indie Semiconductor, Inc.

Welcome to the 2nd quarter of the Sino-Turkish World Cup 2023. Today's meeting will be live-streamed online and on the phone. Please note that if you join the meeting by phone, your broadcast will only be in the listening mode. After the management meeting is over, we will conduct the Q&A session. At that time, you will receive instructions on how to participate in the Q&A session. Welcome to Semiconductor Manufacturing International Corporation's second quarter 2023 webcast conference call. This call will be simultaneously streamed through the internet and telephone. Please be advised that if you join a meeting by phone, your dials are in listen-only mode. However, after the conclusions of the management's presentation, we will have a question and answer session. At this time, you'll receive instructions on how to participate. Now I would like to introduce Ms. Guo Guangli, Senior Vice President and Board Secretary to host the webcast. Hello, everyone.

Welcome to the 2nd quarter of the International Center for International Development's 2nd quarter of the International Center for International Development's 2nd quarter of the International Center for International Development's 2nd quarter of the International Center for International Development's 2nd quarter of the International

Greetings. Welcome to SMIC's second 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

including the full-fledged statement that the company's expectations for future performance are not guaranteed, and are subject to risks and uncertainties. Please read the full-fledged statement in our performance announcement. Unless there is another explanation, the data of the performance announcement will be expressed in the international financial report standard. All currency data will be expressed in dollars.

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 US dollars, unless otherwise stated.

接下来,有请吴俊峰博士介绍公司的财务情况。 I will now hand the call to Dr. 吴俊峰 to introduce the company's financial status. 大家好,首先我向大家汇报2023年第二季度以及上半年

我已經審計的經營業績,然後給出第三季度指引。 First, I will report our unaudited operating results for the second quarter and the first half of 2023, followed by our guidance for the third quarter. 二季度的經營業績如下,銷售收入為15億6千萬美元,完比增加6.7%,

The net profit is 20.3%, with a 0.5% decline. The operating profit is $80 million. The profit before tax relief and sale is $120,100,000. The profit before tax relief and sale is 76.9%. The operating profit is $403,000,000. The second quarter's operating results are as follows. Revenue was $1,560 million, up 6.7% sequentially.

Growth margin was 20.3%, down 0.5 percentage points sequentially. Profit from operations was $80 million. EBITDA was $1,201 million. EBITDA margin was 76.9%. Profits attributable to the company and non-controlling interest were $403 million and $61 million respectively.

Moving to the balance sheet, at the end of the second quarter, the company had total assets

of $45.8 billion, of which total cash on hand was $18.3 billion. Total liabilities were $15.9 billion, of which total debt was $9.7 billion. Total equity was $30 billion. Debt-to-equity was $32.2 billion. And net debt-to-equity was negative 28.9%.

In terms of cash flow in the second quarter,

We generated 796 million cash from operating activities. Net cash used in investing activities was 2,348 million. Net cash from financing activities was 704 million.

The company's unaudited operating results

for the first half of 2023 are as follows. Revenue was $3,023 million. Growth margin was 20.6%. Profit from operation was $163 million. EBITDA was $2,152 million. EBITDA margin was 71.2%. Profit attributable to the company was $634 million.

关于2023年三季度,我们的指引如下。 三季度销售收入预计环比增长3%到5%, 毛利率预计在18%到20%之间。 For the third quarter 2023, our guidance is as follows. Revenue is expected to grow 3% to 5% sequentially.

and growth margin is expected to be in the range of 18% to 20%. 以上是财务方面的情况,谢谢。 This concludes the financial status. Thank you.

谢谢吴博士。 接下来,有请联合首席执行官赵海君博士介绍运营情况。 Thank you, Dr. Wu. Next.

I will hand the call to Dr. Zhao Haijun to comment on operations.

Greetings to everyone. We are halfway through 2023. It's my pleasure to communicate with you at our earnings release conference again. Our view of the market hasn't changed much. Although China and the rest of the world's economies are operating in a completely normal way, the demand for electronic products is lower than expected. The storage of integrated electronic products is still high. The market lacks confidence, and chip companies are suppressing their spending. From the whole market, the mobile phone and consumer electronics sector is still in a state of calm. Compared with the views we shared in May last quarter,

Our activation on the market hasn't changed much. Although both China and global social life have fully returned to normal, the demands for electronic products are still below the expectations, and the inventories are way above the comfortable levels as well. The system makers are searching the base of confidence, and I see companies are cutting spending for efficiencies. From the perspective of the overall market, smartphones and consumer electronics industry are still in the innovation bottleneck period. The demand is not increasing, but decreasing. And the replacement cycle has been prolonged. While personal computer, industrial, automotive, and some other sectors demand have gradually stabilized, and the IC industry has touched the bottom, but is still confronting with a number of challenges, including the speed of de-stocking being slower than expected, the lack of momentum in demand growth, as well as the impact of geopolitics.

In the second quarter of 2023, although the stock price increased by 12%, However, the average sales unit price decreased by 7% due to price adjustment and product combination changes. Therefore, sales revenue increased by 6.7% to $15.6 billion. In terms of sales revenue by region classification, due to a certain time difference in domestic and foreign supply cycle, the stock storage rhythm is not consistent. The Chinese market share has risen by 80%. The revenue amount has increased by 13%. The revenue of other regions accounts for 20%. The revenue of sales is divided by service type. The revenue of energy is 90%. The revenue of other areas accounts for 100%. The revenue of energy is divided by application type. The revenue of smart phones, Internet, consumer electronics, and other types accounts for 27%, 12%, 27%, and 35%. Although the demand of the big economy has not seen any obvious rebound, But from the company's order situation, it can be seen that some applications are in the middle of domestic mobile phones. Consumer electronic chip storage is starting to decline. Customers are gradually recovering the demand for orders. For example, image sensor, image signal processing, high-pressure drive, micro-control, industrial control, and special storage chips, etc. Under the influence of this drive, the company's second-generation productivity rate has increased by 10% to 78%. Smart phone revenue has increased by 20%. Due to the decline of wireless network, travel devices, and other orders, the company's Internet IoT revenue has decreased by 20% more than before. However, the medium- and low-end TWS and Wi-Fi are still stable. In terms of size, 12-inch production capacity is relatively full. The revenue ratio has risen by 75%. Due to the weak customer demand, In the second quarter of 2023, although the wafer shipments increased by 12% sequentially, ASP declined by 7% due to price adjustments and changes in product mix. And as a result, revenue increased

by 6.7% sequentially to $1.56 billion. By region, as there is a time lag in the cycle domestically versus abroad, and the pace of destocking is different, revenue from China region increased to 80% of total revenue, with revenue amounts growing by 13% sequentially, while revenue from other regions accounted for 20% of total revenue. By service type, revenue from wafer accounted for 90.5% and others for 9.5%. By application, wafer revenue from smartphone, IoT, consumer electronics, and others accounted for 27%, 12%, 27%, and 35% respectively. Although the overall demand has not shown a strong rebound, based on what we have seen from our customers' order, inventory of some chips used for smartphone and consumer electronics in domestic markets has begun to decline, and customers have gradually resumed the order's placement, such as GIS, ISP, high-voltage driver, MCU, and et cetera, industrial control and specialty memory chips, and et cetera. Driven by these factors, the company's utilization rate in second quarter increased by 10 percentage points sequentially to 78%, and revenue from smartphone increased by 20% sequentially. Due to decreasing orders in areas of wireless LAN, routers, and others, revenue from IoT declined by more than 20% sequentially. Even though the mid- and low-end TWS and Wi-Fi demands still solid in the Chinese market, by size, wafer revenue contribution from 12-inch increased to 75%, with relatively full demand, while wafer revenue contribution from 8-inch declined to 25% due to weak customer demand. And utilization rate was lower than that of 12-inch, but still better than the industry average. 二季度,公司毛利率因平均单价下降,折旧上升等原因,下降了0.5个百分点。 In the second quarter, the company's growth margin declined 0.5 percentage points to 20.3%, mainly due to a decline in blended ASP and rising depreciation costs. 截止二季度末,折合8英寸月产囊增至75.4万片,较年初增加了4万片。

By the end of the second quarter, monthly capacity increased to 754,000 8-inch equivalent wafers, with an increase of 40,000 wafers compared to the beginning of the year.

In the second quarter, the company spent a total of $1.7 billion on capital expenditures. In the first half of the year, the company spent a total of $3 billion.

China's main design company's product inventory is gradually declining, especially some new products are gradually building up inventory, starting to prepare for the second half of the year and next year's mid-term product exports. The amount of exports in the third quarter is expected to continue to rise, and at the same time, the relief will continue to increase. By increasing the amount of efforts in the shrunken market, the company's sales revenue in the second half of the year is expected to be better than in the first half of the year.

In the third quarter, we expect to see a repeat of the situation at the second quarter, with shipment volume increasing and blended ASP declining. We expect the company's revenue to grow by 3% to 5% sequentially and growth margin to be between 18% to 20%. Here are bases for our guidance. The product inventory of main design companies in China is gradually decreasing, especially some of the new products are gradually building inventory in preparation for end product shipment for the second half of 2023 and next year. The company's shipments are expected to continue to increase in the third quarter. Meanwhile, the depreciation will also continue to increase. with the efforts to gain market shares in a downturn cycle. The company's revenue in the second half of the year is expected to be better than that in the first half.

We can predict that the competition in the future will be more intense. But we have long-term confidence in this industry. What we are pursuing is long-term development. As for our big platform and big technology in the domestic field, we will continue to do good technical research, brand development work, and quickly verify new products. We will arrange the best speed for the next round of growth.

Currently, China remains the world's largest consumer market for integrated circuits and discrete devices, accounting for 35% to 40% of the global market. Although, because of the reconfiguration of the supply chain and reallocation of resources, it is foreseeable that the competition will be more intense in the future. We have long-term confidence in this industry, and what we pursue is long-term development. Based on the comprehensiveness, leadership, and scale effect of our major platforms and technologies in the domestic industry, we will continue to strengthen our technology R&D and platform development, verify new products quickly, arrange the supporting capacity as soon as possible, and fully prepare for the next round of growth cycle.

最后,依然要感谢公司的全体员工,客户,供应商,投资者, 以及社会各界对公司一如既往的信任和支持。 谢谢大家。 Finally, 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.

As a reminder, to ask questions, please press star 11 on your telephone and wait for a name to be announced. To cancel your request, please press star 11 again. First question comes from the line of Randy Abrams from Credit Suisse. Please go ahead.

Okay, yes, thank you. Good morning. The first question I wanted to ask on the pricing environment, you mentioned second quarter the pricing declined 7% sequentially. Could you talk about how you're seeing pricing continue into second half? Are you seeing any stabilization or at least moderation of declines? And how do you see that continuing as we look second half into next year on pricing? Thank you.

Hi, Randy. Thank you for the first question. Talking about the price from the first half to the second half, basically we see the situation in markets as this. The first one is that the pricing for the small products, very unique products, are different from the commodity and very large volume products. This kind of a downturn of the industry, one way really ramping up the capacity. We have to adopt a lot of high-volume standard products like DDIC, TDDI, CMOS imager, CMOS imager processor, specialty memory, these type of standard high-volume products, even though they are requiring a lot of new technology and new tools. For these kind of standard high-volume products, their price is relatively lower than the unique small volume products. That comes to the ratio of the complex of the total product running. For the first year and the second half year, when we increase the volume to make our 12-inch vapor fiber fully loaded, then we have this kind of ratio getting higher. That means standard product, high volume products ratio getting higher. They put on the normalized product as a whole. This is one part. And the second part is, you know, for the 8-inch wafer 5s and capacitors, we are met up with three major challenges. The first one, the high-volume PMIC products met up with the downturn of smartphones. The inventories are way too high. So for these kind of PMIC products, loadings getting lower, price definitely trending down. And the second thing for the 8-inch wafer 5s, They are supplying the analog power market, but we see the international IDMs are really coming back using low price to compete with the fabulous designers. For this area, the market is going down, and the order is getting smaller, and the price is going lower. The last one is the LCD driver for the large panel, or DSL. is the third player in the 8-inch wafer pipes. And they are on a market that is really going down because the shrink of the demand. So 8-inch wafer pricing are really going low, together with the high volume products getting higher ratio. So we see, by quarter, the normalized AST is going lower. Normalized, that's the situation. So for the second half of this year, we see higher volume, higher rate flow out, higher utilization in the FAB, but we see the ASP are going down.

Okay. If I could ask a follow-up to that. We're seeing more competitors or equipment companies are noting a lot of new companies building FAB capacity. how are you seeing the competitive pressure and how do you view the effective capacity from some of the new players, like where you see them competing? And I guess rolling back to your business, do you think the margins as utilization recovers, do you have a level you think margins come back to or do you think around similar levels given the pricing?

Oh, yeah. Randy, let me say this way. This year is a downturn year, and we cannot use this year's demand and pricing as an average for the next three to five years. Last year and the year before were the years really at the peak of the industry cycles. So when we look at the situation such, we have to normalize the years. through the booming and the downturn, so that we got a relatively reasonable, predictable type of price. And the second comment is that at this moment, we really see the new capacity at the end, and the computations are very strong. But mainly on the area, everybody can do, easy to get in, and that's the portion just now I mentioned, 8-inch wafer fives, and the commodity type of things like RCD drivers, CMOS imagers, this type of products. But if we look at the total product portfolio in the market, there are more than 10,000 types of different applications. Anybody who can really fabricate, really produce, deliver the highest quality of products and get a renovation every year, they are still very competitive. on the orders and the pricing. And so we should say this way. On the one hand side, SMIC is a relatively small size in scale. And in the markets, what we are growing in capacity does not impact too much to the overall foundry industry. The second thing that we are doing differently from the other people, so slowly, we specify more unique products so that we really hone our skill in the high-quality portion. In the meantime, I believe that one of the key things in the foundry business is the management has to get a long-time successful experience. They have the proven systems in manufacturing, and in time, they deploy enough resources to really deliver the customized technologies for customer. With this kind of efforts, I believe SMIC, even though meeting very strong challenges from the late commerce and the capacity, we still can go ahead to do SMIC's planning and market development.

Okay. Thank you. If I can call up the 8-inch, where you're running relatively better, but it's an issue for the industry. Okay. How do you see, with the focus on specialty, do you believe there's the business to refill that capacity, or could we be entering a longer period of underutilization? And can you pull back the plans where you have some capacity, I guess, put on hold for the 8-inch expansion?

Randy, for 8-inch capacity expansion, Actually, SMIC has almost completed, and more or less in the next couple of years, we'll stay with the capacity we already built up as of today. Not too much, but we really diversified the product platforms and put in the development efforts with our customers together. At this moment, we should say, because the three factors just now I mentioned, the smartphones, and the international IDMs and RCD driver things are really going down. For the long run, I believe the agent capacity in the foundry business are more or less very balanced. When we build up this kind of capacity, we have the customer commitment to this kind of capacity. Just now I mentioned that today is the bottom of a downturn. We couldn't use today's utilization as an average for less than three to five years. We really believe that when the market is coming back, when the mobile devices go back to normal and the capacity will be fully utilized.

Okay. Thank you, Dr. Zhang.

Sure.

Thanks, Randy. Thank you for the questions. The next question comes from the line of Zhang Xiaofei from Haidong Zhenjuan. Please go ahead.

Okay, Xiaofei, hello. Thank you for your question.

It's not easy to talk about the speed of overseas storage reduction. In general, overseas customers are generally the first suppliers in the electronic product market that we see now. It has a long-term agreement with OEM. So, in general, when the industry goes down, the second and third suppliers react the fastest. They may be cut off first. In this way, the first supplier, plus RTA, can slowly slow down until this year. In this way, we can clearly see that customers in Europe and the United States, their response time, the time they start to reduce orders, is two quarters less than that of Chinese local design companies and particularly small design companies. So we only saw them start to strictly manage orders and inventory in the second quarter. But these Chinese companies have already started in September last year. So the whole trend should be almost the same. Now China's major Chinese design companies have already started to supply new products. But foreign companies are verifying new products. I think this time is predictable. But overall, the market recovery is slower than we imagined. Because in the first quarter of the beginning of the year, when we sat down with you in February, It just so happens to be a small spring after the outbreak. Everyone has a big recovery. We think that recovery can not only be maintained, but it will be even better. But now it seems that there is no further recovery. This requires the entire macroeconomic economy to make some adjustments. As you just said, if what you see in 2024 is relatively stable, but not a very optimistic recovery, Especially like smart phones and consumer electronics. Because it needs the overall recovery of the global economy. It is not the recovery of our semiconductor industry. This time will be very long. So we also feel that next year is not so optimistic. If so, the question you ask is, will the center of the international community continue to invest and increase production capacity as before? The answer to your question should be that the overall plan of SMIC is in the middle. The end point is not changed. But in the implementation process of these years, it must be discussed with our customers. What kind of product does it need in which year? How many capacity? And then SMIC is in the middle, following the market. It's not a linear. The time we start and the time we end, draw a line in the middle, and then the same percentage every year. It's not like that. Because we also found that in the entire economic cycle and the industry cycle, customers change very quickly. The original main market and products may need to be reduced. The things that were not planned may be proposed now. This requires our production capacity and equipment configuration to be changed. So we can't buy all the equipment in this uncertain situation and then buy new equipment the next year without these equipment idling. It won't be like this. Then we need to quickly establish a production capacity and create new products for our customers. During this period, we also saw that our 55nm and 65nm production capacity also had the same situation. In fact, from the perspective of our parallel machine, we are very full. We also need to attract some special equipment to meet the requirements of customer new products. Maybe in the next year, From the second half of this year, we mainly do this kind of work. Our clients have a lot of urgent needs. We must quickly establish this part of the production capacity. I understand. Thank you, Zhao Bo.

The second question is about the 28 and 40 nanometers you just mentioned. Because this node, especially the 28, is special. I remember during the last cycle, the world was quite empty at that time. But during the last wave, it became very tight. I don't know what you think about the two key points of the company, 28 and 40. I don't know how the public demand of the world is viewed in the future. The second is, will there be a situation where 28nm is relatively high when the upper wave appears?

28nm and 40nm, if we simply talk about doing standard logic circuit, this is impossible to guarantee that it will always be able to have orders when the production capacity is full. In fact, the 40nm and 28nm we see now, the first wave, of course, is the general product we just talked about. For example, this DDIC, the mobile phone's soft screen, the LED screen's drive circuit, the CMOS C major and CMOS C major's processor, and the MCU. But other than these, there are other products that also come in. 我们就可以把这些平台各样的市场应用 不断的把它做起来 因为现在正在做90纳米 正在做.13的55纳米的 只要是我们在这些特殊的产品把它做起来 比方说MCO LCD driver BCD等等 如果能把它在28和40纳米把它做好 那这些现在正在相对更成熟节点 更落后节点的 也会逐渐移到这些先进节点了 We think that 40 nanometers is a very good stop point in terms of cost structure. Then 28 nanometers integrates its refined 28 nanometers. This is a very good stop point for flat technology. From a long-term point of view, we must make the platform and customers do more and more every year. What about the central international? I told you that we are in 40 nanometers and 28 nanometers. Thank you, Xiaofei.

Thank you for the questions. One more for the next questions. Next on the line, we have the questions from Le Ping Huang from Huatai. I beg your pardon. Please go ahead.

Okay. Thank you, Mr. Zhao. I have two questions. The first question I want to ask is a short one. You just mentioned in the remark that China's sales have increased by 4%. We saw that The number of smart phone customers is also rising. But if we look at the numbers of the central supply department, the mobile phone market has dropped by 4% since the beginning of the year. How should we understand the gap between these two? And what do you think of the resumption of customers in China? This is the first question.

Okay, Le Ping. Thank you for your question. There are two reasons why the number of customers in China is rising. One reason is that the number of customers in China dropped. It started last September. There are two records that are earlier than the European and American areas. I have already mentioned this. Maybe they are the second or third supplier. When the market started to go downhill, their original products were canceled. But there are no European and American customers, so the European and American customers are a little later. Another one is that OEM and these large suppliers may have very strong LTA contracts. Last year, it was probably impossible to reduce it. It can only be gradually reduced this year. This is the reason for the time. If it is the same thing, it is also possible that European and American customers may also start to replenish in two seasons. Because this time starts late and ends late. The second thing is that the customers in the Chinese region have taken a greater share in the entire supply chain this year. So last time I talked about it, it was in a declining, shrinking total plate. The number of customers has increased significantly. This means that in this supply chain, whether it is the smart phone supply chain, or the consumer electronics supply chain, or the electric car supply chain, there may be other suppliers. But during this period, the percentage of other suppliers has decreased, and the percentage of Chinese customers has increased. It happens that these customers are also Chinese international customers. That's why we have more orders. As I said before, 40nm and 28nm can't be made in a full year. This season, the situation is the same. It has developed to 55nm. We are going to make these new products. What is limited is that it has a new equipment bottleneck. The frequency of the machine is different. We need to urgently supplement these frequencies in order to meet the requirements. The smart phone you mentioned just now, There's another one that people don't really look at, but it has a big impact on Chinese customers, and it has a big impact on China and the international community. We call it a repair-type phone. In English, it's refurbished smartphone size. What you see here is this year's smartphone, brand new smartphone size. It's about 1.1 billion. But in reality, its delivery volume is probably 1.24 billion. The difference in the middle So you will find that This is not a small number. It came up all of a sudden. My answer to your question about the lower-end market is this. Thank you. The second question is about capital development.

We see that the capital development here is quite normal. Then we see the performance of overseas equipment manufacturers in the second quarter. They also pointed out that the equipment investment in the Chinese region is still very strong. I want to ask, you just mentioned the strategy of the big platform. In what direction are these capital investments mainly headed now? And then, are you worried that the entire capital investment construction in the Chinese region is not just you, but the entire capital investment construction is very strong? Are you worried that there will be some problems in the industry in 2024 or 2025 on the urban engineering platform? Thank you.

Thank you, Le Ping. We have just talked about the construction of this big platform. We have announced our project before. Now, KPEX is still used to build this production capacity, which is our 12-inch production capacity, to build it into a large-scale production. Because to make 12 inches, it is impossible to say that you only make 6,000 pieces first. This is possible. But you can't say that I will make 10,000 pieces and 15,000 pieces after big production. to at least reach a minimum level of breakeven. This is what we have to do. So we have to build factories in several places at the same time. We have to build them as fast as possible to maintain the production scale. Let's say the production scale is 30,000 to 40,000 pieces of 12 inches. We have to build it to such a scale in several cities. This is a consideration. At the same time, we are also building factories in Tianjin, Lingang, Beijing and Beijing are all building factory houses. Factory houses are also a kind of spending. They bought this land, built a house, and established a facility. This factory will run for 20 to 30 years. But its spending was spent in the first year and the first year and a half. This also shows that China is now a little bit higher. Another small factor is not the biggest factor. Because when we, SMEs, buy equipment, we need to go through some approval processes. So the entire delivery time will be a little longer than others. Then we must have a little more time to buy, in case there are a few devices that are not on time, which will delay the needs of the customer. So we will make this buffer. This shows that SMEs' future development, we require equipment delivery, And the purchase time will be a year and a half earlier than others. That's how it looks in the end. You see the KPI is the current trend. Le Ping, the other thing you said just now is that you also heard in this report that others are buying and others are building. Will we have a surplus of production capacity? Le Ping, this is actually I have an answer to Randy's question. Let's look at it from two points of view. The first point is that we can't use the lowest demand in the current industry, the lowest bottom, the bottom of the downturn, to calculate the use rate. The simplest way is to add up the demand from the previous year and this year's demand by 2. This is the simplest way. This is from a perspective of future development. Its use rate is still there. Its demand is still there. The capacity established by SMIC, including the production line of 8 inches, was actually negotiated with customers. It has requirements for those capacity. We also recognize its ability. In the future, if there is such a large amount in the market, we will invest to establish this capacity. This is the first one. The second one is that SMIC is relatively small now. It only accounts for 5% of the manufacturing industry. and move forward together. Secondly, they must have the ability and the confidence to invest so much resources to make these standardized technologies the best in the industry. Thirdly, they must have a successful management team to manage the quality, delivery, production, construction, operation, and cost best. On these three points, China and the international community have certain confidence Thank you for the questions.

Next question comes from the line of Ziho Ng from China Renaissance. Please go ahead.

Good morning, Mr. Director. I have two questions for you. First, I would like to ask about the bar trend. Do you think the bar trend will return to the previous two years' higher level when the economy recovers? Ziho, thank you.

When I was talking to Randy and Xiao Feng about 8 inches, I also mentioned that the amount of 8 inches in the world is that much. There is not much increase. Last year's demand was not met and there was a big gap. This year, there are a lot of reports that the utility is relatively low. The reason for the low utility is that one is that the storage is very high. The main part is the combination of P-Mac, smartphone, main chip and case. Main chip can't be sold, so can PMEGA. The second thing is that although we don't have a lot of industry in 8 inches, but there are a lot of 8 inches in IDM. Now, the main product of this 8 inches, Analog Power, has encountered a very strong competition, which is the international IDM factory. Last year, it was a public demand, so it lost a lot of market shares. These market shares have been given to Foundry. This year, very competitive means, including low prices, to take back the market. That's why these fibrous and foundry orders have dropped this year. The third one is LCD driver. You know, these panels, drive TVs, monitors, and so on. Last year, there may have been a lot of storage. Some people say it's a big screen. This year, we don't need to add another piece, and we can maintain it. The demand in the market It's going down, but last year it was much better, so this year it's much better. So I was just saying that looking at 8 inches in the future, it will definitely be able to fill up again. The simplest calculation is to add last year's demand and this year's demand together. This is its average demand. What we see is that 8 inches is different from our 12 inches. 8 inches is actually the node that everyone is focused on. is the node 0.18. Some of us call it 0.15 micro, 0.18 micro. This is the node. This node is very concentrated, and it is also very large. The cost is very low. We have calculated that for analog power, BCD, these things, from 0.18, 0.15, 1 to 0.13, 0.90, even 0.65, 0.55, there is not much gain. This will remain there for a long time, including large-scale LCD drivers. It is also the best technology and economic competitiveness in Baying Village. Our future, especially this is a storage market, there is no more increase. It should still be possible. Because everyone is talking about it, whether you are doing the AI set now, the GPU set, or the mobile phone set. In this, BCD Analog Tower, or this high-pressure drive, or separation components, these are inevitable. Everyone is talking about new energy vehicles, In fact, electric cars, EVs, they need the largest amount of power electronics. This part is almost 100% in 8 inches. If we think that in the future, this energy transfer conversion, electric cars, these, the real amount of demand in the future is in 8 inches power electronics. The amount of demand in 12 inches power electronics does not see such a large number of growth.

I understand. My next question is to ask Mr. Hai Jun to update our investment in the specialty platform. I heard that we have recently invested in RFS or R. Is there any progress in Silicon Photonics? Because I just said that every node we enter into large production is a little later than the leading enterprise.

So we go in at this time. Then expand it to low power and ultra low power. Then expand it to RF. digital digital digital digital digital digital digital digital digital digital digital digital digital digital digital digital digital digital digital digital digital digital digital And these 10 platforms are always moving forward. For example, we started with NowFlash in 1965, and then in 1955, and then in the 40s. Even if NowFlash is a specialty, it keeps moving forward. We also do NonFlash. At the beginning, it was 38 nanometers, and then it went down, and then it went down, and then it went down, and then it went down, and then it went down, and then it went down, and then it went down, and then it went down, and then it went down, and then it went down, and then it went down. 那我们就是把这些平台补足 只要是有客户 市场有一定的量 我们就是在logic的基础上 差不多80%是common process common tools 然后再增加一点点 我的打比方叫请一桌子人吃饭 再多一个客人 只是多了一双筷子 并不增加其他的成本 我们就把这个应用给扩大 这样就可以东放不量西放量 Thank you, Zihong.

Thank you for the questions. One moment for the next questions. Next question comes on the line, from CITIC Securities. Please go ahead.

Hi, Mr. Haijun. I'm Wang Ziyuan from CITIC. I'd like to ask you a question. We've seen that the production capacity in the past few seasons has been increasing at a steady pace. This production capacity is mainly concentrated in several FABs, including our subsequent new power plants such as Zhongxin Jinchun and Zhongxin Dongfang in Lingang, what are their current production progress arrangements? Thank you.

Okay. Last year and this year, we continued to increase. One is 8 inches. We have an 8-inch factory in Tianjin. It should be the largest 8-inch factory in the manufacturing industry. It uses new equipment to make 8 inches, but it has a very strong competitiveness. In this area, we have increased the volume of 8 inches by about 40,000 pieces a year. This is also a linear growth. Other than linear, this is a linear growth. By the end of this year, we have basically completed the 8-inch production deployment. The future growth is 12 inches. The 12-inch growth, you just asked, one is the original factory in Beijing. We just told you that our 28 nanometers, 40 nanometers, One is the lack of production capacity. The other is the lack of capacity for new products. As I said earlier, we have entered the international center late, but there are a lot of platforms. Any new product that comes in, the whole combination will change. It will be pulled in and pulled out. So this is a construction of production capacity. The second one, 12-inch, is in Beijing this year. It is the second manufacturing base in Beijing and the 12-inch factory in Shenzhen. The main increase is in these two 12-inch factories. The reason is that I mentioned it when I answered Le Ping in the beginning. Once the equipment is started to be produced, we cannot stop it at a very low cost, without an economic scale. For example, do 10,000 pieces a month. This is impossible. It must be done to an economic scale. According to the requirements of the customer's order, we can do it to a balance. It's not a loss. At least it has reached such a level. Thank you, Mr. Haijin. How is the progress of Beijing and Lingang? Thank you, Mr. Yang.

Thank you for the 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.

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