LETTER TO SHAREHOLDERS

DEAR  SHAREHOLDERS AND INVESTORS,

On behalf of the Company, I would like to express my heartfelt thanks to our friends who have always cared about and supported the development of SMIC! As a semiconductor manufacturing company registered in the Cayman Islands, positioned in China, and serving global customers, SMIC has always adhered to the principle of independence and globalization, operating in compliance with laws and regulations, and striving to provide worldwide customers with high-quality products and services.

In recent years, the international environment of the semiconductor industry has been undergoing a new round of changes, and the global supply chain has been hit. Facing this new external situation and its challenges, SMIC needs to build up capability to develop sustainably and with high-quality development.

With the efforts of all employees, the Company set new records for its annual performance. The Company’s revenue for 2022 crossed to $7.2 billion, up around 34% year-over-year, gross margin increased to 38%, profit for the year attributable to owners of the Company exceeded $1.8 billion, all hitting new highs. The Company’s asset structure remained solid, with total assets at year-end reaching $43.8 billion, an increase of 21% compared to that of the previous year, and the asset-liability ratio was 34%. The Company gave full play to the risk management capabilities accumulated over the past 22 years, and delivered a hard-won answer to the shareholders and society with an increased revenue scale, improved profitability and a stable asset structure.

Adhering to the principle of being people-centered, SMIC attracts, cultivates, and retains outstanding talents through the Company's continuous increase in investment for building up talents and optimization of development channels. Rewards given according to individual contribution, with resources and opportunities preferentially targeting to those with outstanding talent, and the Company preferentially appoints cadres from successful business departments and successful teams, and from those who have demonstrated continuous excellence. The Company continues to execute various approaches to effectively stimulate the organization’s vitality and employees' sense of mission. The Company also strives to build a team with ideals, beliefs, capability, self-motivation, and dedication. A stable career development platform, a complete training system, and good living conditions with solid benefits all allow employees to have a win-win relationship with the Company, and employee satisfaction has been effectively improved. In 2022, the Company's turnover rate was greatly reduced.

With the Company’s development, SMIC has also actively participated in social welfare activities, sharing the benefits of corporate growth with society, making continuous efforts to achieve common development. In 2022, the Company held the tenth annual "Liver Transplant Program for Children" donation drive. This project has raised in total nearly RMB 40 million, which has helped 745 children with liver disease from all over the country to successfully complete surgery and regain their health. In addition, the Company has also engaged in various other activities such as youth health care and education development, medical assistance projects, community activities and environmental protection, and has given back to society with concrete actions.

In the past 22 years, the Company has manufactured more than 60 million 8-inch equivalent wafers, close to one hundred billion chips cumulatively. Our products have spread to thousands of families all over the world and are widely used in different sectors, such as mobile phones, consumer electronics, smart home, industrial, and automotive. The Company has contributed towards technological progress and better living for mankind.

As an important force among global foundries, SMIC will continue to give full play to its own advantages, increasing efforts in the development and optimization of differentiated process technologies, so as to build richer and more competitive process platforms. As a trusted and reliable partner for global customers, the Company will firmly adhere to being "market-oriented, customer-focused," will establish a more efficient business, operation and management system, and will provide customers with better products and services. Although facing various difficulties and challenges, we firmly believe the growing demand for wafer manufacturing will remain unchanged, and we are confident in the Company's medium- to long-term development.

Mainland China is one of the largest and fastest-growing IC markets in the world and is an important region in the division of labor within the global IC industry, while the semiconductor industry is one of the fields that can best demonstrate global technological collaboration and progress. SMIC, as a leading IC enterprise in Mainland China, always maintains compliant operation, open innovation, and an attitude of co-existence within a win-win arrangement, and commits to promoting the co-development of our upstream and downstream supply chain. The Company is willing to jointly establish and maintain a healthy and efficient semiconductor ecosystem, together with both domestic and foreign industry chain partners.

Here, we would like to thank all shareholders, investors and all sectors of society for their kindness and support over the years.

Gao  Yonggang

Chairman of the Board 

Shanghai, China March  29,  2023