Understandably perhaps the company attempted to paint as good a picture of the underlying business as possible, noting that sales were improving and the second half looks good.

A couple of things though were worrying! SMIC highlighted that it had gained around 20 new customers in the quarter with over half of these being Chinese fabless companies. SMIC has a mandate to engage and support the local fledgling fabless community but the vast majority of these companies are too small to make any significant revenues for SMIC. Indeed, it is doubtful that any of these companies would be engaged by the likes of TSMC or UMC as they would not be turning enough wafers per month to justify doing business with them.

Another small point is the claimed increase in CAPEX. This has only been raised by $100 million US dollars and only on the back of a $600 million loan from a variety of Chinese State owned banks. SMIC has had to pace itself in a way it didn't think it would have too, only 12 months ago.

The most worrying comment came from the update on the ramp of its 300mm fab. Both Infineon and Elpida are planning to use the facility for DRAM production, however the comment in SMIC's press release stated, " on the technology front, our first customer products at 90nm are currently under qualification and remain on-schedule."

If SMIC is referring to Elpida's 90nm DRAM stack process then this is far from the truth. Elpida announced this week that the expected production ramp of wafers at SMIC's 300mm fab have been delayed due to the fact that poor yields have meant that the fab is yet to be qualified by Elpida. They have taken SMIC's wafer output out of their figures for the time being while SMIC sorts out the problems. Of course "remain on-schedule" could mean that qualification remains on schedule as a new revised schedule has been agreed. As for the old schedule, that's long gone as far as Elpida is concerned.

SMIC has certainly hit a bit of brick wall during this latest slump. With delays in tool installing its first 300mm fab, then continuing problems in getting the fab qualified for two major customers is dragging the foundry down. 300mm tool depreciation costs are fierce, significantly higher than 200mm tools. With Elpida happy to sit on the sidelines for now, SMIC is currently out of sync with its business model of filling fabs fast and generating must needed cash as quickly as possible. It would not be surprising to see the foundry struggle through the rest of the year to start turning a profit.