Welcome to Semiconductor Manufacturing International Corporation's Third Quarter 2017 Webcast Conference Call. Today's conference call is hosted by Doctor. Haijun Zhao, Co Chief Executive Officer Doctor. Mong 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 dial ins are in 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.
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.
Good morning and good evening. Welcome to SMIC's Q3 2017 earnings webcast conference call. Today, it is our honor to have our Chairman, Doctor. Zhou Cixue with us to make some opening remarks and introduce our Co CEO, Doctor. Liang.
After that, our CFO, Doctor. Gao, will highlight our financial performance and give guidance for the next quarter. And then our Co CEO, Doctor. Zhao, 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 quarterly 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 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 turn the call over to our Chairman, Doctor.
Zhou Cixi. Thank you, everybody, for joining today's earnings call and for your continued support. As one of China's most important semiconductor companies, we have always considered how to strengthen the company's competitiveness. During this period of time, we have been focusing on putting together resources and building up a solid foundation for SMIC's future development. In October this year, we established a new management team.
And today, I want to take the opportunity to introduce to you the management. You should already be familiar with our Co CEO, Doctor. Zhao and CFO, Doctor. Gao. Last month, we appointed Doctor.
Liang Mong Song as one of our co CEOs. For decades, Doctor. Liang has focused on advanced node R and D. His expertise and management skills will strengthen SMIC's R and D program and help to narrow our advanced technology gap. I believe that our new team will bring SMIC to new heights and drive contributions to the development of the IC industry.
With Doctor. Liang's excellent and successful experience in the IC industry, I'm confident in SMIC's bright future. Welcome, Doctor. Liang. Now I will hand the webcast over to our 2 Co CEOs and CFO.
Thank you, Doctor. Zou. Now we will have our Co CEO, Doctor. Liang, say a few words.
Thank you, Chairman Zhou, and thank you to everyone on the call for their support. I am greatly honored to take on this position at SMIC, which is both an opportunity and a challenge. SMIC's rapid development in recent years have been noteworthy in the industry, and I'm happy to be working closely with Doctor. Zhao Haijun and the management team to contribute to SMIC's competitiveness. Since joining SMIC, I have reviewed our strategic targets and we have begun formulating execution plans, Having been unquote for 1 month, I leave all business commentary and Q and A to Zhao Haijun and Gao Yonggang to date.
I believe that SMIC is in a great position with many good opportunities and I hope to work with the team on precise execution to meet our targets. Once again, it's an honor and a pleasure to work together with Zhao Haijun and SMIC team. Together, we work hard to deliver good results to all our stakeholders.
Thank you.
Thank you, Doctor. Liang. I will now hand the call to our CFO, Doctor. Gao for financial highlights. Thank you, Tim.
Quick news to all our listeners. First, I'll highlight our Q3 results and then give our Q4 2017 guidance. In Q3 2017, our revenue was $770,000,000 an increase of 2.5 percent quarter over quarter, mainly due to the increase of wafer shipment. Gross margin was 23%, a decrease of 12.8 percentage points, mainly due to low fiber utilization, which was 83.9%. Non GAAP operating expenses were $184,000,000 Profit for the period attributable to SMIC was $26,000,000 dollars while non controlling interest were $5,000,000 debt to SMIC's attributable profit.
Moving to the balance sheet. At the end of the quarter of 2017, cash balance, including our financial assets, were $1,700,000,000 Gross debt to acquisition was 52%, and debt to acquisition was 24%. In terms of cash flow, we generated $420,000,000 of cash from operating activities in the 3rd quarter. Now look ahead into the Q4 of 2017. Our revenue is guided to be up 1% to 3% quarter over quarter.
Gross margin is expected to range from 18% to 20%. Non GAAP operating expenses are expected to range from 204 $1,000,000 to $210,000,000 Non controlling interest of our majority owned subsidiaries are expected to range from RMB48,000,000 to RMB50,000,000 which are losses borne by non controlling interests. We reiterate our blended 2017 CapEx for foundry operations of approximately to RMB2.3 billion. The planned 2018 2017 CapEx for non foundry operations is approximately RMB70 1,000,000, dollars mainly for the construction of employees' living quarters. I will now hand the call over to Haijun for general remarks.
Thank you, Yonggang. Greetings to all the listeners and thank you for joining us. Today, I will highlight our Q3 results, near term outlook, opportunities, technology development and strategic directions. Our Q3 revenue was in line with guidance and grew 2.5% quarter over quarter. This sequential growth came largely from the broad based recovery in smartphone related shipments.
By process notes, 28 nanometer grew 38.9% quarter on quarter and a 0.18 micron growth 33.8%. By devices, application processors, baseband, power management ICs, NOR flash and fingerprint sensors, each contributed to the sequential growth. Though inventory levels are sequentially healthier, some customers are still digesting higher than normal levels of inventory. Given this situation, we target annual revenue growth in line with the foundry industry growth. In the 3 years preceding 2017, SMIT has grown revenue and profitability on high utilization.
And in these next two years, we enter a period of transition as we prepare our technologies and facilities for the next stage of growth. With a strong and a capable team located in Mainland, China, SMIC is presented with a unique position to benefit from a variety of long term trends, includes China AC design winning increasing market share. We estimate China's fabless revenue growth of 20% CAGR from 2016 to 2020, while SMIC's revenue from Chinese customer is 45.7%. Another trend is the rise of IoT, Internet of Things in our everyday life. In September, we announced the successful fabrication with the 1st domestically designed and manufactured MBT MBT in China with ZTE.
This MBT can be widely used in smart meters, shared bikes, smart applications, smart city and others. We also announced the availability of the low power platform for IoT using our 55 ultra low power process. The platform is optimized for functionality common in IoT designs such as voice recognition, face detection and sensor fusion. In addition, we announced with Chengdu Analog Circuit Technologies the availability of analog IP solution using our 55 nanometer e Flash technology, engineered for very low power IoT applications that unique low cost and extended battery life. These are just 2 long term trends SMIC will benefit from.
In the near term, our growth drivers include our continued ramp up of 28 nanometer technologies, continued growth in flash memories, fingerprint sensors recoveries and power management ICs. On 28 nanometer, I'm glad to see that we are on track to meet our targets for 28 nanometer. Our 28 Poly Sam On has successfully been in mass production, while our HKC into a rich production stage from last quarter. HKC plus is targeted to begin production by the end of next year and we have already started R and D on 22 nanometer. 20 nanometer overall contributed 8.8% of our wafer revenue in Q3.
Meanwhile, 14 nanometer development is also well on course. I would like to comment on SMIC's strategic directions. SMIC is positioned as the long term viable partner of choice in China. We hope to establish a comprehensive technology roadmap with our customers on mature and advanced nodes. In order to meet some of the great future demands of our customers, we must accelerate our execution and the net of our technology gap.
When we talk about narrowing the gap, we are not only speaking of the advanced nodes, but especially mature nodes to which we believe can greatly serve the Chinese and foreign IC markets. In addition, we believe in the importance of focusing our investments into strategic areas that support the long term growth, profitability and the viability of our business. We have taken the time to first narrow our focus to a small number of specific platforms for which we aim to be the foundry of choice. We have consolidated resources to support the technological platform of great strategic importance to SMIC. With the long term opportunities lying before us, we prepare our technologies in close cooperation with our customers to capture their demands, and we appreciate your patience as we work to execute and deliver the results of our strategies.
We believe that the near term impact of the investment and the transition are the growing plans to the right direction as SMIC grows in scale, ability and the prominence. This year, our CapEx plan remains unchanged. The incremental increase in year end capacity in 27 compared to last year as the following: for our 8 inches wafer fabs, including Shanghai Idan-1000 wafers Tianjin-6,500 wafers and Shenzhen-5,000 wafers. For our 12 inches wafer fabs, Beijing add on 5,000 wafers. Beijing's joint venture add on 12,000 wafers and Shenzhen add on a mini line of 3,000 wafers.
To conclude, we work diligently to maintain our position as the foundry of choice in China. With our strengthened team and a focused direction, SMIC is well positioned to execute on our long term targets and the benefits from the opportunities in the IC markets. We at SMIC work hard to grow the sustainable value of the company for all our stakeholders. Thank you for your support. I will now hand the call back to Tim for the Q and A session of this call.
Thank you, Doctor. Zhao. Today's Q and A will be hosted by our Co CEO, Doctor. Zhao and CFO, Doctor. Gao.
Gao. Most of the questions today will be redirected to Doctor. Zhao and 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 Your first question is from Randy Abrams of Credit Suisse. You may ask your question.
Okay. Yes, thank you.
I wanted to ask the first question about the characterization of the transition period, where it seems to be implying this year, the 1st year and then next year will be the 2nd year of the transition period. If there's a way to think about next year in a transition period, how you're thinking at this stage about growth in CapEx? And then also for the margins, the guidance implied a few point decline. Maybe if you could go through the factors for the decline? And if you think in that transition period, it may kind of continue at that level or maybe able to improve back to the recent levels?
Hi, Randy. Thank you for the question. And I just focus on the characterization of this transition, but I won't talk too much about nice year scenario. You understand the situation that we could not see very clearly about the markets. We are not ready for the comments on last year.
For the transition, and just now we already said that we have 2 transitions. 1 of the transition definitely we have the management change and we turned on the new page. And just now we say that on one hand side, we position, strengthen the strategy on positioning SMIC as the foundry of choice in China. And we've got a closer relations with the customers who want to do business in China. And just now we say that in the past couple of years, we enjoyed a very good growth and a very good profitability and we still enjoy that, but that's to the maximum usage of the existing fabs.
Since last year, we already officially announced we will build up additional capacity to support future growth. And just we also say that we'll refocus optimize the use of existing resources and to develop SMIC's strength in technologies to narrow down the gap from the leaders. And this technology not just the advanced node, but the technology nodes in the mature area, we like to go for diversification, go for multiply of the usage, so that we can cover all the needs of our customers. And these two things are the transition stage. That means management team rebuild, refocus and go for expansion, go for technology catching up.
Okay. And if I can ask one follow-up, just
the margin that you guided. If you could talk about the factors for the sequential decline, because sales are relatively stable or up a bit in Q4. But for the margins, maybe how much was depreciation versus mix or utilization or if there were other factors? And if it's anything in one time in nature or if you think it may be around that kind of a new level for gross margin for at least a couple of quarters?
Just now we gave the guidance for the Q1 and we already gave some explanation on the changes of this margin. The first one comes from the product change on the mix, product mix, the change of that. And definitely that's the impact the margin thing. The second thing is the ASP. During the last this earning release call, we also say that last year was a wonderful year because of the shortage of the capacity and almost no process change or even result price.
But for this year and overall the market got a relaxation, so we just make half the price erosion happens last year. That happens to the whole industry where we also sell all around the other companies. And this is the second. And the third, just now we say that last year we started to spend the CapEx and to build up the capacity. And the good thing is that this kind of capacity already ran into production and the pressure is this kind of capacity also ran into the depreciation timeframe.
So we also see the depreciation just from the spending of the CapEx last year and the year before, we start to holding this kind of depreciations. And overall, we should say that this kind of margin erosion has been predicted. And what we believe is even though we're getting into this kind of difficult time frame, but we still our move our target still set and to maintain our ability for the company.
And then the final question
I wanted to ask was on the ramp up. You gave the HKs, the Hi K process. You mentioned pilot production. If you could talk about the, I guess, overall 28, how you're expecting the ramp up? And then for High K Metal Gate specifically, when you see kind of the meaningful volume ramp up for that technology to move from pilot into high volume on the HiK process in some of those early applications?
For the 28 nanometer technology, last time during the conference call, and my comments that we will make it into 3 stage. The first stage is make a full use of the existing capacity for Polycom that's really running the same situation. And we also say that the second half this year, we will ramp up high to microgate first aid, we call it in SMIC, we call it HKC, that's a transition stage between the first stage of high key metal gate and to the last stage of high key metal gate. We are running up from last quarter running to the full capacity of the existing building up. And we expect to see the increase further of the percentage of 28 nanometer technology in the overall revenue.
And we aim to see that about 10% or over 10% type of a ratio of 28 ratio, 28 nanometer revenue in the overall.
All right, great. Thanks a lot.
Yes.
Your next question comes from the line of Steven Talajo of HSBC. Please ask your question.
Yes, just a follow-up on the margins a bit. I guess maybe focusing a little bit more on EBIT margins. As you look into your Q4, can you first give us some guidance a little bit on R and D subsidies that you expect to be getting? And then could you just comment in general, I mean, if we were, I don't know, to exclude those R and D subsidies, is this going to be the Q4 kind of like the trough for structural profitability at the EBIT line for SMIC? Or what do we need to be thinking about kind of your breakeven rate as we go through the Q4 and into 2018, especially if I were to exclude some of those subsidies?
Hi, Stephen. Thank you for the questions. And yes, you are right. And you mentioned that the Q1, the margin erosion, one of the we can say the number one factor, one of the biggest factor is the increase of R and D spending. Yes, that's very true.
We really refocus and to expedite the research area. And then just now I mentioned the product mix also the depreciation from the CapEx we spent last year and the year before and this year. As for this R and D spending and you mentioned that the DRAM or subspace, Actually, we have very big sharing of these R and D costs is the joint venture reformed. And in the future, we also have new joint venture platform to share this R and D spending. So that's another area.
Besides this, we mentioned this R and D grant supported by the partners and the governments, we also have the joint venture cost sharing for this one. And just for your full year, some days, the total Maybe I'll just ask the bar. 4th quarter is $20,000,000 to 25,000,000
dollars $20,000,000 to $25,000,000 Okay. Maybe just ask a little bit of a longer term question. You talked about a review of kind of strategic targets. Can you share some of those with me? Are those targets kind of margin or capital intensity or free cash flow focused?
Are they focused more on just revenue growth or technology milestones? Can you share with us some of those strategic targets that we should be asking you about, I don't know, every quarter or a year from today?
Yes. Stephen, you almost mentioned everything. But on my reader, I mainly monitor 3 things. Of course, all of them on the reader screen, but the top 3 are the first one and it's maintained profitability, the second one is the revenue growth percentage and third one is the ratio of the leading edge technology in overall revenue. Yes, monitor these kind of numbers.
Pardon?
And can you share with
us some targets for that?
You shared with us, you said you'd like to maintain profitability, but you also said you had revenue growth targets and percentage of leading edge mix target. What would you like to see those revenue growth and percentages you'd like to make?
Even you know that, I can only give you the things for Q4, I can't say too much for the even further. At this moment, we cannot give too much for the long future.
Okay. Thank you. I'll get back in the queue.
Your next question is from Charlie Chan of Morgan Stanley. Please ask your question.
Yes. Hi. So welcome, Doctor. Liang. So my first question is regarding your technology development after Daqo Liang's joining.
So first of all, do you see that you can possibly bring in your 28 nanometer schedule because of the dark Beyonce fees? And also, can you talk about your potential capacity increase for 20 nanometer CapEx, even the 14 nanometer schedule? Thanks.
Hi, Charlie. Just now Timo already say that Doctor. Gao and me will kick out all the questions today. And yes, after Doctor. Liang should join, definitely we will reschedule, replan the overall strategy for the company.
And Doctor. Liang is co CEO. Is not a person focused on technologies only. So we're together to remake up the strategy and the plans for the future for SMIC. For 28 nanometer, actually before Doctor.
Liang's joining in, we already ran into production even for the high key metal gate from last quarter and running to the full capacity we already built up in our fabs. And of course, 28 nanometer will be a long nose. We will continue to optimize the technology to the HHKC plus stage and the production will be happening in next year, the later part of next year And HKT running from this year all the way to next year. And so far, the learning curve running very well. And from CapEx and the capacity on this 28 nanometer node point of view, we will very carefully plan the CapEx on this 28 nanometer technology.
So more or less that means we formed the strategic relations with the existing 20 nanometer technology and customers and to prevent the overview of the capacity on this technology. But in the meantime, we keep very long term relation with our customer to support them to the market needs.
Okay. Thanks. And my next question is more related to your mature notes. First of all, more flash, when do you think you will start the capacity increase? Do you think the customer's demand is now satisfied for NetNo Flash?
And given those growth drivers in the mature node, do you think Q1 next year we can see efficient sequential growth like you did last year?
Okay, Charlie. You know that. SMIC has been working on this kind of fab filler and diversified technology platform for the past many years, all the time. Actually SMIC came from a memory company. And along the way, we already build up the technology from 0.18 micron all the way to 24 nanometer technologies with the logic compatible technology platform for non flash, NAND flash, CMOSimeter, high V drivers, MCUs, etcetera.
And turn on this production, actually is very easy for SMIC because 95% of the machine are compatible, 95% depends on which nodes and we should say 85% to 95% of the machines are 100% compatible with the existing logic productions. That means when we have the needs, we just need to change a couple of tools. So the ramp up or the transition from one production to another production, especially in our 12 inches wafer fabs are superfast. And we should say, we ramp up this non flash, non flash CMOS image or this kind of thing just depends on customers' schedule. And my point is, their qualification to the increase of markets take a time longer than our production preparation.
So we just everything we run up to that stage, just everything depends on customers' order and the demands.
Okay. So let me very thank you. Let's be very quick on the financials. So Doctor. Gao, it would
be very helpful if you
can sort of quantify the depreciation for 4Q and also maybe a range for next year depreciation? Thanks.
So the 4th quarter depreciation would be US255 $1,000,000 For 2017, it's unchanged. It's approximately US975 $1,000,000 For next year, the CapEx plan is still under planning. So Charlie, you have no further questions?
Yes. So is that fair to assume that in the following quarters, depreciation should at least maintain at or above $255,000,000 is the fair assumption?
Yes.
Okay. Okay. That's it. Thank you.
Thanks, Charlie.
The next question comes from the line of Rick Xu of Daiwa Securities. You may ask your question.
Yes. Hi,
I just got one question on the CapEx side, especially for next year. I know you don't provide guidance at this call, but maybe just give us some ballpark number because you guys keep highlighting that you were aimed to close the technology gap, principally with the industry leader and that's definitely one of the mission for Doctor. Liang. So in order to close the technology gap, I cannot assume your CapEx will continue to be pretty high in the next couple of years, although you have already spent quite a big tick box in the last 2 years?
Hi, Rick. How are you? I'll answer your question. And for the CapEx point of view, you know that in the past 2 years, what we have spent, not just the leading edge technologies, also the aid bending in the maternals. Basically SMIC never build up the technology sorry, build up the capacity on the trend of industry type.
We build up the capacity with CapEx mainly to meet customers' requirement. In a sense, we can say no build up of the capacity without customers' commitment And more or less, we just meet up the demands of the market. So for next year, our expectations, we do not have the detail. We have gave up these kind of details, nice earnings, but we can say that the CapEx won't we won't see significant increase compared with the current situation.
Right. Maybe just a quick follow-up, but it takes because investment cost for a leading edge, for example, the next gen, you guys go into do that with 14 nanometer and also behind 14 a few years after the investment cost, development costs are just going to rise very substantially. So would that keep your CapEx high in the next couple of years, you want to close the technology gap?
Anupish will say this way. On the one hand side for the leading edge technology V4 5s will build up with the joint ventures. So the burden definitely got shared with the other investors and we really found out this kind of investor. We already got a very good example in Beijing's joint venture. And another thing is that just now I say, we build out a capacity just to deliver for customer demand.
So as long as we do not have overview, we do not have idling capacity and the overall should not be a big cost to SMIC.
All right. That's fair enough. Just one quick follow-up. Can you remind us your 14 nanometer FinFET development time horizon, like when you expect to start contributing to revenue?
We should say this way, currently the program went pretty well on cost and previously we already say that and we will put it into production for FinFET in 2019, 2 years back.
2019 in production, right?
Yes.
Thank you so much.
Thanks, Rick.
Your next question is from Letting Wang of CICC. Please ask your question.
Okay. Thank you for taking my question. I have 2 questions. So first is that the conversion for the management team, can you give the management team how the co CEO structure will operate in the future?
And you know for the industry SMIC is now the 1st company to use the management team of co CEO. And so that co CEO system has improved in the industry and we found more and more company, especially in our foundry business, start to adopt this co CEO scheme. And mainly because for the company like SMIC and the other companies, we are in a very fast paced type of movements in both technology and marketing and internal management. And the co CEO can give us the benefits. Charlie has always got a saying that too high is better than 1.
And exactly with Mengstone's join in and as Co CEO we work together. We have every week we settle down the settlements for the company different area for the decisions and together with our Chairman. And after we settled on that kind of strategic decision, big decisions and individually, we just go for work for detail to drive the team individually. That means we do have different focuses. Like myself, we focus more day in day out on the operations, marketing, sales, so on and so forth.
And Mengstone also drive the area and to get breakthroughs. But overall, co CEO and SVIC would say for the decision making procedure and flows, we work together and then we just go for day in day out type of detail management in the assigned area. I guess that for the industry, for the other company, they more or less have the similar job assignments and responsibility to build out doing things.
Okay. Thank you, Brian. It's very clear. So the second question is on the your Q4, I think previous investors asked, is it the Q4 gross margin down to 18% to 20%, also the utilization rate also down to 18% to 4%. Do you think this is roughly the bottom of your quarterly margin on the utilization rate if you have so many new applications to come in like the North license business?
And also related question is that the because SMIC delivered very good results for I think continuously maintain profitability for more than 20 quarters. Now, do you think looking forward when you drive up leading edge technology, do you think you will still keep profitability as you maintain profitable as a minimum bottom line when you drive the scale or do you think it will be depends on the operations? Thank you.
Okay, Robin. The first thing first that our plan or intention is still to maintain the probability. This is the first one, never changed. And as for whether or not the Q4 is the bottom, we can't say too much since we do not have full judgments on next year's situation. And but we have different ways to handle the situation.
And the Q4 yearly from utilization point of view based on the accounting rules that we are adopting and that means they link to the Q1 and Q1 for the mobile communication, this kind of industry, that's the you're right, that's the changing season. You know that it's always got to see seasonal type of cycling for foundries, for mobile communications. So that's impact the Q4 also impact the Q1. Those are very common things. As for additional CapEx for the building of the capacities, additional spending on the R and D, I just already said that.
For the DDI wafer fabs, at the beginning the burden is very heavy, but we use the joint venture because the other shareholder investor also share with the cost with us to push up this new wafer fabs. And for the R and D, it's exactly the same thing that the joint venture absorb and the certain part according to the percentage of their shareholdings and absorbed the cost of that part. By doing so, I still believe that SMIC can move fast in advancement, I mean, of technology and the new Wafer 5 settings, well, we still maintain the profitability.
So for your new application you developed like the more flash or these things, well, I think start to contribute significantly on your revenue from already Q4 or it will, I think, your LCD driver or the IoT you mentioned in the beginning. So these things will be a major contributor for your revenue in 2018 or still will be quite well, because your material process actually utilization rate, I think, also below the 84% corporate average, if I understand correctly.
And in this quarter, we already see that more than double digit growth for this kind of now flash contribution to compared with itself. And just now I mentioned that for SMIC, non flash definitely is the pre build up for many years. For the past 6 years, we continue producing the non flash. Just recently, we have additional capacity. We have the demand from customer.
We eye down the ratio of this capacity and the production scale. And you know in SMIC, we are also running the standalone NAND flash for more than 3 years. It's also in a very good trend. And we are also running CMOS C Major, MCU. And we really find that the demand for MCU for NAND flash for CMOS E Major also got increased significantly recently.
So we say that Now Flash is the 1st product to cover the seasonal frustrations and we may see the second and third and fourth products continue to fill up the sites.
Thank you very much. Sure.
Next question comes from Gokul Hariharan of JPMorgan. Please ask your question.
Yes, hi. Thanks for taking my questions. I have a couple of questions. First, I think previously, you had talked about a 20% revenue CAGR target. Now that management has reviewed the target, etcetera, could you say whether you're still abiding by those 20% growth target for the next few years?
2nd question is when you accelerate your R and D investment also bring in 14 nanometer development, can you talk about what kind of rough R and D spending do you need to have? Right now, I think you're running at about $400,000,000 $400,000,000 to $450,000,000 a year. What is the rough ballpark in terms of R and D spending that you would need to have to support some of these advanced process node technology? Thanks.
Hi, Gokul. Thank you for the questions. 20% CAGR is our goal. We aim to hit this target. And but this is a component.
That means we have this kind of growing plans. And for certain years, we can run it higher. Like last year, we did very well. And this year, we still got a growth even though we might have with market adjustment. And just now I mentioned quite a couple and the diversification of technology like NAND flash, NAND flash, MCU, CMOS Major, X Factor and these are the mature technologies SMIC has been running pretty well.
But currently, we do not have any capacity to run up this kind of platform to meet up the demands. And so now we have more capacity we build up, we start to enjoy and to harvest this kind of technology platforms. Overall, we still aim to get the just now we say the quicker growth. But for this year, it depends on the market. We really might not with the market adjustment.
Just now we say that the smart fingerprints and the smartphones and the demand and the product mix change, these kind of things. So we say for this growth, definitely we adjust everything meet up the demands of the market. We are very practical, but we really aim high. And the second thing you talk about the R and D spending, we continue a balance of spending on the R and D. With the revenue growth year by year and definitely our R and D yes, balanced R and D spending that we will balance the probability, we balance the CapEx growth, we also benefit the R and D spending there.
And the thing definitely we found out, the R and D spending to develop a technology, actually the money is almost fixed. You spend less, you take a longer years, you spend more, you take a shortcut.
Understood. But I think since you are pulling in the schedule, does that mean that we go from a $400,000,000 per year to, I don't know, dollars 600,000,000 to $800,000,000 per year? Or is that something that is going to be spread out over a 3, 4 year period at least?
Hi, Gogol. I believe that we just financed that we do not go for we just now we say that and we keep the probability and we will find a grant and we set up joint ventures to share the cost of the R and D, so on and so forth. And that's the balancing things, I don't think we go from $400,000,000 all the way to $800,000,000 We won't go for that way, unless we found special solutions.
Okay, got it. Thank you.
Yes, thanks Gokul.
Your next question comes from the line of Rex Wu from Jefferies. You may ask your question.
Hi. Thank you, management. So my first question is in Q3, we see a weakness in 55 nanometer and 0 point 13 microns. So what has or what were the reasons? Thank you.
Okay. Very interesting questions. And for 55 nanometer the business very simple and mainly comes from 2 parts. And one of the things that we saw the item of the computation on 55 nanometer from the partners in this industry. Also we SONA switched the shape of the products from our existing customers from 55 nanometer to 40 nanometer ultra low power applications.
That's the product trend because of the competition at 55 nanometer get very strong, so they shift the product from 55 nanometer to 40 ultra low power. And so in SMIC overall the load is still there, but we sold that one technology got less, another technology got more. Yes, that's the thing. In the meantime, just now you mentioned the NOR flash CMOS major, this kind of ramp ups. This kind of ramp up also need a 55 nanometer and a capacity.
So we also see the switch from logic to memory. And just now you mentioned also mentioned 0.13%, the reasons, right? Yes, yes, yes. Yes. 0.11, 0.13 actually that's very interesting.
That's for 8 inches but mainly focus on copper technologies. And for copper technology this year for 4.11, 0.13, the majority application on this platform actually is the low frequency RF, something you saw the Bluetooth, the small Wi Fi, the automotive monitor and low noise earphones, so on and so forth, you have this Google Home, this kind of smart speaker, a factor. And we saw the migration from 0.11 copper design migrated to 55 nanometer. And majority player on this area are small players. Look at EDA upgrading and they have the supporting from IPs.
So majority of them, almost none of them left on 0.11 to 0.13. All of them are shaped to 55 nanometer. So and from wafer to wafer change point of view, from 0.11 to 0.13 when it switched to 55, the wafer count reduced from 8 inches to 12 inches And for SMIC, majority of the tools are actually compatible with the dimming ligand switch between copper and aluminum, except the micro loop. So what we did, we just switched the capacity from copper 0.11, 0.13 and to aluminum 0.15 and 0.18. So capacity point of view, there's no wasted capacity, but we really see the technology and the different nodes, the loading got changed, free to from one node to another node.
Okay. Thank you. That's very clear. So since you mentioned about the migration from 8 inches to 12 inches so what's your view on the future like 8 inches demand? So do you still see the demand offshoots the supply or like where do you see as fast growth drivers in the 8 inches in longer term?
Thank you.
Okay. Actually, we do not have the consensus prepared for this question. I give you my personal comments on this one. At this moment, 8 inches will stay there for a while. The reason not because sort of 8 inches running is better than 12 inches on mature technologies, but because of the back end, back end pricing, back end bumping, back end packaging.
And the current back end capacity for 8 inches are oversupplied and for 12 inches are short supplied. The back end cost of 12 inches is much, much higher than 8 inches not simply 1 12 inches is similar to 8 inches for back end, much higher than that. And that will keep the 8 inches loading for a couple of years because nobody really spent that much money on 12 inches for backhand. Once this result, say that we did spending on 12 inches backhand got fully depreciated like 8 inches at that moment 12 inches really got a significant benefit running than the 8 inches especially the dominant running, currently dominant running for 8 inches like CMOS, C Major, Fingerprints, PMIC, power management, so on and so forth, these kind of things. And the major cost come from the back end.
And back end 8 inches at this moment, except the bumping and got overcapacity. Yes.
Okay. That's very clear. Thank you. That's all my questions.
And we'll take the final question from Alan Shaim of Macquarie. Please ask your question.
Doctor, thank you very much for helping us understand SMIC better. Quickly, two questions. 1 on visibility Q1. Could you clarify what you might be seeing, if you are seeing anything, the visibility and maybe the seasonality, how it's going to change next year? The second question is basically drilling a little bit deeper into the margin.
You mentioned that product mix and ASP were part of the problem. Can you share with us some of your insights on the competitiveness on the ASP side as well as the product mix, which I think you've gone into a little bit? So first, visibility, seasonality, Q1 and then what you're seeing for ASP competitiveness? Thank you.
Overall, we should say that we do not go for too much detail for the next year. The visibility is not that clear and we do not in general, we do not give a great say or something not that predictable. But as a general, we should say for mobile communications, the Q1 is always be the weakest one. And for the foundry, for every foundry makers, they have a huge amount of consumer and mobile communication loadings. And from the industry trend, the Q1 for smart for the mobile communication is always weak.
So we do not expect the Q1 is the best quarter for next year. And that's definitely that too, if you look at the past 3 to 4 years. And that's the seasonal trend for mobile communications. And for the ASPs in general and the people, the customer side around with the foundry, everything and the yearly, they just go for the calendar year. That means the new quarter, new year, they will start implementing new ASPs.
For the consumer products and the mobile communication products, the ASP pricing game is very, very competitive. We fully recognize that. And especially when we have the new capacity push up to the market and we see the more competition there. So what we need to do at this moment, we just for industrial trends, this is the first one, we can now run different from industry for this performance. And for SMIC, what we are doing at this moment, we do not overbuild.
We build out a capacity with customers' commitment. In the meantime, we build out the multiple and backup plans. Just now I mentioned that the memory, non flash, NAND flash CMOS C major and I'm CEO, a factor to cover the seasonal frustrations. And one more everybody is doing hard is for the cost reduction. So to improve the operation efficiency, improve the utilization of the fab and to counter the ASP and competition in the industry.
Thank you very much, doctor.
And then that's my answer.
Just general comments.
At this time, I would now like to hand the call back to IR Director, Tim Kuo, for closing remarks.
In closing, we would like to thank everyone who participated in today's call and again thank all of our shareholders, customers, employees and suppliers for their trust and support. Thank you.
Thank you. Ladies and gentlemen, this is the end of SMIC's 3rd quarter earnings conference call. We thank you for joining us today.