What happened

Semiconductor Manufacturing International (NYSE:SMI) reported third-quarter results early Tuesday morning, and investors didn't like the report at all. Share prices fell as much as 11.5% in the morning session, recovering to a 10.7% drop as of 10:50 a.m. EST.

So what

The report itself wasn't bad at all. Analysts had been expecting adjusted earnings of $0.02 per American depositary share, culled from top-line sales of $762 million. The maker of tools and materials used for manufacturing of solar cells and computer chips reported earnings of $0.03 per ADS on $770 million in revenue.

Looking ahead, SMI expects sales growth to slow down in the fourth quarter while gross margins should shrink from 23% to 19%. If everything works out according to management's forecasts, the company might report a modest operating loss in the next reporting period. Analysts are currently expecting a small net profit and significant revenue growth.

A semiconductor wafer in the middle of the manufacturing process.

Image source: Getty Images.

Now what

SMI shares have gained 70% in the last three months as the semiconductor industry as a whole flexed some serious growth muscle. But management is pulling back from high factory utilization and strong growth trends to rebuild and upgrade its own facilities in preparation for better long-term growth prospects.

Even after today's sharp correction, SMI stock is trading near multiyear highs. The company is doing the right thing by dropping short-term growth in favor of a better business model for the long run, but I can't find any fault with investors taking some profits off the table at this point.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.