indie Semiconductor, Inc.

Welcome to Semiconductor Manufacturing International Corporation's first quarter 2023 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 conclusions of the management's presentations, we 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, Senior Vice President, Board Secretary to host the webcast.

Greetings.

Welcome to SMIC's first quarter 2023 webcast conference call. Attending today's call are Dr. Zhao Haijun, co-chef executive officer, Dr. Wu Junfeng, senior vice president and person in charge of finance. 在此提醒各位,我们今天的表述包括前瞻性陈述是公司对未来业绩的预期而非保证。

Let me remind you that today's presentation may contain forward-looking statements that do not guarantee future performance.

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.

有请吴俊峰博士介绍公司的财务情况。 I will now hand the call to Dr. Wu Jingfeng to introduce the company's financial status.

大家好,首先我向大家汇报2023年第一季度未经审计的经营业绩, 然后给出第二季度成绩。 First, I will report our unaudited financial results. for the first quarter of 2023, followed by our guidance for the second quarter.

In the first quarter of 2023, the sales income is $146,200,000, the net profit is 9.8%, the interest rate is 20.8%, the net profit is 11.2%, the net profit is $8,300,000, The first quarter's financial results are as follows.

Revenue was 1,462 million, down 9.8% sequentially. Growth margin was 20.8%, down 11.2 percentage points sequentially. Profit from operation was 83 million. EBITDA was 951 million. EBITDA margin was 65.1%. Profit attributable to the company and non-controlling interest for 231 million and 36 million respectively. Moving to the balance sheet, at the end of the first quarter, the company had total assets of $45 billion, of which total cash on hand was $19.3 billion. Total liabilities were $15.4 billion, of which total debt was $9.4 billion. Total equity was $29.6 billion. Debt to Equity was 31.6%, and Net Debt to Equity was negative 33.5%. In terms of cash flow, in the first quarter, we generated 502 million cash from operating activities. Net cash from investing activities was 23 million. Net cash from financing activities was 921 million. 关于2023年二季度,我们的指引如下。

For the second quarter 2023, our guidance is as follows. Revenue is expected to grow 5% to 7% sequentially, and growth margin is expected to be in the range of 19% to 21%. The above is the financial situation of the company. Next, the company's 2022 report on the relevant events. According to the relevant regulations of the Shanghai Stock Exchange, the listed company's annual report period, profit and accumulated unselected profits as evidence, listed companies that have not made cash dividends should be in the annual report after the announcement of the annual shareholder conference before the registration day of the shareholder conference.

就现金分红方案相关事宜予以重点说明。 This concludes the financial status. Next, let me recap the relevant matters related to the company's 2022 annual report. According to the relevant regulations of Changhai Stock Exchange, when a listed company has made profits during the annual reporting period and its accumulated undistributed profits are positive, but no cash dividends are distributed. The company should provide a key explanation on matters related to the cash dividend plan in earning webcast after the disclosure of the annual report and before the record date of the annual general meeting.

By the end of 2022, the company has accumulated a net profit of 30.9 billion yuan. The net cash flow generated by the company's business activities in 2022, deducted from the cash of construction fixed assets, formless assets, and other long-term assets, the free cash flow obtained is negative 5.6 billion yuan. The company's integrated circuit processing industry is a capital-intensive industry. The continued capital spending and production construction are one of the important driving forces of the company's future income and profit growth. In 2022, the company's capital spending will be RMB 432.4 billion. It is estimated that the capital spending in 2023 will be roughly equal to that of 2022, and will exceed 10% of the company's recent savings. The comprehensive consideration of the company's current business situation and future development plans, the company does not carry out profit allocation in 2022. This arrangement is more in line with the long-term development needs of the company and the long-term interests of shareholders. It is in line with the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of law, the rules of The company's 2022 revenue and growth margin increased significantly from the previous year. According to China Accounting Standards, by the end of 2022,

the cumulative undistributed profits was RMB 30.9 billion. In 2022, the net cash generated from the company's operating activities, after deducting cash paid for the purchase and construction of fixed assets, intangible assets, and other long-term assets, resulted in a negative free cash flow of RMB 5.6 billion. The foundry industry in which the company operates is a capital-intensive industry. Continuous capital expenditure and capacity building are among the key drivers for the company's future scale growth of revenue and profits. The capital expenditure in 2022 was RMB 43.24 billion. The capital expenditure in 2023 is expected to maintain roughly flat compared to 2022, which exceeds 10% of the company's latest audited net assets. Taking into account the company's current operating situation and future development plan, the company plans not to distribute profits for the year of 2022. which is in line with the company's long-term development needs and the long-term interests of shareholders and in accordance with relevant laws and regulations, regulatory documents, and the company's profit distribution policy. There are no circumstances that harm the interests of the company and its shareholders. The plan has been reviewed and approved by the Board of Directors and published in the annual report and will be submitted for approval at the annual general meeting on June 28th. We would like to thank our shareholders for their understanding and support.

Thank you, Dr. Wu. Next, let's have Dr. Zhao Haijun, the chief executive officer of the United Nations, introduce the operation.

Thank you, Dr. Wu. Next, I will hand the call to Dr. Zhao Haijun to comment on operations.

感谢大家对中兴国际的关注,也欢迎大家参加2023年第一季度的业绩说明会。 Thank you for your continuous support to SMIC, and welcome to the first quarter 2023 earnings call. 一季度集成电路产业整体上处于底部,正如我们二月份说明的, The industry and the automotive industry are relatively stable. The mobile phone and consumer electronics industry are still in high stock. The market for existing old products, especially high-end and low-cost standard products, needs to continue to decline. The company actively adjusted the product combination to optimize the income structure and increase the average sales unit price, achieving a sales income of $14.62 billion, a decline of 9.8%, which is slightly better than before.

In the first quarter, the whole IC industry was still at the bottom. As what we explained in February, the industrial and automotive sectors were relatively stable. The supply chain inventory of mobile phone and consumer electronics still remained high. The market demand for existing old products, especially standard products, with large volume and low price has further declined. The company actively adjusted the product mix to optimize the revenue structure and improve the blended ASP and achieved the revenue of $1,462 million, down 9.8% sequentially, and slightly beat guidance. Gross margin was 20.8%. which was close to the high end of our guided range. .

to separate the original smart home from the smart TV, smart lock, smart box, and so on. The segmentation is based on consumer electronics. The segmentation is based on the Internet connection related to the remote control. No matter how the segmentation is, there are some general products that still exist in large application scenarios, but we still hope to work hard to optimize the segmentation. In the first quarter, After adjustment, let's look at smart phones, consumer electronics, Internet of Things and other categories. The ratio is 23%, 27%, 17% and 33%. The income of smart phones has decreased by more than 20%. The income of consumer electronics and Internet of Things has remained the same. The car-related income under other categories continues to increase. 40 nanometers of embedded storage technology and other car platforms are continuously being launched.

Starting from the first quarter of this year, we have adjusted the application classification of our revenue in quarterly earnings reports, mainly in order to facilitate the communication with product companies and end-user companies. We have referred to the industry practices of application classification, and the overall adjustments are as follows. First, we have segregated IoT from others as an individual sector. Second, we have split the original smart home sector, among which smart TV, smart lock, settle box, and some other subdivisions have been reclassified to the sector of consumer electronics. while more than LAM-related network connectivity subdivisions have been reclassified to the sector of IoT. No matter how we made the classification, there are still some common products that still span multiple application scenarios, but we still hope to optimize the classification through the adjustments. In terms of the adjusted classification in the first quarter, smartphone, consumer electronics, IoT, and others accounted for 23%, 27%, 17%, and 33% respectively. Revenue from smartphones declined by more than 20% sequentially, while revenue from consumer electronics and IoT remained flat sequentially. Under the sector of others, revenue from auto continues to grow, with auto platforms such as 40nm embedded memory continuously being launched. We expect the gradual increase in the revenue of related platforms, along with the growth of the new energy vehicle industry.

According to the sales revenue and platform, the current non-degradable storage Embedded non-volatile memory. By platform, EMVM.

embedded nonvoluntary memory and specialty memory nor NAND platforms have shown signs of recovery, with revenue increasing by more than 20% sequentially. By region, revenue from China, America, and Eurasia accounted for 75%, 20%, and 5% respectively.

Our main basis is that, first, compared to three months ago, the global market is still at the bottom, However, in recent years, we have noticed a rise in the confidence of Chinese customers in different fields. Second, some standard product needs have reached the bottom. Last year, there was a good change in the field of high-pressure drive, camera chips, and dedicated storage period, which entered into the storage stage first. Third, domestic mid-range whole-machine companies are actively innovating, seeking market breakthroughs, and promoting new products. and the realization of the first new performance, and the rapid growth of the company's emergency orders. In order to better serve the investment of new products to customers, we make many mistakes and add resources to ensure technical support, and reduce the waiting time of products to the maximum extent, and deal with the abnormal situation online as quickly as possible, and accelerate the speed of new products into production, and strive to make customers get the products earlier. Currently, In the second quarter, we expect that the company's capacity utilization rate and shipment will perform better than first quarter.

Revenue is expected to increase by 5% to 7% sequentially, with a decline in blended ASP due to the impact of changes in product mix. Growth margin is expected to be between 19% and 21%. Here are basis for our guidance. First, although the global market is still at the bottom, however, compared to three months ago, we have perceived the rebound in Chinese customer confidence in different areas. Second, demand for some standard products has buttoned out. High voltage drivers, CIS, and specialty memory, which first entered the destocking stage last year, have shown positive momentum. Third, the domestic end-user companies are actively conducting innovation. seeking for market breakthroughs, and promoting the realization of new products and new launch functions. Thus, the rush orders from these companies have rapidly increased. In order to better serve our customers during the launch of new products, we have taken multiple measures, such as increasing investments in resources, ensuring technical support, shortening product queue time, to the greatest extent, dealing with online abnormal situations as quickly as possible, so as to speed up the pace of new products entering the production, and striving to deliver products to customers earlier. Currently, 40 and 28 nanometer have recovered to full utilization. However, in the short term, due to bottleneck on capacity mix and platform revenues. It will take time for the new products to realize rapid revenue growth.

In terms of how to implement platform deployment and improve competitive advantages, we have arranged it this way. Our storage capacity is our old factory, relying on its development advantages to continue the old factory model with the new factory model, and further play a role in the radiation education of the mother factory, and improve the learning curve and operation efficiency of the new factory. And the capacity increase, which is our new factory, will have its own priorities, and play its production contract advantages. Shenzhen, It focuses on high-pressure drive, camera chips, and power electronics. Zhongxin Xicheng focuses on simulation and power management products. The products of Zhongxin Jingcheng and Zhongxin Dongfang are more diversified. To fill the market gap. Zhongxin Shenzhen has entered mass production. Zhongxin Jingcheng is expected to enter mass production in the second half of the year. Zhongxin Dongfang is expected to end at the end of the year. Zhongxin Xicheng is under construction.

the company carries out capital expenditure in line with the expansion plan, according to the pace of production capacity construction. If we take a fab line with a monthly capacity of 50,000 wafers 12-inch equivalent as the standard, this means in each year we have one new fab start construction and one new fab start production. Following is the plan of how we will arrange the platform deployment of production capacity and enhance the competitive advantages. Our existing capacities, which means OFAPs, relying on their R&D advantage and model of OFAPs tutoring new FAPs, further leverage their mother FAP effect on improving the learning curve and operational efficiency of the new FAPs. Our incremental capacities, new fabs, will have their own focus and concentration advantage. SMIC Shenzhen will focus on high voltage driver and CIS. SMIC Xicheng will focus on analog and power measurement products. SMIC Jingcheng and SMIC Orento will have relatively more diversified product platforms to fill the market gap. Currently, SMIC Shenzhen has entered mass production. SMIC Jingcheng is expected to enter mass production in the second half of the year. SMIC Oriental is expected to start the mini-line by the end of this year. SMIC Xicheng is still under the construction.

But the rate of return in the second half of the year is not clear yet. Overall, we have not seen the market warm up. Therefore, it is inconvenient to maintain a full-time job. In other words, the sales revenue is also reduced to a low 10%. The profit margin is about 20%. We will do our best on the existing basis. In the face of rapid changes in the market, we will continue to follow the market as a guide. Looking ahead to the full year of 2023, although the revenue buttons out in the second quarter, the visibility of recovery magnitude for the second half of the year is still not clear.

Overall, we haven't seen the signs of market full recovery. Thus, the full year's guidance remains unchanged. Revenue is expected to decline by a low team's percentage year over year, and the growth margin is expected to be around 20%. We will strive to do better based on the current situation. Facing the dynamic market changes, we will continue to follow the strategy of being market-oriented and customer-focused, strengthen communication with the end market. We will fully cooperate with the launch of new products and make adjustments to fix bottleneck issues so as to meet the next round of growth cycle. 再次感谢公司的全体员工、客户、供应商、提供者 I would like to thank all employees, customers, suppliers, investors, and community for their continued trust and support to the company. Thank you.

Thank you, Dr. Zhao.

Next is our Q&A session. Questions will be answered by Dr. Zhao and Dr. Wu. 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. To ask a question, please press star 11 on your telephone. To cancel a request, please press star 11. One moment for the first question. First question comes from the line of Randy Abrams from Credit Suisse. Please go ahead.

Okay, yes, thank you and good morning and good to see the business starting to improve a bit. I wanted to ask the first question on the 8-inch versus the 12-inch. The first quarter shipment decline implies a good blended price improvement. Could you discuss for 12-inch and 40 and 28 a bit more on the applications driving that strength and then for 8-inch areas of weakness? And then for second quarter, do you see that same mixed trend, or do you see improvement on 8-inch or still the momentum on the advanced 12-inch?

Good morning, Randy. Thank you for raising the first question. For the fourth quarter, the job of the owners always look at the utilization of the capacity. is in the 8-inch. That also answers the question that why, when we have the lower utilization and lower revenue, but the AISP is getting higher because the loosing of the wafer odors mainly come from the low-end standard products with the lower AISP, especially in 8-inch loadings, such as the low-end CMOS imager, fingerprint ICs, large panel LCD drivers, The first quarter, these kind of standard product orders were very low and made the 8-inch utilization getting low as far as bottom-level type utilization. On 12-inch, definitely, we also got affected, but not so much at 8-inch. That's come to the second quarter, the recovery of the revenue and the utilization, and we The rush orders mainly come in for the new products for the 12-inch, especially for 40 nanometer and 28 nanometer. Just now in my discussion, I already said that our five, the 40 nanometer and 28 nanometer, have been running full loading stage, already recovered to 100% utilization. And the area for this kind of recovery We've seen the first one is the DDIC for the mobile phones, a small amount for the monitors, and related CMOS imagers, and LED drivers, and the other applications. The reason behind data recovery mainly happens in China is that we see the supply chain is shuffling. new suppliers getting into the supply chain and they got the orders, they got the market shares. And fortunately, these kind of new joiners are the customer of SMIC. So what we saw in the recovery for SMIC may not be the overall market. That could be the overall market. Currently, it's still very dynamic, but SMIC's market share is getting higher.

Okay, that's helpful. Just to follow up to the first question, do you see that continuing, like the momentum through next few quarters? And how much capacity are you bringing on? So is there constraint in that area, or do you have a lot of the tool moving from the last year so that that can grow a good bit next couple quarters?

For the rush order, we can see that very, very firmly. Just now, in my statement, We also say that we haven't seen the clear picture of the whole year, but we do see the supply chain reshuffle and new opportunities for certain customers. They got a larger market share. Whatever already happened can be a short thing throughout the year. But it depends on the overall, if we say SMIC with the I don't think they reached to a high level. We need the overall market and recovery inside of the supply chain reshuffle. At this moment, we are still very cautious. We know that. What we already got, this kind of market share, this kind of customer products, new products, there's no inventory for these kind of new products. The production will be continuous throughout the year, but we are not very sure whether We will have further items on top of the current utilizations. We look and see.

Okay. The second question I want to ask, actually, it's just on inventory, customer inventory and pricing, because the balance sheet for your customers' inventory looks quite high, but are your customers indicating they're comfortable and want to keep these high levels, or are they seeing a need and may take a long time that they want to actually draw down to a much lower level. So just curious how they feel on inventory reduction. And for the pricing, I think it highlighted in the outlook there would be a bit lower pricing. As we come off the bottom, do you think we'll see ongoing pressure after the reductions start to see some stabilization there?

Yeah, Randy. For the old products or standard products, the inventory in the markets, including SMIC's customers, are still very high. So their major efforts still like to maintain or even de-inventory on these kind of stocks. What we have already built up for this pre-built type of inventory, still at a very healthy level. To be honest, it's not higher than before when we have this 2017, 2018, five, six years back, we built up a similar level before with a larger size of SMIC capacity today, and the inventory of pre-built is considered pretty safe at this moment. Just now I mentioned that for the recovery of the production or continual production, we rely on two things. One thing is The existing products, very likely the inventory is relatively high on the market. We just calculate with the RTA how many months they will consume this kind of inventory. We have to make sure they are relatively safe. But in the meantime, the rush orders mainly for the new products, new functions, new performance. In the market, there's almost no inventory for this kind of product. So for these kind of new products, the concerns on the inventory level is very low. So what I mean is we build a relatively safe level for the existing products, all the old products, but we try to build our inventory for the new products. The challenge to us, I see, is that we do have many, many new products come in, and we take time to make them up. to run a silicon wafer and work together with customer to get a full qualification. So the efficiency to run up the production of the new product is the key for SMIC's recovery in the second half of this year and next year.

Great. And if you could address pricing real quick, too, and then I'll move on. Yeah, thank you.

Thanks, Randy.

Thank you for the question. Now, the next question will now come from the line of Le Ping Huang from Huatai. Please continue. Please proceed.

Thank you. Hello, Le Ping. Thank you. We have divided the needs into two parts. One part of the needs is the industry and new energy vehicles.

This has always been a public demand, but we can't do too much. The reason is that there are more than 1,600 types of car products. We don't have that many product models now. So you can't do a lot of single models. Although this industry is still a public demand now, we can't use it to fill the output. So many models need to be done slowly and verified slowly. We are very happy to see two things now. The emergency bill is back. One of them is that they are adjusting their supply chain in the mobile phone and delivery industry. The largest supply chain may not have a large share this year. The original small share did not even have a share in the supply chain. This year, its share is increasing and even getting a lot. It just so happens that many of these suppliers are international clients. So, He wants to meet the distribution of this new market format. He is going to put a lot of orders to the center of the country. Of course, these orders are some of the products that are already available, mature products, but the proportion of the models he prepares is not very right. It also needs to be supplemented. What about the other ones? More of them are new products, new functions that are first released. These are not stored. After coming, I will rent a horse to do it because there is no storage. The monthly order is 1,000 pieces. You have to produce it according to 5,000 pieces. Because it needs to store a certain amount to do market share. This is in the mobile industry. In terms of consumption, we can clearly see that the demand for the world's low-end Wi-Fi and Internet is rising. The demand is very high. We can see an obvious rebound. The third is that the global epidemic The construction of real estate is not done well. Now these are back. For example, the driving circuit, energy-saving circuit that everyone uses for lighting, LED lights, or the decoration of the outer surface of buildings, lighting lights, these quantities have not been done for several years. Now it's back and the demand is quite large. The rest are small products that are supplemented one after another. I also have a question.

The question about our company's ASP is that because last quarter rose very quickly, this quarter fell. You just explained that it is mainly the change in product structure. If you compare the same product from Apple to Apple, I don't know how to look at the trend of this product price now. Because the global fund rate is that everyone's productivity is relatively low. I don't know if the price competition is under a lot of pressure or not. I think the price should be more appropriate.

Thank you. Yes, Le Ping. Some products are very price sensitive. If you lower the price, you will get more share. If you don't lower the price, you will get less. In fact, in the first quarter of the S&P 500, we saw that the price dropped a lot and the utilization was relatively low. The main thing is that we talked about it at the last February meeting. We, China and the international community, did not pursue the price competition at the bottom. We did not use low prices to pull more orders. So those low-priced orders are gone, so let them go. So this has dropped. The price of utilization has dropped by nearly 30%. These low-priced products are mainly lost. In this way, the remaining 70% of products, the average price of ASP has risen. This is the question you asked earlier. Why did ASP rise in the first quarter, right? In the second quarter, our overall utilization rate has increased. All kinds of orders have come back, including some low-price ones. The whole wafer is still a wafer, but the layer used is relatively small. It's a simple product. It's also back. After the utilization rate is high, the proportion of low-price ones is a little bigger, which makes the entire ASP drop. Just now, I also talked about this in my report. But you have to ask accurately, for the same product, the first quarter is also produced, the second quarter is also produced, has its price changed too much? Then my answer to you is no, there is not much change. Then this rate is within 5%.

That is, we are not saying that the price is going to grab the order. That is, we actually still need to come back. That's right. Thank you for the questions.

Next question comes from the line of Zihong Yin from China Renaissance. Please proceed.

Hello, Mr. Zihong. I have two questions for you. They are all about R&D. I would like to ask if our company's R&D investment is based on the proportion of revenue?

Hello, Mr. Zihong. The answer is very simple. No. It is based on our long-term cooperation with SMIC. How many market shares will it have in the future? What level of product design will it have? When will it need it? How many pieces will it need in a month? We will evaluate such requirements. To put it bluntly, we will evaluate according to its priority level. The second is according to the center's international future. How much of it will be competitive? How much of it will be the top of the industry? How much is the proportion of large and medium-sized products? which must be invested in order to increase our leading product competitiveness by as much as possible. In addition, how much will the future production capacity of SMIC increase every year? How many orders will need to be pulled in? According to this requirement, the project has been determined. These projects need to be arranged according to the list of resources given. The first priority, the second priority are arranged like this. How many projects need to be opened in a year? How many projects need to be opened in three years? What is the total investment R&D? Once it is confirmed, this is what we are going to do. The total amount of money spent. There is not much to consider. Is it that the revenue has dropped 10% in this quarter? We will control R&D. Or this year, the revenue did not grow so fast, and R&D fell. No. We just follow what I said just now. That is, customers. In order to increase the market share, in order to keep customers, we should do what we should do. The second is, according to our future, Revenue li mian de, yu jing zheng li de, he pu tong de chan pin de zi ga fen liang, mu biao. Di san ge ne, jiu shi an zhao wama zeng jia de chan nang, wei lai yao tian xian xiu yao shi ma chan pin, rao hu xiu yao shi ma yang de ke hu, ba zhi xia fang zai yi qi, gai kai de xiang mu do yao kai, mei you ke hu de xiang mu, shi chang he jiao shou jiao chu qi zhao ke hu, rao hou ding hao la, yao qiu ba zhi xie xiang mu yao zuo qi la.

Liao jian. In addition, in R&D, is there any benchmark that you can share with us to measure the efficiency? The efficiency of R&D. The efficiency of R&D.

We have it now. It is inconvenient to announce it. It is within us to test the R&D project. Its success, delivery, and revenue are listed in the name of the industry. We have strict standards. We also ask our clients to make strict assessments. We currently believe that R&D should be done according to the highest level in the industry. What we are concerned about now, what we used to be concerned about most, is the international center. Because of resources and various considerations, we can't start and do everything that should be done. We need to train and introduce talents in all aspects. Thank you for your questions. One moment for the next questions.

Next up, we have the line from Xue Lai Li from CICC. Please proceed.

Thank you, Director. I'm Xue Lai Li from CICC. I have two questions here. So the first question is, as we just discussed, we are very happy to see that the guidance for the second quarter is still increasing. In fact, in recent years, we have seen that同行, including domestic and overseas同行, are all guided by the second quarter, either holding or falling. This may also reflect the special competitiveness of our company. What I may be more concerned about is, because in general, the global economy um um Thank you.

The lack of capacity and utilization in the manufacturing industry is mainly due to two reasons. One is that the demand for the entire environment has decreased. No matter how much the demand is, for example, from 120 million for smart phones last year to 1.1 billion this year. In the past few years, it used to be 1.4 billion, right? It has been decreasing. This is the total demand. The second reason is that we had more orders last year. Even if there is no drop, there is too much inventory. So this year's orders are less than last year's. This year's sales inventory, last year's drop inventory. I just told you when I reported to you that the second quarter of the central state has started to come back. It depends on two ways, two things. One thing is that old products will not increase orders. We are doing our best to make new products. New products have no inventory. Once you verify that you have entered the whole supply chain, you can do more, because it has no inventory. You must have three to five months of inventory to enter a balanced state. The second thing is to increase your share in a shrunken market. This is mainly due to the efforts of our customers and SMEs. In the industrial chain, the supply has gone in, but its share is relatively small. This year, in the whole process of bidding, its share growth is larger than it used to be. This leads to new products, old products, and the number of Chinese and international orders will increase. You just asked whether the increase in the number of new products and the increase in the number of Chinese and international customers in the market can continue. Is it getting bigger and bigger? I can answer that the new product should last for a long time. So my answer is, It's not clear whether it will grow or not, but what we have now is sustainable. I understand.

I think the trend of our company's productivity going up should be relatively certain. My second question is about our capital expenditure this year. and the pace of equipment procurement and bidding. Because I see that in the first quarter, our capital expenditure compared to the same period last year is still growing a lot. At the same time, we give this year's capital expenditure a guide, which may be equivalent to last year. Can I understand it this way? If the investment pace of each year is equivalent, then this year's capital expenditure is very likely to exceed the amount of last year. Thank you.

Mr. Schoenlein, you have indeed done a thorough research on SMIC. SMIC has something to do with the market. The market has some seasonality every year. When we launch these POs, there will also be some seasonality. When it is delivered in this way, some seasons come more, some seasons come less. Plus, you know, our suppliers, because last year, China China China China China China China China China You have already told me that if the recovery of SMIC can continue, especially now that SMIC 4028 is already full, and the long and short corners are under a lot of pressure, then we will definitely urge suppliers to deliver these 4028 devices as quickly as possible. So we will also move forward a little bit.

Okay, very clear. Thank you, Dr. Zhao. I don't have any other questions.

Thank you, Xuelan.

Thank you for the questions. One moment for the next question. Next up, we have the line from Zhiyuan Wang from CITIC Securities. Please go ahead.

Hello, Mr. Haijun. I'm Wang Zhiyuan from CITIC Securities. I want to ask you a question. I want to ask you a question. Okay. Thank you, Ziyuan. This year, we see that customers need some new performance.

Even in the original node, such as 402.28, or 0.11, 0.13, such mature nodes, they all need some new requirements. Now we support these new requirements. The focus of Central International this year, you asked me the focus of this year, is to implement the existing product, for example, the original 402 product, on 28nm. For example, embedded flash, high voltage, specialty memory, And then the BCD on the original 90nm will be realized in 65nm. The general feeling is that one is the customer. Now we need to make the original product more competitive. The original 40nm does it. He hopes you 28nm has a new product. The original 90nm does it. I hope you have a new product on 55nm. If it's still on 0.18, 0.15. He needs your endurance to become higher. And then RDI's power consumption will become smaller. This is one point. That is, these products, which are the largest in the central international market, will all have new platforms to push out. The second point is that we want to make it compatible with the automotive industry. Because customers don't want to do many types of products. He wants you to be qualified in the automotive industry. He will do a lot of things. He will choose to sell cars, sell industries in China, and sell consumption in the rest of the world. If you don't reach the level of a car, for example, we have many product platforms. You can only do consumer products. Then he will feel very hesitant. Because he hopes that this product can dominate several fields. The other key point of SMIC this year is to make all consumer industrial platforms There are 11 types of electric vehicles, about 1,600 products. So now we can't guarantee the requirements of the car factory. The main reason is that there are too few products. We need to make more power electronics products to be able to support the requirements of large customers. This is the focus of our research today.

Thank you for the question. Now, Ms. Guo Guangli would like to hand the call back to Ms. Guo Guangli for closing remarks. Thank you to all the members of the telephone conference today.

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

This concludes SMIC's first quarter webcast conference call. We thank you for joining us today.