Welcome to Semiconductor Manufacturing International Corporation's first quarter 2019 webcast conference call. Today's conference call is hosted by Dr. Zhao Haijun, Co-Chief Executive Officer, Dr. Liang Meng 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 to the internet at smic.com. Please be advised that your dial-ins are in listen-only mode. However, at the conclusion of the management's presentation, we will be having a question and answer session, at which time you will receive further instructions as to how to participate. The earnings press release is available for download at 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 first 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-CEOs, Dr. Zhao and Dr. Liang, will provide some business commentary. This will be followed by our Q&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.smic.com under Investor Relations in the IR Calendar section. Let me also remind you that the presentation we will be making today includes forward-looking statements. These statements and other comments are not guarantees of future performance, but represent the company's estimates and are subject to risk and uncertainty. Our actual results may differ significantly from those projected or suggested in any forward-looking statements.
For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our filings and submissions with the U.S. Securities and Exchange Commission and The Stock Exchange of Hong Kong Limited, including our annual report on Form 20-F filed with the U.S. 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, Dr. Gao, for financial highlights.
Thank you, Tim. Greetings to all our listeners. First, I will highlight our first quarter results and give the second quarter 2019 guidance. In the first quarter 2019, our revenue was $669 million, a decrease of 15% quarter-over-quarter, mainly due to a decrease in wafer shipment and product exchange in the first quarter. Gross margin was 18.2%, an increase compared to 17% in the previous quarter, but lower than the guided 20%-22%, mainly due to the inventory and production situation in the first quarter. Non-GAAP operating expenses were $202 million. Profit for the period attributable to SMIC was $12 million, while non-controlling interest was $12 million deducted from SMIC's attributable profit, mainly due to the currency exchange gain from RMB appreciation for our Shanghai joint venture. Moving to the balances at the end of the first quarter.
Cash on hand, including financial assets, were close to $3.9 billion. Gross debt to equity ratio was 41%, and net debt to equity ratio was -3%. In terms of cash flow, we generated $166 million of cash from operating activities in the first quarter. Looking ahead into the second quarter of 2019. Our revenue is guided to be up 17%-19% quarter-over-quarter, mainly due to overall recovery of demand. Gross margin is expected to range from 18%-20%. non-GAAP operating expenses are expected to range from $269 million-$273 million. Non-controlling interests of our majority-owned subsidiaries are expected to range from positive $34 to positive $46 million, which are losses borne by non-controlling interests. We expect the planned 2019 CapEx for foundry operations of approximately $2.1 billion, mainly for the equipment and the facility in our majority-owned Shanghai 12-inch Fab and FinFET R&D line.
The planned 2019 CapEx for non-foundry operations is approximately $106 million. Our planned 2019 D&A is approximately $1.16 billion. Our 2019 gross margin is expected to be in the range of high teens to twenties. 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. It's a telephone call. Today, I'll begin by highlighting the results of our first quarter. I will update you on our capacity plans, our near-term outlook, the market situation, and our platform strategy. To summarize our first quarter results, it was a seasonal and down quarter in terms of revenue. With the internal efforts of cost control, our profit margin notably improved. Our first quarter revenue decreased by 15.1% quarter-over-quarter due to low seasonality and soft demands. 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 drops were a general decline across the 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 first quarter compared to 17% in first quarter last year, an increase of 1.1 percentage. As a result of the product mix and the 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 first quarter last year. As we have seen a return in confidence on order momentums from our customers.
Our operation profits grow from a loss of $41 million in first quarter last year to a gain of $23 million in first quarter this year. Likewise, our consolidated net profit from the period doubled quarter-over-quarter from $10.9 million to $23.2 million. 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 first quarter was 459,000 wafers per month, eight-inch equivalent, compared to 451,000 as we adjusted capacity in our fully owned Beijing Fab. We maintain our foundry CapEx plan of $2.1 billion, which is mainly for the purchasing of equipment at a facility of our Shanghai joint venture for FinFET lines.
In first quarter, we already expended $443 million, which leaves off a remainder of $1.7 billion 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 LFoundry. We had acquired 70% of the LFoundry shares for the price of €49 million in 2016. We are now selling this stake for the amount of $112.8 million, booking a disposal gain of $77 million, which should be reflected in other income in second 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 first quarter seems to be the bottom for us as the customers are gaining confidence and restocking their inventories. The second quarter is guided to be better than the first quarter with a strong rebound. 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 CMOS image sensor processors, RF-related applications, as well as a 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 first quarter, certain specialty applications continued to maintain a good demand and even growth. We have built up, enriched, and completed specialty platforms with a solid customer base and sufficient market demands.
Our platforms include analog power, CMOS RF for IoT, CMOS image sensor ISP, fingerprint sensors, specialty memory, and microcontrollers. Our wafer revenue from analog power, CIS, and fingerprint contributed almost 40% in first 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 smarter applications, wearables, 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 lone NAND flash will begin to see restocking throughout this year. During 2019, we will see an increase of shipments of 28 nanometer HKC+, which will be a majority of our 28 nanometer output. We have engaged with our customers on diversifying our technology offerings. We work hard to meet the requirements of strategic customers. Meanwhile, we do not plan to expand in short-term the capacity and work to maintain an efficient and a 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 Song , 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. 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&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 14 nanometer yields rapidly rising to meet customers' requirements. We now have a handful of decent projects which have been verified through multi-project wafers, also called MPWs. After proving functionality and performance of our customers' 14 nanometer design on MPWs. Many of these designs are ready to tape out.
To add our 12 nanometer, which provides enhanced performance, power, and die size, have multiple customer project engagements in the pipeline. Our 12 nanometer process development is complete and now under customer verification. Meanwhile, we are expecting to see risk 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&D execution. As a result, our N+1 technology development is progressing much faster than previous FinFET nodes. Our N+1 technology is on track with rapid progress on development, while our device and yield demonstrated competitive performance. Compared to the previous node, yields are climbing at a rate surpassing the previous node yield ramping curve. Meanwhile, we are closely working with customers for potential engagement opportunities.
Besides the smooth R&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 IP 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 first quarter 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&D manufacturing space in mainland China. This fab is 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 application under development. We expand 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. Growing FinFET demands for mobile and wireless connectivity is stemming from the launch of 5G network globally. SMIC had built strong relationships with customers who had a solid footing in the communications and networking markets.
Overall, we are building up momentum and stronger partnership as we accelerate our technology and prove our technological capability.
We are working to provide our customers with best-in-class comprehensive solutions to be the preferred foundry partner in China. We will prepare ourselves to be ready for a rapid 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&A session of this call.
Thank you, Dr. Liang, Dr. Zhao, and Dr. Gao. 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. 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. Your first question comes from the line of Randy Abrams from Credit Suisse. Please ask your question.
Okay. Yes, thank you. Good morning. I wanted to ask the first question on the technology mix. In the first quarter, most of the revenue falloff looks like it came from 28, 40, 65. Could you talk about in the second quarter if that's the area driving most of the improvement? On the other side, the eight-inch 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 eight-inch business, or you're running up against capacity constraints on the eight-inch side.
Hi, Randy. Thank you for the questions. Basically, the first quarter, like the industry, is a seasonality because the first quarter last year, the majority of the customers in the industry got uncertainties about the future. They lowered their inventory demands. You'll see every company saw the same thing. 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 size of customers, and they are very quick to the market demands. We see the recovery across bulk primarily come from the BCDs and the CMOS image sensors, ISPs, and the CMOS RF, NAND and ROM memories, consumer-related, mobile phone related, and communication related.
20 nanometer, definitely we see the rebounds linearly, I should say this way, similar to the other technology nodes and the different segmentations of the markets. For 20 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. We wait until we see the reasonable market balance for the capacity and the demands. For the 45 and 55 nanometer nodes, that's the most hotspot at this moment. We are running short on capacity, and we are trying our best to squeeze out, get more efficiency of the equipment, squeeze out capacity to meet the customer requests.
For the eight-inch, we have been running even for the lowest season of first quarter and last quarter, before first quarter, we have been running full capacity in SMIC's eight-inch. For the 0.18 micron, 0.15 micron, mainly running the BCD analog power, CMOS image sensor, fingerprint, these kind of applications. They are very sensitive to market. Because we have been positioned in that area as the major player for many years, so we are in a very good situation. To answer your questions that from these points, we saw that and we have seen that and this is how the trend will be continued in the second quarter and third quarter.
Okay. A follow-up to that first question, just maybe two parts. The eight-inch, since it's tight, I guess the incremental capacity you may be able to add to if you need to squeeze out more capacity. From the utilization pickup, it looks like a lot of that wafer start happened because you had the high utilization in the first quarter. Are you continuing to see the utilization pick up as we go through the second quarter? I guess suggesting third quarter, another continued decent pickup or maybe a bit of uncertainty. It might be early because of the trade war kind of coming back in focus again.
For eight-inch, even last year, we have been experiencing the uncertainties and the international geopolitical type of situations. Even for that kind of situation, we have been running eight-inch in full capacity. Simply because as my CEO has been built up, the capacity and, with a lot of diversified platforms for different products, for example, Justin already mentioned the fingerprints, 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. That's why even though the markets fluctuates, we still be able to maintain a healthy loading. At this moment, Justin already said that we are under capacity for the demands. Visibility to second quarter and third quarter definitely will be in a full loading station.
Okay. Yeah, I'll take the rest off. 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? 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 a customer space. Okay. 14 nanometers, they are migrating from 28. For example, like 5G's application on RF, and they will migrate from 28 using the 14. For the mid-end mobile application process, they will tend to use 12. Some auto application also tend to use 12. We are preparing both technology to serve our two group of customer demands.
Okay. Can you give a rough frame, I guess, for next year, if there's a way to think on revenue, if it could start to ramp up, it'll be like single digit % of revenue next year, if you can forecast to that at this stage.
Richard, that's a million-dollar question that I also think of that every day, okay. To be honest to you, it's a little bit early to give you the exact number on that question. Yeah.
Okay. 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 to take my question. My first question is about the second half, the outlook. Haijun mentioned that you say that the second half should be better than first half. What's the reason? Can you share some color, what will be the incremental demand or the confidence behind that? Can I assume that from 28 nanometer process will be a higher utilization rate? Thank you. Yeah.
Hi, Liping. Nice to have your questions.
Yeah.
Basically, we should say this way. At this moment we have the rush orders to restock the inventories simply because first quarter last year and the whole industry and the people were very pessimistic about the future. They lowered the inventories, they do not take the wafers. Now the rush orders to just to fill up the inventory to a healthy level. We see the rebounds, the overall demands in the whole world are quite well maintained for BCD, CMOS RF, standalone, and specialty NAND flash, analog power, CIS, ISP. For this kind of consumer and communication applications usage type of ICs are very healthy situation in the whole world. Actually, I should emphasize a little bit here that for these 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 inch and 12 inch. Similarly for the sign up box, we can run it in 40 nanometer, also running in 28 nanometer, and we run it both in 28 HKC and also HKC+. My point is for BCD power devices and the applications run from 0.18, 0.15, 0.13 and the 90 nanometer, 8 inch to 12 inch. 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 inch to 12 inch, and in different nodes. Currently, we are catering to customer demands by product applications instead of technology nodes. Come back to your question on 28 nanometer, we are running full capacity. For 28 nanometer, we are running 24 nanometer NAND flash, HKC and HKC+ 28 nanometer for the different applications. John already said that for the portion we cannot fully satisfy customers' requirement, meet the customer requirements, and we are using our 40 nanometer to do the similar type of products.
When you talk with your customers, so you think your customer are mainly in a inventory restocking stage, or do you worry that they will also do the inventory destocking again? Because the cycle is so short these days, yeah.
Definitely. It depends on different customers and momentum. Some customers are very cautious, and they may rush in, rush out and are very seasonal, very dynamic. Some other customers, they are the industrial leaders, so they know how much they need to restock. We see both. Because the diversifications of setting up of customer base and the platforms, currently, we're balancing these kind of demands and make sure that we are running full loading stage.
Okay. The second question is about the JCET. I noticed that Dr. Zhou is appointed as the board of director of the JCET. Are there any change on the relation between JCET and SMIC in the future? Yeah, thank you.
This is Tim. Let me translate. 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. For SMIC, we still sit for two seats in this board. The situation is actually the same. We treat JCET, again, as a long-term strategic partner on a lot of the collaborative projects. We anticipate a 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 migrate from 28 to the next generation. For the 5G applications, sub-6 gigahertz, those type of transceiver/receiver will be the first wave migrate from 28 RF to the 14 RF. Plus, there are consumer product, like a set-top box, surveillance, AI, the IoT, those type of device also migrating from 28 to 14. Those, we look at our customer's 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+1 node mask. May I interpret that N+1 as seven nanometer?
That I will separate into two question, okay? First thing is what is N+1, okay? I believe you probably would like to ask that kind of questions. Our N+1 is defined. Our technology node basically defined by the PPAC, power, performance, area, and cost. Cost, we use it as a mask count, as a index, okay? For the N+1, we refer to previous node is our 12. The 14 is the gradual phase-out, and the 12 nanometer. If compared with a 12 nanometer N+1, the performance will enhance 15%, power will reduce 45%, and SOC chip area will reduce 50%. We use that to define N+1. Okay. Back to your original question about our mask capability. In fact, the mask capability, the N+1, N+2, N+3, those capability, we all build it using the newly purchased e-beam writer.
Today, we will just tell you our capability down to the N+1, and that because our customer demand is at N+1. We do have capability to do N+2 to N+3 as well.
Okay. Thank you for that. Just one follow-up to that, my last question. The industry is facing the challenge in the EUV, the tool. One of the problem, actually many problem probably is the radical for the mask. It seems like there is no very effective solution yet that can be adapted by either the internal mask shop or external mask vendor. Sooner or later as the SMIC 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?
Really appreciate your comments on that. The EUV part, actually for us, we're still on the paperwork stage. Okay? We haven't had any activity on 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 2019 sales guidance, especially after the exit of our foundry?
Hi, Zhe Hong. 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 second quarter. For the second quarter, and the business still got into our foundry into SMIC's forecast. Just now, we already gave the guidance for the second quarter, and that portion already there. For the second half this year, our forecast has excluded our foundry's contribution. Even with this kind of change, we still target a flat growth year-over-year for our annual, and excluding the second half of our foundry's contribution. For the gross margin, we're still targeting a high teen to 20% type of range.
Oh, okay, good. Can I interpret that the business outlook is actually improving compared with three months ago? Because at that time, you're still targeting flat growth for the foundry business, but now you're still sticking to that guidance even without the foundry contribution in second half.
Our foundry, we have been running there. Our foundry, they do not contribute too much to our gross margin. For the revenue point of view, the first half year is still there, and the second half, we already excluded our foundry's contribution. For SMIC, give you one addition points that, for last year, we have been running almost a full capacity. That's some 94, 95% type of capacity utilization. For this year, the first quarter is at the bottom. For the remaining year, we are running at this moment full capacity stage, excluding the R&D usage. Until the end of this year, second half, more or less, we believe if we do not have a big change in our maturity capacities, we just target a flat type of growth of revenue.
Oh, okay. All right. My second question, could you provide us some update regarding the timeline for EUV adoption, also how does SMIC view the SOI market? Yeah, that's my second question.
Zhe, I believe Dr. Liang just now already gave the comments that SMIC just doing paperwork at this stage. No further comments.
Okay. All right. Okay. Thank you very much.
Your next question comes from the line of Rick Su from Daiwa. Please ask your question.
Yeah. Hi, good morning, guys. Thank you for taking my question. The first one is about the number for your first quarter OPEX, because your OPEX actually finished below $100 million compared with your previous guidance, about $250 million. What's the reason behind that big gap? How much subsidies did you guys exactly receive from the government for first quarter?
Sure. Yes, thank you for the question. Basically, we should say this way, we just now gave some comments on the difference between our guidance and the actual results for this gross margin things. We adjust the inventory values. That means some customers, they delayed their shipments. This kind of inventory value actually change across the quarters. The second impact come from the R&D activities. Just now Dr. Gao mentioned that for that portion, the OPEX for R&D portion, the first quarter, we make certain change, the total volume and the value show up in the first quarter got slowed down, that also impact the gross margin. For the second quarter, currently, we already settled down. Just now we mentioned the inventory things, in the meantime, we already fixed our engineering activities.
We believe that second quarter won't get that much fluctuations. We give the guidance for second quarter for the gross margin is similar to our first quarter's actual results.
This is Tim. Let me translate on that. Rick asked about the OPEX, why there is a big difference in first quarter. We think that the differences on OPEX is mainly on the control of our R&D expenses in the first quarter. For the R&D funding, actually, according to the rules, a lot of them are actually back-end loaded. Once you have completed the project, you can apply for the funding. That's why we have seen in the first quarter, the R&D funding is with substantial increase in the first quarter. Based on that situation, as we mentioned, these projects are mostly back-end loaded. For the whole year R&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 is about your 28 nanometer, because it'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 starting from second quarter. 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 two small volume productions in both Shanghai and Beijing. Now we consolidated them into one production line in Beijing. We are running full capacity for 28 setting up. It's a slow migration. At the beginning, we're running combined 28 polysilicon products and high products. Now we consolidated to run full loading of a High-K production line. I believe the percentage will getting higher, but not that much because our total revenue base are getting higher. What you saw on the first quarter mainly come from $660 million type of base revenue. When we get more than $800 million 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? You talked about the fixed sell of the LFoundry, can you remind me the number, how much the non-GAAP gain you guys going to receive in second quarter from this LFoundry sale?
We haven't closed the deal. We need to wait until the end of second quarter, the forecast gain is $77 million.
$77 million. Okay. All right. Thank you so much, guys. Thank you.
Thanks, Rick.
Your next question comes from the line of Sebastian Ho from CLSA. Please ask your question.
Hey, thank you, gentlemen, for taking my questions. My first question is to follow on the 14 nanometers. What's your feeling like in terms of the production ramp of this node compared to 28 nanometers? In terms of in two years from now, how do you see the capacity and wafer output on 14 nanometers compared to 28? Would it be the bigger-Bigger cam for you?
Okay. The 14 nanometer production ramping, we will be much more cautious than 28 nanometer. There are also difference between the 28 and the 14, okay? The 28 nanometer, the industry is at full capacity. The capacity is overloaded, as described by Haijun. 14 nanometer, we consider, is also a much bigger node with a variety of applications. Because of the lower ASP, we will have more cautious on building a FinFET capacity on a 14 and a 12, and we will try to build more higher capacity using a N+1 and following the technology node. In other words, we will have more cautious capacity building strategy than the previous nodes, okay?
Thank you, Dr. Liang. 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 just because of the economy?
I think it's probably more on not on economy. Probably more on our customer base. When we build technology, then we must also expand our customer base. Right now, we are at the stage of engaging with a variety of the applications. It's a little bit earlier to talk about our capacity building plan at this moment.
Okay. Your early comment seems to suggest that you're more positive about the overall bigger opportunity in N+1 compared to 14 and 12 combined.
Right. Yes.
Any initial estimate on the timeline for N+1 node in terms of the risk production by when or mass production by when?
Okay. As I mentioned earlier, the N+1, we are at the stage of discussing with potential customers. It will be a little bit early to tell you when the N+1 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 our CFO. I noticed the second quarter guidance, the revenues are up pretty nicely, high teens, but the gross margin seems to just up a little bit or maybe it's flat. Presumably, it looks like the utilization rate is on 12-inch side will be improving a lot. I just wondering what's preventing the gross profit margin from getting higher in your second quarter guidance.
When we compare to the similar timeline of last year, 2018, actually our gross margin is improving. When we estimate the gross margin for our second quarter is in the range of 18%-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. For the full year of 2019, we still target the high teens to 20% gross margin.
Okay, I can give additional comments on this gross margin things. Basically, we say this way, for the mature technologies and the mature fabs like Shanghai, Beijing 12-inch first fab and Tianjin fab, et cetera, they have been running at the average or above average performance of this kind of gross margins. For the past couple years, SMIC has been spend quite a lot of CapEx building up new capacities, especially 12-inch 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. The balancing point between the mature, fully depreciated fab and the brand new fab are running in full capacity and in the ramp-up stage. That is the balancing points. At this moment, we are running the setting up.
I believe with the learning curve and the competitiveness on the markets, 18%-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. Again, thank all of you for your trust and support for SMIC. Thank you very much.
This is the end of SMIC's first quarter earnings conference call. We thank you for joining us today.