China's top contract chip maker, Semiconductor Manufacturing International Corp, posted a wider second quarter loss as it continued to switch production to logic chips from memory chips, but predicted a profit for the fourth quarter.

SMIC decided earlier this year to exit the commodity dynamic random access memory (DRAM) business, which has been pummeled by sharp price declines in the global computer memory chip market.

The company, which has been posting net losses for much of the past three years, is ramping up production of higher-end logic and flash memory chips, used in products such as digital cameras and portable music players.

To achieve breakeven in the fourth quarter, Shanghai-based SMIC would need to target revenue of slightly less than $400 million and gross profit margin of at least 15 percent in that period, management told analysts in a conference call.

Three analysts polled by Reuters Estimates had forecast, on average, a fourth-quarter loss of $3.5 million.

SMIC's forecast for a fourth-quarter profit was reasonable, said Rick Hsu, a Taiwan-based analyst with Nomura Securities Taipei.

"While this company has been missing its guidance for its turnaround for several quarters, even a Q4 turnaround is not really that important," he said. 

"What's more important is they have to deliver a consistency ... so whether Q1 next year turns profitable is also very important."

SMIC posted a loss of $45.6 million for the second quarter, compared with a loss of $2.05 million a year earlier.

The loss was 12 cents per American Depositary Share, compared with a loss of about 1 cent a year earlier.

The results were better than expected. Six analysts polled by Reuters Estimates had forecast, on average, a loss of $65.3 million.

SMIC's Hong Kong-listed shares were down 3.5 percent at 0354 GMT, compared to a 2.2 percent fall in the benchmark Hang Seng Index .HSI. The stock is down almost 50 percent year-to-date, versus a 20 percent fall in the Hang Seng.

The firm's U.S.-traded shares closed down 3.2 percent at $2.71 on the New York Stock Exchange.

CHIPPING AWAY

SMIC's second-quarter revenue declined 8.5 percent to $342.9 million. The company said it expects third-quarter revenue to come in 5 to 8 percent higher than the previous quarter.

It also forecast capital expenditure of $230 million to $280 million in the third quarter.

Chang said it would take three to four quarters to complete conversion of its production equipment to logic chips from memory chips.

"SMIC has been undergoing a tough time for the first two quarters, and we see -- starting third quarter and on -- the situation is getting better and better for us," Chang said.

The company said in late March it was in advanced talks with a strategic investor it did not identify. Since then its shares have been volatile on speculation about a deal.

Last week a leading mainland financial daily quoted an SMIC source as saying the Datang Telecom group might buy a 20 percent stake in SMIC for more than 2 billion yuan.

SMIC declined to comment on the report.

Source:Reuters