UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of October, 2008

Commission File Number: 001-31994

Semiconductor Manufacturing International Corporation

(Translation of registrant’s name into English)

18 Zhangjiang Road
Pudong New Area, Shanghai 201203
People’s Republic of China

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

þ Form 20-F       o Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

o Yes       þ No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):   n/a  

 

 

Table of Contents

1. Chairman’s Statement	3
2. Chief Executive Officer’s Statement	4
3. Corporate Information	5
4. Management’s Discussion and Analysis of Financial Condition and Results of Operations	6
5. Corporate Governance Report	14
6. Other Information	19
7. Condensed Consolidated Statement of Operations	39
8. Condensed Consolidated Balance Sheet	40
9. Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss)	41
10. Condensed Consolidated Statement of Cash Flows	42
11. Notes to the Condensed Consolidated Financial Statements	43

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This interim report may contain, in addition to historical information, “forward-looking statements” within the meaning of the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on SMIC’s current assumptions, expectations and projections about future events. SMIC uses words like “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are necessarily estimates reflecting the best judgment of SMIC’s senior management and involve significant risks, both known and unknown, uncertainties and other factors that may cause SMIC’s actual performance, financial condition or results of operations to be materially different from those suggested by the forward-looking statements including, among others, risks associated with cyclicality and market conditions in the semiconductor industry, risks of litigation, intense competition, timely wafer acceptance by SMIC’s customers, timely introduction of new technologies, SMIC’s ability to ramp new products into volume, supply and demand for semiconductor foundry services, industry overcapacity, shortages in equipment, components and raw materials, availability of manufacturing capacity and financial stability in end markets.

Except as required by law, SMIC undertakes no obligation and does not intend to update any forward-looking statement, whether as a result of new information, future events or otherwise.

ADDITIONAL INFORMATION

References in this interim report to:

•

“Company” or “SMIC” are to Semiconductor Manufacturing International Corporation;

•

“China” or the “PRC” are to the People’s Republic of China, excluding for the purpose of this interim report, Hong Kong, Macau and Taiwan;

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“EUR” are to Euros;

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“HK$” are to Hong Kong dollars;

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“Rmb” are to Renminbi, the legal currency of China;

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“US$” or “USD” are to U.S. dollars;

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“SEHK” or “Hong Kong Stock Exchange” are to The Stock Exchange of Hong Kong Limited

•

“SEC” are to the U.S. Securities and Exchange Commission;

•

“NYSE” or “New York Stock Exchange” are to the New York Stock Exchange, Inc.;

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“2008 AGM” are to the Company’s Annual General Meeting held on June 2, 2008; and

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“global offering” are to the initial public offering of our ADSs and our ordinary shares, which offering was completed on March 18, 2004.

All references in this interim report to silicon wafer quantities are to 8-inch wafer equivalents, unless otherwise specified. Conversion of quantities of 12-inch wafers to 8-inch wafer equivalents is achieved by multiplying the number of 12-inch wafers by 2.25. When we refer to the capacity of wafer fabrication facilities, we are referring to the installed capacity based on specifications established by the manufacturers of the equipment used in those facilities. References to key process technology nodes, such as 0.35 micron, 0.25 micron, 0.18 micron, 0.15 micron, 0.13 micron, 90 nanometer, and 65 nanometer include the stated resolution of the process technology, as well as intermediate resolutions down to but not including the next key process technology node of finer resolution. For example, when we state “0.25 micron process technology,” that also includes 0.22 micron, 0.21 micron, 0.20 micron and 0.19 micron technologies. “0.18 micron process technology” also includes 0.17 micron and 0.16 micron technologies; “0.15 micron process technology” includes 0.14 micron technology; and “0.13 micron process technology” includes 0.11 micron and 0.10 micron technologies. References to “U.S. GAAP” mean the generally accepted accounting principles in the United States. Unless otherwise indicated, our financial information presented in this interim report has been prepared in accordance with U.S. GAAP.

Chairman’s Statement

Dear Shareholders,

The Chinese semiconductor industry has been experiencing rapid growth in the past several years and has now become one of the fastest growing markets in the world. Within such a dynamic and exciting market, SMIC, the third largest foundry in the world, is well positioned to capture this growth by leveraging its proven technology and building upon its local and international customer base.

We are pleased with the progress of our various strategic initiatives in the first half of 2008. Our effort in converting our DRAM into logic capacity is going full speed and will better position us to deliver for our customers. Next, the addition of our Shenzhen fab will enable us to grow our strategic partnerships and expand our customer base within China. Our operations in Beijing, Shanghai, Tianjin, Chengdu, Wuhan and Shenzhen will enable us to better service our customers, improve operational efficiency, and further capture the growth opportunities in China. Finally, we are continuing our advanced technology research and development as this will be key to our future success in meeting our customers’ demand. Our collaboration with IBM on the 45nm development is on track, and we have commenced the 65nm internal library development. We are confident with our overall strategic direction in light of these recent advances.

High-level transparency, accountability, and adherence to international standards of corporate governance continue to be important pillars for SMIC as a world-class foundry. As a publicly listed company on both the New York Stock Exchange and The Stock Exchange of Hong Kong Limited, we have complied with various requirements including the Sarbanes-Oxley Act of 2002. We continually strive to achieve the “best-practice” in corporate governance and in corporate disclosure in order to enhance our shareholder value on a sustainable basis.

By leveraging our firm business values with our solid business strategy, we are well positioned for continued growth and development and the further strengthening of our position in Mainland China.

Sincerely,

Yang Yuan Wang
Chairman of the Board

Shanghai, PRC
September 19, 2008

Chief Executive Officer’s Statement

Dear Shareholders,

For the first six months of 2008 our total revenue declined to US$705.3 million as compared to US$763.1 million for the first six months of 2007 as we exited the commodity DRAM business. However, in the first six months of 2008 we shipped 40% more logic wafers compared to the first six months of 2007, and our second quarter losses were significantly narrowed to $45.6 million from a $224.8 million loss in the first quarter which included an impairment loss of $105.8M.

The first six months’ losses were primarily due to the fact that we exited the commodity DRAM business and are in transitioning from DRAM production to logic production in our Beijing facility.

The process of converting DRAM capacity into logic has been successful. A number of new logic tape-outs with high yield are now in customer qualification and a few have entered into production. The ramp-up of our logic capacity remains critical to our strategy, as it will better position us to match the market demand for our services.

In the second quarter, we witnessed rather strong customer demand, despite the severe macroeconomic situation in the U.S. The demand for our 8-inch fab logic service was very strong for the second quarter, particularly in communications and consumer market segments. On a regional basis, revenue from North America remains solid, while revenue from the Asia Pacific region, including Mainland China and Taiwan, has seen the highest growth.

We are continuing our efforts in developing advanced technology nodes to meet the needs of our customers. We have commenced our internal 65nm library and bit cell development, and our 45nm collaboration with IBM is proceeding on schedule. I am also pleased to report the signing of a strategic agreement with Spansion on the 43nm Flash technology.

We are pleased to see strong progress being made by our Chinese customers. We continue to serve a few customers with our 90nm technology process, and have also engaged customers at the 65nm technology node. One customer announced that their new RFID product, which was manufactured in our factory, received EPC Global official certification this month. This is the first Chinese-made RFID product to receive this international certification. Another customer started mass production of their 3G CMMB mobile TV chipset in the second quarter in our fab. The demand appears to be strong and should continue throughout to the rest of the year. Moving forward, we will continue to strengthen our local advantage in China by furthering our collaboration with local fabless design houses.

We are also pleased with our profitable solar business and approved expansion plan. We aim to expand our solar capacity five to six times our current production output in the first half of 2009.

As we continue to execute on our growth plans, we believe we will continue to create value for our customers worldwide and further enhance shareholder value in the coming years.

May God bless you and SMIC,

Richard R. Chang
Chief Executive Officer

Shanghai, PRC
September 19, 2008

Corporate Information

Registered name		Semiconductor Manufacturing International Corporation
Chinese name
Registered office		PO Box 309
		Ugland House
		George Town, KY1-1104
		Cayman Islands
Head office and		18 Zhangjiang Road
place of business		Pudong New Area
in PRC		Shanghai 201203
		PRC
Place of business in		Suite 3003, 30th Floor
Hong Kong registered		No. 9 Queen’s Road
under Part XI of the		Central
Companies Ordinance		Hong Kong
Website address		http://www.smics.com
Company secretary		Anne Wai Yui Chen
Authorized		Richard R. Chang
representatives		Anne Wai Yui Chen
Places of listing		Hong Kong Stock Exchange
		New York Stock Exchange
Name of share		Semiconductor Manufacturing International Corporation
Stock code		0981 (SEHK)
		SMI (NYSE)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Board of Directors (the “Board”) of Semiconductor Manufacturing International Corporation (the “Company”) would like to announce the unaudited interim results of operations of the Company and its subsidiaries for the six months ended June 30, 2008, and would like to express their gratitude to the shareholders and their staff for the support of the Company.

Sales

Sales decreased by 7.6% from US$763.1 million for the six months ended June 30, 2007 to US$705.3 million for the six months ended June 30, 2008, primarily as a result of the company’s exit from the DRAM commodity business and transition to increased capacity for logic production. The number of wafers the Company shipped decreased by 4.2%, from 894,038 8-inch wafer equivalents to 856,373 8-inch wafer equivalents, between these two periods. The simplified average selling price of total revenue during this period decreased by 3.5% from US$854 per wafer to US$824 per wafer.

Nevertheless, the Company’s non-DRAM business continues to grow strongly. Non-DRAM revenue increased by 24.8% from US$520.3 million for the six months ended June 30, 2007 to US$649.3 million for the six months ended June 30, 2008, primarily from logic revenue associated with 0.35, 0.18 and 0.13 micron process technologies.

Cost of sales and gross profit (loss)

Cost of sales increased by 4.3% from US$687.6 million for the six months ended June 30, 2007 to US$717 million for the six months ended June 30, 2008. This increase was primarily due to a US$28.7 million additional loss provision taken against the remaining DRAM inventories.

The Company had a gross loss of US$11.7 million for the six months ended June 30, 2008 compared to a gross profit of US$75.4 million for the six months ended June 30, 2007. Gross margins decreased to -2% for the six months ended June 30, 2008 from 9.9% for the six months ended June 30, 2007. The decrease in gross margin was primarily due to losses from the exit of the commodity DRAM business and a resulting higher unit cost due to reduced loading in the Beijing Fab.

Operating income, expenses and loss from operations

Operating expenses increased by 30.3% from US$97.3 million for the six months ended June 30, 2007 to US$126.8 million for the six months ended June 30, 2008 (excluding the income from the disposal of properties and the $105.8 million impairment loss) primarily due to an increase in R&D expenses.

Research and development expenses increased by 60.1% from US$44.9 million for the six months ended June 30, 2007 to US$71.9 million for the six months ended June 30, 2008 primarily due to start up costs associated with the new 12-inch project in Shanghai.

Selling and marketing expenses increased by 13.7% from US$8.1 million for the six months ended June 30, 2007 to US$9.2 million for the six months ended June 30, 2008, primarily due to an increase in personnel related expenses associated with sales activities.

General and administrative expenses remained relatively flat at US$31.9 million for the six months ended June 30, 2008, a slight 0.3% increase from US$31.8 million for the six months ended June 30, 2007.

An asset impairment loss of $105.8 million was recorded in Q1 2008 relating to the Beijing facility as a result of the decision to exit the commodity DRAM business.

Income from the disposal of properties decreased from US$28.5 million for the six months ended June 30, 2007 to US$1.6 million for the six months ended June 30, 2008.

The Company’s operating loss was US$242.6 million for the six months ended June 30, 2008 compared to operating gain of US$6.6 million for the six months ended June 30, 2007.

The Company’s operating margin was (34.4)% for the six months ended June 30, 2008 and 0.9% for the six months ended June 30, 2007.

Other income (expenses)

Other expenses increased by 44.0% from US$6.1 million for the six months ended June 30, 2007 to US$8.8 million for the six months ended June 30, 2008. This increase was primarily attributable to the increase in interest expense from US$11.7 million for the six months ended June 30, 2007 to US$32.5 million for the six months ended June 30, 2008. The increase in interest expense was primarily due to a decrease in government subsidy. However, interest income increased by 40.6%, from US$5.6 million for the six months ended June 30, 2007 to US$7.8 million for the six months ended June 30, 2008. Also, foreign exchange increased to a gain of US$12.8 million for the six months ended June 30, 2008 from a loss of US$1.1 million for the six months ended June 30, 2007.

The Company’s net foreign exchange gain and loss, including operating, financing, and investing activities, was a gain of US$16.5 million for the six months ended June 30, 2008 compared to a gain of US$2.5 million for the six months ended June 30, 2007.

Net income (loss)

Due to the factors described above, the Company had a net loss of US$270.5 million for the six months ended June 30, 2008 compared to a net gain of US$6.7 million for the six months ended June 30, 2007.

Liquidity and Capital Resources

The Company incurred capital expenditures of US$460.9 million for the six months ended June 30, 2007 and US$367 million for the six months ended June 30, 2008. The Company has financed substantial capital expenditure requirements through the proceeds received from the cash flows from operations and bank borrowings.

As of June 30, 2008, the Company had US$480.3 million in cash and cash equivalents. These cash and cash equivalents are held in the form of United States Dollars, Japanese Yen, European Euro, and Chinese Renminbi. The net cash provided by operating activities decreased by 15.1% from US$333.7 million for the six months ended June 30, 2007 to US$283.4 million for the six months ended June 30, 2008.

The Company’s net cash used in investing activities was US$473.8 million for the six months ended June 30, 2008, primarily attributable to purchases of plant and equipment for the Mega Fab in Shanghai, Mega Fab in Beijing, Fab 7 and Fab 8 as well as costs associated with the construction of Fab 8. Net cash used in investing activities was US$324.1 million for the six months ended June 30, 2007, primarily attributable to purchases of plant and equipment for the Mega Fab in Shanghai, Mega Fab in Beijing, Fab 7, and Fab 8 as well as costs associated with the construction of Fab 8.

The Company’s net cash used in financing activities was US$201.5 million for the six months ended June 30, 2008. This was primarily derived from US$280.5 million in proceeds from short-term borrowings, US$250.7 million in proceeds from long-term debt, US$15.0 million in the repayment of promissory notes, US$144.5 million in the repayment of short-term borrowings, and US$170.8 million in the repayment of long-term debt.

The Company’s net cash used in financing activities was US$0.7 million for the six months ended June 30, 2007. This was primarily due to repayment of US$70 million in short-term borrowings, repayment of US$25.3 million in long-term debt borrowings, repayment of US$15.0 million in promissory notes, and proceeds of US$107 million from short-term borrowings.

As of June 30, 2008, the Company’s outstanding long-term liabilities primarily consisted of US$1,036.9 million in secured bank loans, of which US$341.6 million is classified as the current portion of long-term loans. The long-term loans are repayable in installments commencing in December 2006 with the last payments due in August 2012.

Long-term debt. In June 2006, Semiconductor Manufacturing International (Shanghai) Corporation (“SMIC Shanghai”) entered into a new USD denominated long-term facility arrangement for US$600.0 million with a consortium of international and PRC banks. Of this principal amount, US$392.6 million was used to repay the principal amount outstanding under SMIC Shanghai’s bank facilities from December 2001 and January 2004. The remaining principal amount will be used to finance future expansion and general corporate requirement for SMIC Shanghai. The Company has guaranteed SMIC Shanghai’s obligations under this facility. As of June 30, 2008, SMIC Shanghai had fully drawn down US$600.0 million on this loan facility. The Company has repaid US$270.0 million and the remaining balance of US$330.0 million was outstanding as of June 30, 2008. The interest rate on this loan facility ranged from 3.7% to 5.8% for the six months ended June 30, 2008. The interest expense incurred for the six months ended June 30, 2008 and 2007 was US$9.2 million and US$8.8 million, respectively, of which interest expense of 2007 was fully offset by the government subsidy granted in the period and US$2.7 million was capitalized as additions to assets under construction for the six months ended June 30, 2008.

The key financial covenants contained in the loan agreement entered into in June 2006 include the following:

Any of the following in respect of SMIC Shanghai would constitute an event of default during the term of the loan agreement (unless otherwise waived by the lenders to such agreement):

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Consolidated tangible net worth of less than US$1.2 billion;

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The percentage of consolidated total borrowings to consolidated tangible net worth of more than 60% for periods up to and including December 31, 2008 and exceeds 45% thereafter;

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The ratio of consolidated total borrowings to EBITDA for the prior four quarters exceeds 1.50x; or

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The debt service coverage ratio is less than 1.50x, where the debt service coverage ratio is the ratio of EBITDA for the previous four quarters divided by scheduled principal repayments and interest expense for all bank borrowings (including hire purchases, leases and other borrowed monies) for the same period.

Any of the following in respect of the Company would constitute an event of default during the term of the loan agreement (unless otherwise waived by the lenders to such agreement):

•

Consolidated tangible net worth of less than US$2.3 billion;

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The percentage of consolidated net borrowings to consolidated tangible net worth of more than 50% for periods up to and including June 30, 2009 and exceeds 40% thereafter; or

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The ratio of consolidated net borrowings to EBITDA for the prior four quarters exceeds 1.50x for periods up to and including June 30, 2009 and exceeds 1.3x thereafter.

As of June 30, 2008, SMIC Shanghai had met these covenants such that no event of default had been triggered.

In May 2005, Semiconductor Manufacturing International (Beijing) Corporation (“SMIC Beijing”) entered into a five year USD denominated loan facility in the aggregate principal amount of US$600.0 million, with a syndicate of financial institutions based in the PRC. This five-year bank loan will be used to expand the capacity of SMIC Beijing’s fabs. The drawdown period of this facility was twelve months from the sign off date of the agreement. As of June 30, 2008, SMIC Beijing had fully drawn-down US$600.0 million on this loan facility. The interest rate on this loan facility ranged from 4.8% to 6.4% for the six months ended June 30, 2008. The principal amount is repayable starting in December 2007 in six semi-annual installments. As of June 30, 2008, SMIC Beijing had repaid US$200.0 million and the remaining balance of US$400.0 million was outstanding as of June 30, 2008. The interest expense incurred for the six months ended June 30, 2008 was US$15.9 million, of which US$1.2 million was capitalized as additions to assets under construction. The interest expense incurred for the six months ended June 30, 2007 in the amount of US$21.0 million was partially offset by the government subsidy granted in the period and US$0.1 million was capitalized as additions to assets under construction for the six months ended June 30, 2007.

Any of the following would constitute an event of default for SMIC Beijing during the term of the facility (unless otherwise waived by the lenders to such agreement):

•

[Net profit + depreciation + amortization + financial expenses — (increase of accounts receivable and advanced payments + increase of inventory — increase in accounts payable and advanced receipts)]/ financial expenses < 1; and

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(Total liability — borrowings from shareholders, including principal and interest)/Total assets > 60% (when SMIC Beijing’s capacity is less than 20,000 12-inch wafers per month); and (Total liability —borrowings from shareholders, including principal and interest)/Total assets > 50% (when SMIC Beijing’s capacity exceeds 20,000 12-inch wafers per month).

As of June 30, 2008, SMIC Beijing had met these covenants.

On December 15, 2005, the Company entered into a EUR denominated long-term loan facility agreement in the aggregate principal amount of EUR 85 million (equivalent to approximately US$105 million) with a syndicate of banks and ABN Amro Bank N.V. and Commerz Bank (Nederland) N.V. as the leading bank. The drawdown period of the facility ends on the earlier of (i) twenty six months after the execution of the agreement or (ii) the date which the loans have been fully drawn down. Each draw down made under the facility shall be repaid in full by us in ten equal semi-annual installments.

As of June 30, 2008, Semiconductor Manufacturing International (Tianjin) Corporation (“SMIC Tianjin”) had drawn down EUR 15.1 million and repaid an aggregated amount of EUR 7.5 million. As of June 30, 2008, the remaining balance is EUR 7.6 million, with the U.S. dollar equivalent of US$12.0 million. The interest rate on this loan facility ranged from 4.7% to 5.9% for the six months ended June 30, 2008. The interest expense incurred for the six months ended June 30, 2008 and 2007 were US$0.4 and US$0.3 million of which US$0.05 million and US$0.1 million was capitalized additions to assets under construction for the six months ended June 30, 2008 and 2007, respectively.

As of June 30, 2008, SMIC Shanghai had drawdown EUR 28.4 million and repaid an aggregated amount of EUR 5.7 million. As of June 30, 2008, the remaining balance is EUR 22.7 million, with the US dollar equivalent of US$35.9 million. The interest rate on this loan facility ranged from 4.6% to 4.9% for the six months ended June 30, 2008. The interest expense for the six months ended June 30, 2008 was US$0.9 million of which US$0.3 million was capitalized as additions to assets under construction for the six months ended June 30, 2008.

In May 2006, SMIC Tianjin entered into a loan facility in the aggregate principal amount of US$300.0 million with a consortium of international and Chinese banks. This facility is secured by the manufacturing equipment located in our Tianjin fab, except for the manufacturing equipment purchased using the EUR denominated loan, and our land use rights and plant in proportion to the principal amount outstanding under this facility and the EUR denominated loan. The Company has guaranteed SMIC Tianjin’s obligations under this facility. As of June 30, 2008, SMIC Tianjin had drawn down US$259.0 million on this loan facility. The principal amount is repayable starting from 2010 in six semi-annual installments. The interest rate on the loan ranged from 4.1% to 6.0% for the six months ended June 30, 2008. The interest expense incurred for the six months ended June 30, 2008 was US$2.4 million, of which US$0.56 million was capitalized as additions to assets under construction for the six months ended June 30, 2008.

Any of the following in respect of SMIC Tianjin would constitute an event of default during the term of the facility (unless otherwise waived by the lenders to such agreement):

•

[Net profit + depreciation + amortization + financial expenses — (increase of accounts receivable and advanced payments + increase of inventory — increase in accounts payable and advanced receipts)] / financial expenses < 1; and

•

The ratio of total debt to total assets is more than 60% during the ramp up period of SMIC Tianjin and more than 40% after the facility is at full capacity.

As of June 30, 2008, SMIC Tianjin had met these covenants.

Short-term borrowings. As of June 30, 2008, the Company had short-term credit agreements that provided total credit facilities up to approximately US$446 million on a revolving credit basis. As of June 30, 2008, the Company had drawn down approximately US$243 million under these credit agreements and approximately US$203 million is available for future borrowings. The outstanding borrowings under the credit agreements are unsecured, except for the amount of US$87 million, which is secured by term deposits. The interest expense incurred for the six months ended June 30, 2008 and 2007 were US$3.0 million and US$1.9 million, respectively. The interest rate on the loans ranged from 3.3% to 7.3% for the six months ended June 30, 2008.

Capitalized Interest

Interest cost incurred on funds used to construct plant and equipment during the active construction period is capitalized, net of government subsidies received. The interest capitalized is determined by applying the borrowing interest rate to the average amount of accumulated capital expenditures for the assets under construction during the period. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful life of the assets. Capitalized interest of US$4.7 million and US$0.6 million have been added to the cost of the underlying assets during the six months ended June 30, 2008 and June 30, 2007, respectively, and is amortized over the respective useful life of the assets. For the six months ended June 30, 2008 and June 30, 2007, the Company recorded amortization expenses relating to the capitalized interest of US$3.4 million and US$2.6 million, respectively.

Commitments

As of June 30, 2008, the Company had commitments of US$75.6 million for construction obligations for the Beijing, Tianjin, Shanghai, Energy Technology and Chengdu facilities, and US$369.4 million to purchase machinery and equipment for the Beijing, Tianjin, Shanghai, Energy Technology, Cayman and Chengdu facilities.

Debt to Equity Ratio

As of June 30, 2008, the Company’s debt to equity ratio was 46% calculated by dividing the sum of the short-term borrowings, current portion of long-term debt and long-term debt by total shareholders’ equity.

Contingent Liabilities

As of June 30, 2008, the Company did not have any material contingent liabilities.

Foreign Exchange Rate Fluctuation Risk

The Company’s revenues, expenses, and capital expenditure are primarily transacted in United States Dollars. However, since the Company has operations consisting of manufacturing, sales activities and capital purchasing outside of the U.S., the Company enters into transactions in other currencies and is primarily exposed to changes in exchange rates for the EURO, Japanese Yen, and Chinese Renminbi.

To minimize these risks, the Company purchases foreign-currency forward exchange contracts with contract terms normally lasting less than twelve months to protect against the adverse effect that exchange rate fluctuations may have on foreign currency denominated activities. These forward exchange contracts are principally denominated in Chinese Renminbi, Japanese Yen or EURO and do not qualify for hedge accounting in accordance with SFAS No. 133. As of June 30, 2008, the Company had outstanding foreign currency forward exchange contracts with a notional amount of US$68.3 million all of which matured in June 2009. Notional amounts are stated in U.S. dollar equivalent spot market exchange rates, as of the respective dates.

As of June 30, 2008, the fair value of foreign currency forward exchange contracts was a loss of approximately US$2.3 million, which is recorded in accrued expenses and other current liabilities. The Company does not enter into foreign currency exchange contracts for speculative purposes.

Interest Rate Risk

The Company’s exposure to interest rate risks relates primarily to the Company’s long-term debt obligations, which the Company generally assumes to fund capital expenditures and working capital requirements. The Company’s long-term debt obligations are all subject to variable interest rates. The interest rates on the Company’s U.S. dollar-denominated loans are linked to the LIBOR. The interest on the Company’s EURO denominated loans are linked to the EURIBOR. As a result, the interest on the Company’s loans are subject to fluctuations in the underlying interest rates to which they are linked.

Cross Currency Swap Fluctuation Risk

On December 15, 2005, the Company entered into a long-term loan facility agreement in the aggregate principal amount of EUR85 million. The company is primarily exposed to changes in exchange rate for the EURO.

To minimize the risk, the company entered into a cross currency swap contract with contract terms fully matching the repayment schedule of the long-term loan to protect against the adverse effect of exchange rate fluctuations arising from the foreign-currency denominated loan. The cross currency swap contract does not qualify for hedge accounting in accordance with SFAS No. 133.

Litigation

On August 25, 2006, TSMC filed a lawsuit against the Company and certain subsidiaries (SMIC (Shanghai), SMIC (Beijing) and SMIC (Americas)) in the Superior Court of the State of California, County of Alameda for alleged breach of the Settlement Agreement, alleged breach of promissory notes and alleged trade secret misappropriation by the Company. TSMC seeks, among other things, damages, injunctive relief, attorneys’ fees, and the acceleration of the remaining payments outstanding under the Settlement Agreement.

In the present litigation, TSMC alleges that the Company has incorporated TSMC trade secrets in the manufacture of the Company’s 0.13 micron or smaller process products. TSMC further alleges that as a result of this claimed breach, TSMC’s patent license is terminated and the covenant not to sue is no longer in effect with respect to the Company’s larger process products.

The Company has vigorously denied all allegations of misappropriation. The Court has made no finding that TSMC’s claims are valid, nor has it set a trial date.

On September 13, 2006, the Company announced that in addition to filing a response strongly denying the allegations of TSMC in the United States lawsuit, it filed on September 12, 2006, a cross-complaint against TSMC seeking, among other things, damages for TSMC’s breach of contract and breach of implied covenant of good faith and fair dealing.

On November 16, 2006, the High Court in Beijing, the People’s Republic of China, accepted the filing of a complaint by the Company and its wholly-owned subsidiaries, SMIC (Shanghai) and SMIC (Beijing), regarding the unfair competition arising from the breach of bona fide (i.e. integrity, good faith) principle and commercial defamation by TSMC (“PRC Complaint”). In the PRC Complaint, the Company is seeking, among other things, an injunction to stop TSMC’s infringing acts, public apology from TSMC to the Company and compensation from TSMC to the Company, including profits gained by TSMC from their infringing acts.

TSMC filed with the California court in January 2007 a motion seeking to enjoin the PRC action. In February 2007, TSMC filed with the Beijing High Court a jurisdictional objection, challenging the competency of the Beijing High Court’s jurisdiction over the PRC action.

In March 2007, the California Court denied TSMC’s motion to enjoin the PRC action. TSMC appealed this ruling to California Court of Appeal. On March 26, 2008, the Court of Appeal, in a written opinion, denied TSMC’s appeal.

In July 2007, the Beijing High Court denied TSMC’s jurisdictional objection and issued a court order holding that the Beijing High Court shall have proper jurisdiction to try the PRC action. TSMC appealed this order to the Supreme Court of the People’s Republic of China. On January 7, 2008, the Supreme Court heard TSMC’s appeal. On June 13, 2008, the Supreme Court denied TSMC’s appeal and affirmed the jurisdiction of the Beijing High Court.

On August 14, 2007, the Company filed an amended cross-complaint against TSMC seeking, among other things, damages for TSMC’s breach of contract and breach of patent license agreement. TSMC thereafter denied the allegations of the Company’s amended cross-complaint and subsequently filed additional claims that the Company breached the Settlement Agreement by filing an action in the Beijing High Court. The Company has denied these additional claims by TSMC.

On August 15-17, 2007, the California Court held a preliminary injunction hearing on TSMC’s motion to enjoin use of certain process recipes in certain of the Company’s 0.13 micron logic process flows. On September 7, 2007, the Court denied TSMC’s preliminary injunction motion, thereby leaving unaffected the Company’s development and sales. However, the court required the Company to provide 10 days’ advance notice to TSMC if the Company plans to disclose logic technology to non-SMIC entities under certain circumstances, to allow TSMC to object to the planned disclosure.

On March 11, 2008, TSMC filed an application for a right to attach order in the California Court. By its application, TSMC sought an order securing an amount equal to the remaining balance on the promissory notes issued by the Company in connection with the Settlement Agreement. The Company opposed the application. A hearing was held on April 3, 2008. On June 24, 2008, the Court denied TSMC’s application.

In May 2008, TSMC filed a motion in the California Court for summary adjudication against the Company on several of the Company’s cross claims. The Company opposed the motion and on July 25, 2008, the Court granted in part and denied in part TSMC’s motion.

On June 23, 2008, the Company filed with California court a cross-complaint against TSMC seeking, among other things, damages for TSMC’s unlawful misappropriation of trade secrets from SMIC to improve its competitive position against SMIC.

On July 10, 2008, the California Court held and granted part of a preliminary injunction hearing on TSMC’s motion to enjoin disclosure of information on certain process recipes in the Company’s 0.30 micron logic process flows to third parties.

Under the provisions of SFAS 144, the Company is required to make a determination as to whether or not this pending litigation represents an event that requires a further analysis of whether the patent license portfolio has been impaired. We believe that the lawsuit is at a preliminary stage and we are still evaluating whether or not the litigation represents such an event. The Company expects further information to become available to us which will aid us in making a determination. The outcome of any impairment analysis performed under SFAS 144 might result in a material impact to our financial position and results of operations. Because the case is in its preliminary stages, the Company is unable to evaluate the likelihood of an unfavorable outcome or to estimate the amount or range of potential loss.

Employees

Save as disclosed in this interim report, there is no material change to the information disclosed in the 2007 annual report of the Company in relation to the number and remuneration of employees, remuneration policies, bonus and share option schemes of employees.

Prospects and Future Plan

In the second half of 2008, the Company will continue its strategic execution on several fronts. First and foremost, the Company aims to continue the conversion efforts of DRAM to Logic production in the Beijing facility. By leveraging existing Logic expertise, the conversion will further expand the Company’s service scale and create better positioning to meet customer demands. In addition, the Company will continue its efforts in developing advanced technology capabilities to meet customer needs. Enhancing resources to better service the current and future customer base still remains a top priority.

Corporate Governance Report

The Company is committed to remaining an exemplary corporate citizen and maintaining a high level of corporate governance in order to protect the interests of its shareholders.

CORPORATE GOVERNANCE PRACTICES

The SEHK’s Code on Corporate Governance Practices (the “CG Code”) as set out in Appendix 14 of the Rules Governing the Listing of Securities on the SEHK (“Listing Rules”), which contains code provisions to which an issuer such as the Company, is expected to comply or advise as to reasons for deviations (the “Code Provisions”) and recommended best practices with which an issuer is encouraged to comply (the “Recommended Practices”). At the meeting of the Board on January 25, 2005, the Board approved the Corporate Governance Policy (the “CG Policy”) (which was amended by the Board on July 26, 2005) with effect from such date. The updated CG Policy, a copy of which can be obtained on the Company’s website at www.smics.com under “Corporate Governance”, incorporates all of the code provisions of the CG Code and many of the Recommended Practices.

In addition, the Company has adopted or put in place various policies, procedures, and practices in compliance with the provision of the CG Policy. None of the Directors are aware of any information which would reasonably indicate that the Company is not, or was not, during the financial period from January 1, 2008 to June 30, 2008, in compliance with the CG Policy.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF LISTED ISSUERS

The Company has adopted an Insider Trading Compliance Program (the “Insider Trading Policy”), which encompasses the requirements of the Model Code as set out in Appendix 10 of the Listing Rules. The Company, having made specific enquiry of all directors, confirms that all members of the Board have complied with the Insider Trading Policy and the Model Code throughout the six months ended June 30, 2008. The senior management as well as all officers, directors, and employees of the Company and its subsidiaries are also required to comply with the provisions of the Insider Trading Policy.

The Board

The Board has a duty to the Company’s shareholders to direct and oversee the affairs of the Company in order to maximize shareholder value. The Board acting itself and through the various committees of the Board, actively participates in the determination of the overall strategy of the Company, the establishment and monitoring of the achievements of corporate goals and objectives, the oversight of the Company’s financial performance, the establishment of corporate governance practices and policies, and the review of the Company’s system of internal controls. The management of the Company is responsible for the implementation of the overall strategy of the Company and its daily operations and administration. The Board has access to the senior management of the Company to discuss enquiries on management information.

The Board consists of eight directors as at the date of the interim report. Directors may be elected to hold office until the expiration of their respective terms upon a resolution passed at a duly convened shareholders’ meeting by holders of a majority of the Company’s outstanding shares being entitled to vote in person or by proxy at such meeting. The Board is divided into three classes with no more than one class eligible for re-election at any annual general meeting of shareholders.

Each class of director will serve terms of three years. The Class I directors were elected for a term of three years at the Company’s 2008 Annual General Meeting (“2008 AGM”) of the shareholders of the Company (except Dr. Albert Y. C. Yu who retired at the 2008 AGM). The Class II directors were elected at the 2006 Annual General Meeting of the shareholders of the Company for a term of three years. The Class III directors were elected at the 2007 Annual General Meeting of the shareholders of the Company for a term of three years.

For the six months ended June 30, 2008, the Board at all times exceeded the minimum requirements of the Listing Rules relating to the appointment of at least three independent non-executive directors on the board, and complied with the requirement that these should include one such director with appropriate professional qualifications or accounting or related financial management expertise. The roles of the chairman and chief executive officer are segregated and such roles are exercised by Prof. Yang Yuan Wang and Dr. Richard Ru Gin Chang respectively.

At the 2008 AGM, Richard Ru Gin Chang and Henry Shaw were re-elected as Class I executive director and independent non-executive director of the Company respectively and Albert Y. C. Yu retired as a Class I independent non-executive director and did not offer himself for re-election.

Wang Zheng Gang was re-elected at the 2008 Annual General Meeting of the shareholders of the Company as a Class III non-executive director of the Company.

The following table sets forth the names, classes and categories of the directors as at the date of this report:

Name of Director		Category of Director		Class of Director
Yang Yuan Wang		Chairman, Independent Non-executive Director		Class III
Richard Ru Gin Chang		President, Chief Executive Officer, Executive Director		Class I
Henry Shaw		Independent Non-executive Director		Class I
Ta-Lin Hsu		Independent Non-executive Director		Class II
Jiang Shang Zhou		Independent Non-executive Director		Class II
Lip-Bu Tan		Independent Non-executive Director		Class II
Tsuyoshi Kawanishi		Independent Non-executive Director		Class III
Wang Zheng Gang		Non-executive Director		Class III

On an annual basis, each independent non-executive director confirms his independence to the Company, and the Company considers these directors to be independent as such term is defined in the Listing Rules. There are no relationships among members of the Board, including between the Chairman of the Board and the Chief Executive Officer.

The Board meets in person at least on a quarterly basis and on such other occasions as may be required to discuss and vote upon significant issues affecting the Company. The regular Board meeting schedule for a year is planned in the preceding year. The Company Secretary assists the Chairman in preparing the agenda for meetings and the Board in complying with relevant rules and regulations. The relevant papers for the Board meetings are dispatched to the Board members in accordance with the CG code. Directors may include matters for discussion in the agenda if the need arises. Upon the conclusion of the Board meeting, minutes are circulated to all directors for their comment and review prior to their approval of the minutes at the following or a subsequent Board meeting. Transactions in which directors are considered to have a conflict of interest or material interests are not passed by written resolutions and the interested directors are not counted in the quorum and abstain from voting on the relevant matters.

All directors have access to the Company Secretary who is responsible for assisting the Board in complying with applicable procedures regarding compliance matters. Every Board member is entitled to have access to documents provided at the Board meeting or filed into the Company’s minute-book. Furthermore, the Board has established the procedures pursuant to which a director, upon reasonable request, may seek independent professional advice at the Company’s expense in order for such director to exercise such director’s duties. The Company Secretary continuously updates all directors on the latest development of the Listing Rules and other applicable regulatory requirements to assist the Company’s compliance with and maintenance of good corporate governance practices. Each new director is provided with training with respect to such director’s responsibilities under the Listing Rules and other regulatory requirements and the Company’s corporate governance policies and practices.

BOARD COMMITTEES

The Board has established the following committees to assist it in exercising its obligations. These committees consist of only independent non-executive directors who have been invited to serve as members. The committees are governed by their respective charters setting out clear terms of reference.

Audit Committee

As of June 30, 2008, the members of the Audit Committee were Henry Shaw (co-chairman of Audit Committee), Lip-Bu Tan (co-chairman of Audit Committee) and Yang Yuan Wang. None of these members of the Audit Committee have been an executive officer or employee of the Company or any of its subsidiaries. In addition to acting as Audit Committee member of the Company, Mr. Lip-Bu Tan, one of the members of the Audit Committee, currently also serves on the audit committee of three other publicly traded companies, namely SINA Corporation, Flextronics International Ltd. and Integrated Silicon Solution, Inc. In general and in accordance with section 303A.07(a) of the Listed Company Manual of the New York Stock Exchange, the Board considered and determined that such simultaneous service would not impair the ability of Mr. Tan to effectively serve on the Company’s Audit Committee.

The responsibilities of the Audit Committee include, among other things:

•

making recommendations to the Board concerning the appointment, reappointment, retention, evaluation, oversight and termination of the work of the Company’s independent auditor, including reviewing the experience, qualifications and performance of the senior members of the independent auditor team and pre-approving all non-audit services to be provided by the Company’s independent auditor;

•

approving the remuneration and terms of engagement of the Company’s independent auditor;

•

reviewing reports from the Company’s independent auditor regarding its internal quality-control procedures and any material issues raised in the most recent review or investigation of such procedures and regarding all relationships between the Company and the independent auditor;

•

pre-approving the hiring of any employee or former employee of the Company’s independent auditor who was a member of the audit team during the preceding two years;

•

reviewing the Company’s annual and interim financial statements, earnings releases, critical accounting policies and practices used to prepare financial statements, alternative treatments of financial information, the effectiveness of the Company’s disclosure controls and procedures and important trends and developments in financial reporting practices and requirements;

•

reviewing the planning and staffing of internal audits, the organization, responsibilities, plans, results, budget and staffing of the Company’s Internal Audit Department (as defined and discussed below) and the quality and effectiveness of the Company’s internal controls;

•

reviewing the Company’s risk assessment and management policies;

•

reviewing any legal matters that may have a material impact and the adequacy and effectiveness of the Company’s legal and regulatory compliance procedures;

•

establishing procedures for the treatment of complaints received by the Company regarding accounting, internal accounting controls, auditing matters, potential violations of law and questionable accounting or auditing matters; and

•

obtaining and reviewing reports from management, the Company’s internal auditor and the Company’s independent auditor regarding compliance with applicable legal and regulatory requirements.

The Audit Committee reports its work, findings and recommendations to the Board during each quarterly meeting.

The Audit Committee meets in person at least on a quarterly basis and on such other occasions as may be required to discuss and vote upon significant issues affecting the audit policy of the Company. The regular meeting schedule for a year is planned in the preceding year. The Company Secretary assists the co-chairmen of the Audit Committee in preparing the agenda for meetings and assists the Audit Committee in complying with the relevant rules and regulations. The relevant papers for the Audit Committee meetings are dispatched to the Audit Committee members in accordance with the CG Code. Members of the Audit Committee may include matters for discussion in the agenda if the need arises. Upon the conclusion of the Audit Committee meeting, minutes are circulated to the members of the Audit Committee for their comment and review prior to their approval of the minutes at the following or a subsequent Audit Committee meeting.

At each quarterly Audit Committee meeting, the Audit Committee reviews with the Acting Chief Financial Officer and the Company’s outside auditors, the financial statements for the financial period and the financial accounting principles, policies and controls of the Company and its subsidiaries. In particular, the Committee discusses (i) the changes in accounting policies and practices, if any; (ii) the going concern assumptions, (iii) compliance with accounting standards and applicable rules and other legal requirements in relation to financial reporting and (iv) the internal controls of the Company relating to financial reporting. Upon the recommendation of the Audit Committee, the Board will approve the financial statements.

Compensation Committee

As of June 30, 2008, the members of the Company’s Compensation Committee were Ta-Lin Hsu (chairman of Compensation Committee), Tsuyoshi Kawanishi and Lip-Bu Tan. None of these members of the Compensation Committee has been an executive officer or employee of the Company or any of its subsidiaries.

The responsibilities of the Compensation Committee include, among other things:

•

approving and overseeing the total compensation package for the Company’s executive officers/senior management (namely, the same category of persons referred to, and required to be disclosed, in the Company’s annual report), evaluating the performance of and determining and approving the compensation to be paid to the Company’s Chief Executive Officer and reviewing the results of the Chief Executive Officer’s evaluation of the performance of the Company’s other executive officers;

•

reviewing and making recommendations to the Board with respect to Director compensation, including equity-based compensation;

•

administering and periodically reviewing and making recommendations to the Board regarding the long-term incentive compensation or equity plans made available to the Directors, employees and consultants;

•

reviewing and making recommendations to the Board regarding executive compensation philosophy, strategy and principles and reviewing new and existing employment, consulting, retirement and severance agreements proposed for the Company’s executive officers; and

•

ensuring appropriate oversight of the Company’s human resources policies and reviewing strategies established to fulfill the Company’s ethical, legal and human resources responsibilities.

The Compensation Committee reports its work, findings and recommendations to the Board during each quarterly Board meeting.

The Compensation Committee meets in person at least on a quarterly basis and on such other occasions as may be required to discuss and vote upon significant issues affecting the compensation policy of the Company. The regular meeting schedule for a year is planned in the preceding year. The Company Secretary assists the chairman of the Compensation Committee in preparing the agenda for meetings and assists the Compensation Committee in complying with relevant rules and regulations. The relevant papers for the Compensation Committee meeting are dispatched to Compensation Committee members in accordance with the CG Code. Members of the Compensation Committee may include matters for discussion in the agenda if the need arises. Upon the conclusion of the Compensation Committee meeting, minutes are circulated to the members of the Compensation Committee for their comment and review prior to their approval of the minutes at the following or a subsequent Compensation Committee meeting.

Internal Audit Department

The internal audit department works with and supports the Company’s management team and the Audit Committee in monitoring the Company’s compliance with its internal governance policies. On a regular basis, the internal audit department audits the practices, procedures, expenditure and internal controls of the various departments in the Company. After completing an audit, the internal audit department furnishes the Company’s management team and the Audit Committee with analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed. The internal audit department can also conduct reviews and investigations on an ad hoc basis.

Code of Business Conduct and Ethics

The Board has adopted a code of business conduct and ethics (the “Code of Conduct”) which provides guidance about doing business with integrity and professionalism. The Code of Conduct addresses issues including, among others, fraud, conflicts of interest, corporate opportunities, protection of intellectual property, transactions in the Company’s securities, use of the Company’s assets, and relationships with customers and third parties. Any violation of the Code of Conduct is reported to the Compliance Office, which will subsequently report such violation to the Audit Committee.

U.S. Corporate Governance Practices

Companies listed on the NYSE must comply with certain corporate governance standards under Section 303A of the New York Stock Exchange Listed Company Manual. However, foreign private issuers such as the Company are permitted to follow home country practices in lieu of the provisions of Section 303A, except that such companies are required to comply with certain rules relating to the audit committee. Please refer to the following website at http://www.smics.com/website/enVersion/IR/corporateGovernance.htm for a summary of the significant differences between the Company’s corporate governance practices and those required of U.S. companies under NYSE listing standards.

Other Information

1.

Dividends

The Board of the Company proposed not to declare an interim dividend for the period of the six months ended June 30, 2008.

2.

Share Capital

During the six months ended June 30, 2008, the Company issued 17,316,642 Ordinary Shares to certain of the Company’s eligible participants including employees, directors, officers and service providers of the Company (“eligible participants”) pursuant to the Company’s 2004 stock option plan (the “Stock Option Plan”) and 16,683,981 ordinary shares to certain of the eligible participants pursuant to the Company’s 2004 equity incentive plan.

		Number of Shares
		Outstanding
Outstanding Share Capital as of June 30, 2008			18,592,920,335

Under the terms of the Company’s 2004 Equity Incentive Plan, the Compensation Committee may grant restricted share units (“Restricted Share Units”) to eligible participants. Each Restricted Share Unit represents the right to receive one Ordinary Share. Restricted Share Units granted to new employees generally vest at a rate of 10% upon the second anniversary of the vesting commencement date, an additional 20% on the third anniversary of the vesting commencement date, and an additional 70% upon the fourth anniversary of the vesting commencement date. Restricted Share Units granted to existing employees generally vest at a rate of 25% upon the first, second, third, and fourth anniversaries of the vesting commencement date. Upon vesting of the Restricted Share Units and subject to the terms of the Insider Trading Policy and the payment by the participants of applicable taxes, the Company will issue the relevant participants the number of Ordinary Shares underlying the awards of Restricted Share Units.

For the twelve months ended December 31, 2004, the Compensation Committee granted a total of 118,190,824 Restricted Share Units pursuant to which the Company issued an aggregate of 18,536,451 ordinary shares to its eligible participants on or around July 1, 2005. For the twelve months ended December 31, 2005, the Compensation Committee granted a total of 122,418,740 Restricted Share Units pursuant to which the Company issued an aggregate of 27,591,342 ordinary shares to its eligible participants on or around January 1, 2006 and July 1, 2006. For the twelve months ended December 31, 2006, the Compensation Committee granted a total of 16,058,864 Restricted Share Units pursuant to which the Company issued an aggregate of 3,407,216 ordinary shares to its eligible participants on or around January 1, February 27, March 1, March 3, March 23, May 30, July 1, September 1, September 16, October 1 and October 16, 2007.

For the twelve months ended December 31, 2007, the Compensation Committee granted a total of 40,519,720 Restricted Share Units and for the six months ended June 30, 2008, the Compensation Committee granted a total of 39,827,100 Restricted Share Units. The remaining vesting dates of these Restricted Share Units (after deducting the number of Restricted Share Units granted but cancelled due to the departure of eligible participants prior to vesting) approximately are as follows:

		Approximate Restricted Share Units
		(the actual number may change
Vesting Dates		due to the departure of employees prior to vesting)
2008
1-Jan			14,777,833
19-Jan			12,500
1-Feb			250,000
1-Mar			200,000
1-Mar			45,790
3-Mar			250,000
23-Mar			175,000
1-Apr			16,667
19-Apr			17,760
25-Apr			150,000
29-Apr			400,000
1-May			100,000
15-May			83,333
25-May			100,000
1-Jun			178,423
16-Jun			166,667
21-Jun			100,000
1-Jul			17,657,012
1-Aug			590,000
1-Sep			10,990,851
1-Sep			693,900
1-Sep			57,271
13-Sep			375,000
16-Sep			75,000
16-Sep			50,000
1-Oct			727,500
1-Oct			96,563
16-Oct			72,216
16-Oct			150,000
1-Nov			250,000
1-Dec			101,930
1-Dec			75,000
6-Dec			100,000
12-Dec			75,000

		Approximate Restricted Share Units
		(the actual number may change
Vesting Dates		due to the departure of employees prior to vesting)
2009
1-Jan			23,930,096
19-Jan			12,500
1-Feb			250,000
1-Mar			200,000
1-Mar			45,790
3-Mar			250,000
23-Mar			175,000
1-Apr			16,667
19-Apr			17,760
1-May			100,000
15-May			83,333
25-May			100,000
1-Jun			178,423
16-Jun			166,667
21-Jun			100,000
1-Jul			1,058,397
1-Aug			590,000
1-Sep			10,990,851
1-Sep			693,900
1-Sep			57,271
10-Sep			9,450
13-Sep			375,000
16-Sep			75,000
16-Sep			50,000
1-Oct			727,500
1-Oct			96,563
16-Oct			72,216
16-Oct			150,000
1-Nov			250,000
1-Dec			101,930
1-Dec			75,000
6-Dec			100,000
12-Dec			75,000

		Approximate Restricted Share Units
		(the actual number may change
Vesting Dates		due to the departure of employees prior to vesting)
2010
1-Jan			23,930,096
10-Jan			8,750
19-Jan			12,500
1-Feb			250,000
1-Mar			200,000
1-Mar			45,790
3-Mar			250,000
23-Mar			175,000
1-Apr			16,667
19-Apr			17,760
1-May			100,000
15-May			83,333
25-May			100,000
1-Jun			178,423
16-Jun			166,667
21-Jun			100,000
1-Jul			733,125
1-Sep			693,900
1-Sep			57,271
10-Sep			9,450
16-Sep			75,000
16-Sep			50,000
1-Oct			727,500
1-Oct			96,563
16-Oct			72,216
16-Oct			150,000
1-Nov			250,000
1-Dec			101,930
1-Dec			75,000
6-Dec			100,000
12-Dec			75,000

		Approximate Restricted Share Units
		(the actual number may change
Vesting Dates		due to the departure of employees prior to vesting)
2011
1-Jan			10,092,846
10-Jan			8,750
19-Jan			12,500
1-Feb			250,000
1-Mar			45,790
1-Apr			16,667
19-Apr			17,760
1-May			100,000
13-May			12,500
15-May			83,333
25-May			100,000
1-Jun			178,423
16-Jun			166,667
21-Jun			100,000
1-Jul			628,125
1-Sep			57,271
10-Sep			9,450
16-Sep			50,000
1-Oct			96,563
16-Oct			150,000
1-Nov			250,000
1-Dec			75,000
12-Dec			75,000
2012
1-Jan			9,314,763
10-Jan			8,750
13-May			12,500
1-Jul			9,375
10-Sep			9,450
2013
10-Jan			8,750

3.

Substantial Shareholders’ Interest

Set out below are the names of the parties (not being a director or chief executive of the Company) which were interested in five percent or more of the nominal value of the share capital of the Company and the respective relevant numbers of shares in which they were interested as of June 30, 2008 as recorded in the register kept by the Company under section 336 of the Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong) (“SFO”).

Name of Shareholder		Number of Shares Held				Percentage Held
Shanghai Industrial
Investment (Holdings)		36,310,000 (long position)(1)				0.20% (long position)
Company Limited (“SIIC”)		1,814,991,340 (long position)(2)				9.76% (long position)
Total:		1,851,301,340 (long position)				9.96% (long position)

Notes:

4.

Shareholding Interests Of The Directors Of The Company

As of June 30, 2008, the interests or short positions of the directors in the Ordinary Shares, underlying shares and debentures of the Company (within the meaning of Part XV of the SFO, as recorded in the register required to be kept under section 352 of the SFO or as otherwise notified to the Company and SEHK pursuant to the Model Code) were as follows:

								Percentage of
								Aggregate Interests
				Number of				to Total Issued
Board Member		Nature of Interest		Shares				Share Capital
Richard Ru Gin Chang		Personal Interest (1)			35,579,550
		Personal Interest (2)(6)			17,600,000
		Corporate Interest (3)			20,000,000
		Interest of Spouse			9,790,000
		Interest of Child under 18			11,200,000
Total					94,169,550				*
Ta-Lin Hsu		Corporate Interest (4)			15,300,010
		Personal Interest (5)(6)			1,000,000
Total					16,300,010				*
Tsuyoshi Kawanishi		Personal Interest (5)(6)			1,000,000
		Personal Interest (7)			1,500,000
Total					2,500,000				*
Henry Shaw		Personal Interest (5)(6)			1,000,000				*
Lip-Bu Tan		Personal Interest (5)(6)			1,000,000				*
Yang Yuan Wang		Personal Interest (5)(6)			1,000,000				*
Albert Y. C. Yu		Personal Interest			1,350,000				*
		Personal Interest (6)(8)			1,000,000				*
Total					2,350,000				*

Notes:

2001 Stock Option Plans

																																										Weighted Average				Weighted Average
																																										Closing Price of				Closing Price of
																										Options Lapsed Due																Shares immediately				Shares immediately
																										to Repurchase of																before Dates				before Dates
Name/Eligible						Period during which				No. of Options				Exercise Price				Options Outstanding				Options Lapsed				Ordinary Shares				Options Exercised				Options Cancelled				Options Outstanding				on which Options				on which Options
Employees		Date Granted				Rights Exercisable				Granted				Per Share				as of 12/31/07				During Period				During Period*				During Period				During Period				as of 06/30/08				were Exercised				were Granted
														(USD)																												(USD)				(USD)
Employees			28/3/2001				3/28/2001 - 3/27/2011				89,385,000			$	0.01				4,756,500				—				—				40,000				—				4,716,500			$	0.09			$	0.03
Employees			2/4/2001				4/02/2001 - 4/01/2011				2,216,000			$	0.01				281,000				—				—				—				—				281,000			$	—			$	0.03
Employees			16/4/2001				4/16/2001 - 4/15/2011				575,000			$	0.01				35,000				—				—				—				—				35,000			$	—			$	0.03
Employees			28/4/2001				4/28/2001 - 4/27/2011				60,000			$	0.01				42,000				—				—				—				—				42,000			$	—			$	0.03
Employees			14/5/2001				5/14/2001 - 5/13/2011				1,597,000			$	0.01				25,000				—				—				—				—				25,000			$	—			$	0.03
Employees			15/5/2001				5/15/2001 - 5/14/2011				95,000			$	0.01				35,000				—				—				—				—				35,000			$	—			$	0.03
Employees			1/6/2001				6/01/2001 - 5/31/2011				80,000			$	0.01				40,000				—				—				—				—				40,000			$	—			$	0.03
Employees			1/7/2001				7/1/2001 - 6/30/2011				745,000			$	0.01				49,000				—				—				—				—				49,000			$	—			$	0.03
Employees			15/7/2001				7/15/2001 - 7/14/2011				1,045,000			$	0.01				314,000				—				—				—				—				314,000			$	—			$	0.03
Employees			16/7/2001				7/16/2001 - 7/15/2011				2,220,000			$	0.01				88,000				—				—				—				—				88,000			$	—			$	0.03
Employees			27/7/2001				7/27/2001 - 7/26/2011				50,000			$	0.01				50,000				—				—				—				—				50,000			$	—			$	0.03
Employees			30/7/2001				7/30/2001 - 7/29/2011				140,000			$	0.01				100,000				—				—				—				—				100,000			$	—			$	0.03
Employees			1/8/2001				8/01/2001 - 7/31/2011				195,000			$	0.01				54,000				—				—				—				—				54,000			$	—			$	0.03
Employees			7/8/2001				8/07/2001 - 8/06/2011				20,000			$	0.01				20,000				—				—				—				—				20,000			$	—			$	0.03
Employees			15/8/2001				8/15/2001 - 8/14/2011				100,000			$	0.01				100,000				—				—				—				—				100,000			$	—			$	0.03
Employees			20/8/2001				8/20/2001 - 8/19/2011				20,000			$	0.01				20,000				—				—				—				—				20,000			$	—			$	0.03
Employees			24/9/2001				9/24/2001 - 9/23/2011				98,708,500			$	0.01				18,536,700				50,000				—				1,167,000				—				17,319,700			$	0.08			$	0.03
Employees			28/9/2001				9/28/2001 - 9/27/2011				50,000			$	0.01				50,000				—				—				—				—				50,000			$	—			$	0.03
Employees			24/1/2002				1/24/2002 - 1/23/2012				47,653,000			$	0.01				11,836,500				10,000				—				840,000				—				10,986,500			$	0.06			$	0.03
Employees			24/1/2002				1/24/2002 - 1/23/2012				7,684,500			$	0.02				1,156,800				22,500				—				25,000				—				1,109,300			$	0.06			$	0.03
Employees			10/4/2002				4/10/2002 - 4/09/2012				1,315,000			$	0.01				10,000				—				—				—				—				10,000			$	—			$	0.05
Employees			10/4/2002				4/10/2002 - 4/09/2012				47,349,000			$	0.02				11,915,900				340,000				—				505,000				—				11,070,900			$	0.08			$	0.05
Employees			11/4/2002				4/11/2002 - 4/10/2012				4,100,000			$	0.01				2,100,000				—				—				—				—				2,100,000			$	—			$	0.05
Employees			28/6/2002				6/28/2002 - 6/27/2012				39,740,000			$	0.02				10,544,000				—				—				2,806,000				—				7,738,000			$	0.07			$	0.06
Employees			28/6/2002				6/28/2002 - 6/27/2012				18,944,000			$	0.05				7,734,000				—				—				10,000				—				7,724,000			$	0.65			$	0.06
Kawanishi, Tsuyoshi			11/7/2002				7/11/2002 - 7/10/2012				500,000			$	0.05				500,000				—				—				—				—				500,000			$	—			$	0.07
Employees			11/7/2002				7/11/2002 - 7/10/2012				2,780,000			$	0.05				80,000				—				—				—				—				80,000			$	—			$	0.07
Service Providers			26/9/2002				9/26/2002 - 9/25/2012				50,000			$	0.05				50,000				—				—				—				—				50,000			$	—			$	0.03
Employees			26/9/2002				9/26/2005 - 9/25/2012				5,770,000			$	0.02				1,555,000				—				—				50,000				—				1,505,000			$	0.07			$	0.08
Employees			26/9/2002				9/26/2005 - 9/25/2012				65,948,300			$	0.05				20,006,310				34,300				—				2,738,100				—				17,233,910			$	0.08			$	0.08
Employees			9/1/2003				1/09/2003 - 1/08/2013				53,831,000			$	0.05				21,090,400				28,000				—				3,726,000				—				17,336,400			$	0.08			$	0.10

																																										Weighted Average				Weighted Average
																																										Closing Price of				Closing Price of
																										Options Lapsed Due																Shares immediately				Shares immediately
																										to Repurchase of																before Dates				before Dates
Name/Eligible						Period during which				No. of Options				Exercise Price				Options Outstanding				Options Lapsed				Ordinary Shares				Options Exercised				Options Cancelled				Options Outstanding				on which Options				on which Options
Employees		Date Granted				Rights Exercisable				Granted				Per Share				as of 12/31/07				During Period				During Period*				During Period				During Period				as of 06/30/08				were Exercised				were Granted
														(USD)																												(USD)				(USD)
Employees			10/1/2003				1/10/2003 - 1/09/2013				720,000			$	0.05				720,000				—				—				720,000				—				—			$	0.07			$	0.10
Employees			22/1/2003				1/22/2003 - 1/21/2013				1,060,000			$	0.05				1,060,000				—				—				—				—				1,060,000			$	—			$	0.10
Employees			1/4/2003				4/01/2003 - 3/31/2013				18,804,900			$	0.05				7,995,638				127,700				—				463,720				—				7,404,218			$	0.08			$	0.14
Employees			15/4/2003				4/15/2003 - 4/14/2013				550,000			$	0.05				550,000				—				—				—				—				550,000			$	—			$	0.14
Senior Management			24/4/2003				4/24/2003 - 4/23/2013				1,500,000			$	0.05				1,450,000				—				—				—				—				1,450,000			$	—			$	0.14
Employees			24/4/2003				4/24/2003 - 4/23/2013				58,838,000			$	0.05				23,369,400				18,000				—				2,838,000				—				20,513,400			$	0.08			$	0.14
Employees			15/7/2003				7/15/2003 - 7/14/2013				59,699,900			$	0.05				20,347,020				172,000				—				1,282,000				—				18,893,020			$	0.08			$	0.17
Employees			10/10/2003				10/10/2003 - 10/09/2013				49,535,400			$	0.10				24,161,900				4,543,000				—				—				—				19,618,900			$	—			$	0.29
Employees			5/1/2004				1/05/2004 - 1/04/2014				130,901,110			$	0.10				68,598,317				2,576,875				—				112,602				—				65,908,840			$	0.10			$	0.33
Kawanishi, Tsuyoshi			15/1/2004				1/15/2004 - 1/14/2014				1,000,000			$	0.10				1,000,000				—				—				—				—				1,000,000			$	—			$	0.33
Service Providers			15/1/2004				1/15/2004 - 3/01/2005				4,100,000			$	0.10				100,000				—				—				—				—				100,000			$	—			$	0.14
Senior Management			15/1/2004				1/15/2004 - 1/14/2014				10,700,000			$	0.10				1,955,000				—				—				—				—				1,955,000			$	—			$	0.14
Others			15/1/2004				1/15/2004 - 1/14/2014				4,600,000			$	0.10				2,500,000				—				—				—				—				2,500,000			$	—			$	0.35
Employees			15/1/2004				1/15/2004 - 1/14/2014				20,885,000			$	0.10				8,004,000				400,000				—				—				—				7,604,000			$	—			$	0.33
Senior Management			16/2/2004				2/16/2004 - 2/15/2014				900,000			$	0.25				700,000				—				—				—				—				700,000			$	—			$	0.33
Others			16/2/2004				2/16/2004 - 2/15/2014				12,300,000			$	0.25				6,130,000				—				—				—				—				6,130,000			$	—			$	0.35
Employees			16/2/2004				2/16/2004 - 2/15/2014				14,948,600			$	0.10				4,953,500				271,000				—				—				—				4,682,500			$	—			$	0.33
Employees			16/2/2004				2/16/2004 - 2/15/2014				76,454,880			$	0.25				44,616,360				1,938,630				—				—				—				42,677,730			$	—			$	0.33

2001 Preference Share Plans

																																										Weighted Average				Weighted Average
																																										Closing Price of				Closing Price of
																										Options Lapsed Due																Shares immediately				Shares immediately
																										to Repurchase of																before Dates				before Dates
Name/Eligible						Period during which				No. of Options				Exercise Price				Options Outstanding				Options Lapsed				Ordinary Shares				Options Exercised				Options Cancelled				Options Outstanding				on which Options				on which Options
Employees		Date Granted				Rights Exercisable				Granted				Per Share				as of 12/31/07				During Period				During Period*				During Period				During Period				as of 6/30/08				were Exercised				were Granted
														(USD)																												(USD)				(USD)
Employees			24/9/2001				9/24/2001 - 9/23/2011				249,098,700			$	0.11				22,274,200				724,000				—				—				—				21,550,200			$	—			$	0.11
Employees			28/9/2001				9/28/2001 - 9/27/2011				50,000			$	0.11				50,000				—				—				—				—				50,000			$	—			$	0.11
Employees			3/11/2001				11/03/2001 - 11/02/2011				780,000			$	0.35				515,000				—				—				—				—				515,000			$	—			$	0.11
Employees			24/1/2002				1/24/2002 - 1/23/2012				58,357,500			$	0.11				5,771,500				185,000				—				—				—				5,586,500			$	—			$	0.12
Employees			10/4/2002				4/10/2002 - 4/09/2012				51,384,000			$	0.11				3,351,900				135,000				—				—				—				3,216,900			$	—			$	0.13
Employees			28/6/2002				6/28/2002 - 6/27/2012				63,332,000			$	0.11				9,282,500				1,420,000				—				—				—				7,862,500			$	—			$	0.14
Service Providers			11/7/2002				7/11/2002 - 7/10/2012				462,000			$	0.11				202,000				—				—				—				—				202,000			$	—			$	0.14
Employees			11/7/2002				7/11/2002 - 7/10/2012				4,530,000			$	0.11				805,000				—				—				—				—				805,000			$	—			$	0.14
Service Providers			26/9/2002				9/26/2002 - 9/25/2012				50,000			$	0.11				50,000				—				—				—				—				50,000			$	—			$	0.15
Employees			26/9/2002				9/26/2002 - 9/25/2012				73,804,800			$	0.11				12,383,900				364,400				—				—				—				12,019,500			$	—			$	0.15
Employees			9/1/2003				1/09/2003 - 1/08/2013				12,686,000			$	0.11				1,237,000				—				—				—				—				1,237,000			$	—			$	0.17

2004 Stock Option Plan

																																														Weighted Average				Weighted Average
																																														Closing Price of				Closing Price of
																														Options Lapsed																Shares immediately				Shares immediately
																														Due to Repurchase																before Dates on				before Dates
Name/Eligible						Period during which				No. of Options				Exercise Price				Options Outstanding				Additional Options				Options Lapsed				of Ordinary Shares				Options Exercised				Options Cancelled				Options Outstanding				which Options were				on which Options
Employees		Date Granted				Rights Exercisable				Granted				Per Share				as of 12/31/07				Granted During Period				During Period				During Period*				During Period				During Period				as of 06/30/08				Exercised				were Granted
														(USD)																																(USD)				(USD)
Senior Management			18/3/2004				3/18/2004 - 3/17/2014				150,000			$	0.35				150,000				—				—				—				—				—				150,000			$	—			$	0.35
Others			18/3/2004				3/18/2004 - 3/17/2014				20,000			$	0.35				20,000				—				—				—				—				—				20,000			$	—			$	0.35
Employees			18/3/2004				3/18/2004 - 3/17/2014				49,949,700			$	0.35				29,733,600				—				1,769,900				—				—				—				27,963,700			$	—			$	0.35
Richard Chang			7/4/2004				4/07/2004 - 4/06/2014				100,000			$	0.31				100,000				—				—				—				—				—				100,000			$	—			$	0.31
Employees			25/4/2004				4/25/2004 - 4/24/2014				22,591,800			$	0.28				14,511,900				—				1,491,700				—				—				—				13,020,200			$	—			$	0.28
Others			27/7/2004				7/27/2004 - 7/26/2014				200,000			$	0.20				100,000				—				—				—				—				—				100,000			$	—			$	0.20
Employees			27/7/2004				7/27/2004 - 7/26/2014				35,983,000			$	0.20				19,257,000				—				773,800				—				—				—				18,483,200			$	—			$	0.20
Kawanishi, Tsuyoshi			10/11/2004				11/10/2004 - 11/09/2009				500,000			$	0.22				500,000				—				—				—				—				—				500,000			$	—			$	0.22
Employees			10/11/2004				11/10/2004 - 11/09/2014				52,036,140			$	0.22				27,125,125				—				2,223,145				—				—				—				24,901,980			$	—			$	0.22
Ta-Lin Hsu			10/11/2004				11/10/2004 - 11/09/2009				500,000			$	0.22				500,000				—				—				—				—				—				500,000			$	—			$	0.22
Henry Shaw			10/11/2004				11/10/2004 - 11/09/2009				500,000			$	0.22				500,000				—				—				—				—				—				500,000			$	—			$	0.22
Lip-Bu Tan			10/11/2004				11/10/2004 - 11/09/2009				500,000			$	0.22				500,000				—				—				—				—				—				500,000			$	—			$	0.22
Wang Yang Yuan			10/11/2004				11/10/2004 - 11/09/2009				500,000			$	0.22				500,000				—				—				—				—				—				500,000			$	—			$	0.22
Senior Management			11/5/2005				5/11/2005 - 5/10/2015				1,100,000			$	0.20				700,000				—				—				—				—				—				700,000			$	—			$	0.20
Others			11/5/2005				5/11/2005 - 5/10/2015				100,000			$	0.20				100,000				—				—				—				—				—				100,000			$	—			$	0.20
Employees			11/5/2005				5/11/2005 - 5/10/2015				94,381,300			$	0.20				62,441,236				—				4,239,295				—				—				—				58,201,941			$	—			$	0.20
Richard Chang			11/5/2005				5/11/2005 - 5/10/2015				15,000,000			$	0.20				15,000,000				—				—				—				—				—				15,000,000			$	—			$	0.22
Employees			11/8/2005				8/11/2005 - 8/10/2015				32,279,500			$	0.22				17,821,700				—				1,594,200				—				—				—				16,227,500			$	—			$	0.22
Senior Management			11/11/2005				11/11/2005 - 11/10/2015				11,640,000			$	0.15				8,240,000				—				—				—				—				—				8,240,000			$	—			$	0.15
Others			11/11/2005				11/11/2005 - 11/10/2015				3,580,000			$	0.15				3,580,000				—				—				—				—				—				3,580,000			$	—			$	0.15
Employees			11/11/2005				11/11/2005 - 11/10/2015				149,642,000			$	0.15				114,736,200				—				6,654,400				—				—				—				108,081,800			$	—			$	0.15