Welcome to the Semiconductor Manufacturing International Corporation's Third Quarter 2018 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 of SMIC's website. Please be advised that your dial ins are in a listen only mode. However, at the conclusion of the management presentation, we will be having a question and answer session, at which time you will receive further 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 Kuo, Director of Investor Relations, for your cautionary statement. Thank you. Please go ahead.
Thank you. Good morning and good evening. Welcome to SMIC's Q3 2018 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.smics dotcom under Investor Relations in the IR Calendar section. Let me also remind you that the presentation we'll be making today includes forward looking statements. These statements and other comments are not guarantees of future performance, but represent the company's estimates and are subject to risk and uncertainty. Our actual results may differ significantly from those projected or suggested in any forward looking statements. For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our filings and submissions with the U.
S. Securities and Exchange Commission and the Hong Kong Stock Exchange Limited, including our annual report on firm 20 F filed with the United States Securities and Exchange Commission on April 27, 2018. During the call, we will make reference to financial measures that do not conform to Generally Accepted Accounting Principles, GAAP. 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 3rd quarter results and then give 4th quarter guidance. In Q3 2018, our revenue was 8 $51,000,000 a decrease of 4.5% quarter over quarter. If excluding the technology license revenue, revenue grew mildly quarter over quarter, mainly due to an increase in wafer shipment in the 3rd quarter.
Gross margin was 20.5% compared to 19.7% gross margin excluding the technology license revenue in the Q2, mainly due to the better utilization rates in the Q3. Non GAAP operating expenses were 228,000,000 dollars Profit for the period attributable to SMIC was 27,000,000 dollars while non controlling interest was $90,000,000 of credit to SMIC's attributable profit. Moving to the benefit. At the end of the quarter, cash on hand, including financial assets, were close to $3,000,000,000 Gross debt to acquisition was 42% and net debt to acquisition was 5%. In terms of cash flow, we generated $260,000,000 of cash from operating activities in the Q3.
Now look ahead into the Q4 of 2018. Our revenue is guided to be down 7% to 9% quarter over quarter, mainly due to low seasonality. Gross margin is expected to range from 15% to 7%, mainly due to the lower utilization rates, which is expected to be mid-80s. Non GAAP operating expenses are expected to range from 226 $1,000,000 to $230,000,000 Non controlling interest of our majority owned subsidiaries are expected to range from positive $20,000,000 to positive $22,000,000 which are losses be borne by non controlling interest. The planned 2018 CapEx for foundry operations decreases from approximately RMB2.3 billion dollars to approximately $2,000,000,000 of which approximately $1,200,000,000 are expected to be spent for expensing of capacity and approximately $300,000,000 is mainly expected to be used for R and D equipment.
The decrease in CapEx is mainly due to the equipment moving schedule, scheduled daily and productivity improvement. The planned 2018 CapEx for non foundry operations are approximately $110,000,000 mainly for the construction of employees' given quarters. Our planned 2018 D and A is approximately 1,060,000,000 Our 2018 gross margin is expected to be low-20s. If If clouding the technology license revenue, our 2018 gross margin is expected to be high teens. I will now hand the call over to our Co CEO, Hejun for our general remarks.
Thank you, Yonggang. Thank you all for joining us on today's call. This morning I'll share with you the result of the Q3. Some highlights of our differentiated platforms and our outlook for the remainder of this year. Overall, things are tracking in line with our original expectations, but we remain cautious on the near term.
The lackluster end markets and global tension continue to keep industry growth muted. However, the development and adoption of new technologies with China keep us optimistic about the long term. Internally, during our period of preparation and transition, we also continue to work on developing our technology and platforms to align ourselves with the interesting trend in the China markets. Our Q3 results were in line with our original guidance. In the Q3, our total revenue decreased 4.5% quarter over quarter, but increased 10.5% year over year.
The decrease was a result of one time technology license revenue actualized in the Q2. When excluding revenue from this technology licensing, our revenue increased slightly Q over Q. We were in line with our 3rd quarter gross margin guidance at 20.5%, a slight sequential increase. Now to address our markets and platforms. In Q3, our core business revenue from the China region hit record high, which grew 40% year over year and 5% sequentially.
We continue to see China represent the largest IC market and as the preferred foundry we position ourselves and aim to capture the opportunities by working closely with our customers. China is not only the largest IC market, but also is proactively developing and adopting new technologies in 80 cities from severance, artificial intelligence to smart city and autonomous transportation. We believe that in the long term this will prove beneficial to participants in the China IC supply chain and especially to SMIC. As we continue to enhance our competitiveness to better serve our customers and address the opportunities, we also need to focus on our fundamentals, while expanding and enhancing our mature and advanced nodes platforms. For example, we have expanded our fingerprint sensor portfolio as we have begun under glass solution production and shipments.
Although there was a general soft output, we still benefited from power IC, RF connectivity and fingerprint related devices. Consumer related business, including set up box and home appliance also add some progressive revenue. Our power management business platform continued to be one of our key revenue drivers for this year and we continue to see strong demand from this area for the coming year. Our revenue from power, RF connectivity and fingerprint sensors grew 30% year over year and 5% sequentially in Q3. As we are reaching towards the end of 2018, we maintain our revenue targets of high single digit percentage growth.
Our core business gross margin targeted in the high teens percentage and a positive annual net profitability attributable to shareholders. We do see the decline in revenue from mid to high single digit percentage for the coming quarter due to seasonality, market uncertainty and the softer demand as well as the continued weakness in the smartphone sector. The growing trade tension and the weakening of currencies also are causing uncertainties and limitations in the overall economic targets and cautious outlook in the near term due to the global uncertainties, but remain optimistic in the long term given our unique position in the trial in our market. We are in a formative chapter in the progression of SMIC's strategy for profitable growth and the long term value creation to benefit our customers, stock shareholders and employees. So we thank you for the continued support.
I will now turn the call over to our Co CEO, Meng Song for further comments.
Thank you, Haijun, and good morning, everyone. Thank you for joining us today. I would like to take this opportunity to share our current progress on R and D and business development. We completed our 28 nanometer HKC plus development and we now have several projects kicking off for our 28 nanometer platform. At the same time, we are on track with building up our 28 nanometer IP portfolio to serve a diverse range of customers.
Meanwhile, our 28 nanometer 8 ks nanogay is becoming increasingly competitive as we enhance this performance and expand our portfolio and derivatives. On the FinFET side, I'm happy to say that we are also on track with our FinFET technology as we are working towards risk production in the second half of next year. As mentioned in my last earnings call, our first version of FinFET technology was ready for business engagement. We qualified our process and delivered our first FinFET process design kit to our customers. We are in an ongoing process of IP validation with our customers to verify the prototype functionality, while we aim to engage more business opportunities.
Our FinFET may address mobile and wireless customers migrating from 28 nanometer streaming from 4 gs LTE and in the future 5 gs in China. In addition to mobile applications, Vinted is suited to address emerging applications such as AI, IoT and Automotive Industry Sectors as we plan to expand our 14 nanometer portfolios to cover these areas. We have seen quite a lot of changes in industry dynamics in the past few quarters and increasing opportunities in FinFET technology. We are accelerating our R and D giving us the chance to seize opportunities. To conclude my remarks to date, we are executing on our technology roadmap and we will continue to execute our strategies cautiously, while concentrating on more focused R and D efforts, seeking profit in our operations, targeting precise market opportunities and producing reliable quality products.
Our strategy is to build up competitiveness in our key technology offerings, work closely with our customers to increase share and to build up our ability to create long term value for our stakeholders. We thank you for your continued ongoing support and 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. Today's Q and A will be hosted by 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
And our first question comes from the line of Randy Idroms from Credit Suisse. Idrom, Mr. Idrom, your line is now open.
Okay. Yes. Thank you. My first question about the applications. For Q3, there was lower mix from consumer and also 55, 65 nanometer.
Could you talk about the slowdown in those areas in 3rd quarter? And looking to Q4 in your guidance, is it brought across application, the slowdown? Or are certain applications pulling back more and some holding up better?
Hi, Randy. Thank you for the question. Basically, we should say that the Q2 of this year for the communication side sectors and home land plans running very high and we really saw the Q3 the corrections mainly for the inventory this kind of thing and demand got slowed down. And for the Q4, that's the traditional seasonal quarter for the communications and other consumer products. And we do not see a specific type of sector to go for extreme.
This is a general case, the tighter gutter to move down. For example, we have both the communication sector, connectivity and the consumers and also including related memories, CIS and power devices. They move to the similar downtrends and we really see the correction on inventory. And just now I mentioned that also certain part of uncertainty so the customer now become more conservative.
Okay, great. And then one follow-up to the first and then I'll ask a second question. I guess looking ahead to 2019, if you see certain areas, you're focused on if you were to outgrow if you see areas to outgrow the industry, whether recovering 28 or filling in the 12 inches or gains on 8 inches And the second question I had was on the sale and leaseback for $306,800,000 If you could walk through the how that works in terms of your receive cash and then instead of depreciation, you may have like more of an operating expense? And then if you plan to take advantage or use that leasing program more. So maybe if you can talk through how the leasing program would work and how much you may use that?
Okay, Randy. I'll answer the question first and then go for the detailed number of financial for leasing. I'll give the call to our Doctor. Gao, CFO and to give you more input on that. And for the 2019, we believe that from Q2 and the market will start to recover after 2 quarters type of correction on the inventory and settled on the uncertainties.
Beyond that, at the previous conference call, I also shared with you and the other listeners that we have prepared for the seasonality of the markets by building up additional platforms for our 12 inches Previously, I mentioned about 6 to 7 new product lines like the development and expansion of the PMUs, CMOS image sensors and non flash, non flash, high view drivers, etcetera. And for 12 inches this kind of product platforms are brand new. So they are the incremental revenue add on to our 12 inches wafer fabs. And that's the growth points for our next year together with the market recovery for the existing platforms and customers. And for the operation operating expense and cash and leasing, I believe we'll continue that's very good too to support SMIC go together with expansion.
But for the detailed strategy, I gave to Doctor. Gao.
So over let me help you translate. This is Tim. So over the past 2 years, we tried to utilize the operation leasing strategy. So end up in the end of Q3 this year, we have done US1.2 billion dollars So in this coming quarter, we will use this strategy to expand another US300 million dollars on operation leasing. So according to this operation leasing, approximately US20 $1,000,000 of depreciation will be saved.
Okay. And
this is the answer to
your question.
Okay. Just one quick follow-up. The 1 point $1,000,000,000 leasing, is that on top of the CapEx implying your equipment and investment is on top of the $2,000,000,000 or yes, if you could explain that?
It is included.
Included. Okay, great. Thanks a lot.
Thanks, Alex.
Thank you so much. And our next question comes from the line of Sebastian Hou from CLSA. Your line is now open.
Thank you. Good morning, gentlemen. Thanks for taking my questions. My first question is on the utilization rate you're looking into 4th quarter separately in the 8 inches 12 inches
Seth, could you say your question again?
Yes, Sebastian, I got your question. You asked about the normalized utilization in the 80s and for the Q1 in SMIC, that's the normalization across 8 inches 12 inches Basically, we should say that we are very strong on 8 inches utilization. We are still confident that. And the lower part mainly the 12 inches
Okay. Thank you. So you're seeing the into Q4, the 8 inches UTR will still stay pretty high, but the softness will be mainly come from 12 inches Am I right?
Yes. Yes.
Okay. Just one follow-up. In terms of the 12 inches softness, is there any particular application or particular process nodes that are seeing weaker than the others.
Just now, when I answered the question to and Randy mentioned that we see the seasonality across sectors and but consumer part like a Bluetooth type set of box and getting more heat in the Q4.
Okay. Okay. Got it. Thank you. And also on the and my second question is on the inventory correction comments, the CEO you just mentioned.
But it seems that your another foundry peers in Taiwan, TSMC, they I mean, a month ago, they were it seems like they were not too worried about this. And they actually say that excessive inventory situation at the end of this year will be less severe than the end of last year. But it seems like the COU sounds more pessimistic or conservative compared to your peers. Can you elaborate more on that? And then what's the difference?
Or maybe you see more weakness inventory correction coming from your Chinese customers or your foreign customers?
I do not comment our peers. But for SMIC part, I really communicate very carefully thoroughly with our customers. I really find that for the Q4, they are doing correction on the inventory, mainly because the Q2 for the utilization, everything for SMIC is way too strong. And at that moment, they prepare for many things. And now they like to stabilize the inventory.
We really see this correction in the Q4. And I believe this kind of correction and the seasonality will extend to the Q1 and the recovery will mainly in the 2nd quarter.
Okay. Okay. Just the last one is the and I just want to follow on. I think the last quarter, you mentioned about the next technology development beyond 14 nanometers. I'm just wondering maybe you haven't decided the name of that node, but I just do wonder in terms of the time line, do you have a more specific time line of that technology node?
And we already kicked off that project and the programs ongoing, on track, but it's too early to announce this kind of time lines.
Okay. Okay. Thank you. That's all for me.
Sure. Thanks, Sebastian.
Thank you so much. And our next question comes from the line of Charlie Chan from Morgan Stanley. Charlie, your line is now open.
Hi. Good morning. Thanks for taking my question. So first of all, I want to talk about the trailing edge overcapacity issue. As some of your industry peers have mentioned that there should be some overcapacity in 28 nanometer, 40 nanometer, and that is not going to resolve anytime soon, maybe take several years.
So my question is that, does that affect your commitment to the future CapEx? Because I remember a company promised that in the coming 2 years, you want to keep the CapEx at the same level? So this is my first question.
Hi, Charlie. And I got your question. For 12 inches especially for 28 nanometer and for the overcapacity situation in the industry is well known to everybody. And SMIC has built up this 28 nanometer technology together with 40 nanometer technology with mirrored pace. So overall, we should say SMIC has not overbuilt too much.
When you count the total available capacity in 28 nanometer, SMIC just take a very small fraction of this kind of overall build. So at this moment, we still manage that 28 nanometer capacity, while in the meantime, we use the other platforms to share the capacity. And previously, I mentioned that SMIC is ramping up 24 nanometer stand alone specialty NAND flash. And we are also running 40 nanometer other platforms at least shared capacity. And So for SMIC, yes, in the Q4 this year, because of the seasonality and the correction on inventory, we see the lower utilization during the Q3 and Q2.
But overall, that's I mean, the utilization for 12 inches that's the across both, not specifically in SMIC for 28 nanometer.
Right. Okay. Got it. So it seems like your CapEx investment, especially for 14 nanometer, could continue. Am I right on this part of Keitech's comments?
You mean 14 instead of 40, right?
Yes. 14 nanometer investment and I would assume your CapEx to be flattish into coming 2 years. Is that a correct interpretation?
Yes. 14 nanometer CapEx for building up the initial stage of production for 14 FinFET is phased into the CapEx for next year, yes.
Okay. Yes. So thank you. And my next question is your profitability, right? So unfortunately, the company posted operational loss last quarter, right?
So with this kind of semi down cycle and tough industry competition. I mean, those are trailing niche capacity. So when would the company expect operational label can turn profitable again? And also, how is Company going to manage your free cash flow, meaning you want to spend the same level of CapEx, but at the same time, it seems like operational cash flow continue to be smaller than CapEx. So does coming need more funding or raise more debt in the
coming years? Charlie, actually you raised quite many points there. That's very good. Thank you. And overall, we should say this way SMIC has announced our plan to build up on both sides.
On the one hand side, we strengthen our manufacturing capability and to increase the profitability. On the other side, we continue to do the advanced technology development and to start the production of 14 nanometer FinFides in the next year. And we try to do our best to balance both. At this moment, our cash situation is very good. So for the next stage, we'll try to do the mirrored pace on both sides to get the balance.
Okay. Understand. Thank you.
Thank you so
much. Thanks, Charlie.
And our next question comes from the line of Zhiyun Ng from China Renaissance. Your line is now open. Thank you.
Hi. Good morning, gentlemen. I have two questions. The first one regarding the recent share buyback. Are there any conditions you can share with us that would trigger more buyback going forward?
So actually we have done share buyback on the 27th September as well as the 4th October this year. Actually, we have announced that. Actually, we are overseeing our stock movement as well as the capital market. So any extended share buyback is still projected.
Okay. 2nd question on the minority interest guidance. This year, as you guide the minority interest for Q4, only slightly up from the Q3 level. But for the last two years in 2016 and '70, the Q4 minority interest number was a significant higher than the previous quarter. Just want to know what's the reason behind that?
Actually, we are leveraging the JV model in all of our advanced technology business. Actually we will announce the NCI number every quarter even they are subject to change depending on the actual results. So for upcoming SMIC South and SMIC North, the minority shareholders will continue to share the R and D expenses as well as the new projects. That's the answer to your questions, Yi Ho.
Actually, so that means that going forward, the market interest is not going to be very lumpy in Q4, right? So it's kind of spread out for every quarter.
Could you say your question again?
So the minority interest is going to be evenly spread out instead of very lumpy in Q4 every year like in 2016 and 2017?
So actually for different expenses, we have different rules for listing. So for example, like R and D or other like royalties, we will according we will list these expenses in accordance with the actual results.
Okay. All right. Okay. Thank you very much.
Thank you.
Thank you so much. And our next question comes from the line of Chris Yim. Chris, your line is now open.
Hi. Thanks for taking my question. My first question is on the FinFAT, first version, risk production second half twenty nineteen. Can you discuss the number of tape now you expect next year? And also what type of customers are using your technology?
Are they system customers or are they fabulous customers? Thank you.
Hi, Chris. Just like we already communicate through last quarter and this quarter, our FinFET and technology platform now is ready for customer engagements and we do have customers working with us to design the first product and the second. And the first part is the loading part and the first application will be consumer media type as well as to mid to low end mobile applications. And we plan to expand the portfolio to serve more sectors like IoT, Automotive parts later.
Thank you. My follow-up is on the 28 HKC plus Can you would you be able to discuss the 28 nanometer outlook for next year and whether and how big of the contribution you expect to see from the HKC plus platform?
Okay. Currently our available capacity for hiking Metal Gate C version has been running to the industrial performance and the loading is pretty well. And we switch this kind of C version loading to customers' demands and products to C plus from early next year. And the application more or less to the same similar sectors and just upgrade from C version to C plus version. From the capacity, just now I already mentioned that we do not have that much overbuilt capacity, because we do the 28 nanometer capacity and high key metal gate mainly to the customer demands with the measured pace inside of blind view and later looking for customers.
So the situation is still okay for 28 nanometer utilizations for SMIC.
Thank you. My last question is on your differentiated technology. You mentioned quite a few of them. I also see in your presentation under your capacity by different fabs that you raised your Shenzhen 200 millimeter fab capacity from 35,000 to 40,000 in the Q3. And that it seems like it's for MOSFET.
So I was wondering if you guys will making masthead and what's your strategy on the discrete side? Thank you.
Yes, that's true. We increased 5,000 wafer capacity to do most of that. That's the decreased device. And on top of the existing capacity in Shenzhen 5. And for the Shenzhen 5, it's a part of our 8 inches capacity.
And from previous comments I already made, the 8 inches demands and the utilization in SMIC is still very good, pretty full.
This is something new, right? The MOSFET is something that you guys have been making your fabs before. This is a new product. Is that correct?
We should say that quite many years back when SMIC got a free capacity, we did make very small amounts of most part in our Tianjin fab. So we do have the customer base and the baseline. And now we have more customer approach SMIC to do this kind of product, you know the market situation. So SMIC just provide this type of service. We do not have any fab space in Tianjin, Shanghai or other place.
And the only available clean room is in Shenzhen 5, that's why we set up the capacity there.
I see. Thank you. That's all I have. Thanks.
Sure.
Yes. Thank
you. Thank you so much. And next question comes from the line of Junji Chen from Tianping Securities. Your line is now open.
So Junjie, you're asking about whether there is going to be more capital injection from the minority shareholders. I'll let Doctor. Gao answer his
question.
So as far as this advanced technology business moving on at SMIC, As you can see, it's actually done by the JV model, the joint venture model. So the shareholders will see different projects to inject the capital. So the first half of this year, around US600 $1,000,000 has been injected and we target at the end of this year to have another US960 million dollars So for the external shareholders for 2018, the minority shareholders will inject US1.5 billion dollars as total. Okay. So Jun, you're asking about the NOR NAND flash status, especially you have seen the revenue contribution from 55, 65 nanometer is decreasing in the past quarters.
So you are wondering whether there is going to be some capacity issues or some ASV pressures. I'll let Doctor. Zhao to answer this question.
Hi, Qingjie. For this memory sector, SMIC is doing specialty memory service to our existing customers. And overall, we should say that the production is maintaining the same because customer demands are there, but we really see the pricing pressure and we have new competitors get into the 20 24 something technology range in the NAND specialties. And for the NOR flash, we also have the other competitors guiding into the similar markets. And overall we should say the specialty memory, the applications follow the trend of the overall industry.
When we have the seasonality, the demand for memory have the similar change. They tie together with set up apps, mobile phone, these kind of things. And our expectation is still that we'll have the similar trends go further down and we feel the pricing pressure similarly in the markets.
Thank you so much. And our next question comes from the line of Peter Chen from CIMB. Peter, your line is now open.
Hi, good morning, everyone.
Next question, please.
Hi, can you hear me?
Hello? Hello? Can you hear me? Hello? Can you hear me?
Hello?
All right. Yes. And our next question Pardon the interruption. We are having some technical difficulties of your speaker. Please remain silent while dialing out or reconnecting the speaker.
You will be on music hold. Thank you. Excuse me, the speaker is now back online.
Okay. There is some unexpected issues. Sorry about that.
I'm so sorry for that one. So we will be proceeding to your question comes from the line of Rick Zhu from Daiwa Securities. Rick, your line is now open.
Yes. Hi, good morning, guys. So I guess my first question is on your 28 nanometer, especially for HKC ramp up, plus yes, for HKC plus. So could you give us some more color about your revenue contribution? Because I remember the 28 and admin revenue ramped up quite nicely in 2017 and hit the double digit rate in Q4 2017 and stopped it to stop.
So right now, it's still staying around the single digits. So I'm just wondering when do you guys expect the 28 nanometer ramp up to double digit contribution again sometime in
Hi, Ray. Thank you for the question. You know the thing for 28 nanometer has been keep commenting on this topic through the quarters. And we should say this way, the first 28 nanometer ramp up and in 2016 2017, we ramp up up to 10% over 10% type of revenue, mainly with the 28 nanometer Polycom technology and in the mobile phone sector. Later when we have the high key metal gate we switch from mobile phone 20 Polycom to Hikimoto Gate C type of version and that's for consumer type of products.
And now we continue to run certain part of 28 capacity in the mobile sector for 28 Polycom products. In the meantime, we also run 28 HKC type of products. Now we reintroduce a C plus technology platform. First thing first, we're converting certain part of a C version, same product into C plus So we do not expect running up in volume for the 28 sector. More or less, we maintain the similar volume to run that because we have the existing customer in a mobile station.
We also have the 20 C customers in the consumer sector. And we mainly just for the upgrading. We are building up 28 Hi KC plus IP, but it takes time to getting additional productions. So hopefully in the second half of next year, we start to have additional loading from other customers to do this sub C plus ramping up. But for the overall capacity build up of 20 nanometer, just now I already mentioned that in the world overall in the industry, they are oversupplied.
So we do not have aggressive plan to expand the capacity to add on to 28 nanometer production. More or less we maintain the similar volume dedicated to 28 PolySons and Hecke Metal Gate. So we do not expect the percentage getting higher in the overall revenue portion.
Okay. Got you. Thank you so much. And the second question is how much government subsidy do you guys expect to receive in Q4 this year?
This one, I gave to our CFO, Doctor. Gao.
Let me translate for you. So every year, we are receiving the government R and D grant. And as you can see, because we put more emphasis on advanced technology, so the grant amount is increasing. So as we estimate in the Q4, this government grant on R and D would be approximately US50 $1,000,000
Okay, great. Thank you so much. And the last question is, could you run through your 2018 CapEx update again because I missed this part at the very beginning?
Rick, could you say it again?
Could you run through your CapEx update for 2018? Because I think Yonggang mentioned about this numbers update in the early part of this meeting, but I missed it. So could you run through the update again about this year's
So the CapEx for this year is decreased from originally US2.3 billion dollars to around US2 $1,000,000,000
dollars Okay, great. Thank you so much.
Thank you. Thanks, Ray.
Thank you so much. I would now like to hand the call back to IR Director, Tim Kuo, for closing remarks.
Before my closing remarks, I will hand the call to our Co CEO, Doctor. Liang, for some further statement.
Thank you. Let me reiterate about our 1st generation FinFET technology with production date, we were still on track with original plan. Our risk production will be in the first half of next year. Thank you.
Okay. Thank you, Doctor. Liang. In closing, we would like to thank you everyone who participated in today's call and again thank all of you for your trust and support. Thank you very
much. This is the end of SMIS 3rd quarter earnings conference call. We thank you for joining us today.