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 June, 2009

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  

 

 

CONTENTS

3		Corporate Information
5		Chairman’s Statement
6		Chief Executive Officer’s Statement
7		Business Review
10		Management’s Discussion and Analysis of Financial Condition and Results of Operation
30		Directors and Senior Management
36		Report of the Directors
84		Corporate Governance Report
99		Social Responsibilities
102		Report by Management on Internal Control over Financial Reporting
103		Report of Independent Registered Public Accounting Firm
105		Consolidated Balance Sheets
107		Consolidated Statements of Operations
108		Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
109		Consolidated Statements of Cash Flows
111		Notes to the Consolidated Financial Statements

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

This annual 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, 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 annual report to:

•

“2009 AGM” are to the Company’s Annual General Meeting scheduled to be held on June 23, 2009;

•

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

•

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

•

“EUR” are to Euros;

•

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

•

“HK$” are to Hong Kong dollars;

•

“Jpy” are to Japanese Yen;

•

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

•

“Rmb” are to Renminbi;

•

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

•

“SEHK”, “HKSE” or “Hong Kong Stock Exchange” are to The Stock Exchange of Hong Kong Limited; and

•

“US$” or “USD” are to U.S. dollars.

All references in this annual 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 annual report has been prepared in accordance with U.S. GAAP.

CORPORATE INFORMATION

Registered name		Semiconductor Manufacturing International Corporation (the “Company”)
Chinese name (for identification purposes only)
Registered office		PO Box 309
		Ugland House
		George Town, KY1-1104
		Cayman Islands
Head office and place of business in PRC		18 Zhangjiang Road
		Pudong New Area
		Shanghai 201203
		PRC
Place of business in Hong Kong registered under		Suite 3003
Part XI of the Companies Ordinance		30th Floor
		9 Queen’s Road Central
		Hong Kong
Website address		http://www.smics.com
Company secretary		Anne Wai Yui Chen
Authorized representatives		Richard Ru Gin Chang
		Anne Wai Yui Chen
Places of listing		The Stock Exchange of Hong Kong Limited (“HKSE”)
		New York Stock Exchange (“NYSE”)
Stock code		0981 (HKSE)
		SMI (NYSE)
Financial Calendar
Announcement of 2008 results		April 17, 2009
Book closure period		June 17, 2009 to June 23, 2009, both days inclusive
Annual general meeting		June 23, 2009
Financial year end		December 31

FINANCIAL HIGHLIGHTS

CHAIRMAN’S STATEMENT

DEAR SHAREHOLDERS,

SMIC strives to deliver long-term value through focused strategies. One of SMIC’s main priorities in 2008 was to capture the growing business opportunities in China where SMIC is strategically located, in order to maintain its leading market position. China is the largest and fastest growing semiconductor markets globally. To this end, we have increased our sales to the domestic IC companies in China by 28% year-on-year in 2008 despite a difficult fourth quarter.

Although the China market has been affected by the global financial turmoil, China is in a stronger position than other regions in weathering the impacts of the crisis due to its relatively stable financial and banking system. In addition, the Chinese government’s deployment of the RMB4 trillion (equivalent to approximately US$588 billion) economic stimulus package is one of the largest stimulus packages undertaken by nations around the world. This package aims to support key industries such as semiconductor and to encourage Chinese domestic demand such as consumption of products including mobile phones, TVs, computers, etc. SMIC is well positioned to capture these opportunities and benefits.

The Board took a major step forward in further strengthening our China business by approving the strategic investment and collaboration with Datang Telecom Technology & Industry Holdings Limited (“Datang”), a leader in China’s mobile telecommunication technologies and the developer of China’s homegrown third generation (“3G”) wireless standard called Time Division-Synchronous Code Division Multiple Access (“TD-SCDMA”). This alliance is intended to accelerate SMIC’s market penetration into the growing mobile telecommunication market and further solidify SMIC’s market leadership in China.

The Board will continue to be alert on opportunities that will generate long-term value to our shareholders.

Aside from the business issues, I am pleased to report the following:

•

SMIC was awarded the “Corporate Social Contribution Award” from SEMI, the global industry association serving the manufacturing supply chains for the microelectronic, display and photovoltaic industries. This award is a strong testament of SMIC’s commitment to the community and society where it operates. The Company will continue to set the standards of being a socially responsible corporation and providing exemplary benefits to the public.

•

On behalf of the Board, I would like to welcome Mr. Zhou Jie as a non-executive director and Prof. Edward Yang as an independent non-executive director. Jie’s extensive financial experiences from both investment banking and capital market, as well as Edward’s in-depth knowledge and expertise in the semiconductor industry will be valuable to the Board. I am looking forward to working with both of these gentlemen.

Despite the challenging market conditions, SMIC is dedicated to improving its overall execution and financial position. I believe that given SMIC’s diverse portfolio of products, strong market leadership in China, advanced technology development, and its strengthened financial resources, SMIC is well-positioned to continue delivering long-term value to its customers, shareholders and employees. Finally, I would like to thank our shareholders, customers, suppliers, partners and employees for the tremendous support and understanding they have extended to us throughout the year.

Yang Yuan Wang
Chairman of the Board

Shanghai, China
April 17, 2009

CHIEF EXECUTIVE OFFICER’S STATEMENT

DEAR SHAREHOLDERS,

2008 proved to be a challenging year for the world and for SMIC. Although the global financial crisis has impacted our world and our industry, we have managed to grow our non-DRAM revenue, as well as increase our Greater China revenue. In addition, we completed our milestone in achieving our first 45-nanometer silicon success.

Our overall 2008 revenue declined 13% to $1.35 billion. However, consistent with our stated strategy of focusing on the non-DRAM business, we have managed to grow our non-DRAM revenue by 14.3% year-on-year, one of the highest growth rates in the foundry industry. In addition, leveraging on our strategic position in China, we have increased our sales to the domestic IC companies by 28% in 2008 over 2007. Our Greater China revenue contributed to 31% of the overall wafer revenue in 2008 as compared to 24% in 2007.

Moving forward, we will continue our key strategy of capturing growth opportunities in China. From the macroeconomic perspective, China is in a relatively stable position within the global economy. We believe that domestic demand will continue to increase due to recent government economic stimulus initiatives, such as: “Rural Consumer Stimulation” on mobile phones, TVs and computers, etc., and Chinese government’s recent issuances of the 3G licenses. As China’s leading foundry, SMIC is well positioned to capitalize on these growth trends. In 2008, we forged a strategic alliance with Datang, a leader in China’s mobile telecommunication technologies, in order to be the primary foundry source for Datang’s TD-SCDMA technology. Other than wireless communication, we are also manufacturing a wide range of products for our Chinese customers including CIS, mobile CMMB, HDTV, RFID and LCOS, etc.

We have made steady progress in advancing our process technologies in 2008. First, we strategically transitioned out of the DRAM commodity business and successfully converted our Beijing 300mm facility into a pure logic fab totaling about 40,500 8” equivalent logic wafers per month by the fourth quarter of 2008. Second, we have achieved our 45-nanometer silicon success in collaboration with IBM ahead of schedule. Our 65-nanometer process is expected to start commercial production in the second half of 2009. Additionally, we began 0.11-micron CMOS image sensor production for our customers.

For the full year of 2008, we generated US$569.8 million in cash from operations. In December 2008, we closed the equity transaction with our strategic partner, Datang, and successfully raised $168.1 million of equity capital in the midst of a difficult market environment. As a result of the new equity and debt repayment, our debt equity ratio has maintained at a healthy level of approximately 40%.

Moving forward in 2009, we will continue to focus on profitability and balance sheet by exercising tight capital expenditure and expense control. We estimate that our capital expenditure for 2009 will be around $190 million, representing approximately a 72% decline from 2008. In addition, we are targeting to reduce our payroll costs by 15% in 2009 without workforce reduction.

Under the current business environment, we plan to continue our focus on maintaining excellent customer relations, strengthening our product portfolio, focusing on the Greater China market, while continuing to develop advanced technology and reduce costs, in an effort to position ourselves as a stronger and more competitive player in the foundry sector when the global economy recovers.

May God bless you and SMIC,

Richard R. Chang
Chief Executive Officer

Shanghai, the P.R.C.
April 17, 2009

BUSINESS REVIEW

In 2008, SMIC continued to focus on improving its product offering, cash position, and strategic partnerships. At the beginning of 2008 SMIC exited the DRAM market, and at the close of 2008 we witnessed a worldwide economic downturn. Despite these challenges, SMIC managed to grow non-DRAM revenue by 14.3% year-on-year, which represents one of the highest growth rate among foundries. In addition, leveraging our strategic position in China, the largest and fastest growing semiconductor market globally, we have also increased our sales to the domestic IC companies by 28% in 2008 over 2007.

Financial Overview

During the first quarter of 2008, the Company reached an agreement with our customers to completely exit the commodity DRAM business. The conversion of DRAM capacity into logic production was completed on schedule in the fourth quarter. As a result, our Beijing 300mm logic capacity has increased by more than 50% by end of 2008 as compared to a year ago. The expansion of our 300mm logic capacity has placed us in a better position to serve our global and China customers. In connection with the decision to exit the commodity DRAM business, we recorded an impairment loss of $105.8 million on long-lived assets during the first quarter of 2008.

Due to the transitioning of the majority DRAM production to logic production in our Beijing fab as well as the sharp market downturn experienced in the fourth quarter, the Company’s total revenue declined by 12.7% year-on-year in 2008. However, consistent with our stated strategy of focusing on the non-DRAM business, non-DRAM revenue has grown by 14.3% for the same period. Average selling price¹ for 2008 was $840 as compared to $838 per wafer for 2007.

During 2008, we generated US$569.8 million in cash from operations. In December 2008, we closed the equity transaction with our strategic partner, Datang Telecom Technology & Industry Holdings Co., Ltd. (“Datang”), and successfully raised US$168.1 million of equity capital at the midst of a difficult market environment. As a result of the new equity and debt repayment, our debt equity ratio has remained at a healthy level of around 40%.

Capital expenditures in 2008 totaled $666 million, which was mainly allocated to 45-nanometer research & development, capacity expansion of 200mm fabs in Shanghai and Tianjin, DRAM to logic capacity conversion in our Beijing fab, and land-use rights and equipment acquired for the Shenzhen project.

Customers and Markets

SMIC serves a global customer base, comprising of leading IDMs, fabless semiconductor companies, and system companies. Leveraging our strategic position in China, we have seen our Greater China business grow strongly during the year, contributing 31% to the overall revenue for 2008, an increase from 24% in 2007. We expect that the strategic partnership with Datang, a leader in the China’s mobile telecommunication technologies, will further strengthen our position as one of the leading semiconductor foundries serving the fast growing communications market in China.

Geographically, North American customers, which contributed 57% of the overall revenue, comprised the largest customer group for SMIC in 2008, followed by Asia Pacific at 36%, and Europe at 7%. Our revenue from North American customers has grown strongly in 2008, recording a 17% growth year-on-year. Our North American customers, which include leading IDM and fabless IC companies, showed strong demand in communications products (mainly in mobile), networking and WLAN (Wireless Local Area Network) applications. Our Chinese customers, on the other hand, showed strong demand for consumer and communications products including DTV, MP3, MP4, mobile, PMP, and PDA applications. Contribution from our European customers has dropped significantly in 2008 due to our exit from the commodity DRAM business.

Our consumer and communications contributions grew significantly in 2008. Communication applications, which contributed 51% of our overall revenue, continued to be our strongest sector. Contribution from consumer applications grew from 21% of revenue in 2007 to 32% in 2008. Revenue from consumer application experienced a 33% growth during the year, which we attribute to the growth in our China business. In 2008 contribution to revenue from computing applications dropped to 8% from 26% due to our exit from the commodity — DRAM business.

In terms of revenue breakdown by technology node, revenue contribution from the 0.13-micron and below business has dropped to 44% in 2008 as compared to 53% in 2007. However, if we exclude the DRAM revenue, revenue contribution from 0.13-micron and below increased to 38% in 2008 from 25% in 2007.

In 2008, we engaged 115 new customers, bringing the total number of customers to 516. A majority of these new customers are Chinese fabless companies. Notably our China business has been growing steadily not only from a revenue perspective, but also from the number of new designs using more advanced technology nodes—some pursuing 65-nanometer designs. We are producing a broad range of applications including CIS, Moblie CMMB, HDTV, RFID, and LCOS products for a host of promising new players with innovative designs and applications that are emerging among the Chinese fabless companies.

Research and Development

In 2008, our research and development expenses were $102.2 million, which represented 7.6% of our sales. If we include the amortization of acquired intangible assets, which consist mostly of technology related intellectual properties and technology related cross licenses, the total expenses in research and development were $134.4 million, which represented 9.9% of our sales.

The research and development efforts were focused primarily on our logic and system-on-chip (SOC) business. 2008 marked many milestones for SMIC. Early in the year, Synopsis and SMIC released an enhanced 90-nanometer hierarchical, multi-voltage RTL-to-GDSII reference design flow that will benefit advanced synthesis with built-in capability of design-for-test and design-for-manufacturing. In April 2008, working with a leading China domestic fabless company, we developed a 90-nanometer digital photo frame chip, which is the most integrated multimedia SOC in the market. For advanced CMOS logic, the Company demonstrated a silicon success in the 45-nanometer process ahead of schedule, and also added new intellectual properties in 65-nanometer and 90-nanometer technology services. In addition, the Company successfully developed a 0.11 micron CMOS image sensor (CIS) process technology, one of the most advanced process technologies for CIS currently available in the industry. In Non-Volatile Memory (NVM) technology, the 0.13um ETox went into production in early 2008 and 90-nanometer ETox is currently in risk production now. Our research and development in Micro-Electromechanical System (MEMS) areas also advanced to risk production for our first customer in 2008. Other areas of phase-change memory, HV, mix-signal-signal, and RF technologies were also successfully advanced for smaller size, less power, and lower cost to meet customer demands.

We employ over 800 research and development personnel, combining experienced semiconductor engineers with advanced degrees from leading universities around the world together with top graduates from the leading universities in China.

Outlook for 2009

We expect a challenging year for our business due to the global economic slowdown. However, we are taking proactive steps to manage our business and preserve cash flow during this downturn. We plan to scale back our capital expenditure from $666 million in 2008 to approximately $190 million in 2009. In addition, we target to reduce our payroll costs by 15% in 2009 without any workforce reduction. At the same time, we will continue our efforts in the following areas, which we believe are critical for our long-term success:

•

Research and development on advanced SOC technologies

•

Ramp-up of our 65-nanometer volume production

•

Expand market share by leveraging our advanced HV, CIS, LCOS, RF, EEPROM, and NOR Flash technologies

•

45-nanometer bulk-CMOS technology process qualification for customers production

We will also continue to explore opportunities with our Chinese customers and closely follow the China Economic Stimulus plans to capture potential benefits.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

Consolidated Financial Data

The summary consolidated financial data presented below as of and for the years ended December 31, 2006, 2007 and 2008 is derived from, and should be read in conjunction with, and is qualified in its entirety by reference to, the audited consolidated financial statements, including the related notes, included elsewhere in this Annual Report. The selected consolidated financial data as of December 31, 2004 and 2005 and for the two years then ended is derived from audited consolidated financial statements not included in this Annual Report. The summary consolidated financial data presented below has been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

		For the year ended December 31,
		2004				2005				2006				2007				2008
		(in US$ thousands, except for per share and per ADS data)
Income Statement Data:
Sales		$	974,664			$	1,171,319			$	1,465,323			$	1,549,765			$	1,353,711
Cost of sales(1)			716,225				1,105,134				1,338,155				1,397,038				1,412,851
Gross profit (loss)			258,439				66,185				127,168				152,727				(59,140	)
Operating expenses (income):
Research and development			74,113				78,865				94,171				97,034				102,240
General and administrative			54,038				35,701				47,365				74,490				58,841
Selling and marketing			10,384				17,713				18,231				18,716				20,661
Litigation settlement			16,695				—				—				—				—
Amortization of acquired intangible assets			14,368				20,946				24,393				27,071				32,191
Impairment loss of long-lived assets			—				—				—				—				106,741
Income from sale of equipment and other fixed assets			—				—				(43,122	)			(28,651	)			(2,877	)
Total operating expenses, net			169,598				153,225				141,038				188,659				317,797
Income (loss) from operations			88,841				(87,040	)			(13,870	)			(35,932	)			(376,937	)

		For the year ended December 31,
		2004				2005				2006				2007				2008
		(in US$ thousands, except for per share and per ADS data)
Other income (expenses):
Interest income			10,587				11,356				14,916				12,349				11,542
Interest expense			(13,698	)			(38,784	)			(50,926	)			(37,936	)			(50,767	)
Foreign currency exchange gain (loss)			8,218				(3,355	)			(21,912	)			11,250				3,230
Others, net			2,441				4,462				1,821				2,238				7,429
Total other income (expense), net			7,548				(26,322	)			(56,101	)			(12,100	)			(28,566	)
Income(Loss) before income tax			96,389				(113,362	)			(69,971	)			(48,032	)			(405,503	)
Income tax benefit (expense)			(186	)			(285	)			24,928				29,720				(26,433	)
Minority interest			—				251				(19	)			2,856				(7,851	)
Loss from equity investment			—				(1,379	)			(4,201	)			(4,013	)			(444	)
Net income (loss) before cumulative effect of a change in accounting principle			96,203				(114,775	)			(49,263	)			(19,468	)			(440,231	)
Cumulative effect of a change in accounting principle			—				—				5,154				—				—
Net income(loss)			96,203				(114,775	)			(44,109	)			(19,468	)			(440,231	)
Deemed dividend on preference shares(2)			18,840				—				—				—				—
Income (loss) attributable to holders of ordinary shares			77,363				(114,775	)			(44,109	)			(19,468	)			(440,231	)
Income (loss) per share, basic		$	0.01			$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.02	)
Income (loss) per share, diluted		$	0.00			$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.02	)
Shares used in calculating basic income (loss) per share(3)(4)			14,199,163,517				18,184,429,255				18,334,498,923				18,501,940,489				18,682,544,866
Shares used in calculating diluted income (loss) per share(3)(4)			17,934,393,066				18,184,429,255				18,334,498,923				18,501,940,489				18,682,544,866

		As of December 31,
		2004				2005				2006				2007				2008
		(in US$ thousands)
Balance Sheet Data:
Cash and cash equivalents		$	607,173			$	585,797			$	363,620			$	469,284			$	450,230
Restricted Cash			—				—				—				—				6,255
Short-term investments			20,364				13,796				57,951				7,638				19,928
Accounts receivable, net of allowances			169,188				241,334				252,185				298,388				199,372
Inventories			144,018				191,238				275,179				248,310				171,637
Total current assets			955,418				1,047,465				1,049,666				1,075,302				926,858
Land use rights, net			39,198				34,768				38,323				57,552				74,293
Plant and equipment, net			3,311,925				3,285,631				3,244,401				3,202,958				2,963,386
Total assets			4,384,276				4,586,633				4,541,292				4,708,444				4,270,622
Total current liabilities			723,871				896,038				677,362				930,190				899,773
Total long-term liabilities			544,462				622,497				817,710				730,790				578,689
Total liabilities			1,268,333				1,518,535				1,495,072				1,660,980				1,478,462
Minority Interest			—				38,782				38,800				34,944				42,795
Total stockholders’ equity		$	3,115,942			$	3,029,316			$	3,007,420			$	3,012,519			$	2,749,365

		For the year ended December 31,
		2004				2005				2006				2007				2008
		(in US$ thousands, except percentages and operating data)
Cash Flow Data:
Net income (loss)		$	96,203			$	(114,775	)		$	(49,263	)		$	(19,468	)		$	(440,231	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			456,961				769,472				919,616				706,277				761,809
Net cash provided by (used in) operating activities			518,662				648,105				769,649				672,465				569,782
Purchases of plant and equipment			(1,838,773	)			(872,519	)			(882,580	)			(717,171	)			(669,055	)
Net cash used in investing activities			(1,826,787	)			(859,652	)			(917,369	)			(643,344	)			(761,713	)
Net cash provided by financing activities			1,469,764				190,364				(74,440	)			76,637				173,314
Net increase (decrease) in cash and cash equivalents		$	161,896			$	(21,376	)		$	(222,177	)		$	105,664			$	(19,054	)
Other Financial Data:
Gross margin			26.5	%			5.7	%			8.7	%			9.9	%			-4.4	%
Operating margin			9.1	%			-7.4	%			-0.9	%			-2.3	%			-27.8	%
Net margin			9.9	%			-9.8	%			-3.0	%			-1.3	%			-32.5	%
Operating Data:
Wafers shipped (in units):
Total(1)			943,463				1,347,302				1,614,888				1,849,957				1,611,208

YEAR ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007

Sales

Sales decreased by 12.7% from US$1,549.8 million for 2007 to US$1,353.7 million for 2008, primarily due to the transition of DRAM production to logic production in our Beijing fab and the sharp market downturn experienced in the fourth quarter. However, consistent with our stated strategy of focusing on the non-DRAM business, non-DRAM revenue has grown by 14.3% for the same period. For the full year 2008, the overall wafer shipments were 1,611,208 units of 8-inch equivalent wafers, down 12.9% year-on-year while logic only wafer shipments increased 24.9% year-on-year.

The average selling price¹ of the wafers the Company shipped remained relatively flat, with a slight increase of 0.2% from US$838 per wafer to US$840. Due to the exit from the commodity DRAM business, the percentage of wafer revenues that used 0.13 micron and below process technology decreased from 53.1% to 43.9% between these two periods. However, if we exclude DRAM revenue, the percentage of wafer revenues that used 0.13 micron and below process technology increased from 24.9% to 38.2% between these two periods.

Cost of sales and gross profit (loss)

Cost of sales increased by 1.1% from US$1,397.0 million for 2007 to US$1,412.9 million for 2008. Out of the total cost of sales for 2008, US$663.1 million was attributable to depreciation of plant and equipment and another $28.4 million was attributable to amortization of deferred costs and share-based compensation costs. Out of the total cost of sales for 2007, US$657.8 million was attributable to depreciation of plant and equipment and another $33.8 million was attributable to amortization of deferred costs and share-based compensation costs.

The Company had a gross loss of US$59.1 million for 2008 compared to a gross profit of US$152.7 million in 2007. Gross margins were -4.4% in 2008 compared to 9.9% in 2007. The decrease in gross margins was due to the transition of DRAM production to logic production in our Beijing fab and the sharp market downturn experienced in the fourth quarter.

Operating income, expenses and loss from operations

Operating expenses increased by 68.4% from US$188.7 million for 2007 to US$317.8 million for 2008 primarily due to the impairment charge recorded in 2008 in connection with the decision to exit the commodity DRAM business, as described below. The Company received less income from the sale of equipment and other fixed assets, which income was US$28.7 million in 2007 compared to $2.9 million in 2008.

Research and development expenses increased by 5.4% from US$97.0 million for 2007 to US$102.2 million for 2008. The Company received an increase in government subsidies for research & development expenses in 2008; however, expenses associated with 45-nanometer and 65-nanometer technology development, as well as expenses incurred for the Shanghai 12-inch project, also increased in 2008.

General and administrative expenses decreased by 21.1% to US$58.8 million for 2008 from US$74.5 million for 2007, primarily due to a decrease in legal fees as well as a foreign exchange gain from operating activities of $8.2 million recorded in 2008, while a foreign exchange loss from operating activities of $3.1 million was recorded in 2007.

Selling and marketing expenses increased by 10.7% from US$18.7 million for 2007 to US$20.7 million for 2008, due to an increase in sales and marketing activities.

As described in “Note 13. — Acquired intangible assets, net”, the amortization of acquired intangible assets increased from US$27.1 million for 2007 to US$32.2 million for 2008.

We assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset group may not be recoverable. Factors that we consider in deciding when to perform an impairment review include, but are not limited to significant under-performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. An impairment analysis is performed at the lowest level of identifiable independent cash flows for an asset or asset group. We make subjective judgments in determining the independent cash flows that can be related to specific asset group based on our asset usage model and manufacturing capabilities. We measure the recoverability of assets that will continue to be used in our operations by comparing the carrying value of the asset group to our estimate of the related total future undiscounted cash flows. If an asset group’s carrying value is not recoverable through the related undiscounted cash flows, the impairment loss is measured by comparing the difference between the asset group’s carrying value and its fair value, based on the best information available, including market prices or discounted cash flow analysis.

During the first quarter of 2008, the Company reached an agreement with certain customers to discontinue production of DRAM products and subsequently the Company decided to exit the commodity DRAM business. The Company considered these actions to be an indicator of impairment in regard to plant and equipment of the Company’s Beijing facilities. The Company recorded an impairment loss of $105.8 million during the first quarter of 2008, equal to the excess of the carrying value over the fair value of the plant and equipment utilizing a discounted cash flow approach. For the purpose of the analysis, a discount rate of 9% has been used on the expected cash flows to be generated over the remaining useful lives of primary manufacturing machinery and equipments of approximately 5 years.

As a result, the Company’s loss from operations was US$376.9 million in 2008 compared to loss from operations of US$35.9 million in 2007. Operating margin was (27.8)% and (2.3)%, respectively, for these two years.

Other income (expenses)

Other expenses increased from US$12.1 million in 2007 to US$28.6 million in 2008 primarily due to an increase in interest expense. This increase in interest expense, from US$37.9 million in 2007 to US$50.8 million in 2008, was primarily due to a decrease in interest subsidy. Foreign exchange gain from non-operating activities decreased from US$11.3 million in 2007 to US$3.2 million in 2008. Total foreign exchange gain, combining the operating and non-operating activities, was US$11.4 million in 2008 as compared to US$8.1 million in 2007.

Net income (loss)

Due to the factors described above, the Company recorded a net loss of US$440.2 million in 2008 compared to a net loss of US$19.5 million in 2007.

Bad debt provision

The Company determines its bad debt provision based on the Company’s historical experience and the relative aging of receivables. The Company’s bad debt provision excludes receivables from a limited number of customers due to a high level of collection confidence. The Company provides bad debt provision based on the age category of the remaining receivables. A fixed percentage of the total amount receivable is applicable to receivables in each past due age category, ranging from 1% for the shortest past due age category to 100% for the longest past due age category. Any receivables deemed non-collectible will be written off against the relevant amount of provision. The Company’s bad debt provision made in 2008, 2007 and 2006 amounted to US$1.3 million, US$0.5 million, and US$3.0 million, respectively. The Company reviews, analyzes and adjusts bad debt provisions on a monthly basis.

Debt Arrangements

Set forth in the table below are the aggregate amounts, as of December 31, 2008, of the Company’s future cash payment obligations under the Company’s existing contractual arrangements on a consolidated basis:

		Payments due by period
						Less than
Contractual obligations		Total				1 year				1-2 years				3-5 years				After 5 years
		(consolidated, in US$ thousands)
Short-term borrowings		$	201,258			$	201,258			$	—			$	—			$	—
Long-term debt secured long-term loans			897,147				360,629				305,569				230,949				—
Operating lease obligations(1)			9,721				6,056				270				441				2,954
Purchase obligations(2)			59,594				59,594				—				—				—
Other long-term obligations(3)			120,204				78,446				37,204				4,554				—
Total contractual obligations		$	1,287,924			$	705,983			$	343,043			$	235,944			$	2,954

As of December 31, 2008, the Company’s outstanding long-term liabilities primarily consisted of US$897.1 million in secured bank loans, which are repayable in installments which commenced in June 2006, with the last payment in August 2012.

2006 Loan Facility (SMIC Shanghai). In June 2006, SMIC Shanghai entered into a USD denominated long-term facility arrangement for US$600.0 million with a consortium of international and PRC banks. Of this principal amount, US$393.0 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. This facility is secured by the manufacturing equipment located in SMIC Shanghai 8-inch fabs. As of December 31, 2007, SMIC Shanghai had fully drawn down on this loan facility. The principal amount is repayable starting from December 2006 in ten semi-annual installments. As of December 31, 2008, SMIC Shanghai had repaid US$334 million according to the repayment schedule. In 2008, the interest rate on the loan ranged from 2.47% to 5.76%. The interest expense incurred in 2008 and 2007 were US$17.0 million and US$17.3 million, of which US$5.4 million and US$3.3 million were capitalized as additions to assets under construction in 2008 and 2007, respectively.

The total outstanding balance of these long-term facilities is collateralized by certain plant and equipment at the original cost of US$1,871 million as of December 31, 2008.

The long-term loan agreement entered into in June 2006 contains the following covenants:

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):

Financial covenants for the Borrower including:

1.		Consolidated Tangible Net Worth of no less than US$1,200 million;
2.		Consolidated Total Borrowings to Consolidated Tangible Net Worth of:

	(a)		no more than 60% for periods up to and including 31 December 2008; and
	(b)		no more than 45% thereafter;

3.		Consolidated Total Borrowings to trailing preceding four quarters EBITDA not to exceed 1.50x; and
4.		Debt Service Coverage Ratio of no less than 1.5x. Debt Service Coverage Ratio means trailing four quarters EBITDA divided by scheduled principal repayments and interest expense for all bank borrowings (including hire purchases, leases and other borrowed monies) for the same period.

Financial covenants for the Guarantor including:

1.		Consolidated Tangible Net Worth of no less than US$2,300 million;
2.		Consolidated Net Borrowings to Consolidated Tangible Net Worth of:

	(a)		no more than 50% for period up to and including 30 June 2009;
	(b)		no more than 40% thereafter; and

3.

Consolidated Net Borrowings to trailing four quarters EBITDA of:

	(a)		no more than 1.50x for periods up to and including 30 June 2009; and
	(b)		no more than 1.30x thereafter.

2005 Loan Facility (SMIC Beijing). 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 December 31, 2006, SMIC Beijing had fully drawn-down US$600.0 million on this loan facility. The interest rate on this loan facility in 2008 ranged from 3.46% to 6.38%. The principal amount is repayable starting in December 2007 in six semi-annual installments. As of December 2008, SMIC Beijing had repaid an aggregated amount of US$300.0 million according to the repayment schedule. The interest expense incurred in 2008 and 2007 were US$25.6 million and US$42.2 million, of which US$1.6 million and US$2.3 million were capitalized as additions to assets under construction in 2008 and 2007, respectively.

The total outstanding balance of SMIC Beijing USD syndicate loan is collateralized by certain plant and equipment at the original cost of US$1,047 million as of December 31, 2008.

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

•		Where [Net profit + depreciation + amortization + financial expenses – (increase of accounts receivable and advanced payments + increase of inventory – increase in accounts payable and advanced receipts)] divided by financial expenses is less than 1; and
•		(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).

2005 EUR Loan Facility. 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 ABN Amro Bank N.V. Commerz Bank N.V., Shanghai Branch. The drawdown period of the facility ends on the earlier of (i) thirty 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 the Company in ten equal semi-annual installments. SMIC Tianjin had drawn down in 2006 and SMIC Shanghai had drawn down in 2007 and 2008.

As of December 31, 2008, SMIC Tianjin had drawn down EUR15.1 million and repaid an aggregate amount of EUR 9.1 million. As of December 31, 2008, the remaining balance is EUR6.0 million, the equivalent of US$8.6 million. In 2008, the interest rate on the loan ranged from 3.59% to 5.87%. The interest expenses incurred in 2008 and 2007 were US$0.6 million and US$0.7 million of which US$0.1 million and US$0.06 million were capitalized as additions to assets under construction in 2008 and 2007, respectively.

The total outstanding balance of the facility is collateralized by SMIC Tianjin’s certain plant and equipment at the original cost of US$21.8 million as of December 31, 2008.

As of December 31, 2008, SMIC Shanghai had drawn down EUR 56.9 million and repaid an aggregate amount of EUR 12.1 million. As of December 31, 2008, the remaining balance is EUR 44.8 million, the equivalent of US$63.4 million. In 2008, the interest rate on the loan ranged from 3.01% to 6.12%. The interest expenses incurred in 2008 and 2007 were US$2.1 million and US$0.3 million of which US$0.7 million and US$0.02 million were capitalized as additions to assets under construction in 2008 and 2007, respectively.

The total outstanding balance of the facility is collateralized by SMIC Shanghai’s certain plant and equipment at the original cost of US$114.5 million as of December 31, 2008.

2006 Loan Facility (SMIC Tianjin). In May 2006, SMIC Tianjin entered into a loan facility in the aggregate principal amount of US$300.0 million from 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. We have guaranteed SMIC Tianjin’s obligations under this facility. As of December 31, 2008 SMIC Tianjin had drawn down US$259.0 million from the facility. The principal amount is repayable starting from 2010 in six semi-annual installments. In 2008, the interest rate on the loan ranged from 3.11% to 6.03%. The interest expenses incurred for the years ended December 31, 2008 and 2007 were US$9.1 million and US$0.3 million, of which US$1.8 million and US$0.02 million were capitalized as additions to assets under construction in 2008 and 2007, respectively.

The total outstanding balance of the facility is collateralized by certain plant and equipment with an original cost of US$627.4 million as of December 31, 2008.

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

•		Where [Net profit + depreciation + amortization + financial expenses – (increase of accounts receivable and advanced payments + increase of inventory – increase in accounts payable and advanced receipts)] divided by financial expenses is less than 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.

Short-term Credit Agreements. As of December 31, 2008, the Company had ten short-term credit agreements that provided total credit facilities up to US$267.8 million on a revolving credit basis. As of December 31, 2008, the Company had drawn down US$201.2 million under these credit agreements and US$66.6 million is available for future borrowings. The outstanding borrowings under the credit agreements are unsecured. The interest expense incurred in 2008 was US$9.4 million. The interest rate on the loans ranged from 1.88% to 8.75% in 2008.

Capitalized Interest

Interest 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$10.7 million, US$7.7 million and US$4.8 million in 2008, 2007, and 2006, respectively, net of government subsidies, has been added to the cost of the underlying assets during the year and is amortized over the respective useful life of the assets. In 2008, 2007, and 2006, the Company recorded amortization expenses relating to the capitalized interest of US$6.9 million, US$5.4 million, and US$4.7 million, respectively.

Commitments

As of December 31, 2008, the Company had commitments of US$7.4 million for facilities construction obligations in Chengdu, Beijing, Tianjin and Shanghai. The Company had commitments of US$52.2 million to purchase machinery and equipment for the testing facility in Chengdu and for the Beijing, Tianjin and Shanghai fabs.

Debt to Equity Ratio

As of December 31, 2008, the Company’s debt to equity ratio was approximately 40.0% calculated based on the sum of the short-term borrowings, current portion of long-term debt and long-term debt divided by total shareholders’ equity.

Foreign Exchange Rate Fluctuation Risk

The Company’s revenue, expense, and capital expenditures are primarily transacted in U.S. dollars. However, since the Company has operations consisting of manufacturing, sales and purchasing activities outside of the U.S., the Company enters into transactions in other currencies. The Company is primarily exposed to changes in exchange rate for the Euro, Japanese Yen, and Rmb.

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 Rmb, Japanese Yen or Euros and do not qualify for hedge accounting in accordance with SFAS No. 133.

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 EUR 85 million. The company is primarily exposed to changes in the exchange rate for the Euro.

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

For the portion of the Euro long-term loan that is not covered by cross currency swap contracts, we have separately entered to into foreign exchange forward contracts to minimize the currency risk. These foreign exchange forward contracts do not qualify for hedge accounting in accordance with SFAS No. 133.

Outstanding Foreign Exchange Contracts

As of December 31, 2008, the Company had outstanding foreign currency forward exchange contracts with notional amounts of US$220.7 million. As of December 31, 2008, the fair value of foreign currency forward exchange contracts was approximately a loss of US$3.5 million, which is recorded in other income and other current assets. The Company had US$220.7 million of foreign currency exchange contracts outstanding as of December 31, 2008, all of which will mature during 2009.

The Company had US$0.4 million of foreign currency exchange contracts outstanding as of December 31,2007, all of which matured in 2008.

The Company had US$35.7 million of foreign currency exchange contracts outstanding as of December 31,2006, all of which matured in 2007.

The Company does not enter into foreign currency exchange contracts for speculative purposes.

		As of December 31, 2008								As of December 31, 2007								As of December 31, 2006
		(in US$ thousands)								(in US$ thousands)								(in US$ thousands)
		2008				Fair Value				2007				Fair Value				2006				Fair Value
Forward Exchange Agreement
(Receive Jpy/Pay US$)
Contract Amount			—				—				—				—				35,660				(2,694	)
(Receive Eur/Pay US$)
Contract Amount			31,144				(440.8	)			—				—				—				—
(Receive Rmb/Pay US$)
Contract Amount			189,543				(3,069.5	)			404				530.4				—				—
Total Contract Amount			220,687				(3,510.3	)			404				530.4				35,660				(2,694	)

Outstanding Cross Currency Swap Contracts

As of December 31,2008, the Company had outstanding cross currency swap contracts with notional amounts of US$36.7 million. Notional amounts are stated in the U.S. dollar equivalents at spot exchange rates as of the respective dates. As of December 31, 2008, the fair value of cross currency swap contracts was approximately a loss of US$0.36 million, which is recorded in other income (expenses), net and accrued expenses and other current liabilities. We had US$36.7 million of cross currency swap contracts outstanding as of December 31, 2008, all of which will mature in 2012.

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 table below presents annual principal amounts due and related weighted average implied forward interest rates by year of maturity for the Company’s debt obligations outstanding as of December 31, 2008. 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 rates on the Company’s EUR-denominated loan is linked to the EURIBOR. As a result, the interest rates on the Company’s loans are subject to fluctuations in the underlying interest rates to which they are linked.

		As of December 31,
		2009				2010				2011				2012				2013
		(Forecast)
		(in US$ thousands, except percentages)
US$ denominated
Average balance			754,059				361,029				133,435				37,225				—
Average interest rate			1.83	%			1.81	%			2.03	%			2.22	%			—
EUR denominated
Average balance			46,551				29,789				16,201				3,245				—
Average interest rate			1.99	%			2.01	%			2.10	%			2.48	%			—
Weighted average forward interest rate			1.89	%			1.89	%			2.13	%			2.32	%			—

Litigation

Overview of TSMC Litigation:

Beginning in December 2003 through August 2004, the Company became subject to several lawsuits brought by Taiwan Semiconductor Manufacturing Company, Limited (“TSMC”) relating to alleged infringement of certain patents and misappropriation of alleged trade secrets relating to methods for conducting semiconductor fab operations and manufacturing integrated circuits.

On January 30, 2005, the Company and TSMC exchanged signature pages later attached to a settlement agreement. Terms were added to the agreement subsequent to the exchange of signatures. The identification of the exact terms of the agreement were determined at a preliminary trial in 2009, as described below under “Recent TSMC Legal Developments.” As found by the California Superior Court, SMIC and TSMC agreed, without admission of liability, to dismiss all pending legal actions without prejudice between the two companies (the “Settlement Agreement”). The terms of the Settlement Agreement also were determined to include the following:

1)

The Company and TSMC agreed to cross-license each other’s patent portfolio for all semiconductor device products, effective from January 2005 through December 2010.

2)

TSMC covenanted not to sue the Company for trade secret misappropriation as alleged in TSMC’s legal actions as it related to .15µm and larger processes subject to certain conditions (“TSMC Covenant”). The TSMC Covenant did not cover .13µm and smaller technologies after 6 months following execution of the Settlement Agreement (July 31, 2005). Excluding the .13µm and smaller technologies, the TSMC Covenant remains in effect indefinitely, terminable upon a breach by the Company.

3)

The Company is required to deposit certain Company materials relating to .13µm and smaller technologies into an escrow account until December 31, 2006 or under certain circumstances for a longer period of time.

4)

The Company agreed to pay TSMC an aggregate of $175 million in installments of $30 million for each of the first five years and $25 million in the sixth year.

Accounting under the Settlement Agreement:

In accounting for the Settlement Agreement, the Company determined that there were several components of the Settlement Agreement — settlement of litigation, covenant not to sue, patents licensed by us to TSMC and the use of TSMC’s patent license portfolio both prior and subsequent to the settlement date.

The Company does not believe that the settlement of litigation, covenant not to sue or patents licensed by us to TSMC qualify as accounting elements. In regard to the settlement of litigation, the Company cites the following:

1)

The settlement agreement reached between TSMC and SMIC clearly stated that there was no admission of liability by either party;

2)

The settlement agreement required all parties to bear their own legal costs;

3)

There were no other damages associated with the Settlement Agreement;

4)

There was a provision in the Settlement Agreement for a grace period to resolve any misappropriation issues had they existed;

5)

Albeit a complaint had been filed by TSMC on trade secret infringement, TSMC has never identified to the Company which trade secrets it claimed were being infringed upon by the Company;

6)

The Settlement Agreement was concluded when the litigation process was still at a relatively early stage and the outcome of the litigation was therefore highly uncertain.

The TSMC covenant not to sue for alleged trade secrets misappropriation does not qualify as a separable asset in accordance with either SFAS 141 or SFAS 142 as TSMC had never specified the exact trade secrets that it claimed were misappropriated, the Company’s belief that TSMC’s trade secrets may be obtained within the marketplace by other legal means and the Company never obtained the legal right to use TSMC’s trade secrets.

In addition, the Company did not attribute any value to the patents licensed to TSMC under the Settlement Agreement due to the limited number of patents held by the Company at the time of the Settlement Agreement.

As a result, the Company determined that only the use of TSMC’s patent license portfolio prior and subsequent to the settlement date were considered elements of an arrangement for accounting purposes. In attributing value to these two elements, the Company first discounted the payment terms of the $175 million settlement amount using an annual 3.4464% interest rate to arrive at a net present value of $158 million. This amount was then allocated to the pre- and post-settlement periods based on relative fair value, as further described below.

Based on this approach, $16.7 million was allocated to the pre-settlement period, reflecting the amount that the Company would have paid for use of the patent license portfolio prior to the date of the Settlement Agreement. The remaining $141.3 million, representing the relative fair value of the licensed patent license portfolio, was recorded on the Company’s consolidated balance sheets as a deferred cost and is being amortized over a six-year period, which represents the life of the licensed patent license portfolio. The amortization of the deferred cost is included as a component of cost of sales in the consolidated statements of operations.

Valuation of Deferred Cost:

The fair value of the patent license portfolio was calculated by applying the estimated royalty rate to the specific revenue generated and expected to be generated from the specific products associated with the patent license portfolio.

The selected royalty rate was based on the review of median and mean royalty rates for the following categories of licensing arrangements:

a)

existing third-party license agreements with SMIC;

b)

the analysis of comparable industry royalty rates related to semiconductor chip/integrated circuit (“IC”) related technology; and

c)

the analysis of comparable industry royalty rates related to semiconductor fabrication.

On an annualized basis, the amounts allocated to past periods was lower than that allocated to future periods as the Company assumed increases in revenues relating to the specific products associated with the patent license portfolio.

As the total estimated fair value of the patent license portfolio exceeded the present value of the settlement amount, the Company allocated the present value of the settlement amount based on the relative fair value of the amounts calculated prior and subsequent to the settlement date.

Recent TSMC Legal Developments:

On August 25, 2006, TSMC filed a lawsuit against the Company and certain subsidiaries, namely 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. The Court has set a trial date of September 8, 2009.

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, namely, 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.

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.

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 August 6, 2008, the Court granted in part and denied in part TSMC’s motion.

On June 23, 2008, the Company filed in the 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 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 3rd parties. On August 8, 2008, the Court granted-in-part TSMC’s motion and preliminarily enjoined SMIC from disclosing fourteen 0.30 µm process steps. On October 3, 2008, SMIC filed a notice of appeal of the Court’s August 8, 2008 Order with the California Court of Appeal. This appeal is currently pending.

During the pre-trial proceedings in the matter, as noted above under “Overview of TSMC Litigation”, questions arose regarding the actual terms of the 2005 Settlement Agreement between SMIC and TSMC. Accordingly, the California Court held a preliminary trial on January 13 to 16, 2009, limited to a determination of the terms of the Settlement Agreement and an interpretation of any requirements to “meet and confer” prior to institution of litigation. On March 10, 2009, the Court issued a Statement of Decision finding, in part, that an agreement between the parties was executed on January 30, 2005, and thereafter amended on February 2, 2005, as urged by TSMC. The Court’s ruling may be appealed by SMIC following the filing of a final judgment by the Court in this matter.

The California Court has further scheduled a trial upon all liability issues related to a selected list of TSMC trade secret claims and SMIC trade secret claims to commence on September 8, 2009.

In the Company’s action in the Beijing High People’s Court, following an unsuccessful challenge to that Court’s jurisdiction by TSMC, the Court has held evidentiary hearings on October 15, October 29, and November 25, 2008. There are no further hearings scheduled by that Court and it is expected that the Court will issue a ruling based on the evidence presented to it.

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 discovery 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 discovery stage, the Company is unable to evaluate the likelihood of an unfavorable outcome or to estimate the amount or range of potential loss.

Directors and Senior Management

Members of the Board who served during 2008 were:

Yang Yuan Wang (Chairman of the Board and Independent Non-executive Director);

Richard Ru Gin Chang (Executive Director, President and Chief Executive Officer of the Company);

Wang Zheng Gang (Non-executive Director who was appointed as the Alternate Director to Zhou Jie as of January 23, 2009);

Ta-Lin Hsu (Independent Non-executive Director who resigned as of September 30, 2008);

Tsuyoshi Kawanishi (Independent Non-executive Director);

Henry Shaw (Independent Non-executive Director who resigned as of January 13, 2009);

Lip-Bu Tan (Independent Non-executive Director);

Albert Y. C. Yu (Independent Non-executive Director who retired as of June 2, 2008); and

Jiang Shang Zhou (Independent Non-executive Director).

Re-election of Directors

Shareholders are invited to re-elect Class II Directors at the 2009 annual general meeting of the Company’s shareholders (the “2009 AGM”) to fill the vacancies available due to the retirements of the Directors mentioned below.

Two Class II Directors, Lip-Bu Tan and Jiang Shang Zhou, whose initial appointments as Directors took effect on February 28, 2002 and May 30, 2006, respectively, will retire from office at the 2009 AGM pursuant to Article 90 of the Company’s Articles of Association. Each of Mr. Tan and Mr. Jiang will offer himself for re-election as a Class II Director. If re-elected, each of Mr. Tan and Mr. Jiang would hold office until the 2012 annual general meeting of the Company.

Mr. Zhou Jie (Wang Zheng Gang as the Alternate Director to Zhou Jie) and Prof. Edward S Yang, whose initial appointments as Directors took effect on January 23, 2009 and February 5, 2009 respectively, will both retire from office at the 2009 AGM pursuant to Article 126 of the Articles of Association of the Company. Mr. Zhou and Prof. Yang will offer themselves for re-election as a Class III and Class I Director, respectively. If re-elected, Mr. Zhou and Prof. Yang would hold office until the 2010 and 2011 annual general meeting of the Company respectively.

Details of the proposed candidates for re-election as Directors at the 2009 AGM are set out in the circular to the shareholders sent together with this annual report.

Appointment of Directors

Shareholders are also invited to appoint each of Mr. Chen Shanzhi and Mr. Gao Yonggang at the 2009 AGM as additions to the existing Directors. If elected, Mr. Gao will be designated as a non-executive Class I Director and will hold office until the 2011 annual general meeting of the Company, and Mr. Chen will be designated as a non-executive Class II Director and will hold office until the 2012 annual general meeting of the Company.

Details of the proposed candidates for election as Directors at the 2009 AGM are set out in the circular to the shareholders sent together with this annual report.

Board of Directors and Senior Management

Members of the Board are re-elected or elected by the Company’s shareholders. As of December 31, 2008, the Board consisted of seven (7) Directors.

The Company’s senior management is appointed by, and serves at the discretion of, the Board. The following table sets forth the names, age and positions of the Directors and the senior management of the Company, including its founder, as of the date of this annual report.

Name		Age				Position
Directors
Yang Yuan Wang			74			Chairman, Independent Non-executive Director
Richard Ru Gin Chang			61			Founder, President, Chief Executive Officer and Executive Director
Zhou Jie			41			Non-executive Director
Wang Zheng Gang			58			Non-executive Director (Alternate Director to Zhou Jie)
Jiang Shang Zhou			62			Independent Non-executive Director
Tsuyoshi Kawanishi			80			Independent Non-executive Director
Lip-Bu Tan			49			Independent Non-executive Director
Edward S Yang			71			Independent Non-executive Director
Senior Managers
Morning Wu			52			Acting Chief Financial Officer and Chief Accounting Officer
Marco Mora			50			Chief Operating Officer
Chiou-Feng Chen			52			Vice President of Corporate Marketing & Sales Office
Anne Wai Yui Chen			46			Company Secretary, Hong Kong Representative and Chief Compliance Officer

Brief Biographical Details

Chairman of the Board, Independent Non-Executive Director		Yang Yuan Wang is currently the Chairman and has been a Director since 2001. Professor Wang has more than 41 years of experience related to the semiconductor industry. He is the Chairman of SMIC Shanghai, SMIC Beijing, SMIC Chengdu, SMIC Tianjin, SMIC Energy Technology (Shanghai) Corporation and is also a director of SMIC Shenzhen. He is also the Chief Scientist of the Institute of Microelectronics, Peking University, and Academician of Chinese Science Academy. He is a fellow of the Chinese Academy of Sciences, The Institute of Electrical and Electronics Engineers (USA), The Institute of Electrical Engineers (UK) and Chinese Institute of Electronics (China).
Founder, President, Chief Executive Officer and Executive Director		Richard Ru Gin Chang founded the Company in April 2000 and is currently President, Chief Executive Officer and Executive Director. Dr. Chang is also a director of SMIC Shanghai, SMIC Beijing, SMIC Tianjin, SMIC Shenzhen and SMIC Energy Technology (Shanghai) Corporation, and each of their direct and indirect parent companies. He is also a director of SMIC Japan Corporation, SMIC, Americas, SilTech Semiconductor (Hong Kong) Corporation Limited, Admiral Investment Holdings Limited and Magnificent Tower Limited, Semiconductor Manufacturing International (AT) Corporation and its two wholly owned subsidiaries including SMIC Chengdu. Dr. Chang has more than 30 years of semiconductor experience in foundry operations, wafer fabrication and research and development. From 1998 to 1999, Dr. Chang was President of Worldwide Semiconductor Manufacturing Corp., or WSMC, after joining the company in 1997. Prior to joining WSMC, Dr. Chang worked for 20 years at Texas Instruments Incorporated, where he helped build and manage the technology development and operations often semiconductor fabs and integrated circuit operations in the United States, Japan, Singapore, Italy and Taiwan. Dr. Chang received a PhD in Electrical Engineering from Southern Methodist University and a master’s degree in Engineering Science from the State University of New York. In December 2003, Dr. Chang was selected by the China Center of Information Development as one of the ten“China IT Economic People of 2003” for his role in influencing and contributing to the development of China’s information technology industry. In September 2004, Dr. Chang received The Magnolia Silver Award. The award recognizes Dr. Chang’s contributions to Shanghai’s economy, social development and international interchange and cooperation. In April 2005, Dr. Chang received The International Scientific and Technological Cooperation Award of The People’s Republic of China. In February 2006, he was elected the 2004-2005 China Semiconductor Industry Leader. Semiconductor International China named Dr. Chang its Fab Person of the Year in 2007, and SEMI China recognized him with its 2008 Industry Outstanding Contribution award. Semiconductor International China named Dr. Chang its Fab Person of the Year in 2007, and SEMI China recognized him with its 2008 Industry Outstanding Contribution award.

Non-executive Director		Zhou Jie has been a Director since 2009. Mr. Zhou is an executive director and the executive deputy CEO of Shanghai Industrial Holdings Limited. He is also an executive director and the executive vice president of Shanghai Industrial Investment (Holdings) Co. Ltd. and a director of Shanghai Industrial Pharmaceutical Investment Co. Ltd., Chia Tai Qingchunbao Pharmaceutical Co. Ltd., Shanghai Sunway Biotech Co. Ltd. and The Wing Fat Printing Co. Ltd., a non-executive director of Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co. Ltd. and the chairman of the supervisory committee of Bright Dairy and Food Co. Ltd. Mr. Zhou graduated from Shanghai Jiaotong University with a master’s degree in management science and engineering. He was formerly the deputy general manager of the investment banking head office of Shanghai Wanguo Holdings Ltd. (now Shenyin & Wanguo Securities Co. Ltd.) and previously held the positions of the chairman and general manager of Shanghai S.I. Capital Co. Ltd. He has over 10 years’ experience in investment banking and capital markets operation.
		Wang Zheng Gang has been a Director since 2007 and he is currently the alternate director of Mr. Zhou Jie. Mr. Wang is the chief representative of the Shanghai Representative Office of Shanghai Industrial Holdings Limited and chairman of SIIC Management (Shanghai) Ltd. He is also the vice chairman of Bright Dairy and Food Co. Ltd, a director of Shanghai Urban Development (Holdings) Co. Ltd., Shanghai Hu-Ning Expressway (Shanghai Section) Co. Ltd. and Shanghai SIIC South Pacific Hotel Co. Ltd. He was the head of Shanghai Dongfeng Rubber No. 2 Factory, Principal of Shanghai Dongfeng Farm, vice chairman and general manager of Shanghai Agricultural Industrial and Commercial Corp. Ltd. and a director and general manager of SIIC Africa Enterprise Ltd. and general manager of the enterprise management department of Shanghai Industrial Investment (Holdings) Co. Ltd. He graduated from the School of Management of Fudan University with a master’s degree in economics and has over 31 years’ experience in enterprise management.
Independent Non-executive Directors		Tsuyoshi Kawanishi has been a Director since 2001 and is also the chairman of SMIC Japan Corporation. Mr. Kawanishi has more than 50 years of experience in the electronics industry with Toshiba Corporation, where he served as, among other positions, senior executive vice president and senior advisor. Mr. Kawanishi currently serves on the board of directors of Asyst Technologies, Inc., FTD Technology Pte. Ltd. and T.C.S. Japan, and acts as an advisor to Accenture Ltd., Kinetic Holdings Corporation and a number of private companies. Mr. Kawanishi is also the chairman of the Society of Semiconductor Industry Seniors in Japan and the Chairman of the SIP Consortium of Japan.
		Lip-Bu Tan has been a Director since 2002 and is a director of SMIC Tianjin. Mr. Tan is the Founder and Chairman of Walden International, an international venture capital firm founded in 1984. Mr. Tan is also President and Chief Executive Officer of Cadence Design Systems, Inc. Mr. Tan is currently a director of Cadence Design Systems Inc., Flextronics International Ltd., Global Semiconductor Alliance and SINA Corporation and several other private Companies. He holds an M.S. in Nuclear Engineering from the Massachusetts Institute of Technology, an M.B.A. from the University of San Francisco and a B.S. from Nanyang University, Singapore.

Independent Non-executive Directors		Jiang Shang Zhou has been a Director since 2006. Mr. Jiang is currently a committee member of the Shanghai Municipal Standing Committee of Chinese People’s Political Consultative Conference, a specialized committee member of the Shanghai Municipal Advisory Committee for Descion-making, and an officer of and a director commissioner of Shanghai State Owned Assets Planning and Investment Committee. Mr. Jiang was also the deputy secretary general of Shanghai Government, officer of the Shanghai Chemical Industrial District Leader Team Office, officer of Shanghai International Automobile City Leader Team Office and officer of the Shanghai Fuel Cell Electric Vehicles (863 major project) Leader Team Office. Mr. Jiang received his bachelor’s degree from Tsinghua University in telecommunications and his master’s and doctorate degree in information technology from the department of electrical enineering of The Swiss Federal Institute of Technology Zurich Communication System Group.
		Edward S Yang has been a Director since 2009. Since 1961, Professor Yang has been involved in semiconductors and IC as an engineer, research scientist, and educator. Professor Yang received his Master of Science in Electrical Engineering from Oklahoma State University in 1961 and PhD from Yale University in 1966. Professor Yang was the Chairman of the Department of Electrical Engineering at Columbia University from 1986 to 1990 and from 1992 to 1995. Under his leadership, research laboratories in Telecommunications, Microelectronics, Photonics, and IC at Columbia University were established. Professor Yang joined the University of Hong Kong (“HKU”) as Chair Professor of Microelectronics in 1997. At HKU, he founded the Hong Kong Jockey Club MRI Engineering Centre and E-Business Technology Institute. Professor Yang was appointed as the chief executive officer of the Hong Kong Applied Science and Technology Research Institute (“ASTRI”) in 2007. At ASTRI, he initiated the new Industrial Collaboration Program and Internship for fresh university graduates. In 2009, he stepped down as ASTRI’s chief executive officer but remains as its senior advisor. Professor Yang has 7 US patents and published more than 200 journal papers and two popular textbooks that were translated into Chinese, Japanese, Italian and Korean. He is a fellow of the Institute of Electrical and Electronics Engineers. Professor Yang also served as an independent non-executive director of Fulbond Holdings Limited (Stock Code: 1041), the shares of which are listed on the Main Board of HKSE, from March 30, 2001 to January 3, 2007.

Senior Management		Morning Wu joined the Company as Associate Vice President of Finance and Accounting in January 2003 and was appointed as Acting Chief Financial Officer and Chief Accounting Officer of the Company on March 28, 2005. Ms. Wu has over 27 years of experience in the investment and finance field. Prior to joining the Company, Ms. Wu held management positions with First Taiwan Securities Inc. and Grand Cathay Securities Co. Ltd. Her responsibilities at these companies included strategic planning, mergers & acquisitions and designing and monitoring risk management systems. She holds a license for Accounting and Auditor with the Senior Civil Service Examination of Taiwan. Ms. Wu obtained a bachelor’s degree in Accounting from the National Chengchi University, Taiwan and received a master’s degree in Accounting from the National Taiwan University.
		Marco Mora joined the Company in 2000 as Vice President of Operations and was named the Chief Operating Officer in November 2003. Mr. Mora has more than 22 years of experience in the semiconductor industry. Prior to joining the Company, Mr. Mora held management positions with STMicroelectronics N.V., Texas Instruments Italia S.p.A, Micron Technology Italia S.p.A and WSMC. Mr. Mora received a master’s degree in Physics from the University of Milan.
		Chiou-Feng Chen joined the Company in 2006 as Vice President of Special Technology Development and was appointed as Vice President of Corporate Marketing & Sales in 2009. Mr. Chen has over 20 years of experience in the semiconductor industry. Prior to Joining SMIC, Mr. Chen held various management positions with Taiwan Semiconductor Manufacturing Company, SYNTEK Design Technology Ltd., Silicon Storage Technology, Inc., Integrated Memory Technologies, and Inc., Actrans System Inc. Mr. Chen obtained a master degree and a doctorate degree in Electronic Engineering from National Chiao-Tung University, Taiwan.
Company Secretary		Anne Wai Yui Chen joined the Company in 2001 and is the Company’s Hong Kong Representative, Company Secretary and Chief Compliance Officer. Ms. Chen is admitted as a solicitor in Hong Kong, England and Wales and Australia and was admitted as an advocate and solicitor in Singapore. She had served as a deputy adjudicator of the Small Claims Tribunal in Hong Kong in 1999 and has served as the President of the Hong Kong Federation of Women Lawyers from 2000 to 2002 and since 2008. Prior to joining the Company in 2001, she had been a practicing solicitor in Hong Kong since 1987.

Report of the Directors

Subsidiaries

Except as otherwise listed below, the Company owns 100% of the issued and outstanding share capital of its subsidiaries. As of December 31, 2008, these subsidiaries are as follows:

1.

Semiconductor Manufacturing International (Shanghai) Corporation* (“SMIS”)* Principal place of operation: Shanghai, PRC Place of incorporation: Shanghai, PRC Legal entity: Wholly foreign-owned enterprise Total investment: US$5,200,000,000 Registered capital: US$1,740,000,000 Equity holder: the Company (100%)

2.

Semiconductor Manufacturing International (Beijing) Corporation (“SMIB”)* Principal place of operation: Beijing, PRC Place of incorporation: Beijing, PRC Legal entity: Wholly foreign-owned enterprise Total investment: US$3,000,000,000 Registered capital: US$1,000,000,000 Equity holder: the Company (100%)

3.

Semiconductor Manufacturing International (Tianjin) Corporation* (“SMIT”)* Principal place of operation: Tianjin, PRC Place of incorporation: Tianjin, PRC Legal entity: Wholly foreign-owned enterprise Total investment: US$1,100,000,000 Registered capital: US$690,000,000 Equity holder: the Company (100%)

4.

Semiconductor Manufacturing International (Chengdu) Corporation (“SMICD”)* Principal place of operation: Chengdu, PRC Place of incorporation: Chengdu, PRC Legal entity: Wholly foreign-owned enterprise Total investment: US$175,000,000 Registered capital: US$60,000,000 Equity holder: the Company (57.3%, indirectly through Semiconductor Manufacturing International (AT) Corporation)

5.

SMIC Japan Corporation* Principal country of operation: Japan Place of incorporation: Japan Authorised capital: JPY10,000,000 divided into 200 shares of a par value of JPY50,000 Equity holder: the Company (100%)

6.

SMIC, Americas Principal country of operation: U.S.A. Place of incorporation: California, US Registered capital: No registered capital, authorized to issue 50,000,000 shares of common stock Equity holder: the Company (100%)

7.

Better Way Enterprises Limited Principal country of operation: Samoa Place of incorporation: Samoa Authorised capital: US$1,000,000 divided into 1,000,000 shares of a par value of US$1.00 Issued share capital: US$1.00 Equity holder: the Company (100%)

8.

SMIC Europe S.R.L. Principal place of operation: Agrate Brianza (Milan), Italy Place of incorporation: Agrate Brianza (Milan), Italy Registered capital: Euros100,000 Equity holder: the Company (100%)

9.

Garrison Consultants Limited Principal country of operation: Samoa Place of incorporation: Samoa Authorised capital: US$1,000,000 divided into 1,000,000 shares of a par value of US$1.00 Issued share capital: US$1.00 Equity holder: the Company (100%, indirectly through Better Way Enterprises Limited)

10.

Semiconductor Manufacturing International (AT) Corporation (“AT”)* Principal country of operation: Cayman Islands Place of incorporation: Cayman Islands Authorised capital: US$1,900,000 divided into 100,000,000 ordinary shares of US$0.01 each and 90,000,000 Series A preference shares of US$0.01 each Equity holder: the Company (57.3%)

11.

Semiconductor Manufacturing International (Solar Cell) Corporation Principal country of operation: Cayman Islands Place of incorporation: Cayman Islands Authorised capital: US$11,000 Equity holder: the Company (100%)

12.

SMIC Energy Technology (Shanghai) Corporation* (“Energy Science”)* Principal place of operation: Shanghai, PRC Place of incorporation: Shanghai, PRC Legal entity: Wholly foreign-owned enterprise Total investment: US$14,090,000 Registered capital: US$6,000,000 Equity holder: the Company (100%, indirectly through SMIC Solar Cell (HK) Company Limited)

13.

SMIC Commercial Shanghai Limited Company Principal place of operation: Shanghai, PRC Place of incorporation: Shanghai, PRC Legal entity: Wholly foreign-owned enterprise Total investment: US$1,100,000 Registered capital: US$800,000 Equity holder: the Company (100%)

14.

SMIC Development (Chengdu) Corporation* Principal place of operation: Chengdu, PRC Place of incorporation: Chengdu, PRC Legal entity: Wholly foreign-owned enterprise Total Investment: US$12,500,000 Registered capital: US$5,000,000 Equity holder: the Company (100%)

15.

Magnificent Tower Limited Principal country of operation: British Virgin Islands Place of incorporation: British Virgin Islands Authorised capital: US$50,000 Issued share capital: US$1.00 Equity holder: the Company (100%, indirectly through Better Way Enterprises Limited)

16.

SMIC Shanghai (Cayman) Corporation Principal country of operation: Cayman Islands Place of incorporation: Cayman Islands Authorised capital: US$50,000 Issued share capital: US$0.0004 Equity holder: the Company (100%)

17.

SMIC Beijing (Cayman) Corporation Principal country of operation: Cayman Islands Place of incorporation: Cayman Islands Authorised capital: US$50,000 Issued share capital: US$0.0004 Equity holder: the Company (100%)

18.

SMIC Tianjin (Cayman) Corporation Principal country of operation: Cayman Islands Place of incorporation: Cayman Islands Authorised capital: US$50,000 Issued share capital: US$0.0004 Equity holder: the Company (100%)

19.

SMIC Shanghai (HK) Company Limited Principal place of operation: Hong Kong Place of incorporation: Hong Kong Authorised capital: HK$1,000 Issued share capital: HK$1.00 Equity holder: the Company (100%, indirectly through SMIC Shanghai (Cayman) Corporation)

20.

SMIC Beijing (HK) Company Limited Principal place of operation: Hong Kong Place of incorporation: Hong Kong Authorised capital: HK$1,000 Issued share capital: HK$1.00 Equity holder: the Company (100%, indirectly through SMIC Beijing (Cayman) Corporation)

21.

SMIC Tianjin (HK) Company Limited Principal place of operation: Hong Kong Place of incorporation: Hong Kong Authorised capital: HK$1,000 Issued share capital: HK$1.00 Equity holder: the Company (100%, indirectly through SMIC Tianjin (Cayman) Corporation)

22.

SMIC Solar Cell (HK) Company Limited Principal place of operation: Hong Kong Place of incorporation: Hong Kong Authorised capital: HK$10,000 Issued share capital: HK$1.00 Equity holder: the Company (100%, indirectly through Semiconductor Manufacturing International (Solar Cell) Corporation)

23.

SMIC AT (HK) Company Limited Principal place of operation: Hong Kong Place of incorporation: Hong Kong Authorised capital: HK$10,000 Issued share capital: HK$1.00 Equity holder: the Company (57.3%, indirectly through Semiconductor Manufacturing International (AT) Corporation)

24.

Semiconductor Manufacturing International (BVI) Corporation Principal country of operation: British Virgin Islands Place of incorporation: British Virgin Islands Authorised capital: US$10.00 Issued share capital: US$10.00 Equity holder: the Company (100%)

25.

Admiral Investment Holdings Limited Principal country of operation: British Virgin Islands Place of incorporation: British Virgin Islands Authorised capital: US$10.00 Issued share capital: US$10.00 Equity holder: the Company (100%)

26.

SMIC Shenzhen (Cayman) Corporation Principal country of operation: Cayman Islands Place of incorporation: Cayman Islands Authorised capital: US$50,000 Issued share capital: US$0.0004 Equity holder: the Company (100%)

27.

SMIC (Wuhan) Development Corporation* Principal place of operation: Wuhan, PRC Place of incorporation: Wuhan, PRC Legal entity: Wholly foreign-owned enterprise Total Investment: RMB$20,000,000 Registered capital: RMB$20,000,000 Equity holder: the Company (100%)

28.

SMIC Shenzhen (HK) Company Limited Principal place of operation: Hong Kong Place of incorporation: Hong Kong Authorised capital: HK$1,000 Issued share capital: HK$1.00 Equity holder: the Company (100%)

29.

SilTech Semiconductor Corporation Principal country of operation: Cayman Islands Place of incorporation: Cayman Islands Authorised capital: US$10,000 Issued share capital: US$0.1 Equity holder: the Company (100%)

30.

SilTech Semiconductor (Hong Kong) Corporation Limited Principal place of operation: Hong Kong Place of incorporation: Hong Kong Authorised capital: HK$1,000 Issued share capital: HK$1,000 Equity holder: the Company (100% indirectly through SilTech Semiconductor Corporation)

31.

Semiconductor Manufacturing International (Shenzhen) Corporation* Principal place of operation: Shenzhen, PRC Place of incorporation: Shenzhen, PRC Legal entity: Wholly foreign-owned enterprise Total Investment: US$ 30,000,000 Registered capital: US$12,000,000 Equity holder: the Company (100%)

Share Capital

During the year ended December 31, 2008, the Company issued 22,723,742 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 2001 Stock Option Plan and 47,047,073 ordinary shares to certain of eligible participants pursuant to the 2004 Equity Incentive Plan of the Company (the “EIP”). The Company did not issue any shares under the 2004 Stock Option Plan pursuant to exercise of options.

During the year ended December 31, 2008, the Company did not repurchase any ordinary shares from eligible participants pursuant to the terms of the Company’s 2001 Preference Shares Stock Plan and 2001 Regulation S Preference Shares Stock Plan (collectively the “2001 Preference Shares Plan”).

		Number of Ordinary Shares Outstanding
Outstanding Share Capital as at December 31, 2008			22,327,784,827

Under the terms of the Company’s 2004 Equity Incentive Plan, the Compensation Committee of the Company 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 2,039,716 ordinary shares to its eligible participants on or around January 1, 2007 and July 1, 2007. For the twelve months ended December 31, 2007, the Compensation Committee granted a total of 40,519,720 Restricted Share Units. For the twelve months ended December 31, 2008, the Compensation Committee granted a total of 41,907,100 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 no. of Restricted Share Units
		(the actual number of shares eventually to be
		issued may change due to departure
Vesting Dates		of eligible participants prior to vesting)
2008
1-Jan			13,869,750
19-Jan			12,500
1-Feb			250,000
1-Mar			225,000
3-Mar			250,000
19-Mar			13,320
23-Mar			175,000
1-Apr			50,000
25-Apr			50,000
29-Apr			100,000
1-May			75,000
15-May			62,500
1-Jun			100,000
21-Jun			75,000
1-Jul			16,530,976
1-Aug			540,000
1-Sep			10,892,718
13-Sep			250,000
16-Sep			125,000
1-Oct			767,500
16-Oct			222,216
1-Nov			250,000
1-Dec			101,930
6-Dec			100,000
12-Dec			75,000

		Approximate no. of Restricted Share Units
		(the actual number of shares eventually to be
		issued may change due to departure
Vesting Dates		of eligible participants prior to vesting)
2009
1-Jan			22,392,211
19-Jan			12,500
21-Jan			200,000
22-Jan			12,600
29-Jan			75,000
1-Feb			270,000
13-Feb			75,000
16-Feb			75,000
1-Mar			225,000
3-Mar			250,000
19-Mar			13,320
23-Mar			175,000
1-Apr			125,000
25-Apr			50,000
29-Apr			350,000
1-May			75,000
15-May			62,500
22-May			8,750
1-Jun			100,000
16-Jun			50,000
21-Jun			75,000
1-Jul			969,986
1-Aug			640,000
1-Sep			10,935,962
13-Sep			250,000
16-Sep			125,000
1-Oct			782,500
16-Oct			222,216
1-Nov			250,000
1-Dec			101,930
6-Dec			100,000
12-Dec			75,000

		Approximate no. of Restricted Share Units
		(the actual number of shares eventually to be
		issued may change due to departure
Vesting Dates		of eligible participants prior to vesting)
2010
1-Jan			22,584,710
19-Jan			12,500
21-Jan			200,000
22-Jan			12,600
29-Jan			75,000
1-Feb			270,000
13-Feb			75,000
16-Feb			75,000
1-Mar			225,000
3-Mar			250,000
19-Mar			13,320
23-Mar			175,000
1-Apr			75,000
1-May			75,000
15-May			62,500
22-May			8,750
1-Jun			100,000
16-Jun			100,000
21-Jun			75,000
1-Jul			662,590
1-Sep			720,720
16-Sep			125,000
1-Oct			782,500
16-Oct			222,216
1-Nov			250,000
1-Dec			101,930
6-Dec			100,000
12-Dec			75,000

		Approximate no. of Restricted Share Units
		(the actual number of shares eventually to be
		issued may change due to departure
Vesting Dates		of eligible participants prior to vesting)
2011
1-Jan			15,454,613
21-Jan			200,000
22-Jan			12,600
29-Jan			75,000
1-Feb			270,000
13-Feb			75,000
16-Feb			75,000
1-Mar			25,000
19-Mar			13,320
1-Apr			75,000
1-May			75,000
13-May			12,500
15-May			62,500
22-May			8,750
1-Jun			100,000
16-Jun			350,000
21-Jun			75,000
1-Jul			452,500
1-Sep			43,220
16-Sep			50,000
16-Oct			150,000
1-Nov			250,000
1-Dec			75,000
12-Dec			75,000
2012
1-Jan			8,828,613
21-Jan			200,000
29-Jan			75,000
1-Feb			20,000
13-Feb			75,000
16-Feb			75,000
1-Apr			75,000
13-May			12,500
22-May			8,750
1-Sep			18,720
2013
1-Jan			55,000

Repurchase, Sale or Redemption of Securities

Other than repurchases by the Company of ordinary shares from employees pursuant to the terms of the 2001 Stock Option Plans, as disclosed in the paragraph (Share Capital) above, the Company has not repurchased, sold or redeemed any additional ordinary shares in 2008.

No shares were repurchased during the year 2008.

Public Float

As of April 16, 2009, being the latest practicable date prior to the printing of this annual report, the public (as defined in the Rules Governing the Listing of Securities on the SEHK (“Listing Rules”)) holds more than 25% of the Company’s total issued share capital.

Debt to Equity Ratio

As of December 31, 2008, the Company’s debt to equity ratio was approximately 40.0% calculated based on the sum of the short-term borrowings, current portion of long-term debt and long-term debt divided by total shareholders’ equity.

Dividends and Dividend Policy

At the end of 2008, the Company’s accumulated deficit increased to US$748.5 million from an accumulated deficit of US$308.2 million at the end of 2007. The Company has not declared or paid any cash dividends on the ordinary shares. We intend to retain any earnings for use in the Company’s business and do not currently intend to pay cash dividends on the ordinary shares. Dividends, if any, on the outstanding shares will be declared by and subject to the discretion of the Board and must be approved at the annual general meeting of shareholders. The timing, amount and form of future dividends, if any, will also depend, among other things, on:

•

the Company’s results of operations and cash flow;

•

the Company’s future prospects;

•

the Company’s capital requirements and surplus;

•

the Company’s financial condition;

•

general business conditions;

•

contractual restrictions on the payment of dividends by the Company to its shareholders or by the Company’s subsidiaries to the Company; and

•

other factors deemed relevant by the Board.

The Company’s ability to pay cash dividends will also depend upon the amount of distributions, if any, received by the Company from its wholly-owned Chinese operating subsidiaries. Under the applicable requirements of Chinese Company Law, the Company’s subsidiaries in China may only distribute dividends after they have made allowances for:

•

recovery of losses, if any;

•

allocation to the statutory common reserve funds;

•

allocation to staff and workers’ bonus and welfare funds; and

•

allocation to a discretionary common reserve fund if approved by the Company’s shareholders.

More specifically, these operating subsidiaries may only pay dividends after 10% of their net profit has been set aside as statutory common reserves and a discretionary percentage of their net profit has been set aside for the staff and workers’ bonus and welfare funds. These operating subsidiaries are not required to set aside any of their net profit as statutory common reserves if such reserves are at least 50% of their respective registered capital. Furthermore, if they record no net income for a year, they generally may not distribute dividends for that year.

Contracts of Significance

On November 10, 2008, the Company announced the entering into of the Share Purchase Agreement pursuant to which Datang conditionally agreed to subscribe through a Hong Kong incorporated company, and the Company conditionally agreed to allot and issue, the New Shares. The New Shares represent 19.9% of the issued share capital of the Company prior to the issuance of the New Shares and approximately 16.6% of the issued share capital following the issuance of the New Shares, and were issued for a total purchase price of US$171.8 million.

The completion of the Share Purchase Agreement was conditional upon, amongst other things, the entering into of the Strategic Cooperation Agreement regarding the Non-Exempt Continuing Connected Transactions on or prior to completion. On December 24, 2008, the Company and Datang entered into the Strategic Cooperation Agreement for a period of two years commencing on the date of completion. The Company had no other material transaction with Datang in 2008.

Major Suppliers and Customers

In 2008, the Company’s largest and five largest raw materials suppliers accounted for approximately 8.0% and 32.3%, respectively, of the Company’s overall raw materials purchases. In 2007, the Company’s largest and five largest raw materials suppliers accounted for approximately 14.0% and 48.2%, respectively, of the Company’s overall raw material purchases. None of the Directors or shareholders (which to the knowledge of the Directors own more than 5% of the Company’s issued share capital) or their respective associates had interests in any of the Company’s five largest suppliers. Almost all of the Company’s materials are imported free of value-added tax and import duties due to concessions granted to the semiconductor industry in China.

For 2008, the Company’s largest and five largest customers accounted for approximately 21.7% and 58.2% respectively of the Company’s total overall sales. For 2007, the Company’s largest and five largest customers accounted for approximately 18.0% and 60.0%, respectively, of the Company’s total overall sales. The Company’s Chief Executive Officer, Richard Ru Gin Chang, and his wife together hold shareholding interests of less than 0.1% in one of the Company’s five largest customers in 2008, Texas Instruments Incorporated. None of the other Directors or shareholders (which to the knowledge of the Directors own more than 5% of the Company’s issued share capital) or their respective associates had interests in any of the Company’s five largest customers in 2008.

Pre-emptive Rights

The Company confirms that no pre-emptive rights exist in the law of the Cayman Islands.

Director’s Interests

As of December 31, 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 Securities and Futures Ordinance (Cap. 571 of the laws of Hong Kong) (“SFO”)), which were notified to the Company and the SEHK pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), and as recorded in the register required to be kept under section 352 of the SFO or as otherwise notified to the Company and the SEHK pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers were as follows:

Approximate

Percentage of Aggregate

Interests to Total

Board Member

Nature of Interest

Number of Shares

Issued Share Capital

Richard R. Chang

Personal Interest(1)

38,729,500

Personal Interest(2)(5)

17,600,000

Corporate Interest(3)

20,000,000

Interest of Spouse

9,790,000

Interest of Child under 18

11,200,000

Total

97,319,500

*

Tsuyoshi Kawanishi

Personal Interest(4)(5)

1,000,000

Personal Interest(6)

1,500,000

Total

2,500,000

*

Henry Shaw (ex-independent non-executive director who resigned as of January 13, 2009)

Personal Interest(4)(5)

1,000,000

*

Lip-Bu Tan

Personal Interest(4)(5)

1,000,000

*

Yang Yuan Wang

Personal Interest(4)(5)

1,000,000

*

Ta-Lin Hsu (ex-independent

Corporate Interest(7)

15,300,010

non-executive director who

Personal Interest(4)(5)

1,000,000

resigned as of September 30, 2008)

Total

16,300,010

*

Albert Y.C. Yu (ex-independent

Personal Interest

1,350,000

non-executive director who

Personal Interest(5)(8)

500,000

retired as of June 2, 2008)

Total

1,850,000

*

Notes:

(1)

Pursuant to a Charitable Pledge Agreement dated December 1, 2003, Richard Ru Gin Chang and his spouse, Scarlett K. Chang (collectively, the “Donors”) have pledged to transfer 10,000,000 of such shares as a charitable gift to The Richard and Scarlett Chang Family Foundation, a Delaware nonprofit nonstock corporation organized exclusively for religious, charitable, scientific, literary and education purposes within the meaning of Section 501(c)(3) of the US Internal Revenue Code of 1986, as amended, such transfer to be made in full at or prior to the death of the surviving Donor. In addition, 2,639,550 of such Shares are jointly held by Richard Ru Gin Chang and his spouse, Scarlett K. Chang.

(2)

The Compensation Committee has granted Dr. Chang options to purchase an aggregate of 15,600,000 ordinary shares, if fully exercised, and an award of 2,000,000 RSUs (each representing the right to receive one ordinary share). As at December 31, 2008, 1,500,000 RSUs had been issued and vested and 500,000 RSUs had been vested but remained unissued.

(3)

These ordinary shares are held by Jade Capital Company, LLC, a Delaware limited liability company (the “LLC”), of which Richard Ru Gin Chang and his spouse, Scarlett K. Chang (collectively, the “Members”), are the sole Members. It is the current intention of the Members that all or a portion of the net income of the LLC be used for philanthropic purposes, including but not limited to contributions to charitable organizations that are tax-exempt under Section 501(c)(3) of the US Internal Revenue Code of 1986, as amended.

(4)

Each independent Non-executive Director and Non-executive Director was granted an option to purchase 500,000 ordinary shares at a price per ordinary share of US$0.22. These options were fully vested on March 19, 2005 and will expire on November 9, 2009. As at December 31, 2008, these options have not been exercised. Mr. Lai Xing Cai (who resigned as an Non-executive Director on February 6, 2006) has declined such option. The option granted to Mr. Yen-Pong Jon (who retired as an Independent Non-executive Director at the annual general meeting held on May 30, 2006) lapsed and was cancelled on September 27, 2006. The options granted to Dr. Albert Yu (who resigned as an Independent Non-executive Director on June 2, 2008) lapsed on September 30, 2008. The options granted to Dr. Ta-Lin Hsu (who resigned as an Independent Non-executive Director on September 30, 2008) lapsed on January 29, 2009. The options granted to Mr. Henry Shaw (who resigned as an Independent Non-executive Director on January 13, 2009) will lapse on May 13, 2009.

(5)

Each Director was granted an option to purchase 500,000 ordinary shares at a price per ordinary share of US$0.132. These options were fully vested on May 30, 2008 and will expire on the earlier of September 29, 2016 or 120 days after termination of the director’s service to the Board. As at December 31, 2008, these options have not been exercised. Fang Yao (who resigned as non-executive director on August 30, 2007) and Jiang Shang Zhou have declined receipt of such options. The options granted to Dr. Albert Yu (who resigned as an Independent Non-executive Director on June 2, 2008) lapsed on September 30, 2008. The options granted to Dr. Ta-Lin Hsu (who resigned as an Independent Non-executive Director on September 30, 2008) lapsed on January 29, 2009. The options granted to Mr. Henry Shaw (who resigned as an Independent Non-executive Director on January 13, 2009) will lapse on May 13, 2009.

(6)

Tsuyoshi Kawanishi has been granted options to purchase an aggregate of 1,500,000 ordinary shares, if fully exercised. As at December 31, 2008, these options have not been exercised.

(7)

Dr. Ta-Lin Hsu has a controlling interest in AP3 Co-Investment Partners, LDC, which holds 15,300,010 ordinary shares.

(8)

On September 29, 2006, the Board granted to Dr. Albert Yu 500,000 RSUs. These RSUs were fully vested on May 30, 2008 and issued on June 3, 2008.

Directors’ Service Contracts

No Director proposed for re-election at the forthcoming AGM has or proposes to have a service contract which is not terminable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation.

Substantial Shareholders

Set out below are the names of the parties (not being a Director or chief executive of the Company) which were interested in 5 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 at December 31, 2008 as recorded in the register kept by the Company under section 336 of the SFO.

		Number of
Name of Shareholder		Shares Held				Percentage Held
Shanghai Industrial Investment (Holdings)			420,008,000 (longposition)	(1)			1.88% (longposition)
Company Limited (“SIIC”)			1,833,269,340 (longposition)	(2)			8.21% (longposition)
Total:			2,253,277,340 (longposition)				10.09% (longposition)
Datang Telecom Technology & Industry Holdings Co., Ltd. (“Datang”)			3,699,094,300 (longposition)	(3)			16.57% (longposition)

Notes:

(1)

All such ordinary shares are held by SIIC Treasury (B.V.I.) Limited which is a wholly-owned subsidiary of SIIC. The voting rights of such shares are vested in Shanghai Industrial Holdings Limited (“SIHL”),

(2)

All such shares are held by S.I. Technology Production Holdings Limited (“SITPHL”) which is a wholly-owned subsidiary of SIHL. SIHL is an indirect non-wholly owned subsidiary of SIIC which is holding SIHL’s shares through its subsidiaries, which together are entitled to exercise or control the exercise of more than one-third of the voting power at the general meetings of SIHL. By virtue of the SFO, SIIC and its subsidiaries namely, Shanghai Investment Holdings Limited and Shanghai Industrial Investment Treasury Company Limited are deemed to be interested in the 1,833,269,340 Shares held by SITPHL. The Company’s Director as at December 31, 2008, Wang Zheng Gang, is the Chief Representative of the Shanghai Representative Office of SIHL and the chairman of SIIC Management (Shanghai) Limited. It is the Company’s understanding that voting and investment control over the Ordinary Shares beneficially owned by SIHL are maintained by the board of directors of SIHL.

(3)

All such shares are held by Datang Holdings (Hongkong) Investment Company Limited which is a wholly-owned subsidiary of Datang.

Emoluments to the Directors

The chart below sets forth the emoluments to each of our Directors, including Richard Ru Gin Chang, our President, Chief Executive Officer and Executive Director, in 2008, 2007 and 2006.

																																										Wang
		Richard Ru				Tsuyoshi				Yang				Yuan				Ta-Lin				Lip-Bu				Henry				Fang				Albert				Jiang Shang				Lai Xing				Zheng				Yen Pong
		Gin Chang				Kawanishi				Wang				Hsu				Tan				Shaw				Yao				Y. C. Yu				Zhou				Cai				Gang				Jou				Total
		(in US$)				(in US$)				(in US$)				(in US$)				(in US$)				(in US$)				(in US$)				(in US$)				(in US$)				(in US$)				(in US$)				(in US$)				(in US$)
2008
Salaries and other benefits		$	218,398	(1)		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	218,398
Stock Option Benefits*		$	144,300			$	4,285			$	4,285			$	4,285			$	4,285			$	4,285			$	—			$	12,489			$	—			$	—			$	—			$	—			$	178,214
Total		$	362,698			$	4,285			$	4,285			$	4,285			$	4,285			$	4,285			$	—			$	12,489			$	—			$	—			$	—			$	—			$	396,612
2007
Salaries and other benefits		$	195,395			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	195,395
Stock Option Benefits*		$	172,203			$	17,189			$	17,189			$	17,189			$	17,189			$	17,189			$	—			$	50,094			$	—			$	—			$	—			$	—			$	308,242
Total		$	367,598			$	17,189			$	17,189			$	17,189			$	17,189			$	17,189			$	—			$	50,094			$	—			$	—			$	—			$	—			$	503,637
2006
Salaries and other benefits		$	192,727			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	192,727
Stock Option Benefits*		$	156,241			$	12,951			$	12,951			$	12,951			$	12,951			$	12,951			$	—			$	37,742			$	—			$	—			$	—			$	—			$	258,738
Total		$	348,968			$	12,951			$	12,951			$	12,951			$	12,951			$	12,951			$	—			$	37,742			$	—			$	—			$	—			$	—			$	451,465