indie Semiconductor, Inc.

Welcome to the 2nd quarter of SMIC 2022. Today's meeting will be live on the Internet and on the phone. Please note that if you join the meeting on the phone, you will only be in the listening mode. After the meeting is over, we will have a Q&A session. At that time, you will receive instructions on how to participate in the Q&A. Now, please stand up, Vice President. Welcome to Semiconductor Manufacturing International Corporation's second quarter 2022 webcast conference call. Today's call will be simultaneously streamed through the internet and telephone. Please be advised that if you join the meeting by phone, your dial-ins are in listen-only mode. However, after the conclusion of the management's presentation, we will have a question-and-answer session. and at the time, you'll receive instructions on how to participate. Without further ado, I'd like to introduce Ms.

Guo Guangli, Senior Vice President, Board Secretary, and Joint Company Secretary of the company to speak.

我和聯席首席執行官趙海君博士主持。 Greetings. Welcome to SMIC's Second Quarter 2022 Webcast Conference Call. Today's calls are hosted by Dr. Gao Yonggang, Chairman, and Dr. Zhao Haijun, Co-Chief Executive Officer. 在此提醒各位,我們今天的表述包括前瞻性陳述, is not guaranteed by the company's expectations for future performance, and is subject to risk and uncertainty. Please refer to the前瞻性陳述 in our performance announcement, unless there is another explanation. According to the international financial report, all currency data are expressed in dollars. Let me remind you that today's presentation may contain forward-looking statements that do not guarantee future performances but represent the company's expectations and are subject to inherent 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. 下面由我来介绍公司的财务情况。 首先向大家汇报2022年第二季度及上半年未经审核的财务业绩, 然后给出第三季度的指引。 Next I will introduce the company's financial status. First, I will report our unaudited financial results for the second quarter and the first half of 2022, followed by our guidance for the third quarter. The net profit is 39.4%, with a decrease of 1.3%, and an increase of 9.3%. The net profit is $5.39 billion, with an increase of 0.6%, and an increase of 0.3%. The net profit before tax relief and sale is $1.2 billion, which is the highest in history. The second quarter's financial results are as follows. Revenue was $1,903 million. up 3.3% sequentially and 41.6% year-over-year. Growth margin was 39.4%, down 1.3 percentage points sequentially and up 9.3 percentage points year-over-year. Profit from operations was $539 million, up 0.6% sequentially and 0.3% year-over-year. EBITDA was $1,220 million, a record high, up 7.4% sequentially and 3.7% year-over-year. Profits attributable to the company and non-controlling interests were $514 million and $115 million, respectively. The company's total assets are $40.5 billion, with $18.6 billion of savings. The total debt is $13.1 billion, with $7.3 billion of liabilities. The total interest is $27.3 billion. The total liabilities of liabilities is 26.5%, and the total liabilities of liabilities is 41.6%. Moving to the balance sheet, at the end of the second quarter, the company had total assets of $40.5 billion, of which total cash on hand was $18.6 billion. Total liabilities was $13.1 billion, of which total debt was $7.3 billion. Total equity was $27.3 billion. Total debt to equity was 26.5%. and net debt to equity was negative 41.6%. In terms of cash flow, in the second quarter, we generated 2,122 million cash from operating activities. Net cash used in investing activities was 681 million. Net cash from financing activities was 1,228 million. This is the financial situation of the second quarter of the company. As of the first half of 2022, the main financial data that has not been reviewed is as follows. The company's sales income is $3.74 billion, which is 53% of the total growth. The interest rate is 40.1%, which is 13.3%. Above is the company's financial results for the second quarter. Accordingly, the inauditive financial results for the first half of 2022 are as follows. Revenue was $3,745 million, up 53% year over year. Growth margin was 40.1%, up 13.3 percentage points year over year. Profit from operations was $1,075 million, up 62.4% year over year. Profit attributable to the company was $962 million. up 13.6% year-over-year. 关于三季度,我们的指引如下。 销售收入预计环比持平到增长2%, 毛利率预计在38%到40%之间。 今年全年的业绩指引维持不变。 For the third quarter 2022, our guidance is as follows. Revenue is expected to be flat to up 2% sequentially, and growth margin is expected to be in the range of 38% to 40%. The four-year guidance for 2022 remains unchanged. This concludes the financial status. Next, I will hand the call to Dr. Zhao Haijun to comment on market operations and technology platforms.

大家好,感谢大家参加二级度业绩说明会。 Hello everyone, thank you for attending the second quarter earnings call. 2022年的上半年,集成电路产业链进入了被双重周期叠加影响的阶段。 The first one is the global economic growth rate slowdown period. Due to the impact of the pandemic, high inflation, and international conflicts, global economic growth is facing greater pressure and lack of energy consumption. The second one is the industrial period when the semiconductor market enters its own downfall. After the acceleration of consumption in the past few seasons and the expansion of production capacity, the industry has entered the overall supply and demand, gradually balancing, and some parts have entered the storage phase. At present, the interaction between the two sectors has brought some panic and uncertainty to the market. Parts of the industrial chain have even had extreme reactions of rapid shutdowns.

In the first half of 2022, the IC industry supply chain entered a phase affected by two overlapping cycles. The first is the macro cycle, which is experiencing global economic growth slowdown. The global economic growth is under relatively big pressure, and consumption momentum is weak due to the effect of multiple factors including the pandemic impact, high inflation, and regional conflicts overseas. The second is the semiconductor industry down cycle, which has entered a phase where the overall supply and demand have gradually balanced, and some segments have entered a phase of destocking after accelerated consumption over the past few quarters and expansion of manufacturing capacity. The interaction of the current due cycles has brought some panic and uncertainty to the market, and some parts of the industry supply chain have even seen extreme quick-freeze reactions.

In the current period, there is a trend of structural division in different applications. Smart phones are still in the storage and consumption. Consumer electronics needs softening. In the field of automotive electronics, green energy, and industrial control, demand continues to grow steadily. SMIC has been moving forward since last year, strengthening communication with customers, especially with mid-range and high-end companies, fully understanding the actual needs of the market, and making strategic adjustments to production capacity in advance. Reducing the production capacity of large-scale RCD drivers, fingerprint recognition, low-end CIS, and other markets gradually. In the current overlapping cycle, there is a structural divergence trend in different areas of applications.

Smartphones are still digesting inventory. Consumer electronics demand is weakening, while demand in automotive electronics, green energy, industrial controllers, and other areas still maintain solid growth. SMIC has been planning ahead since last year to strengthen communication with customers, especially with high end-user companies. to thoroughly understand the actual market demand, strategically adjust capacity in advance, cut capacity in saturated markets such as large-screen LCD drivers, fingerprint, and low-end CIS to avoid disorderly competition. We increased the production capacity of differentiated platforms such as analog and mixed signal including power management, high-end MCU, OLED 4 HD display, Wi-Fi 6, etc., to dynamically meet the rapidly changing market and fulfill the needs of different application scenarios of end users.

In the second quarter of this year, the company's sales revenue surpassed $19 billion, with a 3.3% return on investment, and the average sales price increased by a small margin. The productivity rate is 97.1% and the profit rate is 39.4%. At the performance demonstration in May, we estimated that the overall impact of the pandemic on the second level was about 5%. In fact, due to the control of the flow of people due to the pandemic, part of the factory's rent has not been carried out in the second level, which makes the overall impact of the pandemic on the output lower than expected. Therefore, the current income and profit rate are slightly higher than expected. The sales revenue in the second quarter is divided by area. The ratio of mainland China and Hong Kong, North America and Europe and Asia is 69%, 19% and 12%. Compared to the previous quarter, there is no big change. The annual income is divided by application. Smart phones, smart families, consumer electronics and other categories are 25%, 16%, 24% and 35%. Among them, smart homes have increased by 24% compared to the demand for wireless networks, routers, and other sub-network connections. Consumer electronics has increased by 8% compared to the demand for high-end simulation and MCO platforms. The industry in other applications has increased by 18% compared to the demand for high-end simulation and MCO platforms. In the application category, only smart phones have decreased by 7% compared to the demand for storage in the market. In the second quarter of this year, the company's revenue exceeded $1.9 billion, up 3.3% sequentially, with a small increase in both shipment and ASP.

Capacity utilization was 97.1%, and growth margin was 39.4%. In the May webcast, we estimated at the time that the overall impact of the epidemic on output in the second quarter would be around 5 percentage points. In reality, due to the limitations on people's movement as a result of the epidemic, Some of the FABs did not conduct annual maintenance in the second quarter, causing the overall impact of the epidemic on output to be lower than expected. Thus, revenue and growth margin in the quarter slightly exceeded guidance. By region, revenue from Chinese mainland and Hong Kong China, North America, Europe, and Asia in the second quarter accounted for 69%, 19%, and 12%, respectively, with no major changes from the previous quarter. With revenue by application, smartphone, smart home, consumer electronics, and others accounted for 25%, 16%, 24%, and 35%, respectively. with smart home growing 24% sequentially, driven by demand for wireless networks, routers, and other local area network connectivity. Consumer electronics grew 8% sequentially, driven by incremental demand in high-end analog and MCU platforms. The industrial subsegment in others grew 18% sequentially, By application, only smartphones saw revenue decline of 7% sequentially due to market destocking. By size, wafer revenue for 8-inch and 12-inch accounted for 32% and 68%, respectively. Overall, the revenue structure in the second quarter was in line with the company's expectations of market demand and deployment of capacity allocation.

In the third quarter, the company's overall capacity utilization is expected to remain at a healthy level, and ASP is expected to be firm.

Revenue is expected to be flat to up 2% sequentially, with growth margins in the range of 38% to 40%.

接下来,公司将会持续谨慎关注和分析市场走向,并依据公司特点做出快速应对, 适时有效地调整公司策略,业务重点和产品组合。 The company will continue to carefully monitor and analyze the market trends

and make quick responses based on the company's characteristics to adjust the company's tactics, business focus, and product portfolio in a timely and effective manner.

First, fully utilize the flexibility of the company's production line, technology platform, and diversification characteristics. Our production capacity in a factory can be exchanged between different nodes, and we can make a variety of product platforms in each node. Although our market share is relatively small, we have the largest number of customers and platform types in the industry. Because of this flexibility, we respond to market changes relatively quickly.

First, we take full advantage of the flexibility of our manufacturing lines and diversity of our technology platforms. Our production capacity is able to switch between different nodes in one step. running multiple product platforms at each node. Although our market share is relatively small, our customer count and platform variety are almost the largest in our industry. And because of these flexibilities, we are relatively quick to react to market changes.

Second, optimize high value-added technology and products. First, solve the bottlenecks. Increase the production capacity of the lighting factory. Second, through the implementation of a multi-pronged approach by optimizing high-value-added technologies and products, prioritizing the resolution of bottlenecks

increasing the capacity of the mass shop, co-operating with the company's design service IP development. We accelerate the development and introduction of new products, solidify the product portfolio, and make competitive products that others cannot do well.

Third, based on the solid customer base and diversification characteristics of the business field, we optimize the customer system. On the one hand, to strengthen the customer base and increase the number of customers in the capital market, and to increase the customer year. On the other hand, continue to serve global customers. In the wave of the industry cycle, the needs of different regions may not be the same for all reasons, and the degree of downfall may not be the same for all reasons, and the degree of downfall may not be the same for all reasons, and the degree of downfall may not be the same for all reasons, and the degree of downfall may not be the same for all reasons,

Third, optimize customer structure on the solid customer base and their diversified business areas. On one hand, we strengthen cooperation with top customers and those who have the most potential to become top customers in the incremental market to enhance customer stickiness. On the other hand, we continue to serve global customers. During industry cycle fluctuations, demand in different regions may not be synchronized on the timing of a job for various reasons, and the magnitude of the dip may not be the same. SMIC relies on its own global presence and that of its customers to flexibly deploy capacity according to the demand of different regions and different customers, and to deal with uncertainties caused by headwinds.

We believe that in the second half of the year, there will continue to be structural shortcomings in the segment and field. We will speed up the adjustment of the pace, adjust the long and short corners of each factory area, and put more production capacity on the corresponding short-term platform. We will do a little less for the products that are in demand.

We believe that the structural shortage in some segments will continue in the second half of the year. We will speed up the pace of adjustment, balancing strengths and bottlenecks of each FAB to allocate more capacity into corresponding platforms that are in short supply. making less of the products in oversupply and more of the products with good demand, technological innovation, and good pricing.

Next, let's talk about capital spending and energy expansion. In the first half of the year, the company's capital spending totaled $250 million, which increased by 8 inches, 5.3 million pieces of energy per month. As expected, the new plant project is still in progress. The company will continue to maintain the same

Following, I will speak briefly about capital expenditures and capacity expansion. In the first half of the year, the company spent a total of $2.5 billion on capital expenditures and increased its 8-inch equivalent capacity by 53,000 wafers. which is in line with the expectation, and the new projects are progressing as planned. The company will continue to adhere to the principle of prudent planning and will invest and expand capacity based on market and customer demand.

In the 22 years since the establishment of SMIC, we have experienced several ups and downs in the business cycle. At different stages of the cycle, how companies respond in the short term China China China China China China

Since its establishment 22 years ago, SMIC has experienced the ups and downs of many cycles. At different stages of cycles, the company has had deep experience on how to respond in the short term and how to plan in the long term. At present, it seems that This cycle adjustment will last at least until the first half of next year. And when it will end depends on the macroeconomic trend, the pace of consumer demand-side recovery, as well as industry destocking. However, what is certain is that the IC industry's demand growth and global localization trend, as well as the long-term logic of indigenous wafer manufacturing remain unchanged, although there are short-term adjustments. We remain confident in the company's media to long-term growth.

Finally, we would like to thank all employees, customers,

suppliers, investors, and the community for their trust and support. Thank you all. Thank you, Dr. Zhao. Thank you, Dr. Zhao. Next is our Q&A session. Questions will be answered by Dr. Zhao and Ms. Guo. 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.

We will now begin the question and answer session. To ask a question, please press star one one on your telephone. Our first question comes from the line of Randy Abrams from Credit Suisse.

Please ask your question. Through the changing environment,

The first question on the cycle adjustments, could you discuss the impact on your utilization in the coming quarters from these adjustments? And if you could elaborate a bit more on your view, the adjustments continue at least through first half. And just taking it into applications, what's your view on the areas correcting early, smartphone consumer, whether you get stabilization, and then the view on the more resilient applications if you see risk that adjustments start spreading to those areas.

Hi, Randy. How are you? Thank you for raising the first question. About these adjustments of the markets, the first thing is how deep the adjustments, the second, is when we possibly see the recovery or the stabilization. Currently, we see the biggest area for the inventory correction is on the mobile phone area, mainly the smartphones. The sales from the data recently I got, the total sales about 17% jobs. But this kind of 17% job in the first half year, when it happens in April and May timeframe, that makes that kind of a much, about 30% job in sales, especially for the Chinese smartphone makers. And then, more or less, they demand job by half. But because they already have a very big chunk of inventory, they do not need any additional chips from the market. That triggered a panic in the supply chain, so we see a lot of orders just get stopped mainly for the supply of the smartphones. On the consumer side, we mainly see the very big panel because the supply chains get a lot of capacity to supply the RCD driver ICs for the large panel, like TV side, this kind of products. And that area got a lot of price erosion. That's the area we see. The other areas, the segments, like industry, like automotive, like high end of analog power, high end of connectivity, the demands are still very strong. More like we can still say they are in a very healthy short supply type of a situation. Overall, we also see that for the industrial leaders, they maintain very strong demands. For the overseas markets, last time we mentioned, they also got a recovery from last year, so their demands are increasing. More or less, that's the situation. Our belief is that this kind of adjustment currently possibly get into the worst case. When we near the end of this year, every company, the system makers, mobile phone makers, telephone makers, automotive makers, they will plan for the next year. At that moment, if they plan for next year, it's good. They will start to get a better inventory. They start to put in orders. We believe the first changing points It's the end of this year. And when we get through the Chinese New Year timeframe, next year, in February, and we will see the overall economic, whether or not they get stronger. And that's the recovery of the total demand.

Great. That's helpful. Just one quick follow-up on the first one, and then I'll ask the second. Just for your business, as we get to kind of the worst If you could give a rough feel for the utilization or shipment, how it may hold up into like fourth and first quarter. And then the second question I have on the pricing environment and your long-term agreements, just given some channels panicking, just a view on the pricing environment, how it's holding, how any LTAs are holding up. And your view, you've kept margins quite solid, but your view on margins as you go through the worst of the adjustments. Okay, thank you.

Yeah, Randy. At this moment, the third quarter, we already gave the forecast. Our capacity utilization is more or less the same as the last quarter. It's more or less to the very high level, very healthy, and we cannot see very clearly for the fourth quarter. But industry's consensus I read very carefully from our customers and other companies' reports, and they are expecting about 10% type of frustration in the utilization.

And then on the pricing and the margins?

On the pricing, just now I mentioned like the LCD drivers for the large panel, and for the smartphones, smartphone needs a lot of ICs like CMOS imager and fingerprint these kind of products. Their price will go low if they like to maintain their market share because of the demands of the job. Just now, I mentioned that this year, the first half, the total sales of a mobile phone lowered by 17%. That's the published data. Definitely, the inventory is getting higher. In order to sell ICs to the mobile phone makers, currently the only way to do that is to lower the price, I mean the product makers. If that's the case, they will drop their price. Definitely, they come back for foundry service. They need to drop the price also, but then they come to that kind of, we call that commodity products. For the other products, I really believe their pricing will be very firm. And for the RTA contract makings, the price will be there, no change.

So factors, excuse me, so you may have some change on the weaker segment. So factoring utilization drop in some areas in pricing, should we factor gross margin like toward low to mid-30s, or do you think it can hold with your shift into some of the better areas and still tight areas?

The utilization impact is not that big for the gross margins, roughly one-to-one type of things. At this moment, sorry, I really cannot give too much information on the fourth quarter. We are working very hard to communicate with our customers and we are studying the overall market situation. Guys, it's still too early for us to talk too much on the fourth quarter. Okay, great. I appreciate that. Thank you. Thanks, Randy.

Our next question comes from the line of Xihou Ng from China Renaissance. Please ask a question.

Good morning, Ms. Guan. Actually, I have two questions I would like to ask. The first one is, you just mentioned that this industry is starting to move forward. I would like to ask, how does our company respond to this new cycle, especially with the current scale of our company, customers, and products? The most important thing is that the global environment is different from the current cycle. I would like to see what the management thinks about this.

Hello, Zyko. Thank you for asking this question. I think it is from the outside and the inside. There are two reasons for this new cycle. One reason is that the entire economy has fallen, the entire consumption has decreased. The second reason is that our industry has exceeded its demand. These two factors, let's see which one has the greatest impact. The biggest impact I see now is mainly the external cycle. The entire economy is not certain now. Some places' economy is in decline now, so its consumption has decreased. But the entire industry's demand for work is not obvious. Many nodes, and the production capacity in the field have not increased. So it is also because our entire supply chain has grown very slowly. For example, the equipment supplier is not delivering goods quickly, so the production capacity cannot be built up. Or when the production capacity is built up, it is found that there is not much increase in the industry of wafer saws or folderization. Therefore, the output volume of the entire industry in March has not increased too much. In this way, the demand for work in the industry is not particularly serious. Where is it serious? Now it is the overall economy. In the first few seasons, everyone was working hard to buy. Now it is not as much as it used to be. The stock of middlemen has suddenly increased. Another reason is that now you know that in some different industries, It is uneven. This is from the outside. For example, consumption and mobile phones have suffered a particularly serious impact. But in the industrial industry, it is still unprofitable. In new energy cars, it is still unprofitable. In terms of internet communication, high-end is still unprofitable. This is from the outside environment. The inside of SMEs is different from before. This time, SMIC is better prepared than before. SMIC's customer platform, production capacity, and other aspects are better prepared than before. But we also encountered some special situations. For example, the epidemic around us is not stable. As you know, this will have a bigger impact on us in different cities. This is one. The second is that you also see China has more than 70% of the global revenue from the Chinese market. This means that the interaction between China and the Chinese market will be more and more influential. If the shareholder of other industries has less than 70% of the revenue from the Chinese market, the pressure may not be the same as the specific problems we are facing now. In this way, we are also working together with the Chinese market and Chinese customers. As I said earlier, China Central International is like our name. We are an international company. We also have a large number of international customers and international orders. At this time, we also need to balance these two, which is to reduce the impact of the single market. There is another feature of China Central International. Just now, Randy, There is a question about utilization. SMIC has a very new factory. There is also a very old factory over there. The factory is very old. Its node, its product platform, customers are very many. Products are already there. It may be less produced this month. It can be increased next month. But for the newly built factory, for example, our Shenzhen factory, its original production capacity is very full. However, there are relatively few products that have been verified by its customers. If a certain product suddenly has a sudden halt in the market this month and it is no longer needed, then we have to switch to another product. We have to re-do the mask and re-do the verification. If it does not have so much verification now, it will be a little slower to respond to these sudden arrivals. Therefore, the current utilization and impact of Central International is to see how it is in our new factory. How is it in the old factory? Then I can briefly talk about it here Our factories that have been very long-term In this regard, the response is more than enough The new production we just established Is to be with customers and light manufacturing Verify together to quickly convert products The products that are now stored in the market are already very high We have to stop it quickly Then hurry to verify the products needed in the future This will put more pressure on the new factory The old factories will be better. China and the United States are trying to balance these. Speaking of experience, in the past few years, we have tried our best to make the production capacity of different nodes flexible in the same factory. We can switch and make different product platforms, including foreign customers. This way, when the market changes, we can make adjustments on both sides. I understand. The second question is about the cap tax intensity.

Why do you ask this question? In the past few years, we have been relatively close to the global fund, but the cap tax in the global fund is smaller than us. I just want to ask, what do you think about the KFPEC investment in the next few years?

Okay, last but not least, I have reported to you in the previous meeting that we have a consensus in the center of the international community. We believe that the logic of domestic and local supply will not change for a long time. The semiconductor industry in the entire world, especially in China, China China China China China We are following the market and the entire industry and our customer development needs to go together.

For example, we built a factory

After the construction of our factory, it is expected that it will run for more than 20 years. So in 20 years, we will definitely encounter a very good year. We call it the year of the year or the year of the year. There will also be bad half-year or the year of the year. It must be like this. So when we go down in investment, in a very good year, investment and relatively poor year investment, in fact, for the whole development of 20 years, Thank you.

Next question is from Le Ping Huang from Huatai. Next question comes from the line of Le Ping Huang from Huatai. Please go ahead.

Can you help us? Hello, Le Ting. Thank you for your question. The first question is,

First, let's talk about the speed limit. We may all face it, but the proportion of each family is not the same. What we see now is that in the field of large-screen television, such as LCD drivers, T-com, PMA, Wi-Fi, which are all needed in television, or smart phones, it needs some general products, such as fingerprint recognition, CMOS imager, and LCD drivers. It is like this. is a mobile phone manufacturer. He originally expected this year's target to be relatively high. Later, he found that the sales volume in recent months is very low. Maybe he already has a lot of storage in his hands. He mainly consumes his own storage. He may only take half or one-third of the products in the market. This is the middle design company, the product company. The mid-end company he saw suddenly had less than half of his needs. Then the middle company has a very high inventory. It may immediately ask the delivery side not to go down the line again. So this delivery has a particularly large magnification ratio. This is what I said. It may be yesterday's forecast or one month. For example, 10,000 pieces. He may tell you the next day. Can you stop now? Because he wants to find the market feeling. Then I also said that the market feeling point, we now see mobile phones, TV, these feeling points are the same. One is the end of this year, because each company has to make a plan for the next year to be exposed. If he wants to achieve that sales in the next year, no matter how many mobile phones, TV, cars, he expects his own production amount, he will start to calculate how much storage he needs. Then his order will be immediately confirmed. This is the first point. The second point is around February next year, when the Chinese New Year is over, we will see if the overall economy is still in decline or has stabilized or has begun to improve. When the overall economy improves, all the industries I mentioned will adjust their annual planning according to the overall economy. At that time, he immediately put his order down to the mid-term product company and then to our代工 company. So, at the end of this year and February of next year, it is an observation period. Now, it is in the period of speedy cancellation. If it is February, everyone can see it more clearly. If we start to restore his order, his impact should be at the end of the second quarter. It should be like this. What do you mean by a healthy level? Because each company is slightly different. The way we use our production capacity is that the production capacity you build can already be produced. This is called production capacity. However, the total production capacity divided by the output capacity is your production capacity utilization rate. If you are a new factory, your production capacity has already started to go down. It may take two or three months to come out. So in these two or three months, you will definitely see that your production capacity is divided into large and small. It is not full. This is not a real reduction in the use rate of production capacity. This is inevitable when the production plant is climbing. The production capacity is always lower than the initial production capacity. If the overall average is the impact of the construction of new production capacity and the impact of the production capacity without orders, it must be higher than 90% of the use rate, which is a healthy level.

Then I'll ask the second question. I remember Mr. Zhao mentioned several times at last year's conference that by 2025, our total capacity will be doubled. I remember that the capacity of 12 inches will be doubled or more. A lot of it is due to the LTA contract between system manufacturers and large design companies. Considering the current changes in the red line, Including, since they are closing so soon, I don't know if next year, if you are planning to open capital next year, what kind of consideration do you have? Will you adjust the capital opening or expansion speed according to the influence of Hong Kong? Thank you.

One is the specific opening of next year. I haven't announced it yet. But I answered a question earlier. Randy asked, We think that the capacity and intensity of our investment is sustainable and stable. There won't be too much change. We are optimistic about the medium term. The second point is that we have to do the math in five years. That is to do the math in 2021 or 2020. It is based on our own two considerations. One consideration is that in the entire inter-industry industry, our share is very small. We only have 5%. The supply and demand relationship of the entire industry does not change because of the five years of growth in the inter-industry industry, so it will not cause an impact on the entire industry. The second is that our current customer base and our newly developed platform and field, we estimate that To achieve such a goal, we still cannot fully meet the needs of the entire development. In this case, we think that the five-year period has already been communicated, or the projects of China, China and the international community in various areas have been announced, and these will continue to persist. Then you specifically ask whether it will decrease a little or increase a little next year. Now we answer this a little early, but the overall idea is that we will be very cautious but stable to do this. 不会出现大声大停的这样操作。 好的,谢谢。 好,谢谢乐平。 谢谢。 下一道问题来自国生的金湘周。 Our next question comes from the line of 金湘周 from 国生. Please go ahead.

I have a question here. I see from the source income structure, smart home applications are temporarily improved, which basically eliminates our smart phone. I would like to ask Mr. Guan, about smart home products, which products and industries are involved in the future? Will the structural improvement in the future be long-term? This is my first question. Thank you. Okay.

Hello, Jin Qiang. In our company, we are also studying how to accurately define smart home appliances. What is the difference between smart home appliances and home appliances? What is the difference between smart home appliances and home appliances? Our current definition is this. Smart home appliances are related to limited and unlimited internet connection and smart operation. We count them as smart home appliances. But traditional white home appliances and remote controllers are considered as home appliances. At home, everyone knows that there is Internet access. Then at home, the Internet, the Wi-Fi we talked about, Bluetooth, these wireless communications at home, smart TV, we all count them as smart furniture. The IoT at home is also considered smart furniture. This is probably more for everyone. For example, the monitor at home, right? As long as there is something online at home, It's not a laptop, it's a computer. It's all in our home. Our home TV, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our home radio, or our C-Mode, C-Major, C-Mode, C-Major, the processor behind it, as long as it is used in the family, we all count it as a smart home. If it is used in the industrial industry, we count it as an industrial type.

I understand. Very clear. The second question is that you just mentioned the issue of rapid slowdown. I saw that our second quarter's contract debt increased by $500 million, which is nearly three times last year. Are there any new orders in these contracts that are relatively long? Will these be faced with the situation of the stock market slowing down?

You asked a good question. Now, the companies that we sign LTAs and pre-payment funds are basically the companies that we think will be capable of becoming the leading companies in the future, or the top of the current industry. Now, we see that these places have not been affected. This is a very good way to operate. We can lock down a part of the future, whether it's the price or the production capacity. This way, when we develop the production capacity in the future, there won't be such a big risk. The LTA contract, the transfer of funds, is very well executed.

I understand. Can we understand that our contract is increasing rapidly, and this is a good indicator of performance for the future? Can we understand that? Yes, we can. I see. I have one more question. In Q2, we mentioned that some of our factory's tax haven't been completed as planned. Has the Q3 indicator already covered the possible tax plan? This is the last question.

Yes, it has already been included.

好,谢谢,谢谢赵总,谢谢管理层。 谢谢静强。 好的,感谢您的问题。 现在有请郭光丽女士自简述词。 Thanks all for your questions. I would now like to hand the call back to Ms.

Guo Guangli for closing remarks.

Thank you for participating in today's conference call. Thank you for your trust and support.