Ladies and gentlemen, welcome to Semiconductor Manufacturing International Corporation's 4th Quarter 2017 Webcast Conference Call. Today's conference call is hosted by Doctor. Haijun Zhao, Co Chief Executive Officer Doctor. Meng Song Liang, Co Chief Executive Officer Doctor. Yonggang Gao, 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 daoins are in listen only mode. However, at the conclusion of the management presentation, we'll be having a question and answer session, at which time you'll receive further instructions as to how to participate. The earnings press release is available for download at www dotsmics.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 the cautionary statement. Thank you.
Good morning and good evening. Welcome to SMIC's 4th quarter 2017 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.com under Investor Relations in the Events and Presentations 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 Form 20 F filed with the United States Securities and Exchange Commission on April 27, 2017.
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 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 our listeners. First, I will highlight our 2017 full year unaudited results, which are based on submission of our unaudited quarterly results for the year of 2017 and our 4th quarter results and then give Q1 2018 guidance.
Revenue in 2017 was $3,100,000,000 a record high compared to $2,900,000,000 in 2016. Gross margin in 2017 was 23.9% compared to 29.2% in 2016. Profit for the period attributable to SMIC in 2017 was $180,000,000 compared to $377,000,000 in 2016. Tbeta reached record high of $1,120,000,000 in 2017 compared to $1,060,000,000 in 2016. 2017 CapEx for foundry operations were $2,460,000 while CapEx for non foundry operations were $29,500,000 In Q4 2017, our revenue was $787,000,000 an increase of 2.3% quarter over quarter, mainly due to the increase of wafer shipment.
Gross margin was 18.9%, mainly due to high depreciation, product mix change and price pressure. Non GAAP operating expenses were 201,000,000 dollars Profit for the period attributable to SMIC was $48,000,000 while non controlling interest were $49,000,000 of debt to SMIC's attributable profits, mainly due to the recognition of R and D cost sharing by our Beijing JV. Moving to the benefit. At the end of Q4 of 2017, cash on hand, including other financial assets, were $2,500,000,000 compared to $1,700,000,000 at the end of the previous quarter, mainly due to proceeds received from insurance of shares and capital injection from non controlling parties. Gross debt to equity ratio was 49%, and net debt to equity ratio was 12 percent.
In terms of cash flow, we generated $324,000,000 of cash from operating activities in the Q4. Now looking ahead into the Q4 of 2018, our revenue is guided to be up 7% to 9% quarter over quarter, mainly due to the recognition of approximately 150,000,000 dollars 1 time technology licensing revenue. Gross margin is expected to range from 25% to 27%, mainly due to the previous machine and technology licensing revenue, partially offset by low utilization rates, high depreciation and the product mix change. Non GAAP operating expenses are expected to range from 2.12 to $280,000,000 Non controlling interest of our majority owned subsidiaries are expected to range from positive $15,000,000 to positive $70,000,000 dollars which are losses to be borne by non controlling increase. The planned 2018 CapEx for foundry operations are approximately $1,900,000,000 of which approximately of $500,000,000 are expected to be spent for expansion of capacity in our majority owned Beijing JV and $400,000,000 are expected to be spent for new projects in Tianjin.
Others are mainly for equipment upgrade, facility construction and execs. The planned 2018 CapEx for non funding operations are approximately $48,000,000 mainly for the construction of employees leaving quarter. Our planned 2018 D and A is approximately 1,100,000,000 dollars mid teen growth compared to previous year. I will now hand the call over to Co CEO, Haijun, for general remarks.
Thank you, Yonggang. I'm really happy Lunar New Year to all our listeners.
Thank you for joining us.
Looking at 2017, we increased our annual revenue by 6.4% year on year in line with the growth rate of the foundry industries, in spite of the challenges of the high downstream inventory and the changing market environment. We also successfully ramp up our 28 nanometer technology portfolios and have seen more than 10% revenue contribution in the Q4 of last year. Meanwhile, we have contributed and enriched our technology offerings to diversify our revenue streams. For example, our automotive and the industry revenue doubled in 2017 compared with previous year. In 2017 revenue from communications and consumer remained flattish and the computing grew by 46.1 percent year on year.
While our constant growth was mainly a result of a slow hand market handset market mobile phone market which continue to impact us now. Our region, now the market based customer contributed to a majority of our growth increasing by 44.5% year on year. Meanwhile, China customers remained flattish and the European region declined 35%, which was also due to the mobile phone exposure. The Q1 last year revenue and gross margin was in line with our guidelines with moderate growth and a decline respectively. Margin decline was mainly from increased depreciation of our equipment and the pricing pressure.
Taking on the role of co COO with Doctor. Liang last year, we confronted changing market dynamics and we began the process of refining our business, recalibrating our product mix and accelerating technology migration for our customers. Today, we are putting more efforts into our technology development, so to ensure our future growth targets. Doctor. Liang will later share more on our technology developments.
Looking forward into this year 2018, we will continue to be confronted with increasing competition, pricing pressures and a slower growth of certain end markets. 2018 will also be challenging for our profitability given the changing market dynamics. And as we introduce new fabs and adjust product mix to address the evolving market. Our customers have been facing increasing competition particularly in communications and the consumer space resulting in increased pricing pressure to us. In this year of transition, we still target to grow annual revenue in line with the industry, high single digit growth.
We aim to maintain gross margin in the teens percentage level and a positive net profitability attributable to SMIC shareholders. For 2018 foundry CapEx is at US1.9 billion dollars a decrease of US500 million dollars compared to the last year as we invest in equipment according to clarity of demands and technological capability. In this year, we will adjust our product mix and prepare facilities to accommodate expansion when these two requirements are met. In this time of adjusting our product mix, we will not decrease our R and D activities. R and D expenses are targeted to maintain in the teens percentage and the funding from the government for R and D projects will increase as well.
With the changes in market dynamics, we see customers migrating to more advanced nodes at a faster rate and we need to adjust accordingly, especially in the digit logic market sector. As the largest and most advanced Chinese foundry, we aim to be a world class foundry with scale and technology to serve our customers in the mainstream market. We are also accelerating mature and advanced technology developments as well as building up key platforms and strategic partnerships To address increasing competition and to be more effective in our capacity, we focus on key platforms where SMIC is and can be competitive and a preferred foundry source. We will work with our customers to better cater to their needs and win the market together. We have already pinpoint a number of key platforms to address and today I will highlight 2 of them.
Our Now Flash platform and CMOS image sensor platform. These two platforms revenue to SMIC grow almost 70% in last year compared with the year before. We continue to build on our platform strategy and seek to expand our customers' business. We are working hard to implement this market adjustment strategy within the company and we ask our stakeholders to stay tuned as we deliver key checkpoints on platform development and technology advancement. SMIC is situated in China, the largest market for ICs and we believe we can continue to benefit from the continued IC market growth in China.
Revenue from China based customer grew by 15% in Q4 compared with Q3 last year. And we continue to see growth from the region in this year. We recently announced the setting up of SMIC South, which is our joint venture in Shanghai with Shanghai IT Fund and China IT Fund. Together, our joint venture partners will contribute funding for the capacity expansion and the R and D of advanced technologies. We trust we can capture large opportunities as we deliver our new growth strategies.
And we believe our position as the foundry of choice in China will hold solid and grow stronger as we target to increase our scale and market share in the markets. To summarize, the year ahead of us will be very challenging for our business. However, with our co CEO structure and the leadership, we have increasing confidence that we can execute on our strategies and deliver our operational and R and D results. SMIC is in a transition to align to customers a fast technology migration in today's dynamic foundry environment. We have great opportunities in front of us and I believe we have the right team to execute the acceleration of technology development to capture these prospects.
We have confidence that SMIC will emerge stronger, bigger and profitable. We appreciate your patience as we work to advance SMIC to a world class company. I will now turn the call over to our Co CEO, Meng Song for technology comments.
Thank you, Haijun, and thank you to everyone on the call for joining us. Since I joined SMIC, we intensely evaluate our strategy and R and D focus. With our position in China, we are given great opportunities. However, we have not captured this due to lack of technology readiness. In order to sustain in the long run, we must drive technology development and capture the large waves of opportunities for competitive offerings for diverse applications.
My confidence in our team's ability to deliver technology has vastly increased compared to 4 months ago when I first joined. I'm encouraged by the quick results of increased employee discipline, efficiency and performance. In this past month, our team has increased the sense of ownership, accountability and urgency. I'm now confident in this team. Let me update you on our FinFET technology development.
Since onboard, I have concentrated much effort on FinFET development, which is crucial for wide variety of advanced computing applications. We have revised our FinFET plan, have seen rapid improvements in device performance as well as the year and believe our FinFET solutions will be competitive. In terms of our 28 nanometer platform, our manufacturing team has recently delivered faster than expected year improvements on 28 nanometer HKC. Meanwhile, our 28 nanometer HKC plus is on target to enter production in the second half of this year. On mature technology platforms, we are focused various areas such as non fresh, CIS and Power IC.
We are building our competitive BCD power management IC platform. Our team is executing on a roadmap of continued development of this platform to provide various levels of voltage, better performance and higher density solutions. To conclude my remarks to date, I have high expectations on SMIC, especially for our R and D team. And at the same time, I have great confidence that we will deliver. Furthermore, I'm confident in our team's capability to utilize this time to prepare, develop and recalibrate our technology to create greater value for the future.
We have instilled disciplines and a sense of urgency to execute, deliver and to exhibit our position as a world class foundry. We thank everyone here for your support, and we'll continue to update you in the coming quarter. 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 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 go ahead.
Okay. Yes, thank you. Yes, I'll start to follow-up on the R and D discussion. If you could talk, it sounds like some milestones coming through both on 28 and FinFET. Could you discuss the view on 28 through the transition period this year as we move from Polycyon to HKC, how you expect 'twenty eight to progress?
And then outlook, I guess, from this progress, when you think we get the next waiver or meaningful inflection of the HKC into high volume production? And then following if you have a latest view on FinFET for your commercial ramp up of FinFET?
Hi, Randy. Thank you for the question. I answered the 28 nanometer technology first and monsoon will follow-up the FinFET. And as you know for 20 nanometer probably I mentioned that we have 3 steps to go. And we are successfully running the Polycom for quite a couple of years.
And this year, we also ramp up 28 HKC mode. And you know that in the 4th quarter, they are more than 10% of the contribution to our revenue and yield improvement are very encouraging and we are quite close to the industrial performance I mean the industrial average performance. And for the HKC plus MOSE and we'll make it into the production readiness by the mid of this year. And as you know, this 20 nanometer polysiliconheckymetogane nodes are already a mature technology and the pricing pressure is very high and we see that running up this technology really and might have the challenges on the gross margin. And we are balancing the total volumes of this technology ramp up with our target of gross margin.
Okay.
Okay. So I will comment a little bit about 14 nanometer progress. Since onboard, we have concentrated much effort on FinFET development. I revised FinFET plant and now we have demonstrated a good device performance in the year, meet our internal target quite well. My confidence in our team's ability to deliver technology has vastly increased compared to 4 months ago when I first joined.
I'm now confident in this team to deliver and even outperform the company's original R and D target.
Okay. If I could follow-up just on the 28%, it reached above 10% of revenue. From this level, do you expect it to continue to sequentially ramp or maybe if you can give a magnitude of increase, if it will, through the year or if there's any transition of FLP rolling off and so could stabilize. But if you could give that outlook on the revenue contribution?
Randy, as you know, we already have the customer there and we already build up the capacity. But in the meantime, we also met up with the pricing pressure. So we will take very cautious pace in increasing the capacity. And SMIC is the latecomer in this 28 nanometer node and that's actually a good opportunity for SMIC to build up this technology to cater to multiple platforms. For example, 40 nanometer and the NAND flash high end NAND flash and the 28 nanometer are compatible running in the same fab.
So we do have the flexibility to adjust the loadings from different technology modes, 20 8 Polycom, 20 8HKC, 20 8HKC plus and NAND flash and 14 nanometer logic and other applications. And so answer your questions that we'll maintain the customer needs and in the meantime we take a very measured pace in maintaining this capacity expansion.
Your next question comes from the line of Zeping Huang from PICC. Please go ahead.
This is Liping Huang from CICC. I have a question to Doctor. Liang. So what's the major change of the CICC SMIC after you joined the company and especially on R and D organizations? Thank you.
Okay, Doctor. Huang. In order to have a breakthrough in the technology development ASAP, I met the organization more simple and complementary with more resources focused on essentials that can deliver good value added and establish key technology milestones, make sure each member takes clear responsibilities and deliver promises on each target. I also revised technology development with faster learning cycle and more consolidated investments and resources in key platforms. Technology development should be oriented by customer product and take high year at production stage as a result.
My confidence in our team's ability to deliver technology has vastly increased. I'm encouraged by the quick result of increased employee discipline, efficiency and performance. In the past month, my team has our team has increased the sense of ownership, accountability and urgency. I'm now confident in this team to deliver and even outperform the company's original R and D target. Thank you.
So
The second question from me is to Mr. Gao. So I noticed that SMIC and China IT Fund inject total, I think, US3.5 billion dollars to SMIC sales. So what will be the timetable and the plan of this company? Thank you.
Okay. So for this project, we call that SMIC South and overall funding for this program, the first so the first stage would be US5 $1,000,000,000 and the registered capital would be US3.5 billion dollars For SMIC, we will hold 50.1 percent of the shares and the IC Fund and Shanghai IC Fund will hold 49.9%. There is 2 timetables for your reference. So for the end of June the end of December of 2018, we will have injected capital for around US1 $1,000,000,000
Your next question comes from the line of Stephen Plaio from HSBC. Please ask your question. Yes.
First of all, I guess a little clarification. Can you talk a little bit about what's behind the technology licensing? What exactly was sold? And your guidance for high single digit revenue growth this year, does that include the technology licensing revenue? I guess if I backed out 150 $1,000,000 maybe you're only guiding to about 3% revenue growth.
Could you answer those two questions first?
Hi, Stephen. Thank you for the question. We will form a joint venture with a partner without controlling rights and license our SMIC owned specific niche technologies to the joint venture and to form a company. By doing that we can fully leverage the local support and the also the investments on such niche technologies in the past many years inside SYNC. And by doing the joint venture, we committed this company stronger and also have upgraded local industry.
In the meantime, we can gather resources to support our key essential platforms inside SMIC. And that's a very good opportunity for SMIC to do this. It's a new attempt for SMIC to fully utilize the investments on niche technologies in the history. And your second question?
Well, still to clarify on
that end,
it's kind of the technology license and you're selling technology, but what exactly is it for? Is it semiconductor design, manufacturing? Is it packaging related? Can you give us some more details behind that? And then my second question was just relative to your full year guidance of high single digits, does it include this extra $150,000,000
Okay. For this technology, that's a niche technology and increasing from the device and the process technology and manufacturing all the way to the back end is a no demand stream technology, it's a niche market. And that's the thing I can say at this moment. Yes, the answer to your question, yes, the whole year's guidance for the revenue growth including data license and income, yes.
Okay. And then if I could just follow-up with a quick one, I'll get back in the Q1. On 28 nanometer, I guess I didn't catch a more concrete example. I understand that you're facing some pricing pressures there. You have some new technologies ramping.
But in the Q4 of this year, it looks like you did about $85,000,000 $90,000,000 maybe about $240,000,000 for total 2017. What kind of growth rate do you think you're going to have in 28 nanometer in 2018? Or maybe what do you think a year ago a year from today, Q4 this year, do you think you're going to be doing $150,000,000 $200,000,000 a quarter? Help me understand how much 20 nanometer can contribute in 2018?
Just now actually I mentioned a little bit that and first thing first, we already have the customer base, we already build up the capacity, but this capacity got a flexibility to running back and forth with 40 nanometers and other niche technology platform like I mentioned the NAND flash and the 14 nanometer logic type of things. Currently, we should say this way, 28 nanometer pricing got a great pressure and no that attractive is impact our gross margin. And we have to balance the move for more and production ratio for this 28 nanometer. So on the one hand side, we need to make sure that we satisfy the existing customers' requirements. And in the meantime, we take a very cautious way to move ahead for the further expansion and higher ratio.
So we have to say that we maintain the current situation in the meantime waiting for better timing and when we have more diversified customer base and to make this technology nodes running production more healthy. And just now I also mentioned that we will have the high case C plus coming into the production stage in the middle of this year.
Your next question comes from the line of Charlie Chan from Morgan Stanley. Please ask your question.
Hi. Thanks for taking my question and happy Chinese New Year. So first question, I guess, is to Doug Liang. You mentioned that the company seems to miss some opportunities from the China semiconductor demand because of the readiness of technology. So I guess part of that could be like a Bitcoin ASIC because they use mostly in edge technology, right?
So besides the Bitcoin ASICs, what kind of opportunities the company should capture, but you didn't get it because of technology issue. Can you clarify?
Okay.
We target out 14 nanometer FinFET technology in variety of applications, but mainly focus on high computing and low power segments.
Okay. So besides the 14 nanometer, what kind of business opportunity you didn't capture? I mean, for those 28 nanometer or trailing edge, for example, what semiconductor products you think you should model but you don't have the technology because we from there we can understand your milestone and at what points you can reassess your top line growth?
That actually is quite a complicated question. But to make it simple, since the semiconductor business and application dynamic is changing recently. OSMIC, we target our technology roadmap from HKC, HKC Plus to the FinFET. And this kind of technology migration, we hope to catch most of the consumer and not only the mobile applications and other non cost sensitive applications.
Okay. So I guess my next question is regarding your 8 inches fab utilization because some of your industry peers like Vanguard, UNC are seeing the 8 inches fab is a pre full, 4. So what is your fab utilization for 8 inches? And I was thinking those fab fewer pieces like a NOR flash, CMOS sensor can help your utilization in 1Q, but it seems like Q1 is still quite, quite tough, right? So can you give us some color on your 8 inches fab business now?
Yes. I will refer this question to Chao.
Okay, Charlie. And for our 8 inches capacity and this kind of forecast, overall, we should say very good. And but you do see that forecast utilization for SMIC overall, we do not forecast that high. Mainly because for 8 inches we also have the new wafer fab, you know that we announced that we build up new wafer fab in Shenzhen. That's a brand new fab.
And for that fab, they need time to qualify the existing platforms, existing customer product portfolios. So that's why while we're in the running up, the full utilization is not that good as the others is expected and everything in line with our forecasting for that 8 inches fab. But overall, we should say SMIC 8 inches overall utilization is very good. And another thing I can share with you is that SMIC from his cargo point of view, we build our 8 inches 0.11 to 0.13 micron copper capacity there. In order to satisfy customers' needs, but we see the technology transition from 0.11, 0.3, 13 technology shift to CD5 and 55 nanometer copper technologies.
And so we do convert its copper capacity into aluminum capacity and that also takes the time of transition. But overall, we have the demand there, yes.
Your next question comes from the line of Rex Wu from Jefferies. Please go ahead.
Thank you for taking my question. So I just have one question about the 14 nanometer. So when we have so once SMIC fully ramped the technology, likely it will be kind of like a mature technology again. So can management explain a little bit like what's the competitive edge for SMIC's 14 nanometer platform? Thank you.
Mr. Red Commerce, in the market, We are using the most advanced tools. We can provide industry competitive 14 nanometer solution based on customers' latest request with high performance and low process cost. It will provide customer with easy migration, various device integration and full IP coverage. And we target risk production will start in the first half next
year. Thank you. That's all my questions. Thank you.
Your next question comes from the line of Rick Chu from Daiwa Securities. Please go ahead.
Yes. Hi, good morning guys and thank you so much for taking my question. I got a question on your first quarter gross margin guidance. Does this 25% to 27% includes the license revenue? So what is the apple to apple if we exclude this license revenue, what would be your gross margin guidance for Q1?
Hi, Rick. Thank you for the question. Excluding this, you mentioned this license income from the joint venture and apple to apple to the Q4 last Q3 last year. And for the Q1, we should say we target 10% to 12% type of gross margin.
10% to 12%? Yes. Okay. Thank you. Yes, thank you so much, Dan.
The second question, I think Yonggang ran through this year's CapEx RMB 1,900,000,000 breakdown, but I kind of missed this breakdown. Can you restate the breakdown again for this year's CapEx?
Okay. So the planned 2018 capital expenditures for foundry operations are approximately RMB 1,900,000,000. Around 42% is for facility CapEx, mainly for our Shanghai and Tianjin new fab. The rest is mainly for equipment like our Beijing JV Advanced Node Expansion and upgrade and upgrade and upgrade and upgrade and upgrade and upgrade and upgrade and
upgrade and upgrade and
upgrade and upgrade and upgrade and upgrade and upgrade and upgrade and upgrade and also our Shanghai R and D tools.
Your next question comes from the line of Guing Fu Pari Haoran from JPMorgan.
I just wanted to ask about the price pressure that you're seeing in 28 nanometer. What is your outlook for overall 28 nanometer once you kick in HKC and HKC plus towards the end of the year? Do you feel that the pricing will get better? Or like any matured node, I think the pricing just keeps declining once the node becomes a certain level of maturity? That's my first question.
2nd is on your progress on the leasing of assets instead of investing in CapEx. I think 2017 already, it feels like you have used a significant amount of leasing provisions on equipment. Could you talk about the application of this technique for 2018 as well? And it seems like it has not really changed the growth in depreciation. So should we expect that depreciation growth is still going to be pretty high even if you're using significant amount of leasing provisions on the CapEx side?
Thanks.
Hi, Gohong. Thank you for the question. For the pricing pressure on 28 nanometer node and we believe will sustain. And the reason is that 28 nanometer these days and still cater to the major consumer applications and communication sector. And that sector is still maintained very competitive.
And because the end market is so competitive and this kind of pressure transfer to the foundry suppliers and we believe they will be there. And for SMIC, on the one hand side just now we said, we'll maintain to meet customers' requirements. And in the meantime, we improve our yield and lower our manufacturing cost. And then we also deliver new platforms to be more competitive. Just now we mentioned that by the middle of this year we will deliver the readiness of C plus platforms.
And then we wait for more customer come in and see a better opportunity to ramp up further. So that's a very cautious way. We keep emphasizing that we're balancing the volume of running 28 nanometer and with the targeting gross margins for overall SMIC. And so we keep having the adjustment by controls. And for the build capacity, just now I mentioned that we do have the flexibility to running through different technology nodes and different platforms.
So we can adjust that.
Okay. So, Gokul, for this year, actually there is no management leasing program so far. For last year, the total management leasing came up with US885 million dollars So according to this leasing program, actually we save our DNA by US26 million dollars
In 2018. In 2018.
Okay, got it. Thank you.
Your next question comes from the line of Phil Lu from UBS. Please go ahead.
Yes, hi, good morning. Two questions. Management talked about risk production for 14 nanometers in the first half of twenty nineteen. Can you talk about what that means for capital spending? When do you have to start spending for 14 nanometers?
I'm just wondering if you look at this as CapEx is down from 2017, should we model a ramp in 2019? Or can you do a smaller line start?
Okay. Bill, So actually as we announced our SMIC South project, it's particularly designed for our 14 nanometer FinFET fab. So actually our target for 2018 is to complete all the shelves and the clean room set up. And so for 2019, the CapEx were primarily for our equipment CapEx. But so far, we don't have a clear timeline for all these stuffs.
Okay. So without giving me a CapEx number for 2019, can you help me a little bit with how much capacity you will have for 14 nanometers in 2019?
Hi, Bill. We have the R and D facilities at this moment that's reached a certain type of capacity number already at this moment. And the first stage for I-eighty five, we will use the and eMansion scanners quantity to define the pace. So that will be roughly about 3,500 wafer per month, 6,000 wafer per month and go for 9,000 wafer per month. And there will be 3 stage.
At this moment, we do have 3.5 ks per month capacity for R and D.
Great. Thank you. Could I just follow-up on Gokul's question? If you look at the pricing pressure on 28 nanometers, is it just as severe for HKC as it is for poly or are you seeing a difference?
Actually, we see them both. And Polycom is relatively simple version. They have fewer layers in the whole process and the HIKI MIGA they have more process layers, but overall player we saw similar things. So the pressure to your question is that the pressure actually on both platforms. That's the market.
That's the market overall. No specific to SMIC. I really believe that we are running market.
Your next question comes from the line of Roland Xu from Citigroup. Please ask your question.
Hi, good morning. Thanks for taking my question. First question is for your Q1 gross margin guidance. If we exclude this one time technology license revenue, you said that will be about 10% to 12%. So we know at least probably due to this lower utilization and product mix change and even for the higher depreciation.
So I would like to know how high the depreciation will be for this 1st quarter lower Q1 gross margin, so on the depreciation point of view?
On the Q1, we see 6% more depreciation added to the cost. Without this add on, you can we can easily calculate what the gross margin should be given the facts.
6% higher depreciation means an absolute dollar amount of profit?
So, part of it is probably the quarter. Yes.
Okay. How about the full year, the whole year 2018 net depreciation will be? Okay.
Thank you. So for the whole year, the overall depreciation will increase around 15% compared to 2017.
Okay. Thank you. And Haijun said the whole year 2018 gross margin target will be about 10 percentage points. So I would like to know, is this a low teens or mid teens or high teens?
Actually, at this moment, we do not have the good visibility for the whole year. And we could now say very confidently and for the detailed numbers.
But is it more close to Q1 gross margin or it will be better than Q1 gross margin?
Thank you, Sohu.
On off cost, we hope that on the quarter by quarter, it's getting better and better.
Okay. Cool. Yes. Second question, your auto and industrial revenue actually doubled last year. How about this year?
Will it also about to be double again? And also how about your non flash and CMOS image sensor revenue contribution last year and also your expectation for this year? Thank you.
And definitely grow and we do not have I do not have exactly the calculation there whether or not it will double again, but there will be a significant increase in the revenue of the revenue from these 2 platforms. And you know another thing is that we do not comment too much on the single products, but definitely grow further.
That's all the time we have for question and answer session. I would now like to hand the call back to IR Director, Tim Hoang, for closing remarks.
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 SMIC's 4th quarter earnings call. We thank you for joining us today.