Analysis Of Investment In 6 Inch Wafer Fabrication Plant By China Resources Microelectronics ("CRM")

To attain the mission of "Letting China Resources IC into every Chinese household", CRM strives to be become China's largest and most competitive supplier and developer of consumer electronics IC's and discrete devices. Facing the existing opportunities and challenges in the Chinese semiconductor industry, it is absolutely necessary for CRM to invest in a 6 inch wafer fabrication plant. The investment will enable CRM to satisfy the rapidly growing demand of the Chinese consumer IC market; maintain its leadership position; upgrade its technical expertise and products; create new products and new markets; develop its own unique process technology and unique product series; and sharpen its competitiveness to realize its strategic goal. From the perspectives of size, operating cash flow, process technology level, new product development readiness for specific target market and availability of professional technical team, CRM is well equipped to invest in the 6 inch wafer fabrication plant. At the same time, the rapidly growing demand from consumer electronics manufacturers and the stratified IC product market has provided opportunity to invest in 6 inch wafer fabrication plant. In addition, the cyclical consolidation of the international semiconductor industry has made available golden opportunity to acquire low cost used fabrication line. Thus investment in 6 inch wafer fabrication plant is absolutely feasible. Financial analysis indicates that cost control is the key to the success of the 6 inch wafer fabrication project. However the level of cost is closely correlated to the ramping up schedule of the production line. It is estimated that the utilisation rate of the production line will reach 70% by year 3 with sales exceeding RMB 300 million. Full utilisation can be reached at year 4 where sales can exceed RMB 400 million with profit of RMB 50 million. The financial return to shareholders will be rewarding. Factors affecting the operating profitability will be sales and production volume, selling price and unit cost.