Welcome to the Semiconductor Manufacturing International Corporation Third Quarter 2020 Webcast Conference Call. Today's call is hosted by Dr. Zhou Zixue, Chairman of SMIC, Dr. Zhao Haijun, Co-Chief Executive Officer, Dr. Liang Mong-song, Co-Chief Executive Officer, Dr. Gao Yonggang, Chief Financial Officer, and Ms. Guo Guangli, Board Secretary. Today's call will be live streamed through the internet at SMIC's website. Webcast playback will also be available approximately one 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, at which time you will receive instructions on how to participate. Today's format will be in both Chinese and English. [Non-English content]. Without further ado, I would like to introduce to you Ms. Guo Guangli, Board Secretary for the forward-looking statement.
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Welcome to SMIC Third Quarter 2020 Earnings Webcast Conference Call. Today our Chairman, Dr. Zhou, will make opening remarks. Following, our CFO, Dr. Gao, will highlight our financials and give future guidance. Then our Co-CEOs, Dr. Zhao and Dr. Liang, will provide business commentaries. This will be followed by our Q&A session hosted by Dr. Zhao, Dr. Liang and Dr. Gao. As usual, our call will be 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&A session, we will accept questions in both Chinese and English.
[Non-English content]. The earnings release and presentation are available at www.smics.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 risk and uncertainty. Please refer to the forward-looking statement 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 US dollars unless otherwise stated. [Foreign language]. I will now turn the call over to our Chairman, Dr. Zhou.
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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.
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Since its founding, SMIC has consistently focused on improving core competitiveness and company value, enriching product portfolios, and expanding technology platforms. In the past two decades, our production capacity has expanded steadily, revenue has grown continuously, customers diversified, and reputation sound. We have built more effective management, R&D, operations, and support teams, and accelerated innovation and development.
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As the first red chip company listed on both the A-share 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 interests of investors, discloses 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.
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In recent years, China's IC industry maintains good growth. In the area of FinFET 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.
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The fragmentation of the global industry supply chain and high-end continuous investment are unique characteristics of the 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.
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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 third quarter performance continued to reach new record highs. We have also raised our annual revenue guidance up to 24%-26%.
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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 in which it operates. We feel deep regret in regard to US export restrictions. At present, the company is operating as usual. 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.
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The world has entered the Internet of Everything 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.
[Non-English content]. Thank you, Dr. Zhou. I will now hand the call over to our CFO, Dr. Gao Yonggang for financial highlights.
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Thank you, Dr. Zhou and Guangl i. Greetings to all our listeners. Please be reminded that all earnings figures are prepared in accordance with IFRS unless otherwise stated. I will highlight our third quarter results and give the fourth quarter 2020 guidance.
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Our third quarter 2020 revenue reached another record high of $1,083 million, an increase of 15.3% sequentially and 32.6% year-over-year, mainly due to strong customer demand and sequential increase in wafer ASP. Incremental growth in other revenue was also another major driver for the revenue increase. Our third quarter 2020 gross profit also hit another record high of $262 million.
Gross margin was 24.2% higher than original guidance, mainly due to better product mix and growth in wafer ASP and other revenue. Gross margin was sequentially down, mainly due to higher depreciation and amortization in the third quarter 2020.
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SMIC's operating expenses were $215 million, lower than guided range, mainly because of the control of R&D and G&A expenses. Profit for the period attributable to SMIC was $256 million, another all-time high, while non-controlling interest was $7.15 million of debit to SMIC's attributable profit. EBITDA also achieved a record high of $653 million, an increase 40.3% sequentially.
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Moving to the balance sheet. At the end of third quarter, cash on hand, including current financial assets and restricted cash, was close to $12.3 billion. Total assets were close to $29 billion and total equity was around $21 billion, including non-controlling interest. Gross debt to equity was 20.3% and net debt to equity was -38.4%.
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In terms of cash flow, we generated a historical high of $719 million of cash from operating activities in the third quarter.
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On July 16, SMIC listed on the STAR Market and raised total net funds close to RMB 52.5 billion, including the greenshoe option. According to our plan, RMB 18 billion will be used for SN1 project, RMB 17.7 billion will be used to supplement working capital, RMB 9.8 billion will be used for capacity buildup for non-FinFET technology. RMB 7 billion 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.
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Now, looking ahead into the fourth quarter of 2020, our revenue is guided to be down 10%-12% quarter-over-quarter, mainly due to one, a decrease in wafer shipments, two, a decrease in other revenue. However, if you look at the midpoint of guidance, our revenue in the fourth quarter is expected to grow around 15% compared to the fourth quarter of last year.
Gross margin is expected to range from 16%-18%, mainly because of one, sequential decrease in other revenue, two, increase in depreciation and amortization, three, 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 cost.
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In addition, referencing industry practice, we will not provide guidance for non-IFRS Opex and non-controlling interests starting this quarter. However, I will give some color on the two index to help investors to better understand the outlook of the fourth quarter. Non-IFRS Opex is expected to have no big difference compared with third quarter, while losses to be borne by non-controlling interests are expected to be substantially higher than previous quarters.
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To look into the year of 2020, we revised our annual revenue growth target of mid to high teens to an increase of 24%-26%. Our annual growth margin target remains to be higher than last year. In terms of capital spending, we decrease our CapEx plan from $6.7 billion- $5.9 billion, mainly due to, one, extended or uncertain delivery lead times of certain equipment from US suppliers due to export restriction.
Two, delaying equipment moving schedule caused by logistics. Annual depreciation and amortization is expected to be close to $1.3 billion. Annual EBITDA is expected to be close to $2 billion. This concludes the financial remarks. Thank you.
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Thank you, Dr. Gao. I will now hand the call over to our Co-CEO, Dr. Zhao Haijun for his business remarks.
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Thank you all for joining us. This year is a very special year. The world has encountered a huge epidemic. Major customer has been changed and urgent demand has emerged in the market. In the third quarter and since the beginning of this year, SMIC continue to maintain high utilization. Operating results were in line with expectations, and the full year is forecast to reach a growth of 24%- 26%. Recently, news of US import 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 U.S. and internationally.
After the event, we immediately issue 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 US government departments. At present, the company is operating as usual. However, since US origin equipment, parts and raw materials may have uncertain delivery lead times, we hope to build mutual 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 third quarter. By product segment, power management, radio frequency signal processors, fingerprint sensors, and image signal processor related wafer revenue grew 8% quarter-over-quarter and 22% year-over-year. Microprocessors and specialty memory related wafer revenue grew 6% quarter-over-quarter and 26% year-over-year.
Looking at application markets, the rapid upgrade to 5G 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. Wafer revenue from smartphone, smart home, and consumer electronics grew 13% sequentially and 25% year-over-year. The fourth quarter will follow the trend of the first three quarters, maintaining strong demand for CMOS image sensors, image signal processor, IoT, BCD power management and specialty memory.
The capacity shortage is still significant for 40 nm, 65/55 nm and 0.15/0.18-micron process nodes. Looking at industry landscape and customer demand, 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.
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Thank you, Dr. Zhao. I will now hand the call over to our Co-CEO, Dr. Liang Mong-song, for his business remarks.
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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 webcasts, we have always operated in compliance with the relevant laws and regulations of all jurisdictions where we do businesses.
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Regarding export restrictions, we are actively communicating with the US government and co-working with our US suppliers to apply for the required export licenses for certain US origin equipment parts and raw materials in accordance with relevant laws and regulations.
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We are keeping communication channels open and are in close contact with our customers and suppliers to reiterate our robust compliance procedures. While export restrictions may lead to extended lead times or uncertainty, we are still evaluating the overall impact.
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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 first generation FinFET technology 14 nm platform is relatively comprehensive. Our products cover a wide range of applications, including but not limited to communications, consumer, computer, IoT, auto and others.
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Last year, 14 nm process enter into mass production in the fourth 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 and draw in more customers locally and abroad.
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Our second generation FinFET technology, N+1, is progressing steadily. Our N+1 process is undergoing customer verification and entering small volume risk production. This product will be mainly used for high performance computing applications.
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As compared to the first generation FinFET technology, our second generation FinFET technology platform is driven by lower cost, more engaged customization. When comparing to our 14 nm process, the performance is improved by 20%, power consumption reduced by 57%, logic area reduced by 63% and SoC area reduced by 55%.
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Overall, we are currently working on more than a dozen FinFET tape-out projects for technology 14 nm and below with both domestic and overseas customers. We believe with the rise of 5G, IoT and the digitization in schools and the workplaces, there will be huge market opportunities for the IC industry.
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To promote innovation and development, the company will continue to push forward with our R&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.
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In terms of capacity, we commit to prudent planning to build capacity based on the market and our customer demand. As a foundry, we are actively engaging with global customers to create a more diversified customers and product portfolio.
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Our FinFET 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.
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To conclude, we have reached our R&D 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&D and operations of FinFET 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.
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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.
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We thank you for your continued support and thank you for joining us today. I will now turn the call over to Guangl i for Q&A session. [Non-English content]. Today's Q&A will be hosted by our Co-CEOs, Dr. Zhao and Dr. Liang and our CFO, Dr. 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 two per person. [Non-English content]. I will now like to open up the call for Q&A.
[Non-English content]. If you wish to ask a question please press star one on your telephone and wait for your name to be announced. If you wish to cancel a request please the pound or hash key. Your first question comes from Randy Abrams from Credit Suisse. Please ask a question.
Okay. Thank you and 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. We do have some machines. Scheduled, just about to ramp up in the fourth quarter and the first quarter next year. Now, we are still in the process of application. We already have two months type of delay for certain type of machine, like the high energy implanter type of machines.
That is the delay. The others, mainly we need to work together with our customers with this kind of delay on the expansion of capacity, how can we cycle down their requirements in the fourth quarter and first quarter next year.
Hi, Randy, this is Mong-s ong. I will add on Haijun's comment on the technology development. Technology development side, there is a very limited impact. We would proceed as our plan is.
Okay. If I could ask just one follow-up to that, then I'll have a second. Are there any critical bottlenecks to maintaining production on mature eight-inch or 12-inch? Maybe now it's okay, but are there any bottlenecks if the restrictions continue that may open up a few quarters? Do you expect, do you have the tools and spare parts to at least maintain your eight-inch and 12-inch operations?
Hi, Randy. Here's Haijun again. We do not have immediate issues for the short term. In the long run, you know that certain type of material, especially for the consumables, cannot be stored for a very long time. Currently, I work together with our suppliers, including the second source suppliers, to get solutions to this kind of concerns. So far, both parties are working together, including our counterparts in the U.S.
We have concerns, but we have the confidence that we can resolve it without impact on the normal production of, and the running so far in the factories, and no impact to the delivery rates to our customers.
Okay, great. My second question on the fourth quarter sales decline, your growth in third quarter was led by advanced nodes, 40 nm, 28 nm, 14 nm. For fourth quarter, would advanced nodes pull back more, and maybe the reason? Could you discuss the other revenue that grew in third quarter and now declining in fourth quarter?
Randy, you already mentioned that the decline on the advanced technology part mainly cover on the other revenues. The other revenues actually this way, and again, as SMIC, if you see this quarter, actually it's very special. That means there are urgent requirements on the delivery. The customer has deadlines to deliver these kind of products. We have to slow down certain type of the other products, not that urgent, and get everything done to customer requests in the third quarter.
That means that we swap certain type of capacity and products in the third quarter and make it third quarter so high and the other quarter, fourth quarter, seems lower. If we normalize the true production and the loading situation in X, Y, Z, Z5, actually we are very normal running and full loading in fourth quarter, full loading in third quarter.
It's just a swapping. That's why I mentioned that part. Another thing, other revenues also means certain part of a turnkey and our subsidiaries in the back end, they are booking this kind of revenues. And they also have the same pattern. That means when we're pulling in, they do more. When we finish that part, they also recover to normal.
Okay. To follow up, do you expect to recover or rebound the other in advanced technology after the fourth quarter pullback?
Hi, Randy. You know, in advanced technology, the customer needs to take about a year and a year and a half to start from design to the production. When we cannot serve for a key customer, existing key customer's production, then it might take some time, a few quarters, to recover our utilization in advanced technology production.
Okay, great. Thank you. Yeah, and good luck on resolving everything. Thank you.
Thanks, Randy.
Your next question comes from Szeh o Ng from China Renaissance. Please ask your question.
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Your next question comes from Leping Huang from CICC. Please ask your question.
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We got time for one final question. Your last question comes from Junjie Chen from Tianfeng Securities. Please ask your question.
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[Non-English content]. I would like to hand the call back to Ms. Guo for closing remarks.
[Non-English content]. In closing, we would like to thank everyone who participates in today's call, and again, thank all of you for your trust and support. Thank you.
[Non-English content]. This concludes SMIC's Third Quarter Earnings Conference Call. We thank you for joining us today.