Welcome to the Semiconductor Manufacturing International Corporation's First Quarter 2012 Webcast Conference Call. Today's conference call is chaired by Dr. Tzu-Yin Chiu, Chief Executive Officer, Mr. Gary Tseng, Chief Financial Officer, and Mr. En-Ling Feng, Senior 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's presentation, we will be having a question and answer session, upon which you will receive further instructions as to how to participate. The earnings press release is available for download at www.smics.com. Webcast playback will also be available approximately one hour after the event at www.smics.com. Without further ado, I would like to introduce to you Mr. En-Ling Feng, Senior Director of Investor Relations, for the cautionary statement.
Good morning and good evening. Welcome to SMIC's First Quarter 2012 Earnings Conference Call. For today's call, our CEO, Tzu-Yin Chiu, will first provide some general remarks. Then our CFO, Gary Tseng, will present the financial commentary. This will be followed by our Q&A session. As usual, our call will be approximately 60 minutes in length. The earnings press release and quarterly financial presentation are available for you to download at www.smics.com under Investor Relations, Event and Presentation section. Please also be reminded of the safe harbor statement, which provides as follows. SMIC's statements of its current expectation are forward-looking statements subject to significant risks and uncertainties. The actual results may differ materially from those contained in such forward-looking statements.
Information as to those factors that could cause actual results to vary can be found in SMIC's Form 20-F filed with the United States Securities and Exchange Commission on April 27, 2012. I will now turn the call over to our CEO, opening remark.
Thank you, En-Ling. Good morning and good evening to everyone. Thank you for joining us for our earnings webcast. Let me first talk about the solid progress we have been making on our fab utilization over the past few months. Revenue grow above 15% quarter-over-quarter as overall utilization reach 74% in the first quarter of 2012, improved from 66% in the fourth quarter 2011. We see this momentum continue as utilization further increase into the second quarter. This continued growth is primarily due to new product ramp-up, for example, connectivity chips, mobile phones, and the set-top box, as well as a demand increase for some of our existing products such as power management IC, E²PROM, and others.
I mentioned in the past, our near-term strategy is to focus on boosting overall fab utilization and efficiency, which we have performed quite well as demonstrated by our first quarter results. Our Beijing 12-in fab, which was preparing for ramp-up in the first quarter, is experiencing strong loading with a 40% quarter-over-quarter increase in 65, 55 revenue. Beijing's growth driver were mainly from smartphone and networking applications. Furthermore, we expect Beijing 65, 55 revenue to grow additional 50% in the second quarter as we complete qualification for various 65 nanometer connectivity that will enter production soon. We also target to enlarge the Beijing 65, 55 capacity by 30% this year. Fab specific, our Shanghai 8-in aluminum fab loading is also strong, mainly driven by power management IC, CMOS image sensor, and embedded E²PROM.
We have successfully transferred the CMOS image sensor and the embedded E²PROM from our Shanghai 8-in fab to Tianjin fab. In time, price, capacity, enabling such compatible process capability between Tianjin and the Shanghai fabs will better our flexibility in order to accommodate customer demand. A number of products have completed qualification at Tianjin fab in the first quarter and will enter into full production in the second quarter. Therefore, we will also see a strong utilization improvement in Tianjin fab in the second quarter. There are ways in which we are tackling our short-term strategy. Now I would like to address our longer-term differentiation strategy. To share an example of our differentiation strategy at work, our E²PROM differentiation is well underway and has resulted in good demand. We offer aggressive cell size and best-of-class power consumption for the embedded E²PROM.
This low power, cost-effective function is used to address smart card market, both contactless and dual interface applications, as well as the collateral mobile product application that requires extremely low power consumption as well as embedded non-volatile memory. In addition, we have also developed a high-speed version which will be ready this year. As a result, our embedded E²PROM will see increasing interest from the customers. The order for these technologies are forecast to grow healthily this year. From quarter one to quarter three, the embedded E²PROM shipments are targeted to more than double. Operationally, besides working on our normal service indexes, we are emphasizing efficiency enhancement. Due to these efforts, our Shanghai 8-in fab wafer out will grow by more than 15% as compared to our annual plan, however, with minimal investments.
This is done through equipment productivity improvement, as well as to reactivate some of the long-idled tools back into production. Already, we see these results for our enhanced manufacturing efficiency in quarter one. While our revenue increased 15%, our gross margin improved by 14%, and the operation margin improved by greater than 20%. Our effort to improve time to market is bearing fruit as well. We have delivered a 55 product from tape-out to production in merely four months, when a normal time span should be two to three quarters. Now, let me talk a little bit about China market. Our China revenue continues to grow along with China's semiconductor market. In the first quarter of 2012, our China revenue growth, 9.5% quarter-to-quarter, equivalent to about 32.5% of our total revenue in the first quarter of 2012.
The overall demand in China is still relatively strong, primarily driven by feature phone, smartphone, tablet, and set-top boxes. Set-top box, for example, will be benefited by the launching of the Advanced Satellite Broadcasting System, that is ABS-S, initiated by China State Administration of Radio, Film, and Television in 2011. This year, the coverage will further expand to nine more provinces, and the estimated demand for this satellite STB is around 16 million units, according to China State Administration Radio, Film, and Television. Currently, we see continued momentum in China in the second quarter, especially for products relating to tablets and the set-top boxes. These products require more advanced technology, and we are witnessing China migrating to more advanced IC development. On the advanced technology front, we are pleased to announce our first 65 nanometer dTOC NOR flash entering into risk production at the end of Q2.
This product will be widely adopted by feature phone producers in China. As for 45 and 40 nanometer, we have begun 45 shipment in the fourth quarter of 2011, and we are encouraged by our recent 40 nano progress as well. A number of 40 nano products are going final system qual and will commence volume ramp in the second half of 2012. We are experiencing increased interest in the second quarter and the rising 40 nano tape-out from both international as well as domestic customers. Our 28 nano development is on schedule as planned, and we target to have the process ready in late 2013. We have also recently announced that we are collaborating with IBM to expedite our 28 nano process. On the financial front, we have successfully obtained two major loans in the first quarter of 2012.
First, we obtained a $268 million loan facility in February, and a second $600 million syndicate loan in March. These credit arrangements show that policy banks and commercial banks recognize our potential and furthermore, have helped us achieve a healthier capital structure. In conclusion, we are excited about the growth prospect of the second quarter of 2012. As a result, for the second quarter of 2012, we expect to have increased revenue, continued utilization improvement, and also improving growth margin. Moving forward, we will continue to focus on sustainable profitability and being the preferred foundry provider in China as we continue partnering with global and domestic partners. In order to achieve this, we will continue to execute our long-term strategy in maintaining our technology investment, as well as to pursue value-added differentiation. I thank you for your continued support and look forward to updating you again in the future.
For the first quarter of 2012. Thank you very much.
Thank you, Tzu-Yin. Good morning and good evening to everyone. I will now take a few moments to summarize our first quarter 2012 financial result and provide our second quarter 2012 guidance. You may also refer to our quarterly financial presentation on our website. Please note that all currency figures are in U.S. dollars, unless otherwise stated. The first quarter of 2012 was a very good start for the company. We experienced stronger than expected growth in both revenue and gross margin that we raised our first quarter 2012 guidance in early April. For the first quarter of 2012, total revenue increased 14.9% quarter-over-quarter to $332 million due to robust demand across the board, with a revenue of our managed fab Wuhan Xinxin was $22.4 million in the first quarter, contributing 6.7% to our total revenue.
Excluding wafer revenue from the managed fab for four quarters, our revenue increased 16.8%. First quarter gross margin was 12% compared to previous quarter's 7.4%. There were several major drivers for our first quarter gross margin achievements. The improvement of 19.4 percentage points quarter-over-quarter were the result of increased utilization and shipment, as well as manufacturing cost-saving initiatives. In terms of operating expenses, the overall OpEx was $90 million, including the government grants of $3.8 million. Therefore, the normalized OpEx for the first quarter was $93.9 million. This was slightly lower than the guided range of $96 million to $99 million, as there was less R&D expenses spent on engineering wafer due to increased efficiency in R&D during the period. The loss attributable to holder of ordinary share was $42.8 million in the first quarter of 2012. The fully diluted EPS was - $0.1 per ADS.
Moving to the balance sheet. In the first quarter, we were pleased to close two syndication loans, which include a $268 million, three-year syndication loan for SMIC Shanghai and a $600 million, seven-year syndication loan for SMIC Beijing. During the quarter, we drew down $318 million from these syndication loans, part of which was to replace short-term loan to achieve a healthier capital structure. Therefore, the short-term debt percentage was improved from 90% of total debt at the end of fourth quarter of 2011 to 60% at the end of the first quarter of 2012. We target to further improve our ratios to achieve a good balance. In terms of cash flow, we generated $35.8 million operating cash compared to $84.7 million in the fourth quarter of 2011.
Cash use in investing activity increased mainly due to an increase in CapEx spending on ramping up the Shanghai 12-in Fab for 40 nanometer and 45 nanometer technology. As for cash from financing, there was an inflow of $210 million after we drew down $355 million our long-term debt, and we paid some short-term debt. All in all, cash and cash equivalents at the end of first quarter were $300 million compared to $261 million in the previous quarter. To look at our revenue by application, communication application were the biggest contributor to revenue growth, which increased from $127.7 million in fourth quarter 2011 to $160.7 million in the first quarter of 2012, a sequential growth of 25.9%. Meanwhile, consumer grew from $123 million to $133 million, with a sequential growth of 8.6%. Geographically, the revenue from U.S. and China grew 13.5% and 9.5% respectively.
In terms of technology, 90 nanometer and below increased 20.2%, contributing 31.2% to our wafer revenue in the first quarter. For capacity, our Shanghai 8-in fab adjusted from 90,000 8-in wafer per month to 79,000, mainly due to power management IC or PMIC allocation, and will grow back to 90,000 8-in wafer per month by the third quarter this year, based on current technology mix. During Q1, there was no change to Tianjin and Beijing fab capacity. By the second quarter of 2012, Beijing fab will ramp up to 34,000 12-in wafer capacity per month. The overall utilization was 74.1% in the first quarter. Utilization rate increased month-by-month within the first quarter. We are currently witnessing business momentum into the second quarters, and a positive sign of continuation into the second half.
Looking ahead at the second quarter of 2012, we are guiding our revenue to increase 19%-21% because of increased demand from customer across the board. Gross margin is expected to ranging from 19%-22%. We expect our operating expenses to ranging from $101 million-$104 million due to an increase in R&D expenses for advanced node technology development. I now hand the call back to En-Ling for a Q&A session of this call.
Thank you, Gary. I would now like to open the call for Q&A. As usual, please be reminded to limit your questions to two per person. Operators, please assist.
Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from the line of Randy Abrams from Credit Suisse. Please ask your question.
Yes. Hi, good morning. Yes, thanks. First question is on the business uptick. It looks like your capacity is starting to get tight, and wanted to get a sense if you are now having to turn away any business due to capacity tightness, and what your plans might be to pull in spending or ramp up, or if you have the balance sheet to be able to do that, if that need arises.
Okay. Hi, Randy. Yes, we are having a strong customer demand, but at this moment, we are not turning away any customers' loadings, and especially that we are trying to improve our capacity mix by doing some investments, small amount of investment adjustments. We hope to be able to increase our 65/55 capacity from the current 17,000 wafers to eventually, by the end of the year, to 24,000 per month.
Okay. Thanks for that. With the 20% or so growth that you are guiding, could you talk about how broad-based and markets and applications driving the strength? I guess any sense, like if maybe it has not hit you yet, if lead times are stretching out or you are sensing customers starting to get a bit overaggressive with their orders.
Okay. We are seeing across the board an increase in demand. Some specific strong area in the communication, especially in the smartphone area. Yes. The queue time is stretching out somewhat, but I think it is still within a reasonable queue time.
Okay.
Does that answer your question?
Yeah. No, that's helpful. I guess it's more the sense of queue time stretched out too much. Customers may take on more buffer inventory, so it could drive a little bit of overheating. I guess the question I had on the OpEx, which looks like it's stepping up to a new level. Is some of that tied to the new IBM arrangement, moving to 28? Should we assume that's a new level for OpEx? Are there any subsidies we should factor in that could change that, or do you think that's the right level of OpEx and then we grow off of that level?
Randy, the OpEx hike is coming from two reasons. The first one, of course, we are starting to speed up our 28 nanometer development within ourself, and this will increase our wafer spending, engineering wafer spending, and the rest. This is part of the reason. For the IBM investment, this does not hit our OpEx in a significant way. Mainly, the OpEx hike is coming from our own 28 nanometer development speed up.
Okay. Could you maybe talk about your expectation for if there's any subsidies factored into that, or you expect, maybe you're not modeling it, but what potential as we move through the year for some subsidies that could benefit the OpEx?
Well, we are fortunately always been able to get the support from the government grants, and this help us a lot. Historically, on yearly basis, we always can receive some around from $40 million to $50 million plus grant from the government, and this will help us a lot.
Okay. Thanks a lot.
Thank you.
The next question comes from the line of Steven Pelayo from HSBC. Please ask your question.
Great. Congratulations on the strong rebound here. I am curious about the strategy to find sustainable profitability. Could you talk a little bit about some of those efficiencies and what it is doing to lower your effective break-even utilization rate? It looks like still based on your guidance, you are still going to lose a little bit money on the operating profit line. Can you talk a little bit about a break-even level from a utilization rate and mix perspective? What do you think you need to do that?
Okay. Indeed, we are spending quite a bit of time on the efficiency improvement, and we are seeing some results already this quarter. We believe that the break-even line, the break-even utilization is already moving down. Exactly what is the number, I am not at this point to tell you at the time, but in due time, when you see we start to break even, you would see that number in a more accurate form. The way we are doing it, basically, is to improve the productivity of the whole factories by looking very carefully at the productivity of each tool. One example is that we are able to improve our Shanghai aluminum line capacity by about 15% without doing much of any investment.
Okay.
Does that answer your question?
Yes, it does a little bit. I guess I would like to get a little more specific at some point, but that is fine. We can follow up on that later. Your guidance, when I look at the Wuhan revenues, it looks like they did $22 million in Q1, 7% of revenues or so. You are saying as much as 12% of revenues in Q2. This would imply actually Wuhan maybe doubling revenues quarter-on-quarter. Is there something going on there, or?
Yes. In Q1, our Wuhan utilization is still not very high. Going into Q2, we are seeing a significant improvement in the Wuhan's utilization.
Okay, so that should be the new kind of quarterly run rate for you guys doing $40 million-$50 million a quarter from Wuhan, or even more. I am just doing it based on 11% of your guidance gets you to roughly $44 million in revenue from Wuhan.
It should be the case, yeah.
Okay. Good. Then the last question that I had was, you talked about capacity of 65 nanometer and 55 nanometer. I wonder if we can talk a little about the 4X node. Let's say exiting this year. Maybe you can just give us some qualitative feel also on number of customers. I noticed you have a little bit of revenue from the 4X node already. Help us understand how that's going to ramp between now and the end of the year. What do you think your exit run rate of capacity is?
Okay. We are budgeted to have about 10,000 wafer for our capacity by the end of the year. Of course, the total capacity eventually we will install depends on the customer demand strongly. We have about four customers that already have taped off and having products. Demonstrated is doing the final, their end customers qualification. We expect this 40 nanometer technology to ramp in the second half of this year as before.
Okay. Then just if I can have one final housekeeping question. Given the stronger demand trends here, you've shored up the balance sheet a little bit as well. Does that change any of your CapEx and depreciation outlook for this year? Can you just give us a reminder on what you think those two numbers will do this year?
Steve, this is Gary. At this point of time, we are not intend to change our CapEx number yet. We are very conservative on this cycle, and we would like to the best utilize our current capacity. As Tzu-Yin mentioned in his speech, we are in a pretty good scale to use the idle machine and to improve the fab utilization through efficiency improvement. This, as we can see, is pretty satisfy what we see into the future's needs. But definitely, if there is a very strong demand from a customer in the next few months, definitely we will consider to increase our CapEx.
Okay. I'm sorry, I just want to reverify. The number that I had before was roughly around $450 million in CapEx this year with depreciation relatively flat year-on-year. Is that correct?
The CapEx $430 million and the depreciation is pretty flat. Yes.
Okay, great. Thank you.
The next question comes from the line of Patrick Liao from Nomura Securities. Please ask your question.
Thanks for taking my questions. My first question is about 28 nanometer. Given there will be likely two kinds of technology, so-called gate-first and gate-last. I just want to get a sense about what the direction you guys are thinking to do, especially versus current demand in the broad base likely. Thank you.
Actually, yes. We have actually announced our 28 nanometer technology, and this is a high-k metal gate-last technology. That version we have, and we also are working on a polysilicon 28 nanometer as well. Both versions we have in our R&D.
Okay. Thank you. Can I have a feeling that, do you think polysilicon or high-k metal gate demand, which one will come first or higher? Just a kind of sense will be very appreciated.
This part, actually, I would like to refrain from comment because we will tailor our R&D schedule as well to our customer demand. There are demands in both technology area.
Okay, that's clear. My second question is about China's market. Tzu-Yin, I think you mentioned about embedded E²PROM, CMOS image sensor, and in power management and so on, like the handset or what. Can I get a feeling or sense that which part you think likely most potential in growth perspective, and how's the idea of the current demand? Just say which one you think could be more important or what would be good. Thanks.
Actually, all of the above are a very important area for our differentiation. So, of course, each technology area is targeting at the different sectors of application. We are working very actively and having our development program in all these areas. We do have enough experienced personnels to take care of these development efforts.
Okay. The question for me is about the gross margin of different product, actually. Do you think that which one could be better for our modeling or in terms of gross margin driver for China market? What kind of product you think we should think of what kind of better earnings? That is actually the question I had in mind.
Better earnings.
Yeah. For example, maybe embedded E²PROM or what.
I believe that if we can do well, for example, in the E²PROM area, we are tailoring specifically at very low-powered applications, and where we think our technology has specific advantage over other offerings, we will extract better margins. That is the case in the CIS as well. We need to, of course, develop the right technology in the CIS area as well.
Okay. I think that answers 99% of my question. Just one follow-up about, could you tell us some colors for CIS, how the reason that you mentioned this and why we should emphasize and appreciate all that? Certainly, we believe in this, but more color would be great for CIS.
Okay. We are already the largest CIS foundry provider in China. We intend to continue to exercise our strength here, but to add additional feature to the technology, so that it can address the advance in the high pixel CIS market area.
If I think there should be backside illumination technology or coming up, would that be a right guessing?
That is correct.
Okay. Thank you, sir. That is my question.
Your next question comes from the line of Szeho Ng from BNP. Please ask your question.
Hi. Good morning. Just want to know what percentage of your revenue is coming from the smartphone tablet market.
I'm sorry, can you ask again?
Oh, the percentage of revenue coming from the smartphone and tablet market.
Well, it is somewhat hard for us to give such a specific, because our customer's customer, we never know where they put their product in. But definitely, communication has been over 55% of our sales.
I believe most of the communication right now, sale on the market, should be put into the smartphone and tablet. So I believe, a big part of that, our sales will go into the smartphone and tablet.
Okay. All right. With regard to your guidance for Q2, come back to grow 19% to 21% sequentially. Could you also comment about the monthly linearity?
The monthly?
The monthly revenue pattern that you are expecting.
Okay. What we definitely see, April has been pretty good, and we expect May, June should be sequentially growth as well. We expect the second quarter should be a pretty good quarter for us.
Okay. Last question from my side. On the 40 nano, do you think you have the necessary scale to compete against the other foundries competitors?
Okay. Well, when you talk about scale, every node, we have to start from zero. Yes, I do believe that eventually we will have enough scale. I think we already are seeing a very successful progress in our defect density reduction, and our customer is having strong confidence in our technology. I believe this ramp will be smooth and strong.
Well, if I can add some comments. As in the last few technology more as well, we can work with our customer, and it is obviously our customer give an indication that definitely would like to work with us as their second source. With this in mind, if I look at 65 nano, right now we have somewhere around 25,000. Later on, we will have some around 25,000 wafer capacity. I would expect in the 40 nano and in the future technology, we will be able to work with our customer and to maintain a reasonable market share. We are happy with that.
Okay. All right. Thank you very much.
Your next question comes from the line of Eric Chen from Daiwa Securities. Please ask your question.
Okay. I am interested in your China client. Would you elaborate more in terms of a revenue percentage? How much percent from the China client, and what kind of product they are working on? That is my first question. Thank you.
I think percentage of our China customers is around one third. Right now exactly, it is 32.5% this quarter. We are seeing customers focusing in the baseband communication as well as the application processors area. We also have customers that are very strong in the NOR memory area.
Okay. Let's talk about the China client base. How much percent for the memory, and how much percent for the general idea of the communication, like the handset, the smartphone, the baseband, that kind of thing?
At this moment, I do not have the figure. I cannot tell you at this moment.
Okay. For your China client and the focus on the smartphone, I assume that they are using your 55 nanometer process. Can I say that way? I try to say the majority or say the mainstream, the geometry for your China client on the smartphone is located or say exposure at the 55 nanometer process instead of the 45 nanometer process. Is that true?
The customers are working on both the 65, 55, as well as the 45/40 node.
Can I say this way, 45 is more for the tablet PC side and 55 is more for the smartphone side? Can I say that way?
That is not necessarily true. I would not get into that particular detail.
I see. Okay. Thank you. By the way, based on your CapEx wise, could you update again, how much percent for the 45 nanometer process and also for the 28 nanometer process, how much you are going to locate, probably not only for this year but also for next year? By the way, the one answer on the gate last and the gate first, would you mind say again? I am sorry, I missed the answer you provide to the earlier, the other analyst question. Thank you.
Eric, for our CapEx this year, the majority of this year's CapEx will be for our 12-in fab Shanghai ramp up, which mainly will be in the 40 and 45 nanometer. At this point of time, it is still a little bit early for us to comment on our 28, but I believe next year should be a good year for us to start spending money on this part. As Tzu-Yin just mentioned earlier, our 28 technology will be gate last.
Gate last.
Yeah. Okay. I got. Let me add a few more points. I think you asked what is probably the revenue for the 45. By the end of this year, we believe we will get into a high single digit as percentage of the revenue. As far as the 28 nanometer, the high-k metal gate will be gate last. We also have polysilicon technology.
Oh, okay. Very clear. Thank you very much.
Your next question comes from the line of Rick Hsu from JP Morgan. Please ask your question.
Yeah. Hi, good morning, and congratulations again on your very strong guidance for second quarter. Just some follow-up, Eric, previous question about your demand from your China-based customers. Would you mind sharing with us your view in second quarter, like how much growth do you guys anticipate from the China-based customer in term of revenue? It's going to be above your corporate average, and by how much?
We are targeting China growth around 11%.
Okay. 11%.
Can you ask your question?
Yeah, sure. So 11% growth in Q2, quarter-on-quarter, right? It is actually below the corporate average. So in this case, can I assume you got a much better growth from non-China customers, meaning your overseas or many Taiwan customers as well. So in that case, are you guys gaining market share against your competitors?
Gaining market share in China, you mean?
No. Over the whole world. For example, UMC, they just got, I think, roughly about 15% quarter-on-quarter growth in Q2 in term of revenue. But apparently your growth is much stronger and not to mention you are growing on top of already high base in Q1. So can I assume you are gaining market shares in this global foundry industry?
Rick, let me answer a part of that, and then Tzu-Yin can make some comment there on. Well, I believe currently the whole semiconductor market grows strongly, probably mainly in a very advanced technology node, which mainly is 28 nanometer. In that part, we are not participant yet. However, in the 65 nanometer, we saw a very strong customer demand from there. I believe we did gain some small market share gain from here. In the legacy technology level, we have much could utilize our idle capacity previously. So we see our strong demand from customer on the legacy technology. So we also believe that part, we probably will be gain a small market share gain as well. The effort part we have to do is more in the device technology, but that it will be sometime for us to do it.
All in all, I believe, in the technology we are competing with. We did gain capacity, market share. That's why we believe we will grow 20% + in the second quarter. On the China front, while the 11% growth quarter-over-quarter seems to chime our overall 20% growth. But I believe, moving into the third quarter and fourth quarter, our China customer should be moving a little bit stronger. Somewhat, this is also been hurt by the capacity booking, either earlier or somewhat, accruing. This will not be a trend, let me put it this way, for this as a part of the question.
Okay. Yeah. Thank you so much. That's very clear. Thank you. Yeah. I have no question. Thank you.
The next question comes from the line of Steven Pelayo from HSBC. Please ask your question.
Yeah, just a couple quick follow-ups. You spoke a lot about CIS and E²PROM products and set-top boxes. I'm just curious, can you help us at least get a general idea how much those represent of your revenue? Let's say in second quarter, you're going to do roughly $400 million on the top line. What would CIS be as a percentage of revenue? What would power management be as a percentage? I'm just trying to understand some of those individual segments. Can you give us a general idea?
Well, actually, we are not disclosing the market segmentation percentage in such a detail. Most of them right now is still under a quite a quick development in our spectrum. So we believe this will be able to grow in a quick pace than the rest of the other area.
Okay. A longer term question then. TSMC has spent now for the last three years, 40%-50% of revenues on CapEx. This has now resulted depreciation costs increasing 20% or more last year and this year. You guys are spending 30% of revenues on CapEx, have nice flattish depreciation. But I'm wondering if this is something that is a suggestion of what may be happening to you a year or two down the road. So can you put on a little bit of your longer term thinking cap and then talk to me a little bit about where you think capital intensity will go, and what that might mean for your CapEx plans and depreciation costs going into 2013 and 2014 as you look to ramp more 40 nanometer and 28 nanometer?
Well, thanks, Steve. Let me come in first and later on, Tzu-Yin can add some more. In the last 12 months, actually, we have a lot of things change inside SMIC. This both from the management and also from the technology development. This caused us a lot of step adjustment. This is the reason why this year we are spending less, because we believe we should develop our technology, be more competitiveness, and also, we have been able to best use our idle capacity and to bring up our utilization. I believe, towards the end of second quarter, those adjustments should be come to an end. We are considering trying to pace up our spending into the future.
But this is not coming from this year, and we will be very carefully work with our customer, to see whether we need to pace up our CapEx, so we will bring up the percentage of our revenue into the CapEx. So in the long-term perspective, I believe we will starting to increase our CapEx or capacity in order to satisfy our customers.
Okay. Yes, Steve, let me add that indeed, during these past few quarters, we want to make sure that our utilization improves. Every bit of capital investment has to get into better productivity. We continue to be in this mode, to make sure that every bit of investment we are making and we will be making in the next few quarters get fully utilized. Now, if the customer demand increases and the customer feel satisfied with our services, and ask for more capacity, certainly, if we have the ability, such that is the case, if we turn around, and be profitable, then we would definitely consider increasing the capital investment.
I guess if I put it in another way-
Does that answer your question?
It does partly, but I am trying to quantify it a little bit. From the standpoint of, you are talking about having 10,000 wafers of 40 nanometer capacity by the end of this year. That costs whatever X amount. If we say a year out from today, maybe you want to have 10,000 wafers of 20 nanometer capacity exiting next year. But the incremental cost of doing that is going to be, I think, a significantly higher CapEx number than what you are currently spending this year. So I am trying to understand how meaningful I should be thinking about CapEx plans out in 2013 and 2014. Are we going to have to get back to spending over $1 billion a year, or is there any way for me to try to think about that?
Steven, I think this is a little bit too early to comment at this point of time. We will probably be in a better position to inform you later, as we get our 20 nanometer ready.
Okay, great. Thank you.
This is the end of the Q&A session. I would like to hand the call back to CEO, Dr. Chiu, for closing remarks.
In closing, I would like to take this opportunity to again thank all of our shareholders, customers, employees, and suppliers for their trust and support. I also thank the analysts who participated today for their questions and comments. See you again next time.
Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect.