Ladies and gentlemen, welcome to Semiconductor Manufacturing International Corporation's third quarter 2019 webcast conference call. Today's conference 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 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 listen-only mode. At the conclusion of the management 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 www.smic.com. Webcast playback will also be available approximately one hour after the event.
Without further ado, I would like to introduce to you Mr. Tim Kuo, Director of Investor Relations, for the cautionary statement.
Good morning and good evening. Welcome to SMIC's third quarter 2019 earnings webcast conference call. Today, we're pleased to have all of our top management present. We will begin with a few words from them, both in Mandarin and English, starting with our Chairman, Dr. Zhou. Welcome to today's webcast. I would like to thank each and every one of you for your continuous interest and support to SMIC. It has been exactly two years since the last time I attended the webcast in the third quarter of 2017. I would like to take this opportunity to talk about the trend in the semiconductor industry and SMIC's recent development and results from reformation. Hello, everyone. I'm Haijun. Thank you all for joining us today. In the past two years, we have continued to expand and develop SMIC's mature technology platform and have made extensive planning according to market demands.
We have achieved initial results. At the same time, we are optimistic about new growth and collaborative opportunities in China. I will share with you in detail later.
Hello, everybody. This is Mong Song. Today, we will update you on the SMIC's R&D progress and prospects of our advanced technology. In particular, the first generation of the FinFET technology has entered production and expect revenue contributions. The development of the second generation FinFET technology has been carried out steady, and SMIC will strive to seize new opportunities. Haijun later will also have more explanation. Thank you.
Greetings to our friends from the capital markets. I'm Yonggang. I hope that through today's special arrangement, you will have a more comprehensive and complete understanding of SMIC's current status. I will now return the call back to Tim. Thank you, Dr. Gao. I'll go through the cautionary statement. Today, our Chairman, Dr. Zhou Zixue, will make a statement on the company. Following, our CFO, Dr. Gao, will highlight our financial performance and give guidance for the next quarter. 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 further 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 table in our press release for a reconciliation of IFRS to the non-IFRS numbers we'll be discussing.
Please note that all currency figures are in US dollars unless otherwise stated. I will now turn the call over to our Chairman, Dr. Zhou Zixue.
欢迎大家参加今天的业绩说明会。也感谢大家一直以来对中芯国际的关注和支持。我上次参加法说会是在2017年三季度，到这一次正好是两年。
Welcome to today's webcast. I would like to take this opportunity to thank each and every one of you for your continuous interest and support to SMIC. It has been exactly two years since the last time I attended the webcast in the third quarter of 2017.
过去两年，全球宏观经济形势不确定性增强，半导体产业也受到了影响，面临下行的压力。在充满挑战的形势下，我们与海内外的客户、供应商紧密合作，不断创新，深挖市场，维持了销售收入的持续增长。
In the past two years, the semiconductor industry was impacted and faced downward pressure due to the increased macroeconomic uncertainty. In this challenging situation, we have worked closely with domestic and global customers and suppliers to continue to innovate and capture market in order to maintain continuous growth in revenue.
更为重要的是，过去两年，在梁孟松博士和赵海军博士的共同带领下，中芯国际内部经历了前所未有的改革。我们大幅地精简了组织，提倡了更加严格的管理文化。这些改革使公司内部的管理水平和团队的行动力得到进一步提高。我们近两年在技术平台开发上取得了突出的成果，这个就是团队行动力提高的最好的佐证。
During these last two years, under the joint leadership of Dr. Liang and Dr. Zhao, SMIC has experienced radical reformation. We have streamlined our organization, promoted a more disciplined management culture, and improved the level of our management, efficiency of decision making, and our team's ability to execute. The outstanding achievements we have made in the development of technology platforms over this time period are the best proof of our improved execution.
在先进工艺领域，短短过去的两年时间，我们实现了28纳米HKC+平台的量产，完成了14纳米FinFET的技术开发、客户导入和量产。12纳米FinFET技术正在客户导入。下一代FinFET技术的研发和客户导入正在稳步地进展。在梁孟松博士的带领下，我们的研发团队在多个先进工艺节点得到锻炼，项目的经验和整体的实战能力大幅增强。
In advanced technology, within these two years, our 28 nanometer HKC+ entered production. Our 14 nanometer FinFET completed R&D, engaged customers and entered production. Our 12 nanometer and second generation FinFET technology have made steady R&D progress and are both now in customer engagement. Under the leadership of Dr. Liang, our R&D team's advanced technology node, project experience, and overall capabilities have been greatly enhanced.
在成熟工艺领域，我们成立了专门的产品技术开发组织，集中力量布局CIS、PMIC、特种存储器、指纹识别、蓝牙等等产品技术平台，通过持续创新，不断提升产品技术平台的丰富度和竞争力。积极拓展客户，导入来自于海内外的客户的新产品，来推动公司业务的成长。
In Material Technology, we have set up a team to specialize in product technology development, to focus on our CIS, CMOS image sensor, PMIC, NOR flash, fingerprint, and other technology platforms. We are proactively driving the growth of the company through continuous innovation, constant improvement in the comprehensiveness and competitiveness of our technology platforms, active expansion of our customer base, and engagement in new products with international and domestic customers.
搭建更丰富、更有竞争力技术平台的同时，我们正在有节奏地投入CapEx，扩充产能规模，以满足未来市场和客户需求的增长。
In order to meet with the increasing market and customer demand, we are also expanding our production capacity at a steady pace.
可以预见未来几年的宏观环境仍将复杂，半导体产业的发展仍将充满挑战。然而，5G、人工智能等领域的新起将大幅地提振市场需求，为半导体产业的发展带来新的历史机遇。今年中国已经发放了5G的牌照，明后两年会有主网和终端的广泛铺开，5G从云到端都需要大量的芯片的支持。此外，5G作为一种高速度、低时延的通信技术，也将促进自动驾驶、物联网等新兴应用的发展。这些新兴应用的提速发展将进一步提振半导体产业的市场需求。
It can be predicted that the macro environment in the next few years will still be complicated, and the development of the semiconductor industry will still be full of challenges. However, the rise of 5G, artificial intelligence, and other related fields will greatly boost the market demand and bring new opportunities for the development of the industry. This year, China has licensed 5G. In the next two years, there will be widespread networking and the launch of consumer products. 5G requires a lot of ICs from cloud-based to end products. In addition, 5G as a high speed and low latency telecommunication technology, will also promote the development of new applications such as autonomous driving, Internet of Things, ETC., which will further boost the market demand of the semiconductor industry.
我们的主要客户在5G相关领域均有所布局，包括海外和国内的客户。我们正在与他们紧密合作，在先进工艺节点和成熟工艺节点导入新产品，在明后两年推向市场。
Our key international and domestic customers have strategic plans for 5G related fields. We are working closely with them to engage new products in advanced and mature process nodes , and to bring these to market in the next two years.
总体而言，中芯国际的发展正处于前所未有的历史机遇期。过去两年，我们通过艰苦的改革，成功地塑造到了更强战斗力的研发、运营、支持和管理团队，成功布局、开发和储备了丰富的技术平台，成功与海内外的客户供应商加强了互信合作关系。这些艰苦蓄力打下的基础，进一步坚定了我们对于未来的信心。我们期待明年重启我们比较强劲的成长。
Overall, we are stepping forward into an important period in SMIC's history of development and expansion. In the past two years, through tough reform, we have successfully shaped a strong team, laid out and developed a good number of technology platforms, and strengthened trust and cooperation with customers and suppliers. These efforts have laid a solid foundation for our confidence in the future. Finally, we look forward to returning to a strong revenue growth next year. Thank you, Dr. Zhou. I will now hand the call to our CFO, Dr. Gao, for financial highlights.
Thank you Chairman Zhou and team. First, I will highlight our third quarter results and give the fourth quarter 2019 guidance. In the third quarter 2019, our revenue was $860 million, an increase of 3.2% quarter-over-quarter, mainly due to the increase in wafer shipment. If excluding the revenue from the LFoundry, our revenue was $803 million, an increase of 6.1% quarter-over-quarter. Gross margin was 20.8%, a sequential increase mainly due to the rise in utilization in the third quarter. Non-IFRS operating expenses were $257 million, lower than guided range, mainly because of control of R&D and G&A expenses in the third quarter. Profit for the period attributable to SMIC was $150 million, among which $81 million came from the disposal gain of LFoundry, which was disposed in July.
Non-controlling interests were $31 million of credit to SMIC's attributable profit, higher than the guided range, mainly due to the currency exchange loss from RMB depreciation for our joint venture. Moving to the balance sheet. At the end of the third quarter, cash on hand, including financial assets, were close to $3.8 billion. Gross debt to equity was 45%, net debt to equity was 6%. In terms of cash flow, we generated $380 million of cash from operating activities in the third quarter. From Q3, we changed the accounting policy to reallocate R&D government funding from directly deducting R&D expenses to under the category of other operating income. The purpose of this accounting policy change is to be more comparable to peers. Looking ahead into the fourth quarter of 2019. Our revenue is guided to be up 2%-4% quarter-over-quarter.
When excluding LFoundry, revenue is expected to increase 4%-6% quarter-over-quarter. Gross margin is expected to range from 23%-25%, mainly due to high utilization, improved product mix, and a stable pricing environment. Non-IFRS operating expenses are expected to range from $271 million-$277 million. Non-controlling interests of our majority-owned subsidiaries are expected to range from positive $17 million-$19 million, which are losses borne by non-controlling interests. The planned 2019 CapEx for foundry operations is approximately $2.1 billion, which are mainly for the equipment and the facility in our majority-owned Shanghai 12 fab and [Fanfab] R&D line. The planned 2019 CapEx for non-foundry operations are approximately $106 million. Our planned 2019 D&A is approximately $1.1 billion.
Lastly, we would like to highlight that our 2019 gross margin is expected to rise to 20%, compared to the original guided range of high teens to 20%. Our estimated EBITDA for 2019 is approximately $1.3 billion compared to the original expectation of $1.1 billion. I will now hand the call over to our Co-CEO, Haijun, for general remarks.
Thank you, Yonggang. Again, thank you all for joining us today. Today, I will give an overview of business and technology overview, then Mong Song, Yonggang, and I will answer questions from the line. Let us begin by highlighting the results of our third quarter. I will update you on our mature node technology application platforms, advanced technology progress, capacity plans, business development, and our outlook for the rest of the year. Overall, our third quarter was better than our guided expectations. Reported revenue increased by 3% quarter-over-quarter compared to our guidance of flat to 2%. Revenue excluding our LFoundry grew by 6% quarter-over-quarter, beating our guidance of 2% to 4%. The increase in revenue was due to better than overall business. Higher sales of advanced nodes of mask, customer inventory digestion, and fresh incremental revenue from newer applications.
Overall, wafer shipments in the third quarter increased 2.4% quarter-over-quarter. Gross margin improved to 21%, which was the high end of our guidance. The improved margin was largely due to higher utilization, growth in shipments, and a change in revenue mix. For regional perspective, business continues to be strong, particularly in China region, which increased 10% quarter-over-quarter, contributing to 60.5% of our revenue. As you may see, the key role in the China ecosystem continues to provide a solid foundation for the company's business growth. Excluding revenue from our foundry, sales from our U.S. region was stable and grew more than 2% in third quarter. Eurasia is up to 56% growth year-over-year, signifying significant market opportunities captured. I'd like to address now our mature node technology platforms.
We had begun to build and develop these application platforms in early 2018, and now they are paying off and translating into revenue. We have achieved significant breakthroughs in mature and mainstream applications in both quality and quantity as demand is high. Mature node technology for 8-inch and 12-inch is stable, and capacity is full until the end of this year. With indicators that this demand may carry into the first half of next year, depending on a stable macro environment. The platform area, which show particular strength for both 8-inch and 12-inch, includes CMOS image sensors, power ICs, fingerprint ICs, Bluetooth ICs, and specialty memories. Furthermore, we have seen some special smart card applications such as electronics toll collection, ETC, continues to have good, stable demands and have contributed to some of our new incremental revenue in the recent quarters.
When analyzing revenue by applications, our customer segments grow 16% quarter-over-quarter and 3% year-over-year, as we see the demands for 5G triggering the market for mature technology applications such as IoT and smart home appliances. 5G demands for SMIC includes a wide range of devices, including power management for quick chargers, specialty memories for high-end variables, and a CMOS image sensor for smartphones, consumer devices, and servers. Our revenue from power ICs, CIS, mixed signals, RF, and fingerprints are up 6% quarter-over-quarter. By technology nodes, a majority of our growth in the third quarter came from 65 and 55 nanometer nodes. 65 and 55 is up 42% year-over-year, while revenue from 28 nanometer, 0.13 micron and 0.35 micron also increased. These increases are largely due to connectivity, application processors, and CMOS image sensor-related applications.
Our 28 nanometer platforms continue to experience customer appeal and continued demand. 28 nanometer wafer revenue contribution increased to 4.2% in the third quarter. Our 28 nanometer platforms are addressing applications such as high-end consumer and set-top box. Both PolySiON and high-k metal gate continue to experience demands. We plan to transit our mix that is heavier on high-k metal gate. We continue to expect that 28 nanometer will provide low to mid-single digits revenue contribution for the full year. I will now give a brief update on our advanced technologies, including the R&D progress and the business opportunities. Let me address the progress of our 14 nanometer technologies. 14 nanometer successfully entered risk production in the second quarter and now in production. We are continuing to engage with customers and expect revenue contribution by year-end.
Meanwhile, our team is conducting ongoing tape-out projects, and we continue to expand our customers both globally and domestically. Applications for our first-generation FinFET technology include applications such as high-end consumer, media-related applications, mobile application processors, and artificial intelligence. Auto-related applications using our advanced technology are also progressing well with our customers' validation on product quality. We continue to expand our advanced node portfolio as we are now also developing RF-related applications. To address our progress on plus one node, we continue to push forward with good progress. Our N plus one development is on track, and customer engagement is smooth. Given the limited players in this area, we are optimistic about the potential opportunities and ability to provide diverse options for global and domestic customers. Allow me to talk about our market perspective for our advanced technologies.
The growing FinFET market is being driven by the market trends like high-performance computing and a migration to 5Gs, which bring increased IC demands from smartphone upgrades to connectivity using Wi-Fi, IoT, Bluetooth, smart home, and smart city. We are confident that the upcoming market trend will benefit SMIC, and the industry as well. We target to see incremental revenue contribution from FinFET in Q4 coming from high-end consumer to high-performance computing. With new technology coming in production, we have planned our advanced capacity carefully. We reiterate our 2019 foundry CapEx of $2.1 billion , of which we have spent $1.5 billion in the first three quarters. Our capital spending is largely for our new SMIC South joint venture facility, which can address 14 nanometer and below. At this point of time, our capacity additions and research and development plans are running smoothly and on schedule.
With regards to business development, the transition to transfer our LFoundry ownership was completed in July. As a result, Q3 accounted only one month of our LFoundry's revenue and a one-time disposal gain of $81 million. We are glad to focus on our core manufacturing in China while still having a foothold in automotive IC market. In Q3, we are nearly fully loaded on our main fronts. Meanwhile, we continue to work carefully with our customers on the business situation demand to prudently expand our capacity to capture distinct opportunities. We reiterate our second half 2019 is better than the first half of 2019. As the capacity remains pretty full in both mature 8-inch and 12-inch, we expect Q4 to be another stable quarter. Our capacity growth in the near term is limited.
We are guiding our Q4 with single digit growth coming from broad-based utilization growth and a new incremental revenue from the advanced technology nodes. We now believe we can outperform the full year guidance of being in line with the foundry industry growth to slightly beating the industry. When excluding the disposal of our foundry and the licensing revenue, SMIC may see slight revenue growth versus the industrial decline. Looking forward, we are very optimistic about next year, given our current visibility and customer demands. Products utilizing our technology platforms will continue to ramp up. To conclude, SMIC has executed well in the recent quarters on delivering its platform technology and developing new technology nodes. Our advanced technology nodes research and development continues to accelerate, and we are well on schedule to meet our various targets.
At the same time, we have continued to build up comprehensive solutions to supporting our customers' needs and meeting the market opportunities. SMIC continues to play an important role in the industry. We work to further support the domestic supply chain and collaborate with domestic and international customers that desire to take part in China's opportunities. Therefore, we continue to build trust with our customers and build up a solid network of surveys and market-driven relationships. We see increasing opportunities and aim to grab strategically as we purposely maintain our leading position in China. We thank you for your continued support as we work to bring values to our shareholders. Once again, 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. I would now like to open up the call for Q&A, and as usual, please be reminded to limit your questions to two per person. Operator, please assist.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. 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 your request, please press the pound or hash key. Participants are requested to restrict two questions at each time. Your first question comes from the line of Randy Abrams from Credit Suisse. Please ask your question.
Okay. Yes, thank you. Good morning. Appreciate the details. Wanted to ask the first question. You alluded to strong growth expected in 2020. If you could talk more about magnitude of growth, kind of what you're expecting for industry and SMIC's growth next year. How you see the growth, both from the advanced platform like 28 and 14 or FinFET, and then how you see the mature nodes continuing to grow into next year to support that strong growth.
Hi, Randy. Thank you for the question. On looking to the next year and about a business situation based on our current visibility to the markets, we see very strong demands. Just now, we already say that, for our 8-inch and the 12-inch. We are in a full loading stage for quite a while. You know that since last quarter, we announced that. We do not see significant growth in our capacity in the mature nodes. We are pretty confident that for our mature technologies, we should see the continual how they loading. We just now we already say that we do not have the fast and investment in the capacity expansion in the mature technologies. We won't see, right away, immediate significant growth in the revenue, even though we have confidence that the continued full loading stage.
The second half last year, possibly, we will have the add-on capacities, but that's a gradual. Just now we already say that our expansion on capacity is very prudent, careful, and, we may now see that big jump in the capacity providing part. On the leading-edge technologies in the FinFET, we already are now moving into the production stage, and we have continued customer engagements on new tape outs. At this moment, it's still too early to announce the actual volume or realistic revenue growth.
Okay. If I could ask the second question, then maybe split into two parts. It's maybe the view on CapEx. I think the two areas, since you're full on mature nodes, for next year, what your plan. Because you mentioned a lot of specialty applications with good potential on 5G IoT. For the FinFET line, I think you have capability to move to 15K. If you could talk kind of your plans and what it might account to for spending, maybe the implication gross margin, with the guidance up by a few points, if we should view, kind of closer to mid-20s as the level at full utilization that you can maintain or if kind of the recent range where it's been closer to 20%, like into next year, if that's probably the level it may return back to.
Hi, Randy. Since SMIC continued the situation of a full loading and, just now we already say that because of the full loading situation, very high demands, and we are confident that the gross margin of 20% type of things will be maintained. As for the next year's spending on the CapEx, on the capacity things, SMIC always follow on the principles that with the development our technologies and the market, everything based on our strategy needs and the actual building of capacity based on market demands. We are consolidating the market demands and later will, make the decision on the total spending on the capacities. I really believe that when we have the data webcast for the fourth quarter, we will announce more or less the capacity spendings for 2020.
Okay. If I can clarify, the gross margin, you're guiding 23% to 25% in fourth quarter. You mentioned about maintaining the 20%, but with fourth quarter 23% to 25%, I was actually asking if you think you can maintain that higher level or maybe it's a one-time function of mix or demand that's pushing it up to that level. I'm just trying to think of kind of looking forward if now you think the gross margin may be a few points higher like it is in fourth quarter, kind of continuing forward.
Hi, Randy. For the short term, yes, we announced just now that 24%-25% type of things. Just now, the second question is talking about a full year of next year. We made the comments that it's too early to comment on things above 20. We just say that for the gross margin, 20%, and based on the visibility, that we should be able to maintain that. For the full year, we can't say too much on more than that.
Okay, great. Thanks a lot, guys.
Thanks, Randy.
Your next question comes from the line of Leping Huang from CICC. Please ask your question.
Thank you to take my question. The first question is about how we, SMIC, to ramp up the 14 and the 12 nanometer process in 2020. Do you have a more clear plan and how to keep the balance between the profitability and the scale? Thank you.
Okay. Hi, Leping. Yeah. Thank you for the question. The FinFET capacity building certainly will be closely linked with the customer demand. For the first half of the next year, the demand on the 14 is very clear. We will build our capacity according to that demand. The next second half of the next year is whether in how do we distribute between the 12 and N+1 that we still negotiate with the customer. That is a little bit early to talk about the second half of the next year capacity. Certainly, we will balance all the capacity and customer demand very cautiously.
There's no more detail on the scale or how much you plan to expand into.
I think in the last.
Yeah.
Last meetings, I already explained our capacity building plan from 3K to the 15K.
Okay. Yeah.
That plan still exists, yeah. Still valid at this moment. Yeah.
Okay. The second question is about, I asked Haijun, what do you look on this, the market supply, demand relation in the 12 nanometer mature process? Since you do very well in the differential process, like the CIS and the PMIC last two years. We also see a lot of capacity are introduced in, I think, last two months. What's your plan in the 12-inch mature process? Thank you.
Hi, Leping. Yes, we'll build up our capacity further on, based on the commitment to the customers. You're right, in the past two years, we have built up more than seven new product platforms. For each platform, we have one or two and a very big customer working together with SMIC. Based on the mutual agreements and the market growth, we will eye down the capacity cautiously. Yes, next year we will eye it down. The range is not that big, may not be impacted by the market growth, I mean, by the overall market capacity provided by the other guys in the past couple months. For the Beijing fab, you know that we are the original fab. I mean, the first one already fully loaded for past a couple years.
For the new fab, actually, even now, we already finished more than 75% of that fab space. Even though we got expansion and the remaining part is not that big. We just work together with our customers on how to resolve these kind of things. Beijing fab, that's for 12-inch. SMIC, in order to resolve this kind of capacity constraints, we have really worked through that for the similar products, we can run both in 12-inch and 8-inch, so that we can back up one another.
That's one of the solution we have. When we talk about 12-inch in Beijing fab for further expansion, and we also work together to expand the 8-inch capacity. Quite a couple of customers on the platforms are running at this moment on both 12-inch and 8-inch. We'll move concurrently 8-inch and the 12-inch. To conclude that, make it simple, we'll go for expansion, but on slowly gradually.
Thank you. Thank you, ma'am.
Your next question comes from the line of Si Hang from China Renaissance. Please ask your question.
Oh, hi. Good morning, gentlemen. Congratulations on a strong quarter. My first question is regarding the account receivable in Q3. I saw a pretty strong increase quarter-over-quarter. I just want to know if it's a short-term phenomenon or any implications you can share.
Si Hang, could you say your question again? It's about account receivable?
Right. It's a big jump up in Q3, right? I just want to know the reason behind. Is it a short-term thing or any implications that you can share?
We actually issued a $500 million corporate bond in 2014. It's due in the 7th of November this year. Therefore, we have prepared this equivalent account of cash at the other account receivables to pay this corporate bond.
Oh, okay. Actually, thanks. Second question, regarding the 14 nano and 12 nano, could you guys provide an update on the tape-out activities for the moment?
Could you say what kind of activities?
The tape-out, the customer tape-out.
Customer tape-outs. Okay.
Thank you.
Okay. Let me try to answer this one. At this moment, year 2019, most of the tape-out is on the 14s. Starting from late this year to early next year, we will see more of the 12 nanometer tape-out coming in. Yes.
Okay. All right. Okay, thank you, Dr. Liang . Congratulations.
Thanks.
Your next question comes from the line of Gokul Hariharan from JP Morgan. Please ask your question.
Hi. Thanks for taking my questions. My first question is on 28 nanometer. What is the anticipation on 28 nanometer going into next year? Do you expect that the situation starts to get better, given other nodes are starting to see some demand recovery in second half of this year? Second question, specifically to Q4 gross margin, moving up to 23%-25%. Could you talk a little bit about what are the reasons for that move up, given this is a level we have not seen since the first half of 2018? Is there any one-off there, or is it primarily because of utilization increase in 8-inch and mature 12-inch? Thanks.
Okay. Hi, Gokul. Thank you for the questions. For the first question is for 28 nanometer perspective into next year. Basically, we should say ASML is loading in next year. Overall will be better than this year since we are working together with customers on both high-k metal gate and C+ new applications and PolySiON applications. We do have more tape-outs on the products ongoing. Since overall in the world, 28 nanometer capacity is overcapacity situation is still there, and the price gross margin is still low running 28 nanometer. We are not in a very strong demand to push this area for further loading. Basically, we just meet up our customers' expectation and the request on the capacity. We do not have a plan to expand the capacity on 28 nanometers. This is the answer to your first question.
For the 24%-25% gross margin and 5% growth from the quarter, a couple reasons. The first reason is the loading situation for our Beijing 12-inch wafer fab for the new fab and new capacity are together fully loaded. The second reason is from the disposal of our LFoundry. You know that our LFoundry fab has been running in a very low gross margin for three years. The third is for a small wafer fab in Shanghai running 12-inch 40 nanometer and the 20 nanometer technologies in the past couple of years. That's a Shanghai fab. At this webcast, we already said that we closed that fab
Relocate the machine to Beijing, so that we consolidate 14 nanometer, 28 nanometer operation in Beijing. That's a lot of push on the gross margin.
Thank you.
Hi, Carter.
Just one quick question on 28, if I may. When you think about 14 nanometer and 12 nanometer ramping up, do you think that 14, 12 will be higher gross margin than 28 when it comes to, let's say, second half of next year or exiting 2020 once it ramps up to sufficient scale?
Gokul, are you referring that increasing of 14 and 12 will better improve our gross margin in the next second half?
No, I was just asking, since 28 gross margin still remains under pressure due to industry issue, do we expect once 14 and 12 ramp up, let's say by end of next year, we reach, let's say 15K that we talked about? Do we expect 14 and 12 gross margin to be higher than 28, or is it still going to be taking some time to get there?
I think that's great question about 14 nanometer, 12 nanometer ramping, not to repeat 28 nanometer gross margin to upward situation. As I said earlier to answer the Leping's question, we will be very cautious about advanced technology capacity building to versus our customer demand for our FinFET fab, yeah. Not to encounter this similar situation on 28.
Okay, thank you.
We'll take the final question from the line of Roland Shu of Citigroup. Please ask your question.
Hi, good morning. I think my first question is look at your mature now. I think now have been fully loaded, I expect probably about 100% utilization. Question is on your how much upside for you to still to improve your utilization for mature nodes. You plan to expand 8-inch and 12-inch mature node capacity this year. How big on the capacity you are going to expand this year? Thank you.
Hi, Roland. Thank you for the questions. Upsides on the mature technology nodes, temporarily we can't. Simply, we are running fully loaded, we also have the commitment on the delivery of the cycle times. That mean we have to deliver on the wafer out within certain time frame. Furthermore, loading into the fab will fail this kind of delivery. Short-term, we won't go for a upside type of loading right away. We'll maintain the current situation. For the add-on capacities on 8-inch and 12-inch, that's a slow progress. Just now we already say that for Beijing fab, for the new fab space, we already use three-fourths. Hopefully, in the next one year timeframe, we can fill up the last quarter of that new space.
For 8-inch, we do have a new fab in Tianjin, and it depends on the machine delivery on our vendor side. We believe at this moment it's a slow progress because of the market situations that we can't build our capacity right away. We should say that, okay, this gradual slow building up capacities on add-on capacity to our existing 12-inch and 8-inch wafer fabs mainly happens in Beijing and Tianjin. Shanghai is mainly advanced and FinFET technology capacity.
Okay, thanks. Since next year you have this continuous capacity build plan on FinFET and also on this mature technology node. What's your CapEx plan for next year? Also, what will be the overall depreciation next year? Thank you.
We should say this way because this year we spend $2.1 billion. Majority of that part is used for the FinFET technology capacities. Next year on, we should say, the similar CapEx or higher than this CapEx will be there, and because we have add-on mature technology capacity is building up.
Yeah. How about the overall depreciation on this year based on this $2.1 billion CapEx spending this year and next year?
We do not have the calculation right away. The depreciation just now from our CFO's reports, we have the current and depreciation numbers. This year we have add-on $2.1 billion, and possibly, we both can calculate.
Okay, understood. Thank you.
Sure. Thank you.
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 participate in today's call and believe our special arrangements today would help you to understand SMIC more. Thank all of you for your trust and support to us. Thank you very much.
Ladies and gentlemen, this is the end of SMIC's third quarter earnings conference call. We thank you for joining us today.