indie Semiconductor, Inc.

Welcome to Semiconductor Manufacturing International Corporation's 4th Quarter 2021 Webcast Conference Call. Today's call will be simultaneously streamed through the internet and conference. Please be advised that if you join the meeting by phone, your dial-ins are in listen-only mode. However, after the conclusions of the management's presentation, you will have a question-and-answer session. At this time, you will receive instructions on how to participate. Without further ado, I would like to introduce Ms. Guo Guangli, Board Secretary, Joint Company Secretary, to speak.

Greetings, welcome to SMIC's fourth quarter 2021 webcast conference call. Attending today's call are Dr. Gao Yonggang, Acting Chairman.

Dr. Zhao Haijun, Co-Chief Executive Officer, and Dr. Liang Mengsong, Co-Chief Executive Officer. Let me remind you that today's presentation includes forward-looking statements that do not guarantee future performance but represent our estimates and are subject to risks and uncertainties. Please refer to the forward-looking statements in our earnings announcement. Please note that today's earnings statement is presented in accordance with International Financial Reporting Standards, IFRS, and all currency figures are in U.S. dollars unless otherwise stated.

首先,我们有请高永刚博士讲话。 First of all, we invite Dr. 高永刚 to speak.

The new trend in the global market and the rapid demand for local manufacturing have brought a rare opportunity to the company. The limitation of the physical list has set a lot of obstacles for the company's development. The company has gone all the way around to ensure the continuity of production, meet the customer's needs, ease the first task of shortening the industrial chain, accurately meet the customer's difficulties, and achieve good results.

We wish you a prosperous new year. The year 2021 is an exceptional year in SMIC's development history. The global shortage of chips and the strong demand for local and indigenous manufacturing brought the company a rare opportunity, while the restrictions of the entity list set many obstacles to the company's development. Focusing on the primary task of ensuring operation continuity meeting customer demand, and alleviating the supply chain shortage. The company rose to the challenge, tackled difficulties precisely, and achieved sound performances.

In the face of the epidemic, the complex external environment, and the rapid change in industrial dynamics, 2022 is still a challenge for the company. The industry is in a state of total capacity, and some application fields need to be reshuffled. How to keep up with the trend of industrial development, dynamic balance of storage and increase of demand, and make up for the structural shortcomings of the industrial chain are the important tasks of the company this year. Around this task, the company will always insist on regular operation, insist on internationalization, and deeply integrate the global industrial chain for global customer service. Facing the evolution of the epidemic, the complex external environment, and the rapidly changing industry dynamics, 2022 will remain a year of challenges and opportunities for the companies.

While industry is still in a state of demand outstripping production capacity overall, demand has been slowing down in some application areas, and there is a gradual shift from capacity shortage across the board to a phase of structural shortage. How to follow the development trend of the industry, dynamically balance the existing traditional and incremental demand, and fill the structural gap of the supply chain? is an important task for the company this year. Around this task, the company will consistently adhere to compliant operations, continuing internationalization, and deeply integrate into the global ecosystem in order to service customers across the globe, continue to strengthen strategic cooperation with customers and suppliers, steadily advance capacity expansion projects, secure the existing volume, expand incremental volume, and build our competitive advantage in the IC ecosystem on higher ground. Next, we will report our inauditive financial results for the fourth quarter and fourth year of 2021, followed by our guidance for the first quarter and fourth year of 2022. Unless otherwise stated, the following financial data is presented in accordance with IFRS.

Both revenue and growth margin for the fourth quarter reached record highs. Revenue was $1,580 million.

up 11.6% sequentially and 61.1% year-over-year. Growth margin was 35%, up 1.9 percentage points sequentially and 17 percentage points year-over-year. Profit attributable to the company and non-controlling interests were $534 million and $45 million, respectively.

In terms of asset debt, at the end of the fourth quarter, the company's total assets amounted to $361 billion, including cash and cash deposits, related to cash and cash deposits, a total of $164 billion. The total debt amounted to $107 billion, of which a share amounted to $68 billion, a share amounted to $39 billion, and a total of $254 billion.

Moving to the balance sheet, at the end of the fourth quarter, the company had total assets of $36.1 billion, of which total cash on hand was $16.4 billion, including cash and cash equivalent related restricted cash and financial assets. Total liabilities were 10.7 billion, of which total interest-bearing debt was 6.8 billion. Non-interest-bearing debt was 3.9 billion. Total equity was 25.4 billion. Total debt-to-equity was 26.6%, and net debt-to-equity was negative 38%.

In terms of cash flow, in the fourth quarter, we generated $950 million cash from operating activities. Net cash used in investing activities were $1,735 million.

Net cash from financing activities were 1,847 million.

The annual growth rate is 7.2%. The operating profit rate is 25.6%. The annual growth rate is 17.6%. The operating profit rate is 31.3%. The annual growth rate is 13.0%. The annual growth rate is 70.2%. The annual growth rate is 15.9%. The company speeds up capital spending in the fourth quarter.

Next, I will recap the company's 2021 and audited results. The main financial indicators of the company increased significantly over the previous year and reached record highs. Revenue was $5,443 million, up 39.3% year-over-year. Growth margin was 30.3%. 30.8%, up 7.2 percentage points year-over-year. Operating margin was 25.6%, up 17.6 percentage points year-over-year. Net margin attributable to the company was 31.3%, up 13 percentage points year-over-year. EBITDA margin was 70.2%, up 15.9 percentage points year-over-year. In terms of CAPEX, we accelerated the speed and intensity of execution in the fourth quarter and completed CAPEX of 4.5 billion for the four years.

For the first quarter 2022, our guidance is as follows. Revenue is expected to grow 15% to 17% sequentially, and growth margin is expected to be in the range of 36% to 38%. Non-IFIS operating expenses and profit attributable to non-controlling interests

are expected to increase sequentially. Looking into 2022, under the assumption of a relatively stable external environment, the growth rate of annual revenue is expected to be better than the average of the foundry industry, and the growth margin is expected to be higher than our level in 2021. in order to continuously expand existing FABs and roll out of the three new projects. It is still a high investment year in 2022, and the CAPEX is expected to be about $5 billion. This concludes the brief updates and financial status. Thank you.

Thank you, Dr. Gao. Next, I would like to invite Dr. Zhao Haijun to introduce the situation of the market, operation, and qualified public services platforms.

Thank you, Dr. Gao. Next, I will hand the call to Dr. Zhao Haijun to comment on market operations and technology platforms.

Internet, electric vehicles, new energy sources, and other applications, have all led to the supply and demand of semiconductor industry chains and the rise in price. At the same time, the concern about the safety of the supply chain has caused a backup. Product structural shortcomings have caused a set of problems. As well as the continued tension of manufacturing capacity, the expansion hotbed has also penetrated the whole year of 2021. This basically defines the pattern of 2022.

Happy Chinese New Year and thank you all for joining today's earnings call. The key phrase for the automotive, power, and electronics end-user industries in 2021 was chip shortage. The structural incremental growth brought by the industry upgrade, increased demand related to distance connectivity brought by the epidemic, localized production preference brought by the supply chain shift, have led to demand outstripping supply. Volume and price increased synchronously in the semiconductor supply chain, with rapid rise of the IoT, electric vehicles, and new energy applications. At the same time, inventory buildup due to supply chain security concerns, bottleneck issues due to product structural shortages, and expansion surges driven by continuous tight manufacturing capacity also continued throughout 2021 and basically defined the landscape for 2022. 对内与董事会达成发展共识,快速启动新的厂房和产能建设,梳理管理流程,营销、规划、采购、运营齐头并进。 In the past year, the company has made persistent efforts to meet customer demands and alleviate shortages in the supply chain in the face of the huge challenges posed by the entity list. Externally, the company has maintained open communication with suppliers cooperated closely with customers, and effectively understood the demands and development of end-user companies and the entire system industry. Internally, we reached consensus on development with the board of directors, quickly launched the construction of new FAPs and capacity, streamlined management processes, and advanced marketing, selling, planning, procurement, and operations side by side.

With everyone's efforts, the annual sales revenue from $3.9 billion in 2020 has exceeded $5.4 billion in 2021. It is the fastest-growing company in the world's top four storey supply chains. The company's net profit rate, operating profit rate, net profit rate, and many other financial indicators have set a new record. The company's annual new growth, monthly production capacity, 100,000 pieces, and 8 inches. And in October last year,

With everyone's efforts, annual revenue crossed from $3.9 billion in 2020 to $5.4 billion in 2021, making us the fastest-growing company among the top four pure-play foundries in the world that year. And many financial indicators, such as growth margin, operating margin, and net margin, also hit record highs. The company has added 100,000 8-inch equivalent wafers per month capacity and completed construction of the FabShell in Beijing, Jingchen in October last year. 2021年四季度,公司单季销售收入首次超过15亿美元,各区域收入和毛利率均有增长,新产品流片和多元化储备亦表现活跃。 In the fourth quarter of 2021, the company's single quarter revenue exceeded $1.5 billion for the first time. Revenue and growth margin grew in all regions, and new product takeouts and diversified reserves were also active.

In terms of mature technology, the eight major product platforms laid out in the past four years have strong market competitiveness

and have precisely penetrated the existing traditional and incremental markets. For the four year, revenues for high voltage driver, MCU, ultra-low power logic, and specialty memory grew the fastest, while other platforms also encountered strong market demand but were constrained by capacity. In terms of applications, IoT and consumer electronics both saw significant growth.

FinFite and 28nm technology steadily promotes products such as logic, video and low-power consumption platforms, mainly applied to smart phones, digital TVs, machine headsets, Wi-Fi, routers, smart homes, and consumer electronic products. With the continuous diversification of customers and the dual storage effect of multi-product platforms, the productivity and utilization rate continues to increase, and the editing effect continues to increase, and the technical integration is further enhanced.

FinFET and 28-nano technologies have steadily progressed, and product platforms such as logic, RF, and low power are being mainly used in smartphones, smart home, and consumer electronics applications such as digital TV, cell box, Wi-Fi, and router. Under the continuous efforts on due preparation effect of diversified customer base and multi-product platforms, capacity utilization continues to be full. Marginal benefits of output continually increase and our technical mode has been further consolidated.

二零二年承接前一年的旺盛市场,有机遇也有挑战。 手机和消费产品市场缺乏发展动力,成为存量市场,供需逐步达到平衡。 物联网、电动车、中高端模拟IC等增量市场存在着结构性产能缺口。 射频、微控制器 There are opportunities and challenges in 2022 following the robust market of the previous year.

The mobile phone and consumer product market lacks development momentum and are becoming stable markets, with supply and demand gradually reaching equilibrium. There are structural capacity gaps in incremental markets such as IoT, electric vehicles, and mid- to high-end analog. Demand for application platforms such as RF, MCU, and power management remains strong. The shift from a pure capacity supply market to a technology innovation and customer experience service-driven market is a greater test of the company's strategic positioning, speed of technology innovation, quality and completeness of product platforms, and customer stickiness.

SMIC's product platforms and capacity built up over the years are concentrated in specialized areas which are currently the industry structural gaps. Next, we will seek progress in a steady manner while consolidating the existing platforms

We will make great efforts to increase the proportion of technological innovation and focus on improving product quality, boost the competitiveness of customer products, improve their experience, secure existing volume, and expand the incremental volume. 我们的扩展规划和产能分配将紧紧围绕着这个目标。

At the beginning of 2022, the new factory in Lin Gang, Shanghai, made the first move to open up the company this year. The two projects in Beijing and Shenzhen are steadily advancing and are expected to be invested in production by the end of this year. In 2022, the increase in our planned production capacity will be more than 2021. At that time, the period of equipment delivery will be further extended. We may see a certain delay in the development time of new production capacity.

Our production expansion planning and capacity allocation will be closely focused on this goal. At the beginning of 2022, the groundbreaking of the new fab in Shanghai Linggang will be the start of a new chapter for the company this year. The two projects in Beijing and Shenzhen are progressing steadily and are expected to be put into production by the end of this year. In 2022, we plan to add more capacity than in 2021. At present, the equipment delivery lead time is further lengthened, and we may experience some delay in the expansion schedule of new capacity, but we will maintain strategic cooperation with our suppliers and strive to deliver the capacity according to the set target. When these three new projects are in full production, the company will be able to multiply its production capacity. Finally, we would like to thank all our employees, customers, suppliers, investors, and the community for their trust and support. We wish you and your families a happy and prosperous New Year. Thank you.

Thank you, Dr. Zhao.

Next is our Q&A session. Questions will be answered by Dr. Gao and Dr. Zhao. Chinese questions will be answered in Chinese. English questions will be answered in English. Please limit your questions to two per person. I would now like to open up the call for Q&A. Operator, please assist.

Thank you. We will now begin the question and answer session. To ask a question, you may press star 1 and wait for your name to be announced. If you would like to clear a request, you can press the pound or hash key. First question comes from the line of Randy Abrams from Credit Suisse. Please go ahead.

Randy Abrams, Credit Suisse, Okay, yes. on the results. The first question on your 2022 outlook and pricing trend, if you could give your view on the, industry growth rate for 2022 since you're comparing your growth to outgrow the industry? And then the second part of that question, for your first quarter 15 to 17% growth, how much is from pricing versus units? And do you expect the price trend to continue to push higher after first quarter or might start to flatten out

Hi, Randy. Thank you again for the first question. And the first question you are asking about this 15 percent growth forecast for the first quarter this year, how much come from the pricing and how much from the wafer out? And we do not comment on exactly on the wafer pricing. And we use AISP as a normalized AISP across the whole company as one of the criteria to four days question. And basically, first quarter, we will see a little bit more than 10% growth in the AISP on average. And additionally, we will see 6.5% with the total waiver out increments. But for this normalized, the ASP is not just a higher price, but also from the allocation to more advanced technologies. That means the single wafer, they are with a more complicated process. So the ASP also got a growth. Okay, and the second part of the question is that what's the expectation of forecast for the trend of the pricing, whether or not we will see even higher price raising in the following quarters. And our comments this way, we closely communicate with our customers We believe, currently, more or less, we are already locking the price for a very long term. This year, we do not see too much additional price raising, but we'll consolidate the price we already settled on last year. Previously, at our conference quarterly, we mentioned that SMEC is slower in pursuing the price raising. And our price raising happens a couple quarters behind the peers in that foundry industry. So we see that the price starts getting higher in the first quarter last year and the first quarter of this year. And not like the other peers, they may see this kind of a jump a couple quarter ahead of us, I see. So we still enjoy this kind of price raising, but later than the others. That's why it showed up, the first quarter and the first quarter.

Okay, great. I appreciate that color. And the second question is for your gross margins. The base you had was 36 to 38 percent. You're guiding 2022 just higher than 31, which was last year. Should we model it coming back down, or is there any reason if operations stable, you could maintain or improve the first quarter level. And then I'm curious from the mix side, do you see further mix improvement through the year? You mentioned pricing consolidate, but could we see further mix improvement or is that more stable across nodes now?

Yeah, Randy, you'll point out the difficult part in our forecast. On the first quarter, we forecast the number 36 percent to 38 percent type of gross margin. But the forecast of the whole year on average is just higher than last year. And you know that last year we just announced the average gross margin for last year only around 31 percent. So that means we forecast a lower average gross margin than the first quarter, for the year, lower than the first quarter. That's because of two factors. The first one is that we take into account the additional depreciation from the CAPEX we already spent in the last three years. The machine will move in, will build up additional capacity. The machine arrived in the fourth quarter last year. They will move into the depreciation in the third quarter and fourth quarter. This is the first factor. to calculate from the CAPEX we already spent. The second factor we take into consideration is the potential for the markets and the supply chain. You know, SMIC currently is still on the entity list. We are still meeting quite a lot of difficulties. We know that at this moment we can maintain the normal operation we can maintain the continuity of manufacturing. But we really leave out some space for any potential. That's the reason that we do not put everything to the full scale. That's the reservation for our forecast.

OK. And a final question. The depreciation for the year, what's the guidance?

Let me help with the translation. This year's depreciation is expected to be higher than last year.

increased magnitude is expected to be lower than last year. So it is expected to exceed $2 billion for this year.

Okay, great. No, thanks a lot, and congratulations.

Thanks, Randy. Thank you for the questions. Next question comes from July of Sihong from China Sounds. Please go ahead.

Hi, Jihao. Thank you for your question.

We will see you at the meeting. We will see you at the meeting. We will see you at the meeting. We will see you at the meeting. We will see you at the meeting. We will see you at the meeting. 那个未来是做什么样的平台 什么样的技术 它的价位大概是有多少 但现在你用到一个词是LTA 就是我们Black and White 去签一个绑定的价钱 绑定的赔偿这样的一个协定 我们现在已经签的这个绑定的协定 已经签了一些 在我们的这个现金表里面也能看到 我们也收了预付款来锁定这些价钱

I understand. But I can understand that most of us are the main suppliers or the only suppliers. Yes.

We basically choose the top customers and the top customers in the increase market. Then we try to cooperate with Central International to make unique technology. We prioritize binding this matter. Product distribution and construction. OK, thank you. Next question, I'd like to ask Chairman Gao.

I'd like to ask Chairman Gao, in fact, in the future, the company will develop very quickly. How do you think about the company's capital? How does our company correspond to it? OK, thank you.

I think if you look at our expansion plan, it should be divided into two parts. One part is the expansion in our existing old factory. I think this part of the talent problem is not a problem. The second part is our newly built factory. Our newly built factory is one in Beijing, one in Shanghai, and one in Shenzhen. These three 12-storey factories. So these three factories, We have thousands of teams in Beijing. We basically use three old factories to build a new factory to build Beijing's capital. So our main talent is prepared. Shanghai is our headquarters. We also have thousands of people in Shanghai. So we use old factories to build new factories to solve our talent problems. Shenzhen, of course, we now have an 8-inch factory. We already have nearly 80,000 8-inch factories. Then we have to do the 12-story factory These necessary engineers We Shenzhen can solve a part At the same time, we Shanghai and Beijing Also provide them with training and learning opportunities This solves the problem of talent So we are at the beginning of the construction site Talent is the first thing we need to consider Clients, talent, funds These three aspects are what we must consider

I understand. Can I ask you a question? We have returned to A. Do you think it will be beneficial for talent management after returning to A? I think after returning to A, you saw that we made a shareholding opportunity plan last year.

We involved 4,000 employees in the company. This is the largest shareholding scale in A. Thank you, Mr. Gao. Thank you, Mr. Hai. Happy New Year.

Thank you for the questions. Next question comes from the line of Le Ping Huang from Huatai Securities. Please go ahead.

Thank you, Le Ping.

It should be said that the actual list has had a very big impact on the production operations of SMIC. Of course, in the past year, we have worked closely with suppliers and other parties under the premise of adhering to the rules and regulations. We have solved many problems. For example, we also announced in the previous few weeks that our production continuity has been basically controllable. Of course, the actual list has a lot to do with our advanced production layout, Then the second question I want to ask is,

China China China China to ensure that our fast-growing capacity and capacity utilization can maintain a relatively high level of water. What are our main needs? Thank you. Okay, Le Ping.

The capacity of China and the international community can be divided into three parts. The first part is that we use 8 inches to do it. You know that in our same industry, we haven't increased the 8-inch part. In China and the international community, ah ah There are more than 10 of them in a mobile phone. This one is 8 inches. It's doing very well now because it uses BCD technology. And its RDI sound and its break-down voltage need to be improved every year. The quality needs to be better and better. Central International is doing well in this area. The other 8-inch one is MCU. The demand is relatively high in this area. This is the 8-inch one. Then the other 12-inch piece is in Motsur. Because we built the production capacity relatively late, from 90 nm to 22 nm of center international, the basic models of the equipment we use are the same. We can choose from this range. It has been converted. Our 55 nm equipment can do 40 nm, 40 nm can do 55 nm, 28 nm and 40 nm use exactly the same machine. But the process is different. When we distribute the output, when we build it, we have to do it with a certain degree of flexibility. In this area, we are now focusing on the main output, which is 40nm and 55nm. What you see in this is specialty memory, MCU, Wi-Fi 6, Wi-Fi 5, high voltage driver, TDDI. In 40nm and 55nm, We see that the market is still the most in need of 40nm. And then 55nm, what I just mentioned, is the high voltage, the medium frequency display, specialty memory, CMOS imager. The demand for 55nm is still very high. When they move to 40nm, our production capacity will follow 40nm. Now 40nm is mainly MCU, TDDi, and Wi-Fi. If these are the most in demand now, it may turn to 28 nanometers in the next year or so, and these 40 nanometers in the center of the world can also turn to 28 nanometers or 22 nanometers. This is a fierce competition, but it is also the most in demand. At present, there is still a structural gap in the industry, because you also know that in the past 10 years, the whole world has not seen so many 40 nanometers. In the past two years, there has not been an increase of 40 nanometers in this area. So now there is still a big gap. The other thing that Central International has done is our ThinFight. This piece of Central International started relatively late. But our application platform and customers are relatively large. We add our production capacity is relatively small. So in this piece, we do it in a diversified way. This way, we can keep it full for a long time. There is also considerable competitiveness in the market.

Thank you.

Thank you. Thank you.

Thank you. Thank you for the questions. Next question comes from Andrew Liu of SinoLink Securities. Please go ahead.

Can you hear me?

Yes, we can hear you, Andrew.

Please go ahead. I have two questions I would like to ask. Let's say we expect a $5 billion capital investment this year. Have you considered getting 10 points from key devices? Because recently, many devices manufacturers have proposed numbers that are 4th quarter and 1st quarter low in market demand. They all say that their own devices are in a state of lack of chips. So I want to understand this. Then, let's talk about the growth of our production capacity this year. If we change it to effective production capacity, because we have capital investment and production capacity growth, How many points will the actual production growth increase? Thank you. How many percent? This is the first question. Thank you. Okay, Andrew. We are now expecting such a KPEX of $51.

We have already considered that the delivery period of the equipment may be delayed, and it may be delayed to the next year. This factor has been considered. In this, China and the international community are now conducting So we know that some of the $50 billion is guaranteed, not delayed. Some of the equipment bought inside, not all of them, are delayed. Some of the equipment is very long-term. Because these equipment companies used to be very small. Now the whole world puts so many orders on it. It is not like a big equipment company. There is a lot of room for adjustment. So it doesn't have that much room. We have already predicted that it may be delayed. These have been considered. Then you ask. We said that in 2022, our total growth of production capacity will be higher than in 2021. In 2021, we talked about it before. The lowest prediction is that 12 inches will grow 10,000 pieces. 8-inch growth is 45,000 pieces. Of course, the actual result, we equate it. The actual result is that both sides exceed this number. Our 8-inch growth is more than 45,000 pieces. 12-inch growth is also more than 10,000 pieces. Equal to 8-inch, 100,000 pieces more. In 2022, we think the equalization of 8-inch will be higher than this. It should be between 130,000 to 150,000 pieces. But specifically, because there was a certain uncertainty just now, it is not easy for us to make it into which must be 12 inches, which is 8 inches. But this year's 12-inch growth will be far more than last year.

My own model estimates that 20% growth is reasonable. Is this number too optimistic or okay?

Are you referring to production capacity? Production capacity, according to the amount of delivery. Andrew is like this.

Yes, all production capacity.

It should be because of our growth. It's not the amount of delivery. Yes, then the production capacity we are talking about is according to the amount of delivery. That is, my production capacity came because of technical problems, or because there was no order, and I put it there, then I don't count it. I don't count it. What I count now is the production capacity of the delivery I want to achieve. Then, according to this, our order is predicted to be full. Andrew is like this. The production capacity we increased last year, 12 inches is mainly in 40 nanometers, and then there is a part of 45,000 pieces or more in 8 inches. But in this year, our production capacity has increased. More of it is in the more complex nodes of the process. In this way, that is to say, every wafer, I just talked about it, our ASP has a larger growth, because what it does is close to the advanced nodes. So its wafer price is high, the profit and loss growth is more, But the number of pieces may not be the same as last year's one-to-one. It should be one piece. In fact, its KPIX spending is higher than last year's one-to-one. But it's not much different from what we calculated, not too much, within a few percent.

Okay, thank you. My second question is that 28 and 40 seem to be a node that the market is more worried about.

Andrew, you mentioned this concern. We have always been very cautious in observing and analyzing the direction of the entire market. Central International just mentioned earlier that because we were able to achieve such a good result last year on the actual list, it comes from everyone's co-operation. This co-operation mainly reflects that, first, we do things with greater effort than others, and we do things more seriously. Other people don't need to spend a lot of effort. We spend a lot of effort to focus on doing it. Because we encounter more difficulties than others. This is the first one. The second one is that our customers are more complex. The number is very large. We want to make our technology flexible and selective. We are now doing it based on this point. We are still a relatively small share. This reaction to the market can still be relatively fast That's what we just talked about One is to put our production capacity It can do multiple platforms in a factory And switch in different nodes We are not that kind of other people's approach A 40 nanometer factory can only do 40 nanometers A 28 nanometer factory can only do 28 nanometers A 55 nanometer factory can only do 55 nanometers We are not like that We basically connect a factory from 22 nanometers to 0.13 nanometers. So these devices must have certain flexibility to avoid the loss of production capacity when switching. We spent a lot of effort. Another point is that we have made various product platforms on each node. I can give you an example. That is, our company is ranked fourth in the supply industry or ranked fifth in the stock industry, which accounts for the entire market share. There are only 6% of them. But the number of our clients, the number of clients that are currently serving and working here, should be almost the same. And then, the variety of our product and platform is also almost the same. For example, the Specialty Memory that we are working on, there is no other company that is working on it. But there are companies that are working on it. So it is through the complexity of this product, the complexity of the product platform, the complexity of the customers, so added together, plus our size is relatively small, we feel that we can hedge the next surge. The 4028 you mentioned just now is a problem that is likely to be overrun. I think we use two to look at this matter. The first point is that the production capacity established by SMIC in the past is not a very large portion. Whether we build it or not will not affect others, will not affect the entire market. This is the first point. The second point we see now is that there is a concept of industrial transition, that is, our customers are actually tied together with the whole machine factory and the system company. Due to the concern about supply chain regionalization, it also needs to localize production. That is, there needs to be a certain amount of production in China. The production capacity that we have established now, when we discuss with our customers and these central and central airport companies, it is far from meeting their requirements. That is to say, the amount of production in the whole country is not even 10% less than what they need. So they are worried. Thank you, Mr. Zhao. Thank you. Thank you, Andrew.

Thank you for the questions. Next question comes from the line of Ke Zhang from EBS. Please ask your question.

Hello, Mr. Wang. I would like to ask you a question. In terms of 12-inch expansion, for example, Shenzhen's 40,000-piece, have you planned for the main product? Or do you have any plans for the structure?

Hello, Mr. Zhang. This may be the first time we meet on this call. Your question is very reasonable. I just talked about the way we build factories in China. Because we are a little late in increasing the size, we don't cut them one by one according to Maldives. We built a factory of 40 nanometers and only made 40 nanometers. We built a factory of 55 nanometers and only made 50 nanometers. So these KPACs announced by China and the international community are actually after we reached an agreement with the client, we have grown from 0.13 to 0.18 inches, from 12 inches to 90 nanometers to 22 nanometers, and our Thin5 is actually growing and increasing. But at the same time, we also consider that it is not very effective to make different products in a factory. For example, we want to make CMOS E-Major 55 nanometers, its metal layer is very small. If we want to do MCO or do other logical circuits, then it has a lot of metal layers, so when you convert it into two products, in fact, your utilization rate is not very good. It is possible that some machines must be overtaken in order for you to be able to make such a complex conversion. Now, when our company is building new production capacity, we are building the same process node in different areas, and we also hope to have a certain amount of cutting, This will allow the utilization rate of the entire production capacity to be normalized. In this way, Shanghai, Tianjin, Shenzhen, and Beijing will have a certain main battlefield to work on. You just asked about Shenzhen. We hope that Shenzhen can use the high-pressure drive of the large, medium, and small panels as its main product. Although this node is very large, from 0.18 to 28 nanometers, it has a relatively small metal layer. It is made of lithium-ion, high-pressure gas, reliable in all aspects, and very close. So we will let it do this. But this market is a consumer market. There will be ups and downs. So we will let it also build other products. 我们北京上海建立的平台, 他也在那边做验证, 客户也在那边做少量, 但主要的时间只是做少量, 除非有市场的波动的时候, 才会挪一些新的订单过去, 大概是这样一个战略。 好的,谢谢。 谢谢张克。 Thank you for the questions. Next question comes from the line of Xiaofei Zhang from China.

Please go ahead.

I think your question is very good.

When we are doing these production planning or when we are promoting the progress of this KFPS, we also consider the endurance of this relief. Because in the past few years, especially since 2020, the amount of relief in the central international market has risen very high. We just talked about it this year, it has exceeded $2 billion this year. Then the subsequent KFPS will definitely turn into relief. So we are now The overall plan is to increase our savings and to combine it with our sales income growth and our profit and loss. Because avoiding savings will cause a huge wave to the company's profit. This is a general principle, so it is also a relatively positive answer to your question. Of course, each of our projects has a very detailed five to seven-year calculation. The company is considering these factors.

Then we think that setting such a balanced goal to balance how much money we spend, how much relief, and then the speed of growth, while also guaranteeing this year's financial indicators, we have achieved such a consensus to do it. Maybe this year everyone thinks that such a 30% goal is possible. That may also wait until next year, Thank you, Chairman Gao and Chairman Zhao.

Thank you. The last question comes from the line of Jian Fu from Gosen Securities. Please ask your question.

Thank you. Hello, Mr. Gao and Mr. Zhao. I am Hu Jian from Gosen. I would like to talk to you about the situation of our new production capacity. On the one hand, we have seen that the capital spending in the fourth quarter is already very large, basically close to the sum of the first three quarters. If we look at the structure of capital spending, can you share with us um um

Ah, ah. More than last year, I also probably mentioned that it may be folded into 8 inches, 130,000 to 150,000 pieces. This change is mainly due to the uncertainty of the delivery period. We have considered this uncertainty in the whole year's KPACs and revenue predictions. You said last year's fourth quarter and now you want to do a breakdown. Our money is basically from three places to do KPACs. One is that we are now building new production bases to buy land, build houses, and build facilities. I mentioned a few projects. In fact, there is another project in Shanghai. You also know that in the center of Shanghai, in the Zhangjiang area, we also have the construction of factories. It has been under construction since the past. The construction of Lingang, the construction of Shenzhen, the construction of Beijing and Beijing. These are all to buy land and to build houses. The time is relatively long. At the end of last year, there were quite a lot of ETC settlement. This is one. The second is to settle the equipment in place. We settle it into KPEX. This is strictly regulated by the Finance Department. There is also a long-term equipment. When buying, it is paid in installments. This is also KPEX that we are spending in the current season. KPEX mainly comes from these three aspects.

Okay, thank you, Zhao Bo. I have one last question. You just said that in fact, this year, the entire judgment on the industry is from the overall shortage gradually entering a structural market. Especially you mentioned that the market of mobile phones and consumption is more inclined to the process of storage. I don't know, like last year, for example, a product that is very scarce, a product with a relatively strong price increase factor, such as MCU, including the TDDi-like product you just mentioned, In this year or next year, if there is a price cycle that continues to decline, what is our own response strategy? Thank you.

As I said in the previous answer, I have covered these two things. One is that we are now competing with customers, especially those with competitive customers. Even if the industry is going down, they are competitive. Then we develop special technology to ensure their products have customer experience, have technical innovation, have performance, and keep the price. Then we sign the contract, lock the price, lock the quantity. This is one approach. The second one is that we now have a very large number of customers in the central international market. Then we also have many platforms. When these changes occur, we can switch between different products in the same factory. To put it simply, it may be that there are more drop-offs than demand, so do less. If there is a special performance, a special technological innovation, and a good price, do a little more. It is done in this way. It used to be a disadvantage of central international complexity, that is, the increase is slower and the time is longer. Thank you for the questions. Thank you for the questions.

Thank you all for participating in today's conference call. Thank you for your trust and support. This concludes SMIC's four-quarter webcast conference call. We thank you for joining us today.