Ladies and gentlemen, welcome to Semiconductor Manufacturing International Corporation's fourth quarter 2019 webcast conference call. Today's conference call is hosted by Dr. Zhao Haijun, Co-Chief Executive Officer, Dr. Liang Mong Song, and Co-Chief Executive Officer, Dr. Gao Yonggang, Chief Financial Officer, and Mr. Tim Kuo, Director of Investor Relations. Today's webcast conference call will be simultaneously streamed through the internet at SMIC's website.
Please be advised that your dial-ins are in a listen-only mode. However, at the conclusion of the management presentation, we will be having a question and answer session, at which time you will receive further instruction on how to participate. The earnings press release is available for download at www.smics.com. Webcast playback will also be available approximately one hour after the event. Without further ado, I would now like to introduce to you Mr. Tim Kuo, the Director of Investor Relations, for the cautionary statement. Please go ahead.
Good morning and good evening. Welcome to SMIC's fourth quarter 2019 earnings webcast conference call. Today, our CFO, Dr. Gao, will highlight our financial performance and give guidance for the next quarter. Then our Co-CEO, Dr. Zhao, will provide some business commentary. 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. 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 statement.
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 Stock Exchange of Hong Kong 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 US dollars, unless otherwise stated. I will now hand the call to our CFO, Dr. Gao, for the financial highlights.
Okay. Thank you, Tim. First, I will highlight our 2019 full year unaudited results, which are based on the sum of our audited quarterly results for the year of 2019, and then I will summarize our fourth quarter results and give the first quarter 2020 guidance. Revenue in 2019 was $3.12 billion, compared to $3.36 billion in 2018, mainly due to our exit from our foundry. If excluding one-time license revenue and impact from our foundry exit, 2019 revenue increased slightly comparing to 2018. Gross margin in 2019 was 21% compared to 20.20% in 2018. If excluding one-time license revenue and impact from our foundry exit, 2019 gross margin was 21.5% comparing to 19.1% in 2018. Profits for the period attributable to SMIC in 2019 was $235 million, comparing to $134 million in 2018. EBITDA reached a record high of $1.37 billion in 2019, comparing to $1.16 billion in 2018.
In the fourth quarter 2019, our revenue was $839 million, an increase of 2.8% quarter-over-quarter, mainly due to the increase in chip in wafer shipment. If excluding the revenue from our foundry, our revenue increased 4.6% quarter-over-quarter. Gross margin was 23.8%, sequentially increased, mainly due to the rise in utilization. Non-IFRS operating expenses was $248 million, which was lower than the guided range, mainly due to the control of R&D expenses. Profit for the period attributable to SMIC was $89 million, comparing to $27 million in the fourth quarter of 2018. Non-controlling interests was $13 million of credits to SMIC's attributable profit, lower than the guided range, mainly due to the decreased loss in some majority-owned subsidiaries. Moving to the balance sheet. At the end of the fourth quarter, cash on hand, including financial assets and excluding restricted cash, was close to $4.6 billion.
Gross debt to equity was 39%, net debt to equity was negative 6%. In terms of cash flow, we generated $345 million cash from operating activities in the fourth quarter. Look ahead into the first quarter of 2020. Our revenue is guided to increase 0 to 2% quarter-over-quarter. Gross margin is expected to range from 21%-23%, mainly due to the increased manufacturing costs during the period. Non-IFRS operating expenses are expected to range from $294 million-$300 million. Non-controlling interests of our majority-owned subsidiaries are expected to range from negative $17 million-$19 million. Debt from SMIC's attributable profit, which are going to be borne by non-controlling interests. The planned 2020 CapEx for foundry operations is approximately $3.1 billion, which is mainly for the equipment and the facility in our majority-owned Shanghai 12 in fab.
The planned 2020 CapEx for non-foundry operations is approximately $60 million, mainly for the construction of employees' living quarters. Our planned 2020 D&A is approximately $1.4 billion. Our gross margin target is to maintain around 20%, and we target to maintain our EBITDA margin for 2020 in the mid-40s%. 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'll give the overall business commentary, then Mong Song, Yonggang, and I will answer questions from the line. Looking back, 2019 was an eventful year as SMIC transitioned its strategies to align with the changing markets and as we prepared for our next stage of growth. We believe that 2020 is the beginning of a new phase for SMIC, as our labor on technology development is now translating into production and revenue. Going into 2020, we were excited to see positive momentum and strong orders. For many individuals, though, the new year is shadowed by an unfolding health situation in Central China. Our thoughts go to those affected in Wuhan and elsewhere. SMIC has put together donations to support health efforts in Hubei province.
At the same time, the company has taken measures to safeguard the health and safety of our employees as our fabs continue to run in full. At present, SMIC's fab operations have not been affected and are running normally. We remain optimistic about health growth based on the current customer feedback. The effects of the virus on end demands is still unfolding, and we are still monitoring the situation closely. Let me continue my remarks by highlighting the results of the full year 2019 and the first quarter of 2019. I will update you on our mature node technology, advanced technology progress, capacity plans, and the preliminary outlook for 2020. Total revenue in 2020 was $3.12 billion compared to $3.36 billion in 2018, as we focus on preparing the company's technology for coming growth and exited the operations in Italy.
Our original targets for 2019 full year gross margin was stated to be mid-teen to 20%. The result of 21% was due to better product mix, utilization, and cost control. With limited fab expansion in 2019, utilization's running high. Profit attributable to SMIC grew 75% year-over-year to $234.7 million in 2019 from $134.1 million in 2018, a year ago. Our 2019 EBITDA reached a historical high of $1.4 billion, representing a 44% EBITDA margin. As a result of improved utilizations, mix, and decreased cost and expenses, our fourth quarter revenue and gross margin were within our guided expectations. Revenue increased 2.8% quarter-over-quarter and 6.6% year-over-year compared to fourth quarter 2018. When excluding revenue contribution from our foundry in Italy, revenue was up 4.6% quarter-over-quarter and 13.8% year-over-year.
Reported gross margin was 23.8% in fourth quarter 2019, compared to 20.8% in third quarter last year, and 17% in fourth quarter 2018, a year ago, as the capacity utilization climbed to 99%. Overall, wafer shipments in the fourth quarter increased 2% quarter-over-quarter and 10% year-over-year. Our profit attributable to SMIC in the fourth quarter was $88.7 million compared to $26.5 million in fourth quarter a year ago, as revenue grew more relative to costs. From a regional perspective, business was particularly strong in the China region, which increased 11% quarter-over-quarter and 21% year-over-year, contributing to 35% of our total revenue. SMIC's role in China ecosystem is becoming increasingly important as we work hard to provide expanded technology, capacity, and the solutions to address growing market demands. We are pleased to see growth from both existing and new customers.
Meanwhile, we aim to serve an international market while having the natural advantage of being close to the largest IC market. U.S. and Eurasia revenue contribution was down sequentially as we shifted some of our business in the sales of our European fab. Revenue from our Eurasia customers is up 20% year-over-year. To address our mature node technologies. I'm pleased to see that our past efforts on mature technology platforms have paid off as we see full utilizations in our mature fabs, firm pricing, quality improvements, and great track records. Our strategy on mature technology continues to be to provide best-in-class technologies for specific platforms to maintain healthy profit margins while adding values. I believe we have set a strong foundation with strategic customer partnership for long-term health.
In the recent quarters, we saw growth momentum in our CMOS image sensors, power ICs, fingerprint, Bluetooth, and specialty memory platforms. Revenue from these device applications during the fourth quarter of 2019 are up 5% quarter-over-quarter and 11% year-over-year. Going forward, we see these platform partnerships with customers providing a stable groundwork for solid business during the year. By technology nodes, a majority of our growth in fourth quarter came from 65 and 55 nodes. 65 and 55 nodes is up 8% quarter-over-quarter and 41% year-over-year. These increases are largely due to connectivity, application processors, flash memory, and CMOS image sensor for IoT and consumer-related applications. Now, move on to our advanced technologies, which are becoming a vital part of SMIC's business strategy.
Previously, SMIC has relied mainly on the mature nodes for incremental revenue growth. In this new phase, SMIC is focusing efforts and will begin to see an increasing amount of revenue growth coming from the advanced nodes technologies in the coming years. We are pleased to see 14 nm has moved from development into production and has started contributing to our revenue, reaching 1% wafer sales contribution in fourth quarter 2019. We have engaged a variety of customers on this node. We will see a gradual ramp-up this year in both capacity and revenue. The ramp-up of the new FinFET fab in Shanghai is starting up steadily and will likely pick up, particularly in the second half of this year, a back-end-loaded expansion. With this in mind, we anticipate 14 nm revenue contribution to slowly tick up during the year and with a pickup at the end of year.
With regards to expansions, we repeat our commitment to prudent planning and a careful alignment with our customers. Meanwhile, our team is conducting ongoing FinFET tape-out projects and working closely with both domestic and global customers. We are encouraged by the strong customer partnership being fostered as we co-develop our technologies on multiple applications. 14 nm applications include high-end consumer, high-performance computing, media applications, application processors, artificial intelligence, and automotive ICs. To address our progress on N+1, development is well underway, and we are closely engaging our customers for upcoming projects that may undergo qualifications later this year. We are seeing opportunities to address a variety of consumer-related applications, from application processors to connectivity for mobile televisions and wearables. Meanwhile, we continue research and development activities for beyond N+1 as we strategically expand our addressable market to serve the growing sophistications of our customers.
We are also tracking well in developing comprehensive solutions for our customers with robust IP libraries and advanced mask making for our FinFET nodes. I will now comment on our capacity expansion. As we entered an expansion stage to address the market for advanced technology, we must also boost our expenditures. We are increasing investments in capacity to address the new ramp-up of FinFET technologies. Our 2020 foundry CapEx is $3.1 billion, of which $2 billion will be used for our new advanced fab facilities and equipment. SMIC remains prudent in this expansion by carefully aligning our customer demands with company's profitability and capability. With the given spending, SMIC plans to move in equipment for the FinFET production into the new wafer fab this year in line with customer demands. Now, to give some insights on our 2020 outlook. In fourth quarter, we were already 99% utilized.
The constraint on capacity also limits our growth to the extent to which we can add capacity and increase efficiency. Our fourth quarter 2020 revenue is guided to be flattish to up 2%, which represents a 25%-28% year-over-year growth compared to fourth quarter last year. As I mentioned, we entered 2020 optimistic about business growth. This optimism was driven by overall market strength and our successful developments of new technologies, which will enter production and contribute new incremental revenues as well as strong demands across our existing platform technologies as we had ramped up new customers and new applications in the recent quarters. Meanwhile, foundry industry growth in 2020 is being driven by trends in Internet of Things, 5G, smart consumer, artificial intelligence, and automotives. Given our current outlook, we are targeting annual growth in the teens percent for 2020.
We also aim to maintain a gross margin of 20% and a targeted sustainable profitability. To conclude, SMIC has executed in preparing technology platforms and advanced nodes development, thereby leading SMIC to its current stage of new growth and investment. We aim for healthy expansion that aligns with our global to be fundamentally solid, while building up mutual trust with our clients. Our aim is to be the first choice in China for a comprehensive range of foundry services. We are gaining confidence in our ability to steadily climb with focused, prudent efforts to become a respected provider in the advanced nodes foundry market. SMIC is benefiting from the expanding market in China as customers increase their capacities, capabilities, and SMIC also accelerates development in order to serve these customers. At the same time, we believe the current health crisis will have short-term impact.
Going forward, China will continue to expand its role in semiconductor industry, and the consumer demands will pick up once again. 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&A session of this call.
Thank you, Dr. Zhao. Today's Q&A will be hosted by our Co-CEOs, Dr. Zhao and Dr. Liang, and our CFO, Dr. Gao. As usual, please be reminded to limit your questions to two per person. Operator, please assist.
Thank you so much, presenters. Now we'll begin the Q&A portion. If you wish to ask the question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Once again, it's star one to ask a question. Your first question comes from the line of Randy Abrams of Credit Suisse. Your line is now open, Randy.
Okay. Yes. Thank you, and appreciate the details. I wanted to ask the question just about the CapEx now, with utilization running very high, where the spending would contribute to new capacity. Could you talk about both the FinFET, how quickly you plan to ramp from the 3,000 toward 15,000 in the first phase? Then for the 8 in and mature 12 in that's running full, what your plans are for fab capacity increase and when that fab capacity, you think, can start to allow additional revenue?
Okay. Hi, Randy. I would address the FinFET parts, okay. As the original plan, our FinFET capacity installation will mean the wafer start or starting from 4K in March, 9K in July, and ramp to 15K in December. That's our current timing.
For the mature-
And then the-
Yeah.
Yeah, the mature.
Yeah, Randy. For the mature type, for 8 in, we'll add on 30,000 wafers per month type of capacity for 8 in in Tianjin, Shanghai, and the Shenzhen fab. We also add on 20,000 wafers capacity, 12 in, in Beijing fab. Because the slowdown of the logistics and the shipments and this kind of thing will be happening in the third quarter and the fourth quarter.
Okay. Maybe the follow-up to that, it's third quarter, fourth quarter. Does that mean capacity installed and you can get revenue for that capacity or there's time to qualify, it would be more late year into next year? Just want to see if you're limited by capacity in second half on revenue or that will actually contribute as well.
Yeah, that's true. We will see the revenue contributions from the third quarter. Possibly, the numbers I mentioned will become a full contribution in the fourth quarter.
Okay. Yeah. Thanks for that. The second question I wanted to ask on advanced technology, two parts. I think on the FinFET, you'll have a pretty good ramp through the year. I guess talk about the first wave, which applications are coming in on this first wave. Maybe if you could say, is that the impact where you're guiding gross margin to 20%? How much is from depreciation versus how much is maybe dilution from 14 still coming up to scale? The second part is the N+1, just curious if you could go through, I think you mentioned about the production.
If you could talk a bit more on the timing when that volume ramp up you expect, and how that N+1, I guess, compares to the 7 nm from Samsung and TSMC, if it's getting into that range or it's still more like an 8/10 nm. Just curious how it might stack up for the applications you could address.
Okay, Randy. To address your question, the first wave of the FinFET production product, that including low-end AP, baseband. Also consumer. Some autos are NTO. It will extend to the year of the connectivity, RF connectivity product. That is for 14. There is an extension of 14 is at 12. We will see more product NTO with 12, that ranging from blockchain application and low-end mobile IP and media, that kind of application. That's probably is first wave and second wave of 14 and 12 nm. As to the N+1, our NTO, which is Q4 last year. Right now is currently at under customer product verification stage. We expect it to see the limited production in Q4. Your last question about this N+1. The definition of the N+1, actually, we refer to our 14 nm. Okay.
Our 14 nm, we compare the 14 and the N+1, the performance is improved 20% and power reduce 57%. Logic area reduce to 63%. SoC area reduced 55%. If that compared to the market, so-called 7 nm, actually, in terms of power and scalability, they are very similar. The only difference is the performance. Performance for our N+1, that is about 20% enhancement. For the market benchmark, that's probably around 35%. That is the only gap. In terms of the power and scalability, you can call it very close to 7 nm. In terms of performance, that's indeed is worse than 7 nm. That is the definition. Of course, we target this N+1 is low cost application. The mass count can reduce around 10 nm from the normal 7 nm.
That is a very special application for that, yeah. I hope I answered it.
Yeah, no, thank you. I thought that was very helpful. The only one I'd squeeze in on that was on the margin on 14, as that ramps through the year. Is that the factor for the margin where you're guiding to 2020, or I guess maybe a combination with the depreciation?
Yeah, that is a good question. Okay. As you know, the FinFET per K capacity is very high, right? It is roughly in the range of $150 million-$250 million per K, the investment. That's why you can see our capacity ramping is very cautious, so we have to kind of balance between the customer demands and also the overall budget constraint, and also minimize the gross margin impact. In terms of the depreciation for that kind of ramping, since our depreciation is defined as a wafer output over 3,000, okay, and also for maybe the tool moving after six months. By that definition, the gross margin impact probably around for a year, overall 2020, overall gross margin probably within 5%. Yeah. That's what the talk, but just very first order estimation, yes.
Okay, great. No, thanks a lot for the color. No, good luck on that.
Yeah, thank you.
Thank you so much. Your next question comes from the line of [Peter Shan of CIMB]. Your line is now open, Peter.
Hi, good morning, ladies and gentlemen. My first question is more on strategic level. On a grand scheme of things, the trade balance between the US and China have always been a top of the concern, and I believe the semiconductor has to be part of important equation. What do you foresee the impact on this might see, if the trade war ends in happy ending and US may have to buy, I mean, China may have to buy more semiconductor from the US. Given the some recent development that, one, that GlobalFoundries and TSMC recently settled a litigation with open cross licensing. Theoretically, if GlobalFoundries come up with enough money and capable management, they could freely do anything that TSMC does. Number two is that Samsung already procure a sizable land in Austin, ready for expanding the capacity there. That's a scenario one.
If the trade war ends in not so happy ending, I guess then China, the local domestic customer, has to source more from the local foundry, such as SMIC. That probably will benefit SMIC, as long as it can come up with the capacity, the technology schedule, everything. At this crossroad, what is your thought on the long-term strategy, given the recent development? Thank you.
Yeah. We're going to wait up. Peter, thank you for the question. Basically, as our name states, SMIC is international manufacturing. Our goal is to balance the overseas and the domestic revenue 50/50. At this moment, because of the situation you mentioned just now, our U.S. revenue has dropped from two years back 50% in the total revenue to 22% in the fourth quarter last year. That really gave us a challenge. We need to find a way to expand our business in overseas. The overall demands for semiconductor ICs are still there, possibly increase every year. They have to be the buyer or producer from other places. You see SMIC's revenue are in a growth period.
That means there has to be a replacement if one customer from U.S. cannot supply the products, there has to be another customer to produce it, to cover this missing. SMIC has just tried both parts. On the one hand side, we continue to try our best to find customers on the market from the overseas and in the United States. In the meantime, if there's a customer missing the similar product, since we already have the experience and the technologies in the similar products manufacturing, we can do to the replacements. To answer your question directly, we should say SMIC will maintain our strategy to be an international company and to develop overseas markets and customers. In the meantime, we are really working very hard on the segmentation of the markets.
Doesn't matter the segmentation market supported by U.S. customer, European customer, Asian customers. Once we become the top two or top three players in manufacturing for the segmentation, and we can maintain our market shares. For example, CMOS image sensors, BCD analog, low power, specialty memories, and MCUs. For this kind of segmentation markets, the overall demands are increasing every year. Definitely, the players inside are interchanging. As long as SMIC have the market share in the segmentation with each market, we can make sure that our business will continue grow. That's the way. The second thing, just now you mentioned, a lot of companies are trying hard at this moment, litigations and set up the manufacturing side in States. We very closely monitor the developments.
At this moment, what we can do is that SMIC is still relatively small, and we just expand our technology platforms to make sure we can deliver more diversities to our customers, more solutions to our customers. We believe in the short term, midterm, and we can gain market share instead of losing market share from the trade wars.
Okay. Thank you, sir. My second question is related to your forecast. Given the outlook that you just provided and also the latest expectation of the technology mix and the contribution going forward, under the most recent outlook, what is your expectation that the EBITDA level will turn positive without the R&D grant? What that timeframe might be, maybe 2021, and when that might happen.
R&D. Okay, let me translate for Dr. Gao. From government funding on R&D in 2019 was around $2 billion US. $200 million. $200 million. $200 million. Yeah. Sorry. Excuse me. $200 million US dollars. For year 2020, the R&D grant from the government would be more because we have more projects
To be closed. Also on the growing depreciation and amortization, we believe that our EBITDA for the coming years will be growing.
Okay. Thank you very much. That'll be all for me. Thank you.
Yeah. Sure.
Thank you. Your next question comes from the line of [Junjie Xu] from Huachuang Securities. Your line is now open, Mr. Xu.
[Non-English content]
[Non-English content ]. Let me translate for this question. The first quarter guidance was in between 0%-2%. As the analyst estimated from his model, the 14 nm already contributed 1% in the fourth quarter 2019. He's asking about whether we will see the growth catalyst from 14 nm or from other catalyst.
Junjie. Basically, we should say this way. In the fourth quarter, SMIC has been running 99% utilization, and the missing 1% mainly contributed to the R&D engineering wafers. For the fourth quarter, we mainly benefit, for the advanced nodes more or less the same as the fourth quarter. We mainly benefit a little bit incremental revenue from the more wafer start in the fourth quarter. When we compare the wafer start quantity in the third quarter and the fourth quarter last year, our wafer start in the fourth quarter is better than the third quarter. More or less to say our fourth quarter utilization is higher than third quarter utilization. This kind of wafer have not come out of 100% in fourth quarter. Quite many level come to the shipment stage in the fourth quarter.
We should say this is the transfer effects from the overall 100% loading.
Oh, okay. Thank you.
The capacity for point of view. Go ahead. Yeah, Junjie.
Okay. Thank you.
[Non-English content]
Oh, the analyst is addressing his second question. It's about the coronavirus situation impact, whether the inventory situation will be changed if, under a very extreme case, that this will be ended extra three months. How should we manage this supply chain impact?
Hi, Junjie. Basically, we should say this coronavirus event will have negative impact on our industry and the revenue. That's a sure thing. Just at this moment, we cannot have a very clear picture of the overall impact. For the first quarter revenue and gross margin, SMIC had communicated with our customers, there's no impacts at this moment. We believe this kind of impact will slowly show up in second quarter. For SMIC, the fourth quarter last year and the first quarter this moment, we're still in a stage of short capacity. That means our wafer orders are above our capacity. The stage one, when this kind of impact show up, there won't be a direct impact to SMIC's revenue, because anyway, we cannot fill up the total wafer orders in our fab.
We believe that we can use this kind of efforts to cover the second quarter. We watch monitor the situation very carefully. The third quarter, at that moment, we have additional capacity. We also have additional technology platform and product platform to show up. We believe at that moment, we can hedge or compensate the loss from the frustrations in the adjustment of inventory. We believe, especially for the domestic customers, the adjustment in their inventory will definitely happen. Roughly, we also know the percentage they need to adjust. From the careful calculation in my hands at this moment, we believe that we can still manage and make sure SMIC's full loading stage will be maintained.
Okay, thank you.
Your next question comes from the line of Bill Lu from UBS. Your line is now open, Bill.
Yeah. Hi. Thank you very much. My first question is on the mature nodes. Two-part question. One is, I know you're now running at 99%. I'm wondering if you have more room to convert additional 28 to maybe 55 and 65, and therefore get a little bit more capacity as the year goes on.
Okay, Bill. For 28 nm technologies, as SMIC has set up the capacity convertible, interchangeable with 40 nm, except high-k metal gate, metal loop. We already build out the capacity that way. In order to maintain our profitability and gross margin, we limit the total volume running 28 nm because the cost running 28 nm high-k metal gates are very high, and everybody knows the market is oversupply situation. Your question is whether or not we can convert 28 nm capacity interchangeable with 35 and 55. The answer is yes. Actually, in SMIC, we have consolidate the capacity for 12 in in GigaFab, in a very big fab in Beijing. That fab is running more than 100,000 wafers per month. The capacities are interchangeable to support each other based on the allocation to strategic customers.
We can adjust the ratio of 20 nm capacity and 55 nm capacity.
Could you give me a sense for how much more capacity there is to convert over if there is enough demand for 55 and 65?
On 20,000 wafers. Just now mentioned we add on 20,000 wafers. We'll have additional 20,000 wafer per month, 12 in. This is a gradual-
Okay
Process. That means we are converting now. In the third quarter, we have more converting capacity in 55 nm. In the fourth quarter, we will have full conversion with the capacity.
Okay, got it. My second question is on the N+1 node. I don't know if I missed it, can you give us a little bit more details on the timing, in terms of risk production, in terms of when you think this node will come to market?
N+1 node. First, the NTO is Q4 last year. Right now is still at customer product verification and qualification stage. We expect to see the limited production in Q4.
A limited production Q4 of this year?
Yes.
Great. Okay. Thank you very much.
Your next question comes from the line of Zhe Zhang. Zhe Zhang from China Renaissance. Your line is now open.
Hi. Good morning. Hi, good morning, gentlemen. It's [Zhe Zhang] from China Renaissance. Two questions from my side. First one regarding the tap-out. Could you share with us the number of tap-outs you're working on for the 12 nm and also 14 nm? Hello? Hello?
Yes. For the 14 nm, we have the limited NTO, but with significant volume, most of NTO.
Okay.
We will ship it to the 14 nm for the connectivity, and we'll have even higher volume. For 12 nm, we have many NTOs, more than 14 nm.
Okay.
That's the current stage. Yes.
Okay, great. All right. Second question. Right now, with the company running at 99% utilization, is it possible for the company to overdrive their capacity, to achieve a utilization over 100%?
Hi, JJ. Theoretically, you can't run more than 100% for a long term. For short term, that's possible, this mainly means for the non-bottleneck machines, you can run to finish the process beforehand. That means the bottleneck, for example, if bottleneck is 100%, but the other machines, non-bottleneck, will be more than 100%. You can run more wafers inside the fab and wait there until you get a new machine for bottleneck, and you have the sudden opening of this bottleneck gate. The whole fab is running more than 100%. You getting my point? That means you're running more wafers to buy time, and then you get a machine. You don't need to wait for the wafer coming to the bottleneck machine. That's a play.
Another short term is sometimes you can do that way, you can stretch the bottleneck machine to run more than 100% calculated capacity. Overall, you can't run it long, because sooner or later, you need to do the necessary stop. You need to do a lot of things. For example, for SMIC, we are running multiple products, and every product is running in a small volume. Based on the transfer time from one product to another product, your scanner definitely lost time for changing masks, for qualification, for double-checking, and measurements. If you're running single product, single level, you can run the scanner much more wafers in each hour. This is just a short term, risk-taking type.
Theoretically, yes, you can do it that way.
Okay. All right.
Cannot run it long. For SMIC, the rule is that if you can continuously running at a level, that level will become our capacity right away. Our capacity, the number, is not from building up capacity, but from the actual runnings. We adjust every month.
Mm. Okay.
Last month, you're running 100%. Next month, that's not 100%. It's become baseline.
Oh, okay.
That's the saying that we're kind of running more than 100% for long term.
All right. Yeah, got you. Very useful. Thank you very much.
Your next question comes from the line of Leping Huang from CICC. Your line is now open, Huang.
Thank you to take my question. The first question is to Dr. Liang. I think in the call, you mentioned that you are developing the platform beyond the N+1. Since you just elaborated that your N+1 is quite close to seven nm TSMC and Samsung. Is it you are moving to EUV or it's an upgrade version of the current N+1? The second part of the question is that for the CapEx you are spending in this SMIC South, for the $2 billion, after you spend the $2 billion, you are mainly spend on this current 14 and the 12, or this will also including part of the CapEx for the N+1? Thank you.
Okay. Leping, let me try to address your two questions. First question is about anything beyond the N+1. I stated earlier about the N+1 definition, and beyond N+1, it means N+2. That definition, basically, it's only the performance difference, okay? In terms of the power and scalability, they are quite similar, okay? N+1 and N+2, the difference is just for the cost. Okay? Low cost, we call it N+1, okay? That is the difference between the N+1 and N+2. You ask about do we use the EUV, okay? At this moment, for both N+1 and N+2, we do not plan to use the EUV, okay? When EUV get ready, we will switch the N+2, a few layers to the EUV.
That is the current plan. Okay. Now, your second question regarding the CapEx around this $2.1 billion. That consists both the N 14 and 12, also to the N+1 and N+2, a small portion of that, yeah. It's not purely for the 14 and 12. Yeah.
Okay. Thank you very much. It's very clear. The second question about the SMIC nodes or the majority-owned Beijing fab. Since the mature node or your demand is very strong for various applications, how much room you still have for the capacity expansion in Beijing? After you spend this, I think, $500 million, if I remember correctly, the CapEx. How much capacity you will reach by the end of this year? Thank you.
On Beijing fab, the fab space, everything was designed to holding 120,000 wafers, and from the technology 20 nm all the way to 90 nm. The product mix keep changing. If we dedicate 70,000 wafers to do 28 nm, that needs a lot of tools, a lot of space. With the limitation on 28 nm capacity, we can convert it in capacity calculation, we run more than 120,000 wafers. We can run 128,000 wafers on total capacity. That's the number we will reach by the end of this year.
Okay. It's a lot. Thank you. Very clear.
Yeah.
There are no further questions at this time. I would now like to hand the call back to IR Director, Tim 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 to SMIC. Thank you very much.
Thank you. This is the end of SMIC's fourth quarter earnings conference call. We thank you for joining us today. You may now disconnect the call. Thank you.