Semiconductor Manufacturing International Corporation (SMIC) experienced a significant sales decline in 4Q 08. Lower fab utilization also impacted the company’s earnings, leading to loss at the gross level. While sales in 4Q 08 were in line with our estimate, losses were higher across the board. Although we expect the company’s focus on the Chinese semiconductor market in FY 2009 to provide relative protection against the greater global decline, we do not see an immediate recovery in overall sales as major semiconductor markets continue to experience weakness. Subsequently, we maintain our current SELL rating for the ADR. We will reassess the ADR target price and rating for SMIC in the coming weeks. We maintain our SELL rating for the Hong Kong stock based on our fundamental outlook. The Hong Kong dollar is pegged to the US dollar; therefore, we do not anticipate any currency impact. We will reassess the Hong Kong stock (50 Hong Kong shares = 1 ADR) target price rating for SMIC in the coming weeks.

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