Welcome to Semiconductor Manufacturing International Corporation First Quarter 2020 Webcast Conference Call. Today's conference is hosted by Doctor. Zhao Haijun, Co Chief Executive Officer Doctor. Liang Mong Song, Co Chief Executive Officer Doctor. Gao Yonggang, Chief Financial Officer and Mr.
Tim Kuo, Director and Head of Investor Relations. Today's webcast conference call will be simultaneously streamed through the Internet of SMIC's website. Please be advised that your dial ins are in listen only mode. However, at the conclusion of the management's presentation, we will be having a question and answer session, at which time you will receive further instructions as to how to participate. The earnings press release is available for download at ww dotsmics.com.
Webcast playback will also be available approximately 1 hour after the event. Without further ado, I would like to introduce to you, Mr. Tim Kuo, Director and Head of Investor Relations for the cautionary statement.
Good morning and good evening. Welcome to SMIC's Q1 2020 earnings webcast conference call. Today, our CFO, Doctor. Gao, will highlight our financial performance and give guidance for the next quarter. And then our Co CEO, Doctor.
Zhao, will provide some 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 be approximately 60 minutes in length. The earnings press release and financial presentation are available for you to download at www.smics.com under Investor Relations in the IR Calendar section. Let me also remind you that the presentation we'll be making today includes forward looking statements. These statements and other comments are not guarantees of future performance, but represent the company's estimates and are subject to risk and uncertainty. Our actual results may differ significantly from those projected or suggested in any forward looking statements.
For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our filings and submissions with the Hong Kong Stock Exchange Limited. During the call, we will make reference to financial measures that do not conform to International Financial Reporting Standards, IFRS. These measures may be calculated differently than similar non IFRS data presented by other companies. Please refer to the tables in our press release for a reconciliation of IFRS to the non IFRS numbers we will be discussing. Please note that all currency figures are in U.
S. Dollars unless otherwise stated. I will now hand the call to our CFO, Doctor. Gao for financial highlights.
Thank you, Tim. Greetings to all our listeners. First, I will highlight our Q1 results and give the Q2 2020 guidance. In the Q1 2020, our revenue was $905,000,000 an increase of 8% quarter over quarter and 35% year over year, higher than our original guided range, mainly due to the increase in wave shipment. Gross margin was 26 percent, a sequential increase, mainly due to the better product mix in the Q1.
Non GAAP operating expenses were $239,000,000 lower than guided range, mainly because of control of R and D and G and A expenses in the Q4. Profit for periods attributable to SMIC was $64,000,000 while non controlling interest were $13,000,000 of credit to SMIC's attributable profit in the Q1. Moving to the balance sheet. At the end of the Q4, cash on hand, including financial assets, excluding restricted cash, were close to 5,300,000,000 dollars Gross debt to equity was 48%, and net debt to equity was negative 3%. In terms of cash flow, we generated $260,000,000 of cash from operating activities in the 4th quarter.
Now looking ahead into the Q2 of 2020. Our revenue is guided to be up 3% to 5% quarter over quarter. Gross margin is expected to range from 26% to 28%. Non GAAP operating expenses are expected to range from $240,000,000 to 245,000,000 Non controlling interests of our majority owned subsidiaries are expected to range from $0,000,000 to positive $10,000,000 which are losses be borne by non controlling interests. The planned 2020 CapEx is raised from $30,200,000,000 to 4,300,000,000 dollars The incremental CapEx is for mature technology product lines and the equipment and facility in our majority owned Shanghai 12 inches fab.
Our planned 2020 D and A is still $1,400,000,000 Our 2020 gross margin is expected to be higher than 29, which was 20.6%. Earlier this month, we announced a proposed issue of RMBJS on the Scintech Board of SSE. The initial number of shares will not exceed 25% of total shares, including the new issuance. We plan to use the proceeds of our FinFET project, advanced and mature technology R and D and working capital. In the meantime, the proposed share issue is subject to shareholder and regulatory approvals.
I will now hand the call over to our Co CEO, Haijun, for general remarks.
Thank you, Yonggang. Thank you all for joining us today. I hope all of you are healthy and safe. Today, I will give the overall business commentary first, then, Mong Sheng, Yun Gang and I will answer the questions from the line. Several months have passed since the beginning of COVID-nineteen outbreak, and we continue to monitor the situation closely and carefully.
At present, there have been 0 cases of infection at SMIC. The company took quick measures to safeguard the health and safety of our employees. As Citi is always our priority to put the health and safety of our employees first. Currently, we continue to monitor all the employees' health by keeping strict protocols, such as required temperature checks and the face mask whenever entering the company, self declaration of keep track of employees' whereabouts and keeping social distance. In addition, we suspended all the business travels and restricted visitors on-site.
Although certain customers are seeing dampened consumer demands from emerging markets as a result of the virus, our fabs remains a flu as we're seeing strong orders from our customers as a result of diversified technology offerings and versatile capacity conversions. In fact, overall orders in this first half have been stronger than initially anticipated. In the meantime, demand is still good and our fabs continue to operate near fully loaded. Logistically, some deliveries were slower than Europe due to the virus. However, the impact is not material.
Our up side adjusted capacity expansion is still continuing as planned for this year. In February, SMIC made a donation to support prevention and control of the coronavirus and the protection of medical personnel. We are happy to see that things have been much improved in Hubei and all over China. We are also thankful that we are getting through this situation with resilience, but at the same time, our hearts and souls are with those around the world who are still affected by this pandemic. Let me continue my remarks by highlighting the results of the Q1 and then I will update you on our mature nodes technology and advanced technology platforms and business, capacity plans and future outlook.
I'm pleased to say that our Q1 2020 revenue has reached a historic high of $905,000,000 Our revenue increased 8% sequentially and 35% year over year compared to Q1 last year, significantly beating the original guidance, which was guided to be flat to up 2% only. While gross margin previously guided to be 21% to 23%, actually hit 26%, also higher than our initial guidance as a result of better than expected demand and a better product mix. Earlier this year, we have held a more cautious and conservative view due to the uncertainties around the health situation. However, orders remained strong throughout the quarter without interruptions. At the same time, through process optimization and improved efficiency, wafer shipment increased in Q1 to meet high demands.
Gross came across the board from various customers, nodes and applications. Reported gross margin was 26% in Q1 compared to 24% in Q4 last year and 18% in Q1 last year, as we maintained a close to full utilization with better product mix. Overall wafer shipments in the Q4 increased 5% quarter over quarter and 29% year over year. By application, our communications sector is up by 19% quarter over quarter and 54% year over year. Computer and consumer sectors also grew 34% 47% year over year respectively.
From a regional perspective, business continued to be strong in the China region, which increased 2% quarter over quarter and 55% year over year, contributing to 32% of our revenue. North America region is up 24% quarter over quarter and 7% year over year. Revenue from our Eurasia customers is up 9% quarter over quarter and 27% year over year. Our goal is to help steady balance overseas and domestic revenues as we maintain our strategy to be an international company, developing global markets and customers. Now to address our mature nodes product application platforms and business.
We continue to see strong momentum in our CMOS image sensor, image sensor processor, BCD analog power, RF, IoT and specialty memory platforms. Our wafer revenue from CIS, BCD Power Analog, fingerprint, specialty memory ICs are up 15% quarter over quarter and 40% year over year during the Q1 of 2020. In these segmentation markets, the overall demand is increasing every year. To highlight specifically, our RF IoT platform demand is mounting as we have expanded into optical solutions for fingerprint sectors. Meanwhile, CMOS image sensors, including image sensor precisers, continue to be strong with applications in automotive accessories, surveillance and mobile phones.
Notable growth in Q1 came from 35 and 55 nodes and 28 nanometer nodes under their respective application platforms. CD 5 and 55 nanometer is up 13% quarter over quarter and 96% year over year. These increases are largely due to logic, specialty now flash and non flash and CMOS image sensor application platforms such as TWS for wearables. We are proud to say that our customers are using our specialty flash capabilities to manufacturing components successfully penetrating international top tier smartphone accessories supply chains. 28 nanometer is up 40% quarter over quarter due to an increase in phone related output.
We also see some increased 28 nanometer demand this year as we began to ramp up more consumer related applications. And we will moderately expand in order to reasonably meet these needs of strategic customers. As we continue on with our mature technology R and D and a close partnership with our customers, our mature technology platform will continue to cover a vast and diversified portfolios of communications and consumer end devices, which include a wide range of smartphone related ICs. Now moving on to our advanced technology platform and business. As we mentioned previously, our 14 nanometer entered production last year as we continue to ramp up new capacity throughout this year.
We are progressing well with Q1 14 nanometer wafer revenue surpassing 1% contribution. As quality continued to climb and customer gave positive feedbacks, our 14 nanometer FinFET technology continue to benchmark against industrial standard. We are pleased to see increased penetration and content share gains in various applications through collaborative efforts in enriching our advanced and overall technology portfolios. Our 14 nanometer covers a range of multiple application platforms in communications and automotive sectors such as mobile phones, smartphones and auto related accessories. We are ramping gradually at a good cautious pace, balancing customer demands and capital spending.
Meanwhile, we continue with NTO projects with both domestic and global customers. The 1st wave of FinFET applications include mid to low end application processors, baseband and consumer related applications. Furthermore, we also have auto related NTO and extended our portfolio to RF connectivity products. Our 12 nanometer process technology is an extension of our 14 nanometer and we are pleased to have already begun our pilot production. 12 nanometer have been progressing well and is on track with NTOs.
To address our progress on R and D, we are currently in the customer product verification at a qualification stage with next generation FinFET. We continue to engage with domestic and global customers. We are happy to see our customers utilizing our full array of services, which include design services, mask making, fabrication and middle and back end manufacturing with our partners. Now to look at our 2020 capital expenditures. We are adding US1.1 billion dollars to our CapEx, increasing the total to US4.3 billion dollars mostly for ramping up our FinFET lines, also for the expanding of our mature technology lines, which are running at a full capacity.
We continue to see healthy demand from our customers. Thus, we are expanding our 8 inches 12 inches lines to debottleneck our current capacity's tightness and to fill in the gap between our supply and customer demand. We will add on 30,000 wafers per month of 8 inches capacity in our Tianjin, Shanghai and Shenzhen fabs and also add on 20,000 wafer per month capacity of 12 inches in our Beijing fabs. Whereas our FinFET will continue to cautiously ramp up with our customer demands as we expand prudently. Now to give insight on our outlook.
Q2 is expected to be up 3% to 5% in revenue. It will be another strong quarter. Business continue to be stable and strong. Customer continue to place orders and are not seeing much slowdown yet. At the same time, we continue to accelerate the commercialization of our advanced technology business as we anticipate our 14 nanometer revenue contribution to continue to grow.
Nonetheless, we continue to monitor the COVID-nineteen situation and the impacts that may result from end markets and the supply chain as we aim to minimize or eliminate the possible impacts. Compared to 3 months ago, we have increased assurance in our growth and business, Given our current outlook and growth confidence, we read and clarify our annual revenue growth targets to meet to high teens growth. We also aim to increase our gross margin targets, which will be higher than 2019. We continue to take our top line growth seriously and continue overall improvement in product mix and growth momentum. Our customers are displaying healthy inventory levels and thus we continue to feel strongly about 2020.
Visibility remains limited with regards to the second half of this year. However, we remain cautiously optimistic as current customer feedbacks will still support a healthy year of growth for SMIC. As many of you know, SMIC has taken initial steps in exploring financing opportunities in the Chinese equity market. We see this as a good opportunity to take advantage of new sources for funding our growth. We believe this is good avenue to expand SMIC's option for sourcing capital for the future expansion of leading edge technologies, de bottlenecking our mature capacity, supporting R and D and funding our growth driven pursuits.
This also presents us with opportunities channel to connect with domestic industry and local markets in order to expand our customers and support growth. Our Board has approved the issuance of renminbi shares, which will be listed on the SSE Centek Innovation Board. We are now considering the market conditions and awaiting shareholder and regulatory approvals, and we will continue to issue updates as the project progress. To conclude, overall demand for semiconductor ICs continue to be strong in the first half of this year. Although the macro situation is clouded by the uncertainty in the second half, SMIC is seeing fairly strong year of growth.
SMIC has invested efforts and capital to refine its strategy, solidify its offerings and accelerate technologies. We have expanded our technology platforms to make sure we can deliver increased diversity and solutions to our customers. And now SMIC is entering a period of growth as customers take advantage of our expanded capacity capabilities and new technologies. We thank you for your continued support and thank you for joining us today. I will now hand the call back to Tim for the Q and A session of this call.
Thank you, Doctor. Zhao. Today's Q and A will be hosted by our Co CEOs, Doctor. Zhao, Doctor. Liang and our CFO, Doctor.
Gao. I would now like to open up the call for Q and A. And as usual, please be reminded to limit your questions to 2 per person. Operator, please
assist. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Randy Abrams from Credit Suisse. Please ask your question.
Yes. Thank you again. Good job on the results and managing through some of the COVID-nineteen impacts. I wanted to ask the first question on the CapEx versus the capacity plans. It looks like the fab plans are similar to what you outlined last quarter, the FinFET RAM, 15 ks, 30 ks, 8 inches and 20 ks of 12 inches So could you talk about for that increase of capacity or CapEx, with the change in the plan?
So where the CapEx or if it's a timing that you're pulling in some of those fab ramp ups?
Hi, Randy. Thank you for the questions. Overall, the situations for the technology deliverables, platform setting up, customer demands, and we see very positive feedback from our customers and both the advanced technologies like FinFide 14 nanometer to 12 nanometer and the 28 nanometer all the way to aluminum in point and 1 8 micron technologies. We are in a very short supply. The gap is big and we continue our expansion plan.
For this capacity expansion and we maintain the commitment to our customers and the incremental capital of this time from US3.1 billion dollars to US4.3 billion dollars that's US1.1 billion dollars where we used to fulfill this gap in both the FinFET Technologies and 28 and below all the way to 0.18 micronaluminum technologies.
Okay. If I could ask on the advanced nodes for 14 where you'll be adding a good amount of capacity. If you could give how that may apply to the revenue ramp up, like what percent of revenue or it's been about 1% now, but how you see it ramping toward 10% of revenue? And how concentrated is the customer base? Just if U.
S. Were to move ahead with restrictions on one of your top customers, if you can use that capacity for other application or for customers? And on the other U. S. Restriction, if you could just talk, if you have any impact from some of the license requirements, It seems kind of vague and broad, but on military use, if any impact on your ability to secure tools?
Really, actually too many questions. We just to minimize it to 2. One is 14 nanometer contribution and Meng Song will give you the answer. Another question is the potential impact from the restrictions of US government on the machines that they sell to SMIC. I'll answer the second question first.
SMIC is international company. We have been to have the communications with the supplier side and American Department of Commerce pretty well in the past 20 years. And we follow the rules for the compliance and so far perfectly. And we have the commitment for the non military use from day 1, 20 years back. So now we are in the same situation.
We have the full commitment. We have the full compliance. And at this moment, we do not see a big change in policy or way of doing things. Now I give back to Meng Song for his comments on contribution of the advanced technologies.
Hi, Randy. This is Meng Song. I'm going to try to address your question related to the Fin Factor. As you probably know, we are in a very careful ramping stage in capacity of the FinFET because that really depends on the customer demand and the tools we can move in, okay, in the right timing. So you ask when can we reach 10%, of course, 10% is for the SMIC FinTech is a big number.
So but I don't see it until sometime next year, okay. This year, it will be still at low single digit portion to the overall revenue.
Okay. Thank you. If I can follow-up though, do you still have the plan to have 15,000 wafer capacity? Like would we have a period of some underutilization as you bring up those applications? And then thanks, I can get back in the queue.
That is also very critical questions, okay. By end of the year, we're going to ramp up to the 15,000 per month capacity. That means is the fab in wafer, okay. It's not a billion wafer, not fab on, okay. So that is one clarification.
And since we have to build in the big capacity in order to fully utilize the fab. So for example, we built 15 ks capacity, but we probably were not able to ship the 15 ks per month just because of the operation efficiency. So we have to have a certain reservoir for efficiency improvement.
Our next question comes from the line of Junji Chen from Changfeng Securities. Please ask your question.
Okay. Thank you.
Hi, Junjie. Thank you for the questions.
Our customers, so, frustrations on this kind of things. You know the COVID-nineteen also impact some developing countries. So the customer who's sending the components to this kind of developing countries, they see some slowdown of the demand for mobile phones and smart homes and IoT. But overall, for SMIC's loading, there's no impact at all. We have been in a shortage.
There's a very big shortage for capacity demands and on diversified platforms. And this is one of the things I give the comments. The second, there are 2 other factors that still support the markets. 1 is the worry on the supply Even though the customer ordered a lot of wafers, but overall logistics in the supply chain getting slower. So the building up is slow.
So enhanced inventory is still at a very low level. They have to make sure that for the very tight bottleneck in the supply chain can deliver the parts they need. For example, labor intensive in developing countries, this kind of industry manufacturing capacity not fully recovered yet. So the customers still worry a lot on the stability of the supply chain instead of worrying oversupply. And second thing is for the 5 gs smart home and IoT demand stays here is much higher than last year.
And for the Q1 and including April for the 1st full months, the mobile phone made in China actually have 75% of 5 gs chips inside. And for the 5 gs mobile phones, they don't necessarily adjust demand for the CPU, APUs at 7 nanometer, 6 nanometer, 5 nanometer. They also have much larger demands on the RF chips and the much larger numbers of PMU. Giving you the samples, minimum need 6 PMUs or PMIC ICs inside the mobile phone. So the demand for 0.15 to 0.25 aluminum got almost doubled for the 5 gs mobile phone demand.
And you also need the cameras and from 2 cameras to 4 to 6 and each camera's CIS, they got a larger density from original 8 megapixel to 60 meg, currently standard settings is 40,000,000 pixels to 60,000,000 pixels. My point is even though the mobile size number, the handset number quantity decreased possibly 15% in the 4th quarter, but the total silicon usage is higher than before. If the capacity in the whole world is the same, then we will see every foundry fab again shortage to the supplies. Okay, that's my answer.
Yes. As I have mentioned to the answer to the Randy previously, the number I quoted is wafer start and now wafer out. And the other is when we call that wafer start number, we have to build more than that number in order to have full utilization of fab efficiency,
okay?
And your second question is cycle time, okay? And the cycle time actually depends on the scale of the fab. So at this moment, we only have a few ks per month fabbing capacity. Actually, our cycle time to happen cannot compare with the industry standard. But as our capacity gradually building up toward the second half and our targets, our cycle time by Q4 will reach to the industry standard numbers.
Our next question comes from the line of Bill Lu from UBS. Please ask your question.
Yes. Hi. Thank you very much for taking my question. I'd like to go back to CapEx for a second. And I am wondering if you look at the $4,300,000,000 this year, can you give me a breakdown for first half versus second half?
Hi, Bill. Basically, our plan is to spend fifty-fifty first and second half. But you know the because of the pandemic COVID-nineteen and the logistic got to slow down. And so the plan possibly a little bit shift and 1 month to 2 months delay, but overall plan is fifty-fifty.
Okay. The reason I ask that is you're guiding for mid to high teens growth for this year. And I think in the first half, given that first half of last year was off to a slightly weaker start, that seems very doable. But if you look at the second half, second half of last year was already pretty good. So for you to continue growing at that pace, you will have to have some new capacity ramped up.
Am I reading that right or is there maybe an ASP angle or something that I'm not paying attention to?
Okay, Bill. Actually before this conference, we also collect all the numbers. And we should say the Q1 type of growth, we do not use too much of the capacity expansion. And for the second half growth, we can make a full use of the expansion capacity. But last time during the last conference we already mentioned that because of the slowdown of the shipments and overall capacity can only show up in the Q4 the Q4 this year, the last quarter this year.
So basically we could not fully benefit from the expansion, but overall still very good performance.
I guess I'm just wondering how you get that growth in the second half, right, because I think you're running 44 already and I expect that the new capacity is going to be not until end of the year. So how do you get that growth in the second half of the year? Is it ASP or is it something different?
You are doing the mathematics. Okay. The Q1 compared with last year we grew by 35% and this is the Q1. Q2, we already gave the forecast and also much higher than last year. So the first half of this year and we already beat the forecast of high teens percentage compared with the first half last year.
And we need to make sure that the second half this year compared with the second half last year, we can grow high teens percentage. And based on the capacity build out and the wafer odor customer demands and we believe that can be true. The incremental you can add on and compare with the last year's second half, we have the same fab contribution and we also have additional 30,000 wafer per month 8 inches We also have the 12 inches additional 20,000 wafer per month. And our efficiency in general, we can improve 5% in our mature wafer fabs, mainly by product mix adjustments and deep bottlenecking. I'll give you one of the examples and probably we have a lot of for example we have a lot of 31 layers logic on 0.18 micron.
But the product actually range from for photo layers from 22 layers all the way to MCU can be 40 layers. And if our bottleneck is the photo layers, we can really under the situation of over demand, we can really adjust the product mix and the bottlenecking the bottleneck actually shape up more wafers from our mature fab. Even though the original setting is 1 100, we can ship up 105.
That's very helpful. Thank you. My second one node?
N plus one node right now we finished customer product verification, okay? And we are waiting for the customer to do qualification and wait for the market recover and we're ready to ramp up that technology.
Can you give us an update on when that might hit production?
Probably the end of this year, yes. It really depends on
the cost
of events, yes.
Yes. Thank you. That was what I was going to ask as well was, can you give us an update on the customer engagement?
Customer engagement, right now we are talking I think last time I explained to the person about this N plus-one definition. N plus-one, we target for low cost and customization technology. Okay. So this is not a general purpose technology, okay? So we will target for those product.
They don't want to migrate to the N plus 2 or costly technology. So they want is really limited to specific application and specific customer. And for that technology, we probably will not build a comprehensive IP portfolio. We will wait for next node. So those customers' applications are limited and customization customer is also limited.
So that's why we're waiting for customer signal for ramping up the order.
Got it. Thank you very much.
Our next question comes from the line of Zuo Ng from China Renaissance. Please ask your question.
Hi, good morning, gentlemen. Two questions from my side. First one regarding 12 nano and 14 nano. For the equipment that you are adding right now, are they going to be upgradable for the N plus 1 or N plus 2?
Yes. Certainly, the N to N plus 1 or N plus 2 equipment commonality is over 80%.
Okay. Good. And do you have plan to upgrade them or you will just keep them for 12 and 14 nanode manufacturing? That's very good question.
Okay. Of course, if we keep the 14 or 12, then we will not get much profitability. So we will depends on we will build certain capacity for the N and we will migrate to the N plus 1 and N plus 2 to search for higher profitability.
Yes, that's good. Yes, Doctor. Ng, actually I think a year ago, you mentioned that there were 3 phases of ramp up the FinFET technology. When we get to Phase II, we should achieve the ASP similar to the cost. When should we expect that to be achieved?
Okay. That's also a very critical question. I've been thinking this all the time, okay. What is the breakeven point? That really depends on the fab scale, as you know, and shipment volume, ASP and our product year and our manufacturing costs, our OpEx and so on, okay.
So in general, we believe 15 ks shipment and with 20 ks capacity is a minimal criteria for cash breakeven and that we are working on that.
Okay. Sounds great. And last question, very easy one. Could you provide us the 2020 depreciation and amortization guidance given the fact that the company has raised the CapEx aggressively?
Okay. Great. Great.
So the depreciation and amortization for year 2020 is still target US1.4 billion dollars
Our next question comes from the line of Andrew Lu from SinoLINK Securities. Please ask your question.
The first one is visibility for second half and also for Q2, what would be the stronger application and technology node compared to the average? That's my first question.
Hi, Andrew. For SMIC, currently, we see 2 things. One thing is the market change because of the 5 gs smartphone, smart home and variable IoT. The markets of that kind of applications are getting larger. They grow very fast.
The second thing we see is that our customers are getting larger. They got more market shares. So the growth of the segmentation of the market is one thing. The growth of our customer, their own market share is another thing. So combine these two factors and the EIS might see we thought it could see a very big gap of demand and supply.
And the very, very tight area at this point we see one is 14 nanometer. All the 5 gs mobile phones, they demand for RF type of applications in 14 nanometer. Sometimes back, we believe 28 nanometer, 22 nanometer also in the short supply because the millimeter wave 5 gs will demand the RF on 20 to 28 nanometer inside of FinFET because the degradation of RF performance in FinFET. But now since the majority of 5 gs mobile phones are running in sub-six gs, so all the demands are focused on 14 nanometer, 12 nanometer SIMPLY technologies. So that's one of the area in a very big shortage besides everybody knows the 5 nanometer type of shortage, 2nd shortage, 14 nanometer.
And we see very, very big shortage in aluminum 0.15 to 0.18 micron area because the PMUs, original mobile phone for 3 gs, 4 gs, possibly 2 to 3 PMU chips. But now for 5 gs, for the American designer design the mobile phone 5 gs, they need 8 or more than 8 chips for PMU and the controllers. For the local Chinese designer they need more than 6 ICs for power management. So for that area got a very big demand. You also know for the mobile phones that we need these under glass, fingerprint, they need a quick charger, they need larger, more cameras.
So together the silicon and cameras mainly focus on 55 nanometer, 40 nanometer. And the fingerprint also squeeze in into 0.15 to 0.18 aluminum. And let alone to say the camera module for 5 gs and smartphones these days, they pipe together with 40,000,000 to 30,000,000 pixels with another 8,000,000 pixels, add on another 2,000,000 pixels. There are actually 6 CMOS image chips inside. So basically right away we see the shortage on 0.1 8 micron aluminum technology and wafer fabs and we see very big shortage in 55 nanometer wafer fabs and also 40 nanometer fabs.
20 nanometer steel wire loop capacity and no data peak demands, but 40 nanometer, 55 nanometer. 55 nanometer also are clated with another demand that's a no flash and high quality specialty no flash because the 2 stereo chips we call it TWS. They have very big demand because the high quality music need minimum 128 megabit for each year this TWS. For the top tiers need 256 megabit, originally sent back 1 year, 2 years back and they only need 2 megabit, 4 megabit non flash. But now the density even for single chip already transit from 2 meg, 4 meg to all the way to 128, 256.
So the silicon demands, the area demand, even though the wireless earphone is still the same quantity possibly, but the silicon demand already 10 times increased. And so the area just now I share with you. We also have the others like high voltage drivers and the processors. And smart home is another area very, very day and this is expansion. So the processors, the connectivity, the Wi Fi, the Bluetooth, mostly all in one.
That means Bluetooth, Wi Fi, communications and the processors are all in one. So we see the 14 nanometer get a very big boom. And definitely without 14 nanometer capacity, this kind of application will move down to 28 nanometer and the 22 nanometer. So for SMIC, we are in a shortage, not just in 55.18 nanometer and the 14 nanometer. We also started to see 28 nanometer demand for smart homes and the consumer.
Consumer same as the smart home like your TV, there's a media TV, they also have the connectivity and they also have this kind of auto communication and synchronization type of functions.
Thank you. My second question is for Gao Zhong. Why the operating expenses guidance has been revised now IFRS 1 has been revising down from the Q1. I remember Q1 guided
$294,000,000
to $300,000,000 but this quarter come down to RMB 240,000,000 to RMB 245,000,000. Is this a structure coming down going for the rest of the year or just a one off? Thank you.
Let me translate on the question regarding Andrew's question on the OpEx. So we see the Q1 OpEx is actually down from original guidance is because the management is really focused on controlling the expenses ranging from R and Ds and administrative cost expenses as well. So the Q1, we actually realized OP margin positive and also we target that will continue to the Q2. As for the Q3 and Q4, it's still not visible to comment yet. So this is our comment on the OpEx.
Thank you.
Due to limited time, I would now like to hand the call back to IR Director, Tim Cook, 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 to SMIC. Thank you very much.
This is the end of SMIC's 1st quarter earnings conference call. We thank you for joining us today.