Welcome to Semiconductor Manufacturing International Corporation's First Quarter 2019 Webcast Conference Call. Today's conference call 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 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's presentation, we'll 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.smics.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 Koh, Director of Investor Relations, for the cautionary statement.
Good morning and good evening. Welcome to SMIC's Q1 2019 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 CEOs, Doctor.
Zhao and Doctor. Liang, will provide some business commentary. This will be followed by our Q and A session. 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.s 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 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 U. S.
Securities and Exchange Commission and the Hong Kong Stock Exchange Limited, including our annual report on Form 20 F filed with the United States Securities and Exchange Commission on April 30, 2019. During the call, we will make reference to financial measures that do not conform to generally accepted accounting principles. These measures may be calculated differently than similar non GAAP data presented by other companies. Please refer to the tables in our press release for a reconciliation of GAAP to the non GAAP 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 2019 guidance. In the Q1 2019, our revenue was $669,000,000 a decrease of 15% quarter over quarter, mainly due to a decrease in waste shipments and product mix change in the Q1. Gross margin was 18.2%, an increase compared to 17% in the previous quarter, but lower than the guided 20% to 22%, mainly due to the inventory and production situation in the Q1.
Non GAAP operating expenses were $202,000,000 Profit for the period attributable to SMIC was $12,000,000 while non controlling interest were $12,000,000 debited from SMIC's attributable profit, mainly due to the currency exchange gain from RMB appreciation for our Shanghai joint venture. Moving to the balance sheet at the end of the Q4. Cash on hand, including financial assets, were close to 3,900,000,000 dollars Gross debt to acquisition was 41% and net debt to acquisition was minus 3%. In terms of cash flow, we generated $166,000,000 of cash from operating activities in the Q1. Now looking ahead into the Q2 of 2019.
Our revenue is guided to be up 17% to 19% quarter over quarter, mainly due to overall recovery of demand. Gross margin is expected to range from 18% to 20%. Non GAAP operating expenses were expected to range from $269,000,000 to $273,000,000 dollars Non controlling interest of our majority owned subsidiaries are expected to range from positive $34,000,000 to positive $46,000,000 which are losses to be borne by non controlling interests. We elect to reach the planned 2019 CapEx for foundry operations of approximately $2,100,000,000 mainly for the equipment and the facility in our majority owned Shanghai 12 inches fab and Finpad IND line. The planned 2019 CapEx for non foundry operations is approximately 106,000,000 dollars Our planned 2019 D and A is approximately 1,160,000,000 dollars Our 2019 gross margin is expected to be in the range of high teens to 20s.
I will now hand the call over to our Co CEO, Haijun, for general remarks.
Thank you, Yonggang. Thank you all for joining us on today's telephone call. Today, I'll begin by highlighting the results of our Q1. Then I will update you on our capacity plans, our near term outlook, the market situation and our platform strategy. To summarize our Q1 results, it was a seasonal and down quarter in term of revenue.
But with the internal efforts of cost control, our profit margin not fully improved. Our first quarter revenue decreased by 15.1% quarter over quarter due to low seasonality and soft demand. To give you more color on this sales trend, our revenue from communication, consumer and computer segment applications, respectively, declined 18.3%, 14% and 32.3% sequentially. These jobs were a general decline across board as our customers adjusted their inventory levels. From geographical viewpoints, revenue from our customers headquartered in North America and China, declined sequentially 13.5% and 20.4% respectively, From the broad industry slowdown, while revenue from our Eurasia customers actually increased by 8.5% due to the introduction of new product incremental revenues.
I would like to take the time to commend our team on their good efforts to diversify our technology portfolio offerings and win the trust of our new customers. Meanwhile, our gross margin increased to 18.1% in the 1st quarter compared to 17% in Q4 last year, an increase of 1.1 percentage as a result of the product mix and inventory situations. Although it was a down quarter, we were able to maintain the utilizations of our fabs at 89.2% compared to 89.9% in Q4 last year as we have seen a return in confidence and order momentum from our customers. Our operation profit grew from a loss of 41% million in Q4 last year to a gain of 23,000,000 in Q1 this year. Likewise, our consolidated net profit from the period doubled quarter over quarter from US10.9 million dollars to US23.2 million dollars And our EBITDA grew 22.1% quarter over quarter to an EBITDA margin of 48.2%.
We improved our profit during the quarter by enhancing our product mix and by using cost controlling efforts, resulting in a reduction in spending. Our capacity at the end of Q1 was 459,000 wafers per month 8 inches equivalent compared to 451,000 as we adjusted capacity in our fully owned Beijing fab. We maintain our foundry CapEx plan of US2.1 billion dollars which is mainly for the purchasing of equipment and the facility of our Shanghai joint venture for FinFay lines. In Q1, we already extended US443 million dollars which leaves off a remainder of US1.7 billion dollars this year. The capacity is getting tight in many of our mature facilities as our mature platform develops.
During Q2, we disclosed an agreement for the sales of our majority stake in R Foundry Italy. We have acquired 70% of the R Foundry shares for the price of €49,000,000 in 2016. We are now selling the stake for the amount of US112.8 million dollars booking a disposal gain of US77 million dollars which should be reflected in our other revenue other income in the 2nd quarter. This was a strategic sales for SMIC as we seek to centralize our manufacturing in China. The result of this sale is profitable income and the long term improved profitability structure.
Furthermore, we have already diversified our customer base to include auto related applications such as CMOS image sensor and memories and BCD power devices. Looking at 2019, the Q1 seems to be the bottom for us as the customers are gaining confidence on restocking their inventories. The Q2 is guided to be better than the Q1 with a strong rebound and with our current outlook, we believe second half of this year should be better than the first half. Q2 growth will be partially driven by new incremental revenues from 55 nanometer loading mobile applications such as image CMOS image sensor processors, RF related applications as well as general recovery across board from handset tablets, other consumer electronics and connectivity. Our mature nodes fab utilizations are in a very healthy state.
Despite a general decline from the seasonality in the 4th quarter, certain specialty applications continued to maintain a good demand and even growth. We have built up and reached and completed specialty platforms with a solid customer base and sufficient market demand. Our platforms include analog power, CMOS RF for IoT, CMOS image sensor ISP, fingerprint sensors, specialty memory and the microcontrollers. Our wafer revenue from analog power, CIS and fingerprint contributed almost 40% in the 1st quarter and grow 6.5% quarter over quarter and 14% year over year. Our analog power platforms include technologies like BCD, RED and wireless charging.
Analog power continues to be an important revenue driver for us. Our CMOS RF platform is addressing the growing Internet of Things consumer markets, including smart applications, variables and other connectable smart electronics. Our fingerprint sensor platforms also continues to be one of the most comprehensive and includes biometric under glass solutions. We have increased our share in fingerprint sensors this year and are positioned as a top player in this sector. Our specialty memory platforms, which includes standard long NOR flash and a standard long NAND flash, will begin to see restocking throughout this year.
During 2019, we will see an increase of shipments of 28 nanometer Hi KC Plus, which will be a majority of our 28 nanometer output. We have engaged with our customers and are diversifying our technology offerings. We work hard to meet the requirements of strategic customers. Meanwhile, we do not plan to expand in short term capacities and work to maintain an efficient and cost effective production line. To conclude, we continue to work hard to build up comprehensive mature technology solutions and a strong strategic long term relations with our customers.
We continue to strengthen our position as a key player in the China Semiconductor Industry and work hard to improve our competitiveness. We aim to build values for our stockholders in the long term. Thank you for your continued support. I will now turn the call over to our Co CEO, Meng Sheng, for further comments.
Thank you, Haijun. Thank you. Thank you all for joining us today on our earnings call. These days, I catch the cold. So but I will try my best to complete my duty this morning, okay?
I would like to take this opportunity to share some details on our current progress on FinFET R and D and business development. Our advanced technology research and development is on track and progressing smoothly. I'm proud to say that our FinFET development continues to advance faster than the development of our previous technologies. We are seeing our 40 nanometer years rapidly rising to meet customers' requirements. We now have a handful of decent projects, which have been verified through multi project wafers or so called MPWs After proving functionality and performance of our customers' 14 nanometer design on MPWs.
Many of these designs are ready to tether. To add, our 12 nanometer, which provides enhanced performance, power and die size, have multiple customer project engagements in the pipeline. Our 12 nanometer project development is complete and now under customer verification. Meanwhile, we are expecting to see rich production of 12 nanometer around the end of 2019. Our team has been working to both accelerate and strengthen our technology development.
We have built a robust foundation on FinFET and R and D execution. And as a result, our N plus-one technology development is progressing much faster than previous FinFET nodes. Our N plus-one technology is on track with rapid progress on development, while our device and ear demonstrated competitive performance Compared to the previous note, years are climbing at a rate surpassing the previous node year ramping curve. Meanwhile, we are closely working with customers for potential engagement opportunities. Besides smooth R and D progress, we are also working diligently on the necessary preparation of providing comprehensive service and advanced node manufacturing.
We are developing wide range platforms, conducting multiple generations of FinFET research and development and building complete and robust libraries. Our in house FinFET mask making is ready all the way down to N+1. In addition, we have already completed the construction of our new Shanghai Advanced fab in the Q1 of 2019. We are now undergoing capacity installation. This marks an important milestone for us now that we have built the advanced technology foundation to move into production, we are now marching ahead with FinFET technology.
This represents one big step for SMIC. Our new FinFET fab will be the most fully automated, most artificially intelligent, effective and safe fab at SMIC. It will be the most advanced 14 nanometer and beyond semiconductor technology R and D manufacturing space in Mainland China. This will be built under the highest standard of quality benchmarked against industry leaders. At the same time, we are working closely with customers to provide advanced node capacity to meet their production demand.
To best serve our customers, we are expanding our FinFET product portfolio with various applications under development. We expect our portfolio to address a variety of applications, including communications, high performance computing, consumer, cryptocurrency and others. Meanwhile, mid end smartphone application processors and other consumer products are migrating from 28 nanometer to 14 and 12 nanometer. Furthermore, growing FinFET demand for mobile and wireless connectivity is stemming from the launch of 5 gs network globally. SMIC had built strong relationships with customers who had a solid footing in communications and networking markets.
Overall, we are building up momentum and stronger partnership as we accelerate our technology and prove our technological capability. Furthermore, we are working to provide our customers with best across comprehensive solutions to be the preferred foundry partner in China. We will prepare ourselves to be ready for transition in customer technology migration to face the ever changing semiconductor industry environment. We thank you for your support as we work to deliver on our commitments to bringing SMIC to the next level. 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. Liang, Doctor. Zhao and Doctor. Gao. Today's Q and A will be hosted by our Co CEOs, Doctor.
Zhao and Doctor. Liang and our CFO, Doctor. Gao. I would now like to open up the call for Q and A. As usual, please be reminded to limit your questions to 2 per person.
Operator, please assist.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Randy Abrams from Credit Suisse. Please ask your question.
Okay. Yes. Thank you. Good morning. Yes, I wanted to ask the first question on the technology mix.
In 1st quarter, most of the revenue fall off looks like it came from 28%, 40%, 65%. Could you about in Q2 if that's the area driving most of the improvement? And on the other side, the 8 inches held firm And I think you mentioned some areas getting tight. If you could talk about your plans to add additional capacity and if you have further headroom to grow the 8 inches business or you're running up against capacity constraints on the 8 inches side?
Hi, Randy. Thank you for the questions. Basically, the Q1, like the industry, is seasonality because in Q1 last year, majority of the customers in the industry got uncertainties about future, they lowered the inventory demands. So you'll see every company saw the same thing. And because the inventory are running low, everyone in the industry started to see the rush orders, especially for SMIC, simply because we have the diversities and quite many small, medium sized customers, they are very quick to the market demand.
And we see the recovery across the part mainly come from the BCDs and the CMOS image sensors, ISPs and the CMOS RF, standalone memory, consumer related and mobile phone related and communication related. And 28 nanometer definitely we see the rebound linearly, I should say this way, similar to the other technology nodes and different segmentations of the markets. But for 28 nanometer SMIC has been running the full capacity there. We do not have intention to expand the capacity quickly. Overall, in the world, the 20 nanometer capacity has been overbuilt.
And we'll wait until we see the reasonable market balance for the capacity and the demand. And for the 65 nanometer nodes, that's the most hotspot at this moment. We are running short capacity. And we are trying our best to squeeze up, get more efficiency of the equipment, squeeze up capacity to meet the customer request. And for the 8 inches we have been running even for the lowest season of Q1 and last quarter before Q1 and we have been running full capacity SMIC 8 inches And for the 0.8 micron, 0.15 micron, mainly running the BCD analog power CMOS image sensor fingerprint is kind of applications.
And they are very sensitive to market, but because we have been positioned in the area and as the major player for many years, so we are in a very good situation. And to answer your question, from this point, we saw that and we have seen that and this is how they trend maybe continue in Q2 and Q3.
Okay. And a follow-up to that first question, just maybe 2 parts. The 8 inches since it's tight, I guess, the incremental capacity you may be able to add to if you need to, to squeeze out more capacity. And from the utilization pickup, it looks like a lot of that wafer start happened because you had the high utilization in Q1. Are you continuing to see the utilization pickup as we go through Q2, I guess, suggesting Q3 another continued decent pickup or maybe a bit of uncertainty might be early because of the trade war kind of coming back in focus again?
Well, 8 inches even last year, we have been experiencing the uncertainties and the international eco political type of situations. Even for that kind of situation, we have been running 8 inches in full capacity, simply because SMIC has been built up the capacity and with a lot of diversified platforms for different products. For example, Justin and I already mentioned the fingerprint, the CIS and MCU and analog power. We have managed the complexity of the customer base and different requests for many years, and we do not rely on single customers. And that's why even though the market is frustrated, we still be able to maintain a healthy loading.
At this moment, we are just now already said that we are under capacity for the demand. And visibility to Q2 and Q3 definitely will be in a full loading station.
Okay. Yes, I'll take the rest offline. But the last question I wanted to ask is on this 14 and 12 or how you're planning FinFET. Are customers now with the 12 nanometer option risk production and toward the end of this year starting to shift their focus and or even wait for the 12 so they'll ramp on that note? Or how do you see the segmentation in customer demand between 16 or if more customers are waiting for 12?
I think that's a very good question. Both 14 and 12, they all have customer space, okay? 14 nanometers, they are migrating from 28, for example, like 5 gs application on RFO and they will migrate from 20 years using the 14. But for the mid end mobile process application process, they will tend to use 12. And some auto application also tend to use 12.
So we are preparing both technology to serve our 2 group of customer demands.
Okay. And can you give a
rough range, I guess, for next year if there's a way to think on revenue? If it starts to ramp up, it will be like single digit percent of revenue next year, if it's if you can forecast to that at this stage?
That's $1,000,000 question that I also think of that every day, okay? But to be honest to you, this is a little bit early to give you the exact number on that questions.
Okay, great. I appreciate that.
Thanks a lot.
Your next question comes from the line of Liping Wang from CICC. Please ask your question.
Thank you for taking my question. So my first question is about the second half, the outlook. So Haijun mentioned that you say that the second half should be better than first half. So what's the reason? Can you share some color what will be the incremental demand or the confidence behind that?
Or which node will be the new will the high can I assume that the 28 nanometer process will be a higher utilization rate? Thank you.
Hi, Leping. Nice to have your questions. Basically, we should say this way. At this moment, we have the rush orders to restart the inventories simply because Q1 last year and the whole industry and the people were very pessimistic about the future. So they lowered the inventories, they do not take the wafers And now they rush orders to just to fill up the inventory to a healthy level.
And we see the rebound, the overall demand in the whole world quite well maintained for BCD, CMOS RF, stand alone and specialty now flash, NAND flash, analog power, CIS, ISP. For this kind of consumer and communication applications usage type of ICs are in a very healthy situation in the whole world. And actually, I should emphasize a little bit here that for this kind of applications, they do not that much depends on the technology nodes. For example, for fingerprint, even though everybody is running 0.15 to 0.18 micron, but we can run it in both 8 inches and 12 inches And similarly for the side out box, we can run it in 14 nanometer, also running in 28 nanometer. And we're running both in 28 Hi KC and also Hi KC plus And my point is for BCD powered devices and the applications range from 0.18, 0.15, 0.13 and the 90 nanometer, 8 inches to 12 inches So my point is when the market is running in a healthy mood and the similar applications, their demands for different usage, they are running from 8 inches to 12 inches and in different nodes.
And currently, we are catering to customer demand by product applications inside of technology nodes. And come back to your question on 28 nanometer, we are running full capacity. For 28 nanometer, we are running 24 nanometer NAND flash, high KC and high KC plus 28 nanometer for the different applications. And just to add this data, for the portion we can fully satisfy customers' requirement, meet customer requirements and we are using our 14 nanometer to do the similar type of products.
So when you talk with your customers, so you think your customers are mainly in inventory restocking stage? Or do you worry that they will also do the inventory destocking again because the cycle is so short these days?
Definitely, that depends on different customers' momentum. Some customers are very cautious, they may rush in, rush out and very seasonal, very dynamic. And some other customers are very they are the industry leaders. So they know that how much they need to restock, and we see both. Because the diversification of setting up of customer base and the platforms currently we're balancing this kind of demand and make sure that we are running full loading stage.
Okay. The second question is about the JSAV. So I noticed that Doctor. Zhou is appointed as the Board of Director of the JCET. So are there any change on the relation between JCET and SMIC in the future?
Thank
you.
This is Tim. Let me translate. So for SMIC, we treat JCET as a long term strategic investment. This is the same just because there is a new board member coming out for this new term, but for SMIC, we still sit for 2 seats in this Board. So the situation is actually the same.
So we treat JCET again as a long term strategic partner on a lot of the collaborative projects. So we anticipate more stronger relationship on that basis. Thank you on that.
Thank you.
Your next question comes from the line of Peter Chan from CIMB. Please ask your question.
Hi, good morning, gentlemen. Thank you for taking my question. My first question would be, earlier, you were talking about the product migrating from the 28 nanometer to 14 nanometer. Could you provide more details? What are the main products on the first wave?
And what does the schedule look like for that migration? Thank you.
There
are a series of product will be migrated from 28 to the next generation. For the 5 gs application, sub 6 gigahertz, those type of transceiver receiver will be the 1st wave, microwave from 28 RF to the 14 RF. And plus there are consumer product like a set top box surveillance, AI, IoT, those type of device also migrating from 28 to 14. And also, we look at our customers' product roadmap. It will probably happen at end of the year to the beginning of the next year time frame.
Okay. Thank you. The other question, sir, you were saying that the mask your mask shop is capable doing the N plus-one node mask. May I interpret that N plus-one as a 7 nanometer?
That I will separate into the 2 questions, okay? First thing is what is the N plus-one, okay? I believe you probably would like to ask that kind of questions. Our N plus-one is defined. Our technology node basically defined by the PPAC, Power Performance Area and of course, cost we use it as a mass count as an index, okay?
For the N plus-one, we refer to previous node with our 12. The 14 is the or graduate phase out and the 12 nanometer. If compared with the 12 nanometer N plus-one performance, we enhanced 15%. Power will reduce 35%. And SoC SoC chip area will reduce 50%.
And we use that to define N plus 1, okay? Then back to your original question about our mask capability. In fact, the mask capability, the N plus 1, N plus 2, N plus 3, those capability, we all build it using the newly purchased EBN, right? So today, we will just tell you our capability down to the N plus-one because our customer demand is at N plus-one. But we do have capability to do N plus 2, N plus 3 as well.
Okay. Thank you for that one. Just one follow-up to that, my last question. The industry is facing the challenge in the EUV, the tool. And one of the problem actually, there are many problems probably is the radical for the mask.
Simply, there seems like there is not a very effective solution yet that can be adapted by the either the internal mask shop or external mask vendor. So sooner or later as the SMIC are migrating to the EUV process, that may be a challenge that SMIC has to deal with. Any comment on the progress of that particular technology challenge?
I really appreciate your comments on that. The EUV part actually for us, we're still on the paperwork stage, okay? So we haven't had any activity on the EUV yet.
Okay. That will be all my questions. Thank you, sir.
Your next question comes from the line of Zhe Hong from China Renaissance. Please ask your question.
Hi, good morning, gentlemen. The first question, could you provide us the update on 2019 sales guidance, especially after the exit of AeroFoundry?
Hi, Siho. For the guidance this way, basically, we already have the news release and this kind of business transaction will be completed by the end of Q2. So for the Q2, the business still got into our refinery into SMIC's forecast. Just now we already gave the guidance for the Q2 and that portion already there. And for the second half this year, our forecast has excluded our foundry's contribution.
So even with this kind of change, we still target a flat growth year over year and for our annual and excluding the second half of our foundry contribution. And for the gross margin, we're still targeting a high teens to 20% type of range.
Okay. Good. So can I interpret that the business outlook is actually improving compared with 3 months ago because at that time you were still targeting flat growth for the foundry business, but now you're still sticking to that guidance even without LFoundry contribution in second half?
LFoundry, we have been running there and but AirFoundry, they do not contribute too much to our gross margin. And for the revenue part of the year, the first half year is still there and the second half, we already excluded the RFoundry's contribution. And for SMIC, I'll give you one additional point that for last year, we have been running almost full capacity, that's some 94%, 95% type of capacity utilization. For this year, the Q1 is at the bottom. And for the remaining year, we are running at this moment full capacity stage excluding the R and D usage.
And so until the end of this year second half more or less with we believe if we do not have a big change in our maturity capacities, and we just target the flight type of growth of revenue.
Okay. All right. And my second question, could you provide us some update regarding the timeline for EUV adoption and also how does SMIC build the market? Yes, that's my second question.
Zhi, I believe Doctor. Liang just now already gave the comments that as many are just doing paperwork at this stage. So no further comments there.
Okay. All right. Okay. Thank you very much.
Your next question comes from the line of Rick Su from Daiwa. Please ask your question.
Yes. Hi, good morning guys. Thank you for taking my questions. So the first one is about the number for your Q1 OpEx because your OpEx actually finished below US100 $1,000,000 as compared with your previous guidance about US250 $1,000,000 So what's the reason behind that big gap? How much subsidies did you guys exactly receive from the government for the Q1?
So yes, thank you for the question. And basically, we should say this way. And we just now gave the some comments on the difference between our guidance and the actual results for this gross margin things. And we adjust the inventory values. That means some customers, they delayed their shipments.
So this kind of inventory value actually changed from the changed across the quarters. And And the second impact comes from the R and D activities. And just now Doctor. Gao already mentioned that for that portion, the OpEx for R and D portion, the Q1, we make certain change. So the total volume and the value showed up in the Q1 got a slowdown and that's also impacted gross margin.
But for the Q2 currently, we already settled down just now. We mentioned the inventory things. And in the meantime, we already fixed our engineering activities. So we believe that second quarter won't be get that much fluctuations. But we give the guidance for Q2 for the gross margin is similar to our Q1's actual results.
This is Tim. So let me translate on that. So Rick asked about the OpEx, why there is a big difference in Q1. So we think that the differences on OpEx is mainly on the control of our R and D expenses in the first
quarter.
So for the R and D funding, actually, according to the rules, a lot of them are actually back end loaded. Once you have completed the projects, then you can apply for the funding. That's why we have seen in the Q1, the R and D funding is with substantial increase in the Q1. So based on that situation, as we mentioned, these projects are mostly back end loaded. So for the whole year, R and D funding, it's actually subject to how many projects we can complete for the whole year.
Okay. Thank you so much. That's very clear. The second question about your 28 nanometer because there's only 3% of your revenue contribution in Q1, but I think Yonggang said that it's going to be fully loaded soon because there's an order coming back in 2nd starting from Q2. So can you give us more idea about how are we going to see the revenue contribution trend in the next few quarters on 28 nanometer?
For 28 nanometer, we have been running 2 small volume productions in both Shanghai and Beijing, and now we consolidated them into 1 production line in Beijing. And we are running full capacity for 28 setting up, but it's a slow migration. And at the beginning, we're running combined 28 Polycom products and High ks Metal Gate products. Now we consolidated to run full loading of High ks production line. I believe the percentage we're getting higher, but not that much because our total revenue base are getting higher.
What you saw on the Q1 mainly come from US660 million dollars type of base revenue. When we get US800 dollars more than US800 $1,000,000 revenue, even though we have a higher 28 nanometer, the percentage may not getting higher.
Okay. Fair enough. Good. Thank you. Can I have just one quick follow-up?
Because you talked about the fixed sale of LFoundries. And can you remind me the number, how much the non op gain you guys are going to receive in the Q2 from this LFoundry sale?
We haven't closed the deal. We need to wait until the end of Q2, but the forecast gain is USD 77,000,000. USD 77,000,000.
Okay. All right. Thank you so much, guys. Thank you.
Thanks, Rice.
Your next question comes from the line of Sebastian Ho from CLSA. Please ask your question.
Thank you, gentlemen, for taking my questions. My first question is to follow-up on the 14 nanometers that the do you what's your feeling like in terms of the production ramp of this node compared to 28 nanometers? And in terms of the in 2 years from now, how do you see the capacity that we have for output on 14 nanometer compared to 28? Would it be the bigger TAM for you?
Okay. The 14 nanometer production ramping, we will be much more cautious than 28 nanometer. And there are also difference between 28 and 14, okay? The 28 nanometer, the industry has full capacity. Capacity is overloaded as described by the Haijun.
14 nanometer, we consider is also a much bigger node with a variety of applications. But because of the lower ASP, so we will have more cautious on building FinFET capacity on the 14 and 12, and we will try to build more higher capacity using N plus-one and following technology nodes. So in other words, we will have more cautious capacity building strategy than the previous nodes, okay?
Okay. Thank you, Doctor. Liang. And just one follow-up on this one is that the more cautious attitude toward 14 is because the lesson we learned from 28 or it's just because of the economy?
I think probably more on not on economy, okay, probably more on our customers' base, okay. When we build a technology, then we must also expand our customer base. So we are at right now, we are at the stage of engaging with a variety of the applications. So it's a little bit earlier to talk about our capacity building plan at this moment.
Okay, okay. And your early comments seems to suggest that you're more positive about the overall bigger opportunity in N plus 1 compared to 14 and 12 combined?
Correct. Yes.
Any some initial estimate on the time line for N plus-one node in terms of the risk production by when or mass production by when?
Okay. As I mentioned earlier, the N plus 1, we are at the stage of discussing with potential customers. So it will be a little bit early to tell you when N plus-one will be at a risk production stage at this moment.
Okay. That's fair. Thank you. My second question is more on the financial side. So maybe more for CFO.
Is that I noticed the Q2 guidance, the revenue is up pretty nicely, high teens, but the gross margin seems to just like up a little bit or maybe flat. So the presumably, it looks like the utilization rate is on 12 inches side, it will be improving a lot. But I'm just wondering what's causing what's preventing the gross profit margin from getting higher in your 2nd quarter guidance?
So when we compare to the similar time line of last year 2018, actually, our gross margin is improving. So when we estimate the gross margin for our 2nd quarter is in the range of 18% to 20%, I think that's a pretty reasonable estimate. Actually, when we foresee the sales momentum and orders momentum, we would anticipate more favorable margin increase. Percent. But for the full year of 2019, we still target the high teens to 20% gross margin.
Okay. I can give additional comments on these gross margin things. And basically, we say this way, for the mature technologies and the mature fabs like Shanghai, Beijing 12 inches first fab and Tianjin fab, etcetera, they have been running and at the average or above average performance of this kind of gross margins. But for the past couple of years SMIC has been spend quite a lot of CapEx building up new capacities, especially 12 inches for 14 nanometer and 28 nanometer. This kind of fab are running in full depreciation and in the meantime we are running the full capacity.
So the balancing points between the mature fully depreciated fab and brand new fab are running in full capacity and in the ramp up stage, that's the financing points. And at this moment, we are running the setting up and I believe with the learning curve and the competitiveness on the markets and 18% to 20%, that's the forecast we can give at this moment.
Okay. 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 participated in today's call and again thank all of you for your trust and support for SMIC. Thank you very much.
This is the end of SMIC's 1st quarter earnings conference call. We thank you for joining us today.