Ladies and gentlemen, welcome to the Semiconductor Manufacturing International Corporation's Third Quarter 2016 Webcast Conference Call. Today's conference call is hosted by Doctor. T. Y. Chu, Chief Executive Officer Doctor.
Yonggang Gao, Chief Financial Officer Mr. Gareth Kung, Executive Vice President of Strategic Business Development, Finance and Company Secretary and Mr. Erling Feng, Vice President 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's presentation, we will be having a question and answer session, at which time you will receive further instructions as to how to participate. The earnings press release is available for download atwww.smics.com. Webcast playback will also be available approximately 1 hour after the event at www.smics.com. Without further ado, I would like to introduce you to Mr. Erling Feng, Vice President of Investor Relations for the cautionary statement.
Good morning and good evening. Welcome to SMIC's Q3 2016 earnings webcast conference call. For today's call, our CEO, Doctor. T. Y.
Chu will first provide some general remarks. Afterwards, our CFO, Doctor. Gao Yonggang will highlight our financial performance and give guidance on the next quarter and then our Executive VP of Strategic Business Development, Finance and Company Secretary, Mr. Garrett Gong, will give the detailed financial commentary. This will then 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 our website under Investor Relations in the Events and Presentations section. Before I turn the call over to Doctor. TY Chu, let me 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 filing 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 U. S.
Securities and Exchange Commission on April 25, 2016. 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 CEO, Doctor. T. Y.
Chu for the opening remarks.
Thank you, Ernie. Greetings to everyone. Thank you for joining us. 2016 has been an exciting year thus far for SMIC, marked by robust customer demand, growth and good execution of our strategy. Over the past 2 years, SMIC's utilization and growth rate have exceeded the global foundry industry and we target to outpace the industry in the next few years.
We maintain our drive to grow profitably, execute precisely and expand value for our stakeholders. We are still experiencing robust demand from various regions, applications and technology nodes. We are addressing the demand opportunities by laying the foundation for continued growth with prudent expansion to meet our customers' demand. I'm very pleased to announce our excellent third quarter results, which have been the results of our team's strategy, execution and expanding position in China market. We had our 7th consecutive quarters of revenue growth and 18th consecutive quarters of profitability.
Our revenue was a record high of 774,800,000 dollars representing a growth of 36% year over year and 12.3% quarter over quarter. Our net profit attributable to SMIC was also a record high of $113,600,000 a growth of 37.4% year over year and a 16.3% quarter over quarter. This marks the first time our quarterly net profit exceeds $100,000,000 and the 2nd consecutive quarter to have ROE exceeding 10%. We are also happy to report that our 28 shipment exceeded US10 million dollars accounting for 1.4 percent of revenue. Furthermore, we are guiding another strong Q4.
Q4 is targeted to grow at 5% to 7% quarter over quarter. For the moment, 2016 annual revenue is targeted to grow more than 28% year over year. Moreover, with our current visibility, we see continued growth in Q1, which would represent our 10th consecutive quarters of growth. We maintained a target to grow at an annual compound rate of 20% from 2016 to 2019. Meanwhile, we expect capacity carefully with preparation in the pipeline to meet our customers' demand.
Analyzing our growth from a regional perspective, all regions grew healthily in the 3rd quarter. Beginning with China, where revenue grew 46.5% year over year and 11.2 percent year over year and 20% quarter over quarter. Eurasia grew 50% year over year and 5.2% quarter over quarter. On 28 nanometer, we nearly tripled revenue to more than $10,000,000 representing 1.4% wafer contribution in Q3. Our 28 revenue is set to double again in Q4.
We believe that our We believe that our flexible 28, 40 nano capacity strategy has enabled us to best serve our customers and utilize our fabs in a profitable manner. 40 nanometer grew 11.3% quarter over quarter and we see 40 nano demand from our customer continues to be strong into next year with new products shaping up. 6,555 nanometer demand has also far exceeded our current capacity, growing at 30% year over year and 15% quarter over quarter. We are therefore adding additional 60 five-fifty five capacity in our Beijing B1 fab and initiating a new 12 inches fab in Shenzhen to meet expanding demand in 55 nanometer. 0.13 micron grew at 58.8 percent year over year and 46.8 percent quarter over quarter.
With new contribution from LFoundry in this area. 0.18 Micron Technology grew 20% year over year and 3.2% quarter to quarter from existing and new customers ramping in PMIC and sensors. We continue to broaden and diversify our technology offerings. Our collaboration with customers on various phone components, IoT, auto, ARVR and industrial applications will propel SMIC's growth into the future. To address the robust demand at hand for new and existing products, we are increasing this year's CapEx for foundry operation to from $2,500,000,000 to $2,600,000,000 This increment is primarily for 2nd hand 55 nanotool.
We believe this year's CapEx intensity as a percentage of revenue is at a peak and will come down in subsequent years. Beijing JV 12 inches fab will have a total installed capacity of 18,000 by year end. We are expanding Beijing 12 inches fab for the mature technology to around 45,000 wafer by the end of the year. In addition, we have secured a significant amount of secondhand equipment for additional 55 capacity to be installed in our recently announced Shenzhen 12 inches fab. Shenzhen 8 inches fab ramped smoothly and will be at 31,000 per month 8 inches by year end.
LFoundry is now fully consolidated financially with 40000 8 inches capacity. We are investing additional CapEx in LFoundry to enable SMIC's technology transfer and expand LFoundry's capability. In the past few years, SMIC was able to respond to market opportunity due to availability of unused cleanroom. Without these available space, our growth would have been constrained significantly. As the available clean room is now quickly being depleted, we are now preparing new fabs for the next phase of growth.
In the last month, we announced several new fabs construction projects to address our diverse future demand. For 8 inches we are building SMIC Tianjin. For mature 12 inches namely 60five-fifty 5, we are currently offsetting the clean room for SMIC's center and 12 inches project for which we have already secured a significant amount of secondhand tools. We are preparing a new facility on our Shanghai campus for the most advanced technology.
These are
the fab construction phase and the actual production capacity will only be executed with careful planning to meet overlapping conditions of assured demand, technological readiness and sustained profitability. With targets on growth, capacity and technology, ultimately, our team's goal is to create value for our stakeholders. In Q3, our quarterly ROE reached 11.4% from 10.2% last quarter as compared to 9.3% Q3 of last year. We continue to aim to achieve double digit ROE on a sustained basis. Secondly, we increased value through improved cash generation.
EBITDA grew 11.3% quarter over quarter 47.6% year over year. EBITDA in 2016 is targeted to surpass $1,000,000,000 for the first time. Thirdly, we aim for low cost funding and the minimal share dilution. It is our preference to fund with straight debt. In addition, with new fab in the horizon, we hope to continue to take advantage of JV partnership for the expansion of advanced logic fabs such as our Beijing JV.
Lastly, we announced recently our intention to consolidate shares. We believe the consolidation will help to reduce the volatility and enhance the liquidity of SMIC stock, making it more attractive to a broader range of investors. In board and we reiterate our growth target of 20% compounded annual growth from 2016 to 2019. In 2016, SMIC is growing in excess of 28 percent year over year. We are forecasting growth for both Q4 2016 and Q1 2017 as well, given our current visibility.
We are on track to achieve another record year of revenue and net profit attributable to SMIC. We have depleted our available clean room and are prudently preparing for the next phase of growth with new civil construction. We are working to bring growth opportunity in China to the global semiconductor industry as in LFoundri Avizano, Italy and striving to serve customers worldwide. SMIC is vigilant in balancing profitability, growth, building shareholder value and serving our customers for the benefit of all stakeholders. We appreciate your ongoing support and thank you for your time.
I now hand the call over to Yonggang for the financial highlights and 2016
Q4 guidance. Thank you, Steve. Greetings to all our listeners. I will highlight our last quarter results first and then give our Q4 2016 guidance. Last quarter, our revenue, gross profit and net profit were all record highs.
Revenue was $775,000,000 an increase of 12.3% quarter over quarter, exceeding our guided 8% to 11% growth increase. Gross profit was $232,000,000 Gross margin was 30%, at the high end of guidance range from 28% to 30%. Profit for the period attributable to SMIC was $140,000,000 Now look ahead into Q4 of 2016. Our revenue is expected to increase by 5% to 7% quarter over quarter. Gross margin is expected to range from 28% to 30%.
Non GAAP operating expenses are expected to range from 100 and 79,000,000 to 184,000,000. And the non controlling increase to our majority only subsidiaries are expected to range from positive $37,000,000 to positive $39,000,000 which are losses rebound by non controlling interest. Our planned 2016 capital expenditures for funding operations are up from approximately RMB2.5 billion to approximately RMB2.6 billion. The increase is mainly for the acquisition of used equipment for Shenzhen new 12 inches fab. I will now hand the call over to Charles for more detailed financial commentary.
Thank you, Gaozong, and thank you everyone for joining us today. I will now comment on the details of our last quarter financial results. On the income statement, revenue increased to $775,000,000 above the guided range, mainly because of the increase in water shipments mainly because of the increase in wafer shipments and the revenue contribution from the acquisition of LFoundry. Cost of sales increased to $543,000,000 Gross margin was 30% at the high end of the guided range, but declined slightly from 31.6% in Q2 2016, mainly due to first the receipt of insurance compensation in Q2, 2016 and 2, the acquisition of Shell Foundry in Q3 2016. Operating expenses increased to 124,000,000 dollars in Q3 2016.
R and D expenses increased by $17,400,000 Q on Q to 82,000,000 dollars The change was mainly due to high level of R and D activities. Funding of R and D contract from government was $9,600,000 in Q3 2016. Excluding the effect of employee bonus accrual, government funding and gain from disposal of living quarters, non GAAP operating expenses were $121,000,000 in Q3 2016. Profit from operations was $109,000,000 Profit for the period attributable to SMIC increased to RMB114,000,000 while non controlling interests were RMB1,400,000 of credit to SMIC's attributable profit in Q3 2016. If excluding the impact of finance costs, depreciation and amortization and income tax expense, our EBITDA margin was 38.7% in Q3, twenty sixteen.
Moving to the balance sheet. At the end of Q3 2016, cash and cash equivalents increased to RMB1.63 billion. If including our financial assets, we had approximately RMB1.8 billion cash on hand at the end of Q3 2016. Our total debt increased to RMB2.9 billion dollars in Q3 2016 compared to $2,500,000,000 in the previous quarter. At the end of Q3 2016, our gross debt to equity ratio was 54.7%.
Our net debt to equity ratio was 21.3%. In terms of cash flow, we generated RMB200 1,000,000 of cash from operating activities. Cash used in investing activities decreased to RMB688 1,000,000. Cash from financing activities was RMB 539,000,000. To examine our revenue by application, the Communication and Consumer segments contributed 46.1% 40.7% of our revenue, respectively.
Geographically, revenue from China, North America and EuroAsia contributed 51.6%, 20.3% and 20.1% of total revenue respectively. In terms of technology, revenue from 28 nanometers contributed 1.4%. Revenue from 4045 nanometers contributed 22.6 percent and revenue from 50 fivesixty 5 nanometers and 90 nanometers contributed 20.8% and 2.2%, respectively. Meanwhile, 0.13 micron and above, in line with, contributed 53% of our wafer revenue. In terms of our overall capacity, total monthly capacity at the end of the 3rd quarter increased to 391,008 inches equivalent wafers, an increase of 15% Q on Q.
The change was mainly because the CapEx expansion in our Shanghai 8 inches fab, Shenzhen 8 inches fab, Beijing 12 inches mega fab and our majority owned Beijing 12 inches fab as well as the acquisition of LFoundry in Q3 2016. Our planned 2016 capital expenditure for the foundry operations are approximately RMB 2,600,000,000, an increase from RMB 2,500,000,000 dollars based on an early estimate. The increase is mainly for the acquisition of used tool for the Shenzhen new 12 inches fab. I will now hand the call back to Anning for the Q and A session.
Thank you, Gary. I would now like to open up the call for Q and A. As usual, please be reminded to limit your questions to 2 number 2, 2 per person. Operator, please assist.
Thank you. The first question comes from the line of Randy Abrams from Credit Suisse. Please go ahead.
Okay. Thank you. Good results. I wanted to ask the first question about the FAD plans and the CapEx. If you could give an initial view on 2017 CapEx and how that split of funding would be between operations, the JV partners or debt?
And also if you would consider the leasing company for a portion of that CapEx? And then if you could talk a bit about the priorities for the fabs for the build out between the different fabs you've announced?
Okay. All righty. Right now, we are still All right. Right now,
we are still working on the 2017
budget, so we cannot say for sure in terms of the CapEx next year. But as mentioned in TY's script, we do expect the CapEx next year in terms of intensity will definitely come down. We our feeling is that most likely the CapEx will be at or below current year level. In terms of source of funding, I think we are in a very comfortable situation. We have a net debt to equity of about 25%.
So we have room to leverage to continue to fund our expansion with that.
Okay. As far as the priority of capacity expansion, I think first is our Beijing JV fab. We are still expanding our capacity to address our customer demand in 40 as well as 28. So that's one thing. The second one is to expand our 55 nano capacity, which is also we will adding additional 5,000 of capacity in our Beijing Fab 1, which is wholly SMIC owned.
In addition, we are still expanding our 8 inches capacity, which will be in Shenzhen next year. And at the end of the year, we will start to set up and pilot our Sensit 12 inches mature fab, which will address the very strong demand in the 65, 55 area. Another important effort is to add additional capability in LFoundry and so that we can't transfer additional loading into LFoundry. Since there are lots of customer interest to use that particular fab.
Okay. Thank you. And one quick follow-up. For the funding, if you expect much use of the leasing company or you'll still evaluate that? And then the second question I wanted to ask was on the growth drivers as you look out over the next year.
If you think it's similar drivers to what drove this year in terms of the 8 inches and then a lot on 40 55. And if you could expand a bit, it sounds like you're getting a lot more aggressive on the 55, 65 nanometer, the applications that are driving that node for the aggressive expansion there.
Okay. First of all, as far as the leasing is concerned, at this moment, SMIC has very, very minimal leasing program. And indeed, we have only very small program in our testing house that is we do use leasing very, very small amount. We are looking at that particular option, but only if that really brings in significant economic advantage to SMIC as well as our customers. So this is, at the moment, still under a lot of scrutiny.
And yes, we are studying it. Yes. The growth driver for 55, we see both very a lot of interest and our new technology, the ultra low power, as well as our present process for connectivity. And as for the low power, it will be for the IoT.
So
the rest of the applications is in connectivity, TV and set top box as well as RF.
Great. And if I could ask just for beyond like the broader growth drivers for next year, if you see any expanding out, this year was grew to high 20s and I think was on some of those areas in consumer plus 8 inches the fingerprint and power management. But if you see any kind of new things emerging as you look out or if it's similar drivers for next year.
Could you say that again? I didn't quite catch it.
I was just asking for your growth drivers. This year, you saw a lot from the sensors and then also on the 12 inches on some of these consumer and connectivity, if you see some new growth drivers emerging to make that 20% CAGR?
Yes. Definitely, we a lot of the customers, present customers are coming in with new products and we are seeing also new area in sensors, especially in CIS that is showing a lot of interest in 12 inches capacity.
Next question comes from the line of Sebastian Hou from CLSA. Please go ahead.
Hi. Thanks for taking my question. So my first question is on 28 nanometers. Congratulations on finally, you reached over 1% of the total revenue contribution in the quarter. So I think Tiwa also guided for this revenue to double in 4Q.
So if my math is right, so that would probably account for like 3% of the total revenue. So can you give us more colors on what type of the application it is and how do you see the ramping curve into 2017? And how's the profitability of that? Okay.
The color the applications is still in the lot of the communication mobile phone area. And we are also seeing some other such as the AP. I think that it can still ramp very strongly. Right now, we are still in our advanced technology area, capacity limited. And so that's why we are still targeting to build our Beijing JV as our priority CapEx.
So does that answer you?
Yes, mostly. So T. Y, can I get more your thoughts on so in 4Q, we're probably around 3% total revenue contribution? So how about for next year? And say by the end of next year, do you see that 28 will account for, like say, more than 10% of the revenue?
Right now, it's difficult to project because it definitely depends on the CapEx that we intend to spend because in addition, it also depends a balancing between the 40 nano demand as well as our 28 nano demand. But we think it does have a potential to ramp significantly. Yes.
Okay.
And in terms of the profitability or the I assume maybe the new process usually carry lower than corporate average margins. Do you see that when you see the chance that when it ramps more aggressively in 2017, how do you see that impact your overall gross margin?
I think that apply to every technology as we first do the initial ramp. Usually, the profitability is low. So as we bring the NUC to a more economic scale, we do expect the profitability to improve.
Okay. My second question is more on the 65, 55 nanometers. I think there earlier, if you're planning to talk about that you're going to already secure a level of secondhand equipment on this one. But I think probably in the first and you're going to need to build new Shenzhen 5 to do that. So probably you see the great demand right now for the next few years.
But how do you see to monetize that in, let's say, in 3 to 4 years or longer term perspective? Because presumably, some of the or majority of the customers there probably will migrate to 14 nanometers. I believe when T. Y. Talk about the application is like set top box, TV, RF, Based on my understanding, a lot of that already manufactured at 14 nanometers right now.
So how do you see to monetize that? And how do you see that kind of impact, let's say, 3, 4 years beyond when those customers migrate to 40? Will those 55 nanometers capacity become idle?
Okay. The decision to build 6,555 is made with a lot of consultation with our customers and market surveys. We believe that there are certain sectors of the market, even in the WiFi, that will always be using 6 thousand five hundred and fifty five. So we have we are quite confident that this particular node will see a lot of application, especially when IoT is ramping up. Secondly, we are also looking into new applications such as various sensors as well as drivers.
So these are areas that have a huge demand for capacities, and we see that there is a lot of future potential for this particular technology.
Thank you. Just one follow-up on what you just mentioned, T. Yohy, you mentioned about your application include driver. Is that driver IC?
Yes, especially the AMOLED drivers.
Okay, got it. Thank you.
Thank you for the questions. Next question comes from the line of Stephen Polayo from HSBC. Please go ahead.
Yes, great guys. Let's start I guess with depreciation. Obviously, it's stepping up each quarter here. What does it look like for the Q4 and then for 2017?
We are still keeping the guidance for depreciation for this year. For the whole year, we are still expecting
around
RMB 735,000,000 being the whole year. So you can see there's some step up in Q4. For next year, as what we mentioned earlier, we're still working on the planning. So we do not guide for next year depreciation at this point in time.
I guess, I just want to make sure there isn't a step function in the first quarter coming as far as we know, is there?
I think given our expansion trend in the last 2 years, you're going to see some increase.
Okay. And then another question on the OpEx guidance. I guess you said kind of on a non GAAP basis, adding back in the R and D credit, there was about $123,000,000 and now you're guiding over $180,000,000 it looks like at the midpoint. So what's going on in OpEx? And could you also address your full year expectations for R and D credits as potential offsets there as well?
Yes. We are guiding the non GAAP OpEx to go up in Q4. First of all, Q3 was low for some reasons. For example, we have recovered about RMB 10,000,000 doubtful debts in Q3. So actually, that actually reduced the number for Q3.
In Q4, we are looking at some increase in both R and D and also in the G and A area. For R and D, it mean because as you know, we have some government projects to work on, and many of these projects will come to completion in Q4. So you're going to see some step up in the R and D expenses. At the same time, you're going to see some step up in the R and D funding. We're going to talk more about it later on.
And secondly, for the G and A expenses, there are also some increase because of various reasons, some consulting fees, some indirect taxes and some option expenses. So which is why we are guiding up the non GAAP OpEx. In terms of R and D funding, we are forecasting for whole year to be about RMB 65,000,000 to RMB 67,000,000 and which is working out to be about in the $37,000,000 $38,000,000 range in Q4.
$37,000,000 $38,000,000 in the 4th quarter. Okay. And then I just want to clarify last quick question, just I want to clarify. Before you had said capital intensity is going or it's peaking now, and so that goes down as a percentage of sales. But then I think you answered Randy's question about CapEx being lower year on year.
I want to make sure you're talking about intensity again there? Or are you talking about dollars being lower next year?
First of all, we are very certain about the capital intensity is going to come down, okay, because of the we do expect our revenue continue to grow, okay? And in terms of the absolute amount of CapEx, as I say, right now, we are not giving any guidance for next year. But our feeling is that probably the CapEx will remain around the same level or slightly below.
And what kind of capacity increase do you think a year from today that's going to get you?
Steve, is that number 4 question?
That's all right. Randy has 4 questions as well. So I'm sneaking 1 more.
Okay. I think because as Pwafer said that we are going to forecast about 20% growth year over year in the next 2, 3 years. So you're going to see the capacity going to grow in line with our growth in the revenue projection.
Okay. Excellent guys. Thanks a lot.
Thank you. Thank you.
Thank you for the question. Next question comes from the line of Roland Xu from Citigroup. Please go ahead.
Hi, good morning. First question is, you expect Q1 next year will be continuing a growing quarter based on your current visibility. However, compared to Vanguard's 2 months older visibility, so what kind of the demand over you such longer visibility? And how confident you are for this long visibility?
Yes. I think partly because HR staff are very full right now. So we do have a very long backlog in terms of serving our customers. So that gives us
a longer visibility
in terms of the customer demand. I think for Q1, we are very confident that the revenue will go up. But I think as you rightly said, we are still in the process of piloting demand from our customers. So we are not giving any precise guidance.
Yes. But you are still very confident about the revenue in Q1, definitely will be go up, right?
Yes.
Okay. So this is also, I think, part of this follow-up question. UMC is using lower price to get more 8 inches business. And also I look at TSMC. TSMC this year is 8 inches revenue is declining.
So I think that that means that you continue to build your 8 inches capacity and also you continue growing your 8 inches revenue. But what will continue driving the strength going forward for your 8 inches business?
Okay. The 8 inches indeed, we still see very strong demand in the Bluetooth and some consumer area, also PMIC power management as well as sensors. And we continue also to see new application, especially requiring low powered applications, I think that is mostly probably going for the IoT market.
So I think that the strength of our 8 inches business have been around for about 2 years. I think that is really our attribute to the strength of our China market position as well as I think the R and D work we have done in the past few years in terms of differentiating our technology.
Okay. So for next year, are you going to continue to build 8 inches capacity? And any risk for this continued increase for 8 inches capacity going forward?
Yes. We continue to expand our Sensient 8 inches fab to add about 10,000 wafer to Shenzhen. We are also trying to optimize our LFoundry capability as well as its capacity so that it can receive a lot of customers who would like to use LFoundry capacity.
Okay. Yes. Understood. Thank you. Okay.
Second question, just for you. You are now building
your main
job in fab. Okay, this will be very short. Yes. So what is depreciation yield for your new 12 inches fab capacity in Shenzhen? Thank you.
I think for the new 12 inches fab in Shenzhen, I think the impact for division next year will be very small because, first of all, we are playing only for 1,000,000 line at this stage. And secondly, we based on the current schedule, the mini line next year will only be up and running in towards the end of the year.
But for the depreciation period, how long will it be, for 5 years or 7 years?
For our 12 inches line, our normal depreciation is for 7 years.
Okay. So this one will be the same, right?
Yes.
Okay. Thank you.
Thank you for taking my questions.
Next question comes from the line of Gokul Hariharan from JPMorgan. Please go ahead.
Yes, hi. Thanks for taking my questions and great quarter as well. A couple of questions. First of all, could you comment a
bit on the profitability trends? I think this year, gross margin has held
up very well. Increase in depreciations. Now more 12 inches investments coming through. How should we think about profitability going into the next couple of years sorry, next year, given that utilization is already pretty close to 100 percent and there is a fair bit of 12 inches as well as 28 nanometer coming in, Maybe you could address it both from maybe a gross margin perspective as well as maybe an EBITDA perspective, stripping out the depreciation expenses.
I think the key for the profitability as in all foundry is still utilization, okay? So as we expand our fab, our strategy was to keep our fab fully loaded. So that's point number 1. And secondly, as we expand our new fabs, over time, this fab will bring will comes to what we call it, economic scale operations. And hopefully, that would be positive to our overall profitability.
Yes, but at the same time, as you rightly point out, our depreciation is likely to go up next year because of expansion we have that we have undertaken in the last few years. So now you have no different impact that will impact profitability next year. But I think from our point of view, the key is still maintaining high utilization.
So is it fair to say you're confident that staying around this high 20s, 30% level even with the depreciation jump that we've got next year as long as utilization stays relatively high?
It is always our management intention to keep high profitability.
Okay. So second question on the funding. I think, Gad, you mentioned you're primarily seeking debt funding. Could we talk a little bit about the financing plan for next year? It looks like there is still going to be a little bit of a gap in terms of your EBITDA versus the CapEx.
Is it going to be almost 100% debt funding for next year? Do you have visibility into that at this point?
Well, what we have seen is that, as we mentioned in our script, we are fairly comfortable in terms of funding. We have about RMB 1,800,000,000 cash on hand right now. We could generate next year, I'm sure more than $1,000,000,000 from EBITDA, okay. And at the same time, don't forget a big part of our CapEx next year will still be for our joint venture partner in Beijing. There will be 49% funded through our joint venture partner.
So our intention is continuing to fund it through our through strict debt.
Okay. That's all. Thank you. Thank you.
Thank you for the questions. Next question comes from the line of Charlie Chan from Morgan Stanley. Please go ahead.
Hi, congratulations for great results. So my first question is on your growth drivers. Apparently, you're outgrowing your industry peers, especially in the 8 inches business. So I want to clarify that your outgrowth comes from your position to China domestic customers Or are you also getting more outsourcing from FOREAN Companies as well? Thanks.
So I think that in all areas, we are growing. As I reported, we see revenue growth in all areas. Perhaps there are stronger growth year over year in China as well as in Europe. But we think this year with our 28 ramping up, the U. S.
Revenue will also be very strong. So I think this is not a single region or single technology growth. Okay. So
fundamentally, I can understand that your outgrowth coming from China local customers. But for you to gain more market share from foreign companies, what would be SMIC's advantage?
For example, that I think some of our customers, even in overseas areas that have been working with us for a long time on certain sensors. And I think we have provided them with great service and great technology. So they were able to grow tremendously over the last few years. The things that we have grown, we have proved that we are able to serve our customer well. At this moment, even in all regions, there are lots of interest from new customers that are trying SMIC's technologies.
And I can give several example, some of the touch sensors, some of them are just drivers. Some these are areas which SMIC does not have a large presence in the past. And I think that our customers are very, very promising customers with a lot of potential to expand in China.
Yes. Just to give you indication about the spread of our customers. If you look at our top five customers in Q3, we have 3 from U. S, 1 from China and 1 from Europe. So we have we are very well diversified customers based that we are working for, yes.
Thanks. That's very helpful. And my second question is on the supply side. So it seems like to me your key risk to the growth is really how are you going to able to source more secondhand tools for those 12 inches no matter inch tools or 65 nanometer tools. So do you think that is a risk?
And how coming can ensure sustainable supply from those secondhand tools?
Certainly, there is always some risk to sourcing. So we have a combination of secondhand tools and we have steady partners in some of these big companies who are upgrading their manufacturing into more advanced technology. In addition, we are also sourcing some of the new tools from the equipment original equipment suppliers. So in addition, we also have access to domestic equipment vendors that can really very well address the mature technology part. So I think we have proven in our very smooth and quick ramp up in Shenzhen that we have access to a combination of equipments.
So I think we are relatively confident that we can do this job quite well.
Okay. Understood. I think it's very impressive you can source those tools and monetize from those secondhand tools that your industry peer cannot. So congratulations again. Thanks.
Thank you.
Our next question comes from the line of Ken Hui from Huatay. Please go ahead.
Thank you for taking my question. I will limit my question to 2. So the first question is, I think Tsinghua has accumulated over 8% of in SMIC. Any comment on that? Any collaboration with the company that you are discussing?
That is my first question. Thank you.
Okay. As far as we know that they have purchased between 5% to 6% of SMIC stock. This comes as also quite a bit of a surprise recently. And I think that we believe this is a confirmation of our performance and there are lots of investors who have come into in touch with our Investor Relations department that show interest. As far as having discussions with there was no discussions or no invitation for them to come in.
So we intend to keep SMIC an independent and international company. So this is our consensus among our management as well as our investors. So we welcome investments from all investors, but our overall strategy and commitment is to be an independent and international foundry pure foundry company.
Thank you very much. And my second question is related to the fingerprint business. This is some of the growth driver for this year, but I think there's this news report that your key customer is trying to diversify this foundry supplier. And at the same time, there are also a number of other foundries, Samsung, Wenger, they're also trying to get into this area. So are you concerned about more completion in this particular area?
Or the contribution is not that significant that you are not causing at home? Thank you.
I think in this industry, competition is definitely everywhere. And so I think competition is good for the industry. SMIC in the past was able to support our customer to grow tremendously. And I think we still remain the primary vendors for fingerprint and we are also getting a lot of other fingerprint customers that are showing interest in using SMIC technology. So I think that we are still very comfortable with our 8 inches capacity loading, and we intend to be a strong player in this area.
Okay. Thank you very much.
Thank you.
Thank you. Last question comes from the line of Halsey Xie from Goldman Sachs. Please go ahead. Unfortunately, the line has disconnected. There are no further questions at this time.
I would like to hand the call back to Mr. Qiu for closing.
Thank you. In closing, I 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. We'll see you next quarter. Thank you.
Thank you, ladies and gentlemen. That concludes the conference call for today. Thank you for your participation. You may now disconnect the lines.