3,360.0 million in 2018. Excluding the contribution from the Avezzano 200mm fab in 2019 and 2018 and the recognition of technology licensing revenue in 2018, the revenue increased by 1.4% to US$3,014.0 million in 2019 from US$2,973.1 million in 2018.
Gross profit was US$642.5 million in 2019, compared to US$746.7 million in 2018. Gross margin was 20.6% in 2019, compared to 22.2% in 2018. Excluding the contribution from the Avezzano 200mm fab in 2019 and 2018 and the recognition of technology licensing revenue in 2018, gross margin increased to 21.5% in 2019 from 19.1% in 2018.
Net cash generated from operating activities was a record of US$1,019.1 million in 2019, compared to US$799.4 million in 2018, representing an increase of 27.5%.
Revenue from China-region customers grew to 59.5% of total revenue in 2019, compared to 57.0% of total revenue excluding technology licensing in 2018.
The net debt to equity ratio remained low at –6.0% as of December 31, 2019.

LETTER TO SHAREHOLDERS

DEAR SHAREHOLDERS,

In 2019, the global economic environment faced many uncertainties, bringing challenges to the industry and the Company’s operations. However, the Company has ridden the wave of industry changes and, through improvement and innovation, has sharpened its competitive edge, moved out of the transition period and returned to a stage of growth.

In 2019, the Company recorded total revenue of approximately US$3.116 billion, gross profit margin of 20.6%, net profit attributable to SMIC of US$235 million and a historical high EBITDA (earnings before interest, tax, depreciation and amortization) of US$1.37 billion. Contribution from Mainland China and Hong Kong, United States of America and Eurasia represented 59.5%, 26.4% and 14.1% of revenue respectively.

With regard to mature processes, customer demand remains strong. We continued to expand our product portfolio and mature specialty process technology applications, focusing our efforts on image sensors, power management, specialty memory, fingerprint sensors, Bluetooth and other product technology platforms to maintain our leading position in these sub-sectors. Mass production for our first generation of 14nm FinFET technology has commenced, contributing approximately 1% of wafer revenue for the fourth quarter of 2019, and is expected to steadily ramp up in 2020. Customer engagement for the second generation of FinFET continues. We have solidified our foundation and diversified our customer base in order to capture the business opportunities brought by such applications as 5G, Internet of Things and automotive electronics.

With a view to meeting customer and market demands, we shall commence a new round of capital expenditures and gradually expand production capacity in 2020. By the end of 2019, our cash-on-hand and financial assets (excluding restricted cash) was approximately US$4.6 billion, and net debt to equity ratio was approximately –6%. In February 2020, the Company successfully completed the issue of 5-year corporate bonds and raised approximately US$600 million in the global capital markets, reflecting the high recognition of global capital market to the Company’s credit structure, financial strategy and industry development.

2019 was the seventh year in which we have sponsored the “SMIC Liver Transplant Program for Children.” The Company announced in June 2019 that it had donated RMB2.32 million to China Soong Ching Ling Foundation for the program. In addition, our 62 industry business partners also donated RMB1.38 million to this program. The 7-year cumulative donation to the program is RMB24.80 million; through which, 420 afflicted and impoverished children from across the country have successfully received treatment and are able to enjoy their new lives. In early 2020, the novel coronavirus pandemic spread, the management of the Company was fully aware and carefully mapped out a plan to seriously prevent the spread of the disease on one hand and promote the production on the other, which enabled the Company to achieve stable operation during the pandemic. In February 2020, the employees and Directors of the Company together donated a total of RMB10 million for fighting against the new coronavirus pandemic, which reflected the Company’s mission of “caring for people, environment and society”.

In the coming years, the global macro environment is expected to be complex and the prospect of the semiconductor industry will still be full of challenges. However, the emergence of 5G and artificial intelligence will substantially stimulate market demand and new business opportunities for semiconductor industry growth. The accelerated development of these emerging applications will further boost semiconductor market demand. SMIC is currently in an unprecedented period of abundant opportunities. Over the past two years, through strenuous corporate reform, we have built up stronger and more competent R&D, operations, supporting teams, and management, while successfully developing and preparing a variety of technology platforms. We also have strengthened mutual trust and cooperation with domestic and oversea customers and suppliers. The foundation laid by these vigorous efforts has further strengthened our confidence in the future.

We would like to again express our sincere gratitude to our shareholders, customers, suppliers, and employees for their continued care and support of SMIC.

Zhou Zixue

Chairman of the Board and Executive Director

Zhao Haijun, Liang Mong Song

Co-Chief Executive Officers and Executive Directors

Shanghai, China March 31, 2020