2020 Annual Report SMIC TIANJIN GLOBAL NETWORK JIANGYIN, TOKYO, JIANGSU JAPAN

2020 Annual Report SMIC TIANJIN GLOBAL NETWORK JIANGYIN, TOKYO, JIANGSU JAPAN BEIJING SAN MILAN, JOSE, CA ITALY USA SHANGHAI (Headquarters) HONG KONG, HSINCHU, CHINA TAIWAN, (Representative) CHINA SHENZHEN, GUANGDONG SMIC FAB SMIC MARKETING OFFICE SMIC REPRESENTATIVE OFFICE SMIC BUMPING FAB THE LARGEST ADVANCED FOUNDRY IN MAINLAND CHINA EMPOWERED TECHNOLOGY ENRICHED SERVICES ENHANCED COMPETITIVENESS CONTENTS 7 Section 1 Letter to Shareholders 11 Section 2 Definitions 12 Section 3 Corporate Profile and Principal Financial Indicators 18 Section 4 Business Profile 24 Section 5 Management Discussion and Analysis 38 Section 6 Report of the Directors 41 Section 7 Significant Events 79 Section 8 Changes in Shares and Information of Shareholders 86 Section 9 Directors, Senior Management and Employees 103 Section 10 Corporate Governance and Corporate Governance Report 116 Section 11 Social Responsibility 123 Section 12 Financial Report SMIC 2020 Annual Report 5 IMPORTANT NOTICE I. The Board of Directors and the Directors and senior management of the Company warrant that the content of this annual report is true, accurate and complete and does not contain any false representations, misleading statements or material omissions, and severally and jointly accept legal responsibility thereof. II. Material risk alert The Company has described in details the various risks it may face during its production and operation and the countermeasures in this report. For further information, please refer to “II. Risk Factors” in “Section 5 Management Discussion and Analysis” of this report. III. All Directors of the Company attended the Board meeting. IV. PricewaterhouseCoopers has issued a standard unqualified auditors’ report for the Company. V. Zhou Zixue, the person-in-charge of the Company, Gao Yonggang, the person-in-charge of accounting affairs, and Liu Chenjian, the head of the accounting department (person-in-charge of accounting), warrant the truthfulness, accuracy and completeness of the financial report contained in this annual report. VI. Plan for profit distribution or plan to convert capital reserves into share capital as approved by the Board in the reporting period The Company will not make profit distribution for 2020. The proposal still needs to be submitted to the 2021 annual general meeting for approval. VII. Any significant events such as special arrangements for corporate governance Special arrangements for corporate governance: The Company is a red-chip enterprise VIII. Risks associated with forward-looking statements This report contains, in addition to historical information, forward-looking statements. These forward-looking statements are based on SMIC’s current assumptions, expectations, beliefs, plans, objectives, and projections about future events or performance. SMIC uses words like “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project”, “target”, “going forward”, “continue”, “ought to”, “may”, “seek”, “should”, “plan”, “could”, “vision”, “goals”, “aim”, “aspire”, “objective”, “schedules”, “outlook” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessary estimates reflecting judgment of SMIC’s senior management and involve significant risks, both known and unknown, uncertainties and other factors that may cause SMIC’s actual performance, financial condition or results of operations to be materially different from those suggested by the forward-looking statements including, among others, risks associated with cyclicality and market conditions in the semiconductor industry, intense competition in the semiconductor industry, SMIC’s reliance on a small number of customers, timely wafer acceptance by SMIC’s customers, timely introduction of new technologies, SMIC’s ability to ramp new products into volume, supply and demand for semiconductor foundry services, industry overcapacity, shortages in equipment, components, raw materials and software, availability of manufacturing capacity, financial stability in end markets, orders or judgments from pending litigation, intensive intellectual property litigation in the semiconductor industry, general economic conditions and fluctuations in currency exchange rates. IX. Any appropriation of fund by the controlling shareholder and its related parties for non-operating purpose No X. Any provision of external guarantee in violation of the stipulated decision-making procedure No XI. More than half of the Directors cannot warrant the truthfulness, accuracy and completeness of the annual report disclosed by the Company No SMIC 2020 Annual Report LETTER TO SHAREHOLDERS 7 SECTION 1 LETTER TO SHAREHOLDERS In 2020, as the novel coronavirus pandemic spread globally, the “stay-at-home economy” strengthened demand for the Internet of Everything and brought rare market opportunities to the semiconductor industry. The year of 2020 is SMIC’s 20th year anniversary and marks the Company’s first year of being successfully listed on the STAR Market of the Shanghai Stock Exchange. After 20 years of independent technology development, market expansion, capacity construction and talent training, the Company has steadily driven the continuous development cycle of its old and new fabs, and is gradually expanding production capacity, improving operational efficiency, optimizing product portfolio, developing FinFET technology, and striving to enhance the competitiveness of the Company. The Company has accumulated a lot and should have restarted its rapid growth. However, in the second half of the year, the Company was impacted by U.S. Entity List and other restrictions, and was forced to adjust its customer structure and production capacity composition, which caused additional costs. Nevertheless, the Company has always been customer-oriented and strives to improve product quality and customer service. With unremitting efforts, in terms of Non FinFET process, SMIC worked on product platforms such as power management, ultra-low power, radio frequency, image sensors, fingerprint recognition, and specialty memory, especially on 0.15/0.18 micron, 55/65 nanometer, 40/45 nanometer, etcetera; these process nodes have all achieved industry leading standards; as for FinFET technology, the Company reached the target of 15,000 wafers installed FinFET capacity as planned. The first generation FinFET mass production has steadily progressed, and the second generation has entered into risk production. In 2020, a number of financial indicators for the Company set new records: annual revenue totaled US$3.907 billion, a year-on-year growth of 25.4%; gross profit was US$921 million, a year-on-year growth of 43.3%; net profit attributable to the Company was US$716 million, a year-on-year growth of 204.9%; earnings before interest, tax, depreciation and amortization was US$2.123 billion, a year-on-year growth of 54.6%. These results could not have been achieved without the tireless efforts of the staff, and the trust and understanding of customers, suppliers, shareholders, investors, and the public. Looking forward to 2021, opportunities and challenges coexist. On the one hand, the rise of new formats, new models and new applications, such as AI and Internet of things, drives demand for chips. At present, worldwide foundry capacity remains tight, customer demand is growing, but capacity expansion cannot keep up. On the other hand, the Company still faces the impact of uncertainties from the U.S. “Entity List”, the delivery time of equipment procurement will be longer than in the past, and the progress of capacity building may not be as expected. Although we cannot completely control the irresistible external factors, we can cultivate new opportunities amidst crisis, open new frontiers in the changing landscape, and explore a more suitable path for SMIC’s sustainable development. The key focus in 2021, while continue to persist to be in compliant with the relevant laws and regulations of all jurisdictions, is as follows: first, to continue to work closely and actively communicate with suppliers, customers and relevant government departments, to promote the application of export licenses, and do our best to ensure the continuity of operation. Second, to strive to expand production capacity as soon as possible to meet customer demand. The Company always adheres to the concept of “caring for people, caring for the environment and caring for society”, on the basis of employees, and employees perceiving the Company as home. During this period of pandemic, the Company launched a series of measures to protect the health and safety of employees, while employees also diligently kept their posts to ensure production and operation of the Company. In February 2020, the Company, together with its directors and employees, donated RMB10 million in cash and supplies to the frontline fighting the pandemic. In the second half of the year, the Company continued to carry out the “SMIC Liver Transplant Program for Children” charity project. Over the past eight years, the “SMIC Liver Transplant Program for Children” has collected a total of RMB28.93 million to help more than 500 unfortunate children. The Company will continue to fulfill its corporate social responsibility and promote the development of corporate culture. Finally, we would like to express our heartfelt gratitude to our employees for their efforts and dedication, as well as our customers, suppliers, shareholders, investors and the public for their concern

Load more