$SMIC(00981.HK)First take: The company's revenue meets expectations, and the gross margin exceeds market expectations. From the perspective of volume and price structure, the company's revenue this quarter saw a double-digit growth quarter-on-quarter, mainly due to the increase in average price. The shipment volume increased by +0.5% quarter-on-quarter, while the average product price rose by 13.6% quarter-on-quarter. Driven by the structural increase in 12-inch product shipments, the company's overall gross margin significantly rebounded this quarter.

From the company's downstream shipment structure, the mobile phone business saw a slight decline quarter-on-quarter, while consumer electronics was the largest incremental segment for the company this quarter. Combined with Qualcomm's disclosure of its IoT business, some products in the consumer electronics category are currently in the stage of inventory replenishment in the supply chain. The localization of chips continues to advance, with the company's revenue share in the China region further increasing to 86% this quarter.

As for the company's operating expenses, they remain relatively stable. R&D and sales-related expenses slightly decreased this quarter but are within a relatively reasonable range. The company's depreciation and amortization this quarter remain at a relatively high level, most of which are included in the company's cost items. Affected by the increased export restrictions from Western countries, the company's capital expenditure fell to $1.179 billion this quarter.

Looking at the company's guidance for the next quarter, SMIC expects a quarter-on-quarter revenue growth of 0-2% for the fourth quarter of 2024, corresponding to $2.17-2.21 billion, slightly better than the market consensus expectation ($2.13 billion); gross margin is expected to be 18-20%, in line with market expectations (18.97%). Dolphin believes that overall it is quite standard, as the fourth quarter is usually not the company's peak shipping season, with slight revenue growth and gross margin under pressure from depreciation and amortization and other cost factors, still maintaining around the 20% level. Further information can be obtained through the company's conference call to continue monitoring the sustainability of the recovery in China's consumer electronics and smartphone sectors, government support for domestic AI chips, and the company's development in advanced nodes.