Welcome to the Semiconductor Manufacturing International Corporation's Third Quarter 2020 Webcast Conference hosted by Doctor. Zhou Zixue, Chairman of SMIC Doctor. Zhao Haijun, Co Chief Executive Officer Doctor. Liang Mong Song, Co Chief Executive Officer Doctor. Gao Yonggang, Chief Financial Officer and Ms.
Guo Guang Li, Board Secretary. Today's call will be live streamed through the Internet at SMIC's website. Webcast playback will also be available approximately 1 hour after the event. Please be advised that your dial ins are in listen only mode. However, at the conclusion of the management presentation, we will have a question and answer session.
Without further ado, I would like to introduce to you Ms. Guo Guang Li, Board Secretary for the
Good morning and good evening. Welcome to SIC's Q3 2020 earnings web conference call. Today, our Chairman, Doctor. Zhou, will make opening remarks. Following, our CFO, Doctor.
Gao will highlight our financials and give future guidance. And then our Co CEOs, Doctor. Zhao and Doctor. Liang, will provide business commentary. This will be followed by our Q and A session hosted by Doctor.
Zhao, Doctor. Liang and Doctor. Gao. As usual, our call will approximately 60 minutes in length. To meet the needs of domestic and foreign investors, the format of today's earnings call will be as follows: the management team will provide their commentary in Chinese and Investor Relations will translate to English.
And for the Q and A session, we will accept questions in both Chinese and English. The earnings release and presentation are available at www.smics dot com. Let me remind you that today's presentation includes forward looking statements that are not guarantees of future performance, but represent our estimates and are subject to risks and uncertainties. Please refer to the forward looking statements in our press release. Today's earnings statements use International Financial Reporting Standards, IFRS, but we will also reference financial measures that do not conform to IFRS in order to help investors compare SMIC's past performance.
These non IFRS measures may be different than similar data presented by other companies. Please refer to the tables in our press release. Please note that all currency figures are in U. S. Dollars unless otherwise stated.
I will now turn the call over to our Chairman, Doctor. Zhou. In July 2020, SMIC listed on the Shanghai Stock Exchange's Science and Technology Innovation Board, opening a new chapter in the company's development. This year also marks SMIC's 20th anniversary. On behalf of SMIC, I would like to express our heartfelt and sincere thanks to our customers, suppliers, investors and the society for their trust and support over the years.
Since its funding, SMIC has consistently focused on improving core competitiveness and company value, enriching product portfolios and expanding technology platforms. In the past 2 decades, our production capacity has expanded steadily, revenue has grown continuously, customers diversified and reputation sound. We have built more effective management, R and D, operations and support teams and accelerated innovation and development. As the 1st ratchet company listed on both the Asia and Hong Kong markets, SMIC has received extensive attention and support from capital markets at home and abroad. The company has always attached great importance to the interest of investors, disclose this information in accordance with the regulatory requirements of all relevant jurisdictions and further improve the level of corporate governance so as to protect the rights and interests of investors.
In recent years, China's IC industry maintained good growth. However, in the area of FinTech Technology, there is still a clear gap between mainland China's companies and the industry's top tier peers in terms of equipment, technology and talent. The fragmentation of the global industry supply chain and high and continuous investment are unique characteristics of foundry industry. As the largest foundry in scale in Mainland China, through study and analysis of long term market demand, the company has driven a continuous development cycle of its old and new fabs based on 20 years of operational experience. And we steadily expand production capacity, improve operational efficiency, optimize our product portfolio and strive to enhance the competitiveness of the company.
This year, the global economy has slowed down, which ultimately results in some negative impact to the end demand of the semiconductor industry. However, the unfortunate epidemic has also led to the emergence of new formats, models and applications, which has ushered in a booming market opportunity. This year, customer demand continued to be strong and the company continued to maintain high utilization. In the ever changing macro environment, we are pleased to see that our Q3 performance continued to reach new record highs. We have also raised our annual revenue guidance up to 24% to 26%.
Currently, the international situation has become increasingly complex. SMIC is a foundry that serves diverse customers, domestic and overseas. Since its inception, SMIC strictly operates in compliance with the laws and regulations of all jurisdictions export restrictions. At present, the company is operating as usual. And though the export restriction will have an impact on SMIC, in the near term, we believe it's manageable.
We will continue to follow-up on this matter and further evaluate the impact. The company will maintain close cooperation with suppliers and customers and continue to maintain active communication with the relevant departments of the United States Government working to resolve possible differences. The world has entered the Internet of every single era. The interests of all countries are closely tied and their outcomes are shared. Although the current global trade situation has many uncertainties and the external environment is becoming more complex, we believe that the pace of innovation and development in the semiconductor industry will continue.
In the long run, the demand for the IC industry remains strong and challenges and opportunities coexist. SMIC will continue to pursue openness, cooperation, development and successful collaboration, deepening cooperation with domestic and foreign customers, suppliers and partners, contributing to promote the development and innovation of the semiconductor industry. Thank you. Thank you, Doctor. Zhou.
I will now hand the call over to our CFO, Doctor. Gao Yonggang for financial highlights. Thank you, Doctor. Zhou and Wang Li. Greetings to all our listeners.
Please be reminded that all earnings figures are prepared in accordance with IFRS unless otherwise stated. First, I will highlight our 3rd quarter results and give the Q4 2020 guidance. Our Q3 2020 revenue reached another record high of RMB1083 1,000,000, an increase of 15.3% sequentially and 32.6% year over year, mainly due to strong customer demand and sequential increase in wafer ASPs. In addition, incremental growth in other revenue was also another major driver for the revenue increase. Our Q3 2020 gross profit also hit another record high of CNY262 1,000,000.
Gross margin was 24.2 percent higher than original guidance, mainly due to better product mix and growth in wafer A and and other revenue. Gross margin was sequentially down, mainly due to higher depreciation and amortization in the Q3 2020. Now, IFI's operating expenses were RMB215 1,000,000 lower than guided range mainly because of the control of R and D and G and A expenses. Profit for the period attributable to SMIC was CNY256 1,000,000, another all time high, while non controlling interest was CNY7.15 million of debit to SMIC's attributable profit. EBITDA also achieved a record high of CNY653 1,000,000 and increased 40.3% sequentially.
Moving to the balance sheet. At the end of the quarter, cash on hand, including current financial assets and restricted cash, was close to CNY12.3 billion. Total assets were close to CNY29 1,000,000,000 and total equity was around RMB21 1,000,000,000 including non controlling interest. Gross debt to equity was 20.3% and net debt to equity was negative 38.4%. In terms of cash flow, we generated a historical high of $719,000,000 of cash from operating activities in the 3rd quarter.
On July 16, SMIC listed on the stock market and raised total net bonds close to RMB52.5 billion, including the green shoe option. According to our plan, RMB18 1,000,000,000 will be used for SN1 project, RMB17.7 billion will be used to supplement working capital RMB9.8 billion will be used for capacity buildup for non synthetic technology, RMB7 1,000,000,000 will be used as reserve funds for research and development of FinFET and non FinFET technologies. We thank our domestic and overseas investors for your support and trust. Now looking ahead into the Q4 of 2020, our revenue is guided to be down 10% to 12% quarter over quarter mainly due to 1, a decrease in wafer shipments 2, a decrease in other revenue. However, if you look at the midpoint of guidance, our revenue in the 4th quarter is expected to grow around 15% compared to the Q4 of last year.
Gross margin is expected to range from 16% to 18%, mainly because of: 1, sequential decrease in other revenue 2, increase in depreciation and amortization 3, decrease in utilization to a healthy level. Foundry is a CapEx intensive industry with a long investment cycle. The initial introduction of products in the new fab line has negative impact to the overall profitability due to depreciation costs. In addition, referencing industry practice, we will not provide guidance for non IFRS OpEx and non controlling interest starting this quarter. However, I will give some color on the 2 index to help investors to better understand the outlook of the 4th quarter.
Now IFRS OpEx is expected to have no big difference compared with Q3, while losses to be borne by non controlling interest To look into the year of 2020, we revised our annual revenue growth target of mid to high teens to an increase of 24% to 26%. Our annual gross margin target remains to be higher than last year. In terms of capital spending, we decreased our CapEx plan from CNY6.7 billion to CNY5.9 billion, mainly due to: 1, extended or uncertain delivery lead times of certain equipment from U. S. Suppliers due to export restrictions to delaying equipment moving schedule caused by logistics.
Annual depreciation and amortization is expected to be close to RMB1.3 billion. Annual EBITDA is expected to be close to RMB2 1,000,000,000. This concludes the financial remarks. Thank you. Thank you, Doctor.
Gao. I will now hand the call over to our Co CEO, Doctor. Zhao Haijun for his business remarks. Thank you all for joining us. This year is a very special year.
The world has encountered a huge epidemic. Major customer has seen change and urgent demand has emerged in the market. In the 3rd quarter and since the beginning of this year, SMIC continued to maintain high utilization. Operating results were in line with expectations, and the full year is forecast to reach a growth of 24% to 26%. Recently, news of U.
S. Imposed export restrictions on SMIC has resulted in concerns with regard to the company's future developments. I thank all of you for your consideration and reiterate that SMIC only provides products and services for civilian end users and has no military end users. As an international foundry, SMIC strictly complies with the laws and regulations of all jurisdictions where we conduct business. Over the years, we have established good cooperative relations with well known customers and semiconductor equipment suppliers in the United States and internationally.
After the event, we immediately issued an announcement sorted through the information with our suppliers and informed customers of possible risks. At the same time, we have communicated and exchanged with relevant U. S. Government departments. At present, the company is operating as usual.
However, since U. S. Origin equipment, parts and raw materials may have uncertain delivery lead times, We hope to build motor trust through openness and transparency and restore normal procurement processes as soon as possible. We also thank our customers and suppliers for their trust and support. Now I will briefly report on the status of our non FinFET technology platform operations in the Q3.
By product segment, power management, radio frequency signal processors, single frame sensors and image signal processor related wafer revenue grew 8% quarter over quarter 22% year over year. Microprocessors and specialty memory related wafer revenue grew 6% quarter over quarter and 26% year over year. Looking at application market, the rapid upgrade to 5 gs mobile phones and the change of at home work and study during the pandemic has triggered global acceleration of demand for Internet and consumer products. WIP revenue from smartphone, smartphone and consumer electronics grew 13% sequentially and 25% year over year. The 4th quarter will follow the trend of the 1st 3 quarters, maintaining strong demand for CMOS image sensors, image signal processor, RF IoT, DCP power management and special memory.
The capacity shortage is still significant for 40 nano, 65, 55 nano and 0.15.18 micron process nodes. Looking at industry landscape and customer demands, it is expected that non FinFET capacity will be relatively tight through the first half of next year for the whole industry. We will work hard to cultivate our segmented product platforms to meet customer and market development needs. Thank you, Doctor. Zhao.
I will now hand the call over to our Co CEO, Doctor. Liang Meng Song for his business remarks. Thank you, Haijun and Guangli. Thank you all for joining us today. This year is an unusual year for the semiconductor industry and SMIC.
Everyone is very concerned about SMIC's current situation. As we stated in our previous webcast, we have always operated in compliance with the relevant laws and regulations of all jurisdictions where we do businesses. Regarding export restrictions, we are actively communicating with the U. S. Government and co working with our U.
S. Suppliers to apply for the required export licenses for certain U. S. Origin equipment, parts and raw materials in accordance with relevant laws and regulations. We are keeping communication channels open and are in close contact with our customers and suppliers to reiterate our robust clients' procedures.
While export restrictions may lead to extended lead times or uncertainty, we are still evaluating the overall impact. I would like to share some details on our current FinFET technology progress. As a pure play international foundry, we provide services to a variety of commercial and civilian customers. Our 1st generation FinFET technology 14 nano platform is relatively comprehensive. Our product covers a wide range of applications, including but not limited to communications, consumer, computer, IoT, Oracle and others.
Last year, 14 nano projects entered into mass production in the 4th quarter and our yield has already reached industry standards As we showcase our ability to execute in research and development, customers' confidence in SMIC's technology capability has also gradually increased. We will continue to enhance the competitiveness of our products and services, enjoying more customers locally and abroad. Our 2nd generation FinFET technology N Class I is progressing steadily. Our N Class I process is undergoing customer verification and entering small volume with production. This product will be mainly used for high performance computing applications.
As compared to the 1st generation FinFET technology, our 2nd generation FinFET technology platform is driven by lower cost, more engaged customization. And when comparing to our 40 nano process, the performance is improved by 20%, power consumption reduced by 57%, large area reduced by 63% and SOP area reduced by 55%. Overall, we are currently working on more than a dozen FinFET Kpaul projects for technology 14 nano and below with both domestic and overseas customers. We believe with the rise of 5 gs IoT and the digitization in schools and the workplaces, there will be huge market opportunities for the IC industry. To promote innovation and development, the company will continue to push forward with our R and D activities, so we can meet the needs of our customers and the growing digital consumer market.
The development of these new nodes and projects take time. We will expand our FinFET technology one step at a time. In terms of capacity, we commit to prudent planning to build capacity based on the market and our customers' demand. As a foundry, we are actively engaging with global customers to create a more diversified customers and product portfolio. Our FinTech technology capacity is comparatively small in scale and our expansion is relatively steady.
At the same time, for equipment that may be adversely impacted by export restrictions, we are actively resolving the issues and coming up with corresponding solutions with our suppliers. To conclude, we have reached our RMB milestones for this year, and I want to take this opportunity to thank our team for their hard work and perseverance. Although we have accomplished certain achievements in the R and D and operations of FinTech Technology, we are still lagging behind the top tier peers in terms of technology. There's still a long way to go. We are an independently operated international foundry and we endeavor to serve the global customers.
Although we are now facing some difficulties, we are actively responding and carefully assessing the overall impact of the export restrictions and corresponding solutions. We will continue to pay close attention to this matter and will share further information as appropriate if there are any significant changes or progress. We thank you for your continued support and thank you for joining us today. I will now turn the call over to Huang Li for Q and A session. Today's Q and A will be hosted by our Co CEOs, Doctor.
Zhao and Doctor. Liang and our CFO, Doctor. Gao. We will accept questions in both Chinese and English. Questions asked in Chinese will be answered in Chinese.
Questions asked in English will be answered in English. As usual, please be reminded to limit your questions to 2 per person. I would now like to open up the call for Q and A.
Your first question comes from Randy Abrams from Credit Suisse. Please ask your question.
Okay. Yes, thank you and I appreciate the updates on the business situation. My first question, you mentioned in the remarks the restriction will have some impact near term on SMIC. Could you elaborate what areas you see the impact in terms of revenue, capacity expansion or technology development?
Hi Randy, here is Haijun. I'd like to answer your question this way. The first impact is the schedule of the capacity expansion. And we do have some machines scheduled and just about to ramp up in the Q4 and the Q1 of last year. But now we are still in the process of application.
So we already have 2 months type of delay for certain type of machine like the high energy impuncher type of machines, that's the delay. And the others mainly we need to work together with our customers and with this kind of delay on the expansion of capacity, how can we settle down their requirements in the Q4 and Q1 next year?
Hi, Randy. This is Mong Song. I will add on Haijun's comment on technology development. Technology development side, there is a very limited impact. We would proceed as our plan is.
Okay. And if I could ask just one follow-up to that and then I'll have a second. Are there any critical bottlenecks to maintaining production on Mitchwere 8 inches or 12 inches And maybe now it's okay, but are there any bottlenecks if the restrictions continue that may open up a few quarters? Or do you expect you have the tools and spare parts to at least maintain your 8 inches 12 inches operations?
Hi, Randy. Here is Kai Jun again. We do not have immediate issues for the short term. But in the long run, you know that certain type of material, especially for the consumables, cannot be stored for very long time. So currently I work together with our suppliers including the 2nd source suppliers and to get solutions to this kind of consents.
So far both parties are working together and including our counterparts in the United States. And we have concerns, but we have the confidence that we can resolve it without impact on the normal production of the running so far in the factories and no impact to the deliveries to our customers.
Okay, great. And then my second question on the 4th quarter sales decline, Your growth in 3rd quarter was led by advanced nodes, 40, 28, 14. For 4th quarter, would advanced nodes pull back more and maybe the reason? And also, could you discuss the other revenue that grew in 3rd quarter and now declining in 4th quarter?
Randy, you already mentioned that the decline on the advanced technology part, I mainly cover on the other revenues and the other revenues are actually this way. And as you might see, if you see the quarter actually is very special. That means there are urgent requirements on the delivery. The customer has deadlines to deliver these kind of products. So we have to slow down certain type of the other products, not that urgent and get everything done to customer requests in the Q3.
So that means if they swap certain type of capacity and products in the Q3 and make it Q3 so high and the other quarter, Q4 seems lower. But if we normalize the true production and the loading situation in SMIC's effects, actually we are very normal running and full loading in 4th quarter, full loading in 3rd quarter is adjusted swapping. And that's why I mentioned that part. And another thing, other revenues also means certain part of the TongQI and our subsidiaries in the back end were bumping this kind of revenues. And they also have this the same pattern.
That means we were putting in, they do more and when we finish that part, they also recover to normal.
Okay. And to follow-up, do you expect to recover or rebound the other in advanced technology after the Q4 pullback?
Hi, Randy. Advanced Technology customer needs to take about a year and a year and a half to start from design to the production. So when we cannot serve to our key customer existing key customers' production, then it might take some time or few quarters to recover our utilization and advanced technology production.
Okay, great. Thank you. Yes, and good luck on resolving everything. Thank you.
Thanks, Randy.
Your next question comes from Siho Ng from China Renaissance. Please ask your question. Your next question comes from Huang Le Ping from CICC. Please ask your question. We got time for one final question.
And your last question comes from Tianjunjie from Tianfeng Securities. Please ask your question.
Langho CMOS image sensor,
I would now like to hand the call back to Ms. Kuo for closing remarks.
In closing, we would like to thank everyone who participated in today's call and again thank all of you for your trust and support. Thank you.
This concludes SMIC's 3rd quarter earnings conference call. We thank you for joining us today.