Understanding the Market | SMIC falls more than 3% as wafer price war continues, Morgan Stanley lowers company's full-year gross margin assumption

SMIC International is now down more than 3%, as of the time of publication, it has fallen by 3.23% to HKD 16.16, with a turnover of HKD 3.77 billion. Morgan Stanley released a report stating that although capacity utilization is recovering, the intense price war in the mature wafer market and significant capital expenditures will continue to suppress SMIC International's gross margin performance. SMIC guided that second-quarter revenue is expected to increase by 5% to 7% on a quarterly basis, better than the market's expectation of a 1% quarterly increase, but the gross margin guidance of 9% to 11% remains weak. The bank has lowered its full-year gross margin assumption to 12.5%, expecting a flat trend to continue until the second half of next year, mainly due to increased depreciation and pressure on wafer prices. The report points out that the outlook for non-AI orders remains limited, with customers maintaining cautious supply chain activities. The semiconductor industry is expected to recover in the second half of the year, but the trend of inventory replenishment and destocking will continue until there is a significant improvement in end-demand. The bank has lowered SMIC International's target price from HKD 16 to HKD 13.8, maintaining a "underweight" rating