Major Shareholder:

• Shanghai Industrial Holdings Ltd (0363) ¡V 10.2% interest
• Motorola, Inc ¡V 7.2% interest
• Global Growth Fund and International Equity Income Fund ¡V 5.7% interest
• Beijing Beida Jade Bird Software System Co (8095) ¡V 4.4% interest

Company Subsidiaries:

• SMIC Shanghai (100%): Operates Shanghai Fabs
• SMIC Beijing (100%): Operates Beijing Fabs
• SMIC Tianjin (100%): Operates Tianjin Fabs
• SMIC Japan (100%): Performs marketing-related activities in Japan
• SMIC Americas (100%): Performs marketing-related activities in USA
• SMIC Europe (100%): Performs marketing-related activities in Europe

The Group is one of the leading semiconductor foundries in the world. As a foundry, the Group fabricates semiconductors for customers based on their own or third parties' integrated circuit designs. The Group were founded in April 2000 and within three years have developed the capabilities to offer a wide range of leading edge integrated wafer manufacturing services, including copper interconnects capabilities, to the Group global customer base. The Group operates 8-inch wafer fabrication facilities in the Zhangjiang High-Tech Park in Shanghai, China and, as a result of a recent acquisition, an 8-inch wafer fab in Tianjin, China. These fabs had an aggregate capacity as of December 31, 2003 of 49,000 8-inch wafers per month for wafer fabrication and 9,000 wafers per month for copper interconnects, which positions us as a leading foundry in China.

In addition, the Group is currently constructing 12-inch wafer fabrication facilities in Beijing, which the Group believes will be the first 12-inch fabs in China. Fab 1 at the facility in Shanghai was selected as one of the two ¡§Top Fabs of 2003¡¨ by Semiconductor International, a leading industry publication. In addition, the Group were ranked second in a readers' poll of top global foundries of 2003 conducted by Silicon Strategies, another leading semiconductor industry publication.

The Group currently provide semiconductor fabrication services using 0.35 micron to 0.13 micron process technology for the following devices: (1) logic technologies, including standard logic, mixed-signal, radio frequency and high voltage circuits; (2) memory technologies, including dynamic random access memory, static random access memory, Flash, electronically erasable programmable read only memory and Mask read only memory; and (3) specialty technologies, including liquid crystal on silicon, complementary metal oxide silicon image sensor and system-on-chip.

The Group is a global and diversified customer base that includes integrated device manufacturers, such as Fujitsu Limited, Infineon Technologies AG, Samsung Electronics Co., Ltd., STMicroelectronics Pte. Ltd. and Texas Instruments Incorporated, and fabless semiconductor companies, such as Broadcom Corporation, Elite Semiconductor Memory Technology Inc. and Marvell Semiconductor, Inc. The foregoing is not intended to identify the top customers, but rather to provide a representative sampling of the customer base.

The Directors believe that the Group has the following competitive advantages:

• leading edge process technology capabilities;
• flexible and customizable manufacturing;
• integrated one-stop manufacturing service;
• proximity to electronics manufacturing supply chain in China;
• cost-effective services;
• focus on high quality customer service; and
• strong management team, corporate culture and availability of qualified personnel.

• The short operating history makes it difficult to evaluate the business and prospects.
• The Group have incurred significant operating losses since the inception, may continue to incur substantial operating losses in the future and may not be able to achieve or maintain profitability, primarily due to the high fixed costs and correspondingly high levels of depreciation expenses.
• The cyclical nature of the semiconductor industry and periodic overcapacity in the industry make the business and operating results particularly vulnerable to economic downturns.
• The results of operations may fluctuate from quarter to quarter, which may make it difficult to predict the future performance and may result in a decline in the price of the Shares if the Group fail to meet the expectations or those of public market analysts and investors in those periods.
• If the recent trend of increasing demand for foundry services reverses or slows down, the Group may achieve a lower rate of return on investments than anticipated and the business and operating results will be adversely affected.
• If the Group are unable to maintain high capacity utilization, optimize the technology and product mix of the services or improve the yields, the margins may substantially decline, thereby adversely affecting the operating results.
• The rapid growth has presented significant challenges to the management and administrative systems and restheces, and the Group may experience difficulties managing the growth particularly as the Group handle the additional responsibilities of becoming a public company, which may adversely affect the business and operating results.

The primary focus is currently on expanding the foundry relationships and building a diversified customer base both within and outside China. In order to maximize the utilization of the fabs and optimize the process technology offerings, the Group plan to focus on attracting potential customers with advanced design capabilities that require leading edge foundry services in high volumes.

In anticipation of growth in the sales volume and customer base, the Group is planning to expand the manufacturing facilities and capacity. The Group plan to accomplish this capacity increase through the expansion of the existing facilities, the construction of new facilities and the ramping up of a newly acquired facility. In particular, the Group is in the process of upgrading, expanding and ramping up the capacity of the newly acquired Tianjin facility and expect to commence commercial production at the Fab 4 in Beijing in 2004. The Group plan to have installed aggregate wafer fabrication capacity of 114,750 eight inch equivalent wafers per month and 10,000 copper interconnects per month as of the end of 2004 and 170,000 eight inch equivalent wafers per month and 15,000 copper interconnects per month by the end of 2005.

Together with this increase in the manufacturing capacity, The Group intend to continue to expand the portfolio of leading edge process technology capabilities in logic, mixed signal, RF, memory and specialty semiconductor products. The Group plan to achieve this both through the own research and development team, as well as through the technology partners. The Group also plan to shift the product mix to logic wafers while maintaining the expertise in DRAM technology. In this way, the Group expects to benefit from the more stable prices and margins of logic wafers, as well as the flexibility to respond to market demand and pricing fluctuations through the production of DRAM wafers.

The net proceeds from the Placing, after deducting the related expenses, are estimated to amount to approximately HK$7,566 million (based on the offer price HK$2.54 per share). The Group at present intends to apply the net proceeds as follows: