SMIC to open two fabs in Shenzhen

SHANGHAI, CHINA: Semiconductor Manufacturing International Corp., one of the leading semiconductor foundries in the world, announced its consolidated results of operations for the three months ended December 31, 2007. Highlights:

- Revenue up by 5.8 percent over 2006 to $1,549.8 million despite unprecedented difficult condition in the DRAM market.

- Gross profit up by 20 percent to $152.7 million from 2006 due to solid growth in the non-DRAM business.

- Gross margin was 9.9 percent in 2007 compared to 8.7 percent in 2006.

- Net loss of $40.0 million in 2007 compared to a net loss of $44.1 million in 2006.

Q4-2007 Highlights:

- Revenue up by 3 percent over 4Q06 to $395.3 million and up by 1percent from $391.4 million in 3Q07.

- Gross margin was 8.9 percent in 4Q07 compared to 10.8 percent in 3Q07 primarily due to the continuous price decline in the DRAM market.

- Net loss of $21.2 million in 4Q07, compared to a net loss of $25.6 million in 3Q07, mainly from the DRAM business.

- Fully diluted EPS was ($0.0570) per ADS.

Over a conference call, Dr. Richard Chang, Chief Executive Officer of SMIC, spoke with analysts about the quarterly results. He said: "SMIC has continued to grow its revenue in the fourth quarter of 2007 on a year-on-year and a quarter-on-quarter basis," he said. "Operationally, our capacity at the end of the fourth quarter of 2007 has increased to 185,250 8-inch-equivalent wafers per month, with a high utilization rate of 94 percent. For 2007, our wafer shipments and sales increased by 14.6 percent and 5.8 percent, respectively, over 2006.

"As part of our plan to mitigate the continuing DRAM pricing erosion, we reduced our DRAM foundry services in the fourth quarter. We have successfully reduced our DRAM shipments by about 22 percent since 1Q07, excluding a single large shipment in 4Q07 to clear inventory of discontinued DRAM product lines. Confronted with a more difficult DRAM market in 4Q07 than in the previous quarter, we still managed to reduce our net loss in the fourth quarter. We expect DRAM revenue as a portion of total revenue to decrease to below 20 percent in the first quarter of 2008, with further reduction throughout the remainder of the year.

"SMIC experienced solid growth in its non-DRAM business. Revenue from non-DRAM business increased by 13.5 percent to $1,121 million in 2007, compared to $988 million in 2006. Gross profit from non-DRAM business saw a 104 percent year-on-year increase in 2007. As more of our logic customers migrated to more advanced technology process nodes, our logic sales from 0.13 micron and 90-nanometer technology nodes also significantly increased by 42 percent over 2006.

"As the overall semiconductor market continues to expand rapidly in China, SMIC has captured this significant growth trend, demonstrated by a 56 percent growth in our China sales in 2007. We are pleased to see continuous progress from our customers in China and remain committed to further growth and expansion within the China market.

Dr. Chang added: "In 2007, we saw strong foundry demand for handset ICs, power management ICs, WLAN, and consumer applications such as STB, DTV and MP3/MPEG4, indicative of demand in the industry at large. We also enjoyed the addition of 77 new customers worldwide in 2007, a large number of which are PRC-based, representing a 23.3 percent increase in our customer base.

"To complement our ongoing in-house research and development, and to strengthen our capabilities in serving customers, we are pleased to announce that we have entered into a licensing agreement with IBM, in which IBM will license its 45nm bulk CMOS technology to SMIC. This agreement will allow SMIC to accelerate its technology advancement in logic process technology and help provide optimal solutions for customers at the 12-inch facilities. With the roadmap extended to 45nm technologies, we observed the trend of more customers seeking our foundry services in the 90nm and 65nm technology nodes as well.

"Our capital expenditure in the fourth quarter increased to $260 million, due in part to investment in the 45nm technology project. We expect our CAPEX to be around $700 million in 2008 as we continue to invest in the development of advanced technology nodes and continue the planned conversion of DRAM capacity to logic in our Beijing fabrication facility.

New fabs in Shenzhen

Dr Chang continued: "In terms of operations, we are pleased to announce that SMIC plans to start a new IC production project in Shenzhen. In connection with this project, SMIC will register an independent legal entity, the Semiconductor Manufacturing International (Shenzhen) Corporation Ltd, which will set up an IC technology research and development center, an 8-inch wafer production line and a 12-inch fab. The 12-inch fab will introduce advanced process technology licensed from IBM pursuant to the licensing agreement. With the support of the Shenzhen municipal government in financing, incentive policies and ways of operations, we expect this project to break ground in the first half of 2008.

"We believe that as we continue to execute our business plans and reach technological milestones, we are laying a solid foundation for long-term growth and development and serving the interests of our shareholders."

The financial statement amounts in this report are determined in accordance with US GAAP.