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Semiconductor Manufacturing International Corp
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Ladies and gentlemen, welcome to Semiconductor Manufacturing International Corporation's Third Quarter 2019 Webcast Conference Call. Today's conference call is hosted by Dr. Zhou Zixue, Chairman of SMIC; Dr. Zhao Haijun, Co-Chief Executive Officer; Dr. Liang Mong Song, Co-Chief Executive Officer; Dr. Gao Yonggang, Chief Financial Officer; and Mr. Tim Kuo, Director of Investor Relations.
Today's webcast conference call will be simultaneously streamed through the Internet at SMIC's website. [Operator Instructions]
The earnings press release is available for download at www.smics.com. Webcast playback will also be available approximately 1 hour after the event.
Without further ado, I would like to introduce to you Mr. Tim Kuo, Director of Investor Relations, for the cautionary statement.
Good morning, and good evening. Welcome to SMIC's Third Quarter 2019 Earnings Webcast Conference Call. Today, we are pleased to have all of our top management present. We will begin with a few words from them, both in Mandarin and English, starting with our Chairman, Dr. Zhou.
[Foreign Language]
[Interpreted] Welcome to today's webcast. I would like to thank each and every one of you for your continuous interest and support to SMIC. It has been exactly 2 years since the last time I attended the webcast in the third quarter of 2017. I would like to take this opportunity to talk about the trend in the semiconductor industry and SMIC's recent development and results from reformation.
[Foreign Language] Hello, everyone. I'm Haijun. Thank you all for joining us today. In the past 2 years, we have continued to expand and develop SMIC as a mature technology platform and have made extensive planning according to market demands. So far, we have achieved financial results. At the same time, we are optimistic about new growth and collaborative opportunities in China. I will share with you in detail later.
[Foreign Language] Hello, everybody. This is Mong Song. [ Today ], we will update you on the SMIC's R&D progress and prospects of our advanced technology. In particular, the first generation of the FinFET technology has entered production and expect revenue contribution. The development of the second-generation FinFET technology has been carried out as steady, and SMIC will strive to seize new opportunities. Haijun later will also have more explanation. Thank you.
[Foreign Language] Greetings to our friends from the capital markets. I'm Yonggang. I hope that through today's best arrangement, you will have a more comprehensive and complete understanding of SMIC's current status. I will now return the call back to Tim.
Thank you, Dr. Gao. Now I will go through the statement -- cautionary statement. Today, our Chairman, Dr. Zhou Zixue, will make a statement on the company. Following, our CFO, Dr. Gao, will highlight our financial performance and give guidance for the next quarter. And then our co-CEO, Dr. Zhao, will provide some business commentary. This will be followed by our Q&A session hosted by Dr. Zhao, Dr. Liang and Dr. Gao.
As usual, our call will be approximately 60 minutes in length. The earnings press release and financial presentation are available for you to download at www.smics.com under Investor Relations in the IR Calendar section.
Let me also remind you that the presentation we'll be making today includes forward-looking statements. These statements and other comments are not guarantees of further performance but represent the company's estimates and are subject to risk and uncertainty. Our actual results may differ significantly from those projected or suggested in any forward-looking statements.
For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our filings and submissions with the Hong Kong Stock Exchange Limited.
During the call, we will make reference to financial measures that do not conform to International Financial Reporting Standards, IFRS. These measures may be calculated differently than similar non-IFRS data presented by other companies. Please refer to the table in our press release for a reconciliation of IFRS to the non-IFRS numbers we'll be discussing.
Please note that all currency figures are in U.S. dollars, unless otherwise stated.
I will now turn the call over to our Chairman, Dr. Zhou Zixue.
[Foreign Language]
[Interpreted] Welcome to today's webcast. I would like to take this opportunity to thank each and every one of you for your continuous interest and support to SMIC. It has been exactly 2 years since the last time I attended the webcast in the third quarter of 2017.
[Foreign Language]
[Interpreted] In the past 2 years, the semiconductor industry was impacted and faced downward pressure due to the increased macroeconomic uncertainty. In this challenging situation, we have worked closely with domestic and global customers and suppliers to continue to innovate and capture market in order to maintain continuous growth in revenue.
[Foreign Language]
[Interpreted] Moreover, during these last 2 years, under the joint leadership of Dr. Liang and Dr. Zhao, SMIC has experienced radical reformation. We have streamlined our organization, promoted a more disciplined management culture and improved the level of our management, efficiency of decision-making and our team's ability to execute. The outstanding achievements we have made in the development of technology platforms over this time period are the best proof of our improved execution.
[Foreign Language]
[Interpreted] In advanced technology within these 2 years, our 28-nanometer HKC+ entered production. Our 14-nanometer FinFET completed R&D, engaged customers and entered production. In addition, our 12-nanometer and second-generation FinFET technology have made steady R&D progress and are both now in customer engagement. Under the leadership of Dr. Liang, our R&D team's advanced technology node, project experience and overall capabilities have been greatly enhanced.
[Foreign Language]
[Interpreted] In mature technology, we have set up a team to specialize in product technology development to focus on our CIS, CMOS image sensor, PMIC, NOR Flash, fingerprint and other technology platforms. We are proactively driving the growth of the company through continuous innovation, constant improvement in the comprehensiveness and competitiveness of our technology platforms, active expansion of our customer base and engagement in new products with international and domestic customers.
[Foreign Language]
[Interpreted] In order to meet with the increasing market and customer demand, we are also expanding our production capacity at a steady pace.
[Foreign Language]
[Interpreted] It can be predicted that the macro environment in the next few years will still be complicated, and the development of the semiconductor industry will still be full of challenges. However, the rise of 5G, artificial intelligence and other related fields will greatly boost the market demand and bring new opportunities for the development of the industry.
This year, China has licensed 5G. In the next 2 years, there will be widespread networking and the launch of consumer products. 5G requires a lot of ICs from cloud-based to end products.
In addition, 5G is a high-speed and low-latency telecommunication technology. We'll also promote the development of new applications, such as autonomous driving, Internet of Things, et cetera, which will further boost the market demand of the semiconductor industry.
[Foreign Language]
[Interpreted] Our key international and domestic customers have strategic plans for 5G-related fields. We are working closely with them to engage new products in advanced and material process nodes and to bring these to market in the next 2 years.
[Foreign Language]
[Interpreted] Overall, we are stepping forward into an important period in SMIC's history of development and expansion. In the past 2 years, through tough reform, we have successfully shaped a strong team, laid out and developed a good number of technology platforms and strengthened trust and collaboration with customers and suppliers. These efforts have laid a solid foundation for our confidence in the future.
Finally, we look forward to returning to a strong revenue growth next year. Thank you, Dr. Zhou. I will now hand the call to our CFO, Dr. Gao, for financial highlights.
Thank you, Chairman Zhou and Tim. First, I will highlight our third quarter results and give the fourth quarter 2019 guidance.
In the third quarter 2019, our revenue was $860 million, an increase of 3.2% quarter-over-quarter, mainly due to the increase in wafer shipment. If excluding the revenue from the LFoundry, our revenue was $803 million, an increase of 6.1% quarter-over-quarter.
Gross margin was 20.8%, a sequential increase mainly due to the rise in utilization in the third quarter.
Non-IFRS operating expenses were $257 million, lower than guided range, mainly because of control of R&D and G&A expenses in the third quarter.
Profits for the period attributable to SMIC was $150 million. Among which, $81 million came from the disposal gain of LFoundry, which was disposed in July.
Noncontrolling interests were $31 million of credits to SMIC's attributable profits, higher than the guided range, mainly due to the currency exchange loss from RMB depreciation for our joint venture.
Moving to the balance sheet at the end of third quarter. Cash on hand, including financial assets, were close to $3.8 billion. Gross debt to equity was 45%, and net debt to equity was 6%.
In terms of cash flow, we generated $380 million of cash from operating activities in the third quarter. From Q3, we changed accounting policy to reallocate R&D government funding from directly deducting R&D expenses to under the category of other operating income. The purpose of this accounting policy change is to be more comparable to peers.
Now looking ahead into the fourth quarter of 2019. Our revenue is guided to be up 2% to 4% quarter-over-quarter. When excluding LFoundry, revenue is expected to increase 4% to 6% quarter-over-quarter. Gross margin is expected to range from 23% to 25%, mainly due to high utilization, improved product mix and a stable pricing environment. Non-IFRS operating expenses are expected to range from $271 million to $277 million.
Noncontrolling interests of our majority-owned subsidiaries are expected to range from positive $17 million to $19 million, which are losses to be borne by noncontrolling interests.
The planned 2019 CapEx for foundry operations is approximately $2.1 billion, which are mainly for the equipment and the facility in our majority-owned Shanghai 12 fab and FinFET R&D line. The planned 2019 CapEx for nonfoundry operations are approximately $106 million.
Our planned 2019 D&A is approximately $1.1 billion. And lastly, we would like to highlight that our 2019 gross margin is expected to raise to 20% compared to the original guided range of high teens to 20%.
Our estimated EBITDA for 2019 is approximately $1.3 billion compared to the original expectation of $1.1 billion.
I will now hand the call over to our co-CEO Haijun, for general remarks.
Thank you, Yonggang. Again, thank you all for joining us today. Today, I will give an overview of business and technology overview, then Mong Song, Yonggang and I will answer questions from the line.
Let us begin by highlighting the results of our third quarter. Then I will update you on our mature node technology application platforms, advanced technology progress, capacity plans, business development and our outlook for the rest of the year.
Overall, our third quarter was better than our guided expectations. Reported revenue increased by 3% quarter-over-quarter compared to our guidance of flat to 2%.
Revenue, excluding LFoundry, grew by 6% quarter-over-quarter, beating our guidance of 2% to 4%. The increase in revenue was due to better-than-overall business, higher sales of advanced nodes of masks, customer inventory digestion and a fresh incremental revenue from newer applications.
Overall, wafer shipments in the third quarter increased 2.4% quarter-over-quarter. Gross margin improved to 21%, which was the high end of our guidance. The improved margin was largely due to higher utilization, growth in shipments and a change in revenue mix.
For regional perspective, business continues to be strong, particularly in China region, which increased 10% quarter-over-quarter, contributing to 60.5% of our revenue.
SMIC [indiscernible] in the China ecosystem, continues to provide a solid foundation for the company's business growth.
Excluding revenue from LFoundry, sales from our United States region was stable and grew more than 2% in third quarter over -- in third quarter, while Eurasia is up to 56% growth over -- year-over-year, signifying significant market opportunities captured.
I'd like to address now our mature node technology platforms. We had begun to build and develop these application platforms in early 2018, and now they are paying off and translating into revenue. We have achieved significant breakthroughs in mature and mainstream applications in both quality and quantity as demand is high. Mature nodes technology for 8-inch and 12-inch is stable. Our capacity is full until the end of this year with indicators that this demand may carry into the first half of next year, depending on a stable macro environment.
The platform area, which showed particular strengths for both 8-inch and 12-inch, includes CMOS image sensors, power ICs, fingerprint ICs, Bluetooth ICs and specialty memories. Furthermore, we have seen some special smart card applications, such as electronic toll collection, ETC, continues to have a good, stable demand and have contributed to some of our new incremental revenue in the recent quarters. While analyzing revenue by applications, our customer segments grew 16% quarter-over-quarter and 3% year-over-year as we see the demand of 5G triggering the market for mature technology applications such as IoT and smart home appliance.
5G demand for SMIC includes a wide range of devices, including power management for quick chargers, specialty memories for high-end variables and a CMOS image sensor for smartphones, consumer devices and servers.
Our revenue from power ICs, CIS, mixed signals, RF and fingerprints are up 6% quarter-over-quarter.
By technology nodes, a majority of our growth in third quarter came from 65- and 55-nanometer nodes. 65 and 55 is up 42% year-over-year, while revenue from 28-nanometer 0.13 micron and 0.35 micron also increased. These increases are largely due to connectivity, application processors and a CMOS image sensor-related applications.
Our 28-nanometer platforms continue to experience customer appeal and a continued demand. 28-nanometer wafer revenue contribution increased to 4.2% in third quarter. Our 28-nanometer platforms are addressing applications such as high-end consumer and a set-top box.
Both PolySiON and the high-K metal gate continue to experience demand. And we plan to transcede our mix that is heavier on high-K metal gate. We continue to expect that 28-nanometer will provide a low- to mid-single-digits revenue contribution for the full year.
I will now give a brief update on our advanced technologies, including the R&D progress and base net opportunities. Let me address the progress of our 14-nanometer technologies.
14-nanometer successfully entered reproduction in the second quarter and now in production. We are continuing to engage with customers and expect revenue contribution by year-end. Meanwhile, our team is conducting ongoing tape-out projects, and we continue to expand our customers, both globally and domestically.
Applications for our first-generation FinFET technology include applications such as high-end consumer, media-related applications, mobile application processors and artificial intelligence. Auto-related applications using our advanced technology are also progressing well with our customers' validation on product quality. We continue to expand our advanced node portfolio as we are now also developing RF-related applications.
To address our progress, N-plus-1 node, we continue to push forward with good progress. Our N-plus-1 development is on track, and customer engagement is smooth. Given the limited players in this area, we are optimistic about the potential opportunities and ability to provide diverse options for global and domestic customers.
Allow me to talk about our market perspective for our advanced technologies. The growing FinFET market is being driven by the market trends like high-performance computing and migration to 5Gs, which bring increased IC demands from smartphone upgrades to connectivity using WiFi, IoT, Bluetooth, smart home and smart city. We are confident that the upcoming market trend will benefit SMIC and the industry as well. We target to see incremental revenue contribution from FinFET in fourth quarter coming from high-end consumer to high-performance computing.
With new technology coming in production, we have planned our advanced capacity carefully. We reiterate our 2019 foundry CapEx of USD 21 billion, of which we have spent USD 1.5 billion in the first 3 quarters. Our capital spending is largely for our new SMIC South joint venture facility, which can address 14-nanometer and below. At this point of time, our capacity additions and research and development plans are running smoothly and on schedule.
With regards to business development, the transition to transfer LFoundry ownership was completed in July. As a result, Q3 accounted only 1 month of LFoundry's revenue and a onetime disposal gain of USD 81 million. We are glad to focus on our core manufacturing in China while still having a foothold in automotive IC market.
In third quarter, we are nearly fully loaded on our main fronts. Meanwhile, we continue to work carefully with our customers on [ basement of ] situation demand to prudently expand our capacity to capture distinct opportunities. We reiterate our second half 2019 is better than the first half of 2019. As the capacity remains pretty full in both mature 8-inch and 12-inch, we expect fourth quarter to be another stable quarter. Our capacity growth in the near term is limited. We are guiding our fourth quarter with single growth -- single-digit growth coming from broad-based utilization growth and a new incremental revenue from advanced technology nodes. We now believe we can outperform the full year guidance of being in line with the foundry industry growth to slightly beating the industry.
When excluding the disposal of LFoundry and the licensing revenue, SMIC may see slight revenue growth versus the [ industrial's ] decline. Looking forward, we are very optimistic about next year, given our current visibility and customer demands. Products utilizing our technology platforms will continue to ramp up.
To conclude, SMIC has executed well in the recent quarters on delivering its platform technology and developing new technology nodes. Our advanced technology nodes, research and development, continues to accelerate, and we are well on schedule to meet our various targets. At the same time, we have continued to build our comprehensive solutions to supporting our customers' needs and meeting the market opportunities. SMIC continues to play an important role in the industry. We work to further support the domestic supply chain and collaborate with domestic and the international customers that desire to take part in China's opportunities. Therefore, we continue to build trust with our customers and the build-up of solid network of surveys and market-driven relationships. We see increasing opportunities and aim to grab strategically as we purposely maintain our leading position in China.
We thank you for your continued support as we work to bring values to our shareholders. Once again, thank you for joining us today. I will now hand the call back to Tim for the Q&A session of this call.
Thank you, Dr. Zhao. Today's Q&A will be hosted by our co-CEOs, Dr. Zhao and Dr. Liang and our CFO, Dr. Gao. I would now like to open up the call for Q&A. [Operator Instructions] Operator, please assist.
[Operator Instructions] Your first question comes from the line of Randy Abrams from Credit Suisse.
I wanted to ask the first question. You alluded to strong growth expected in 2020. If you could talk more about magnitude of growth, kind of what you're expecting for industry and SMIC's growth next year, and then how you see the growth, both from the advanced platform like 28 and 14 or FinFET, and then how you see the mature nodes continuing to grow into next year to support that strong growth.
Randy, thank you for the question. Looking to the next year about a business situation based on our current visibility to the market, we see very strong demands. Just now, we already said that for our 8-inch and 12-inch. We are in a floating stage for quite a while. You know that since the last quarter, we announced that.
And we do not see significant growth in our capacities in the mature nodes. So we are pretty confident that for our mature technologies, we should see -- they continue [ how they are ] loading. But because of -- we just know, we already said that. We do not have the fast investment in the capacity expansion in the mature technologies. So we want to see right away immediate significant growth in revenue, even though we have confidence that they continue full loading stage.
And second half [ next ] year, possibly, we would have ideal capacities, but that's gradual. Just now we already said that. Our expansion on capacity is very prudent, careful, and we may now see that big jump in the capacity providing part.
And on the leading-edge technologies in the FinFET, we already moved into the production stage. And we have continued customer engagements on new tape-outs. And at this moment, it's still too early to announce the extra volume of real estate revenue growth.
Okay. If I could ask the second question and maybe split into 2 parts. It's -- maybe the view on CapEx. I think the 2 areas, since you're full on mature nodes for next year, what your plan if -- because you mentioned a lot of specialty applications with good potential on 5G IoT. And then for the FinFET line, I think you have capability to move to 15K. So if you could talk kind of your plans and what it might account to for spending. And then maybe the implication on gross margin with the guidance up by a few points, if we should view the kind of closer to mid-20, as a level of full utilization that you can maintain or if kind of the recent range where it's been closer to 20%, like into next year, if that's probably the level it may return back to.
Randy, since SMIC continued situation of a full loading, yes, just now we already say that because the full loading situation, very hard to manage. And we are confident that the gross margin of 20% type of things will be maintained. And as for the next year's spending on the CapEx on the capacity things, SMIC always follow on the principles that with the [ availability of ] our technologies in the market, everything based on our strategy needs and the actual building of capacity based on market demands, so we are consolidating the market demands and later will make the decision on the total spending on the capacities. And I really believe that when we have the database costs for the fourth quarter, we will announce more [indiscernible] capacity spending for 2020.
Okay. And if I can clarify the gross margin because you're guiding 23% to 25% in fourth quarter, if -- because you mentioned about maintaining the 20%. But with fourth quarter 23% to 25%, I was actually asking if you think you can maintain that higher level or maybe it's a onetime function of mix or demand that's pushing it up to that level. I'm just trying to think of kind of looking forward if now you think the gross margin may be a few points higher like it is in fourth quarter kind of continuing forward.
Randy, for the short term, yes, we announced just now that 24%, 25% type of things. But just now, the second question is talking about a full year of next year. So we made the comments that it's too early to comment on all the things above 20%. And we don't say that for the gross margin 20%. And based on the visibility, that we should be able to maintain that. But for the full year, we can't say too much on more than that.
Your next question comes from line of Leping Huang from CICC.
[Foreign Language] The first question is about how will SMIC ramp up the 14- and the 12-nanometer process in 2020. So do you have a more clear plan? And how to keep the balance between the profitability and the scale.
Okay. Leping, thank you for your questions. The FinFET capacity building certainly will be closely linked with customer demand. And for the first half of the next year, the demand, 14 is really clear. So we will build our capacity according to that demand.
The next, second half of next year is whether in -- how do we distribute between the 12 and N-plus-1 that we still negotiate with the customer. So that is a little bit early to talk about second half of the next year capacity. But certainly, we will balance all the capacity and customer demand very cautiously.
So there's no -- more detail on the scale or the -- how much you plan to expand in 2020?
I think in the last meetings, I already explained our capacity building plan from 3K to the 15K. And that plan still is existing here, still valid at this moment.
[Foreign Language] So the second question is about -- asked Haijun. So what you look on this market supply-demand relation in the 12-nanometer mature process. So since you do very well in the differential process like CIS and the PMIC last 2 years, so -- but we also see a lot of capacity introduced in the last 2 months. So what do you -- what's your plan in the 12-inch mature process?
Leping, yes, we will build up our capacity further on. And based on the commitment to the customers, you are right, in the past 2 years, we have built up more than 7 new product platforms. And for each platform, we have 1 or 2 and a very big customer working together with SMIC. And based on the mutual agreements and the market growth, we will add on the capacity cautiously. And yes, next year, we will add it on. But the range, it's not that big, may not be impacted by the market growth -- I mean, by the overall market capacity provided by the other guys in the past couple of months. And for the Beijing fab, you know that we are there. And the original fab, I mean, the first one, they're fully loaded for past couple of years. And for the new fab, actually, even now, we already finished more than 75% of that fab space. So even though we guided expansion and the remaining part is not that big, but -- and we just work together with our customers on how to resolve these kind of things. So Beijing fab data for 12-inch. And SMIC, in order to resolve this kind of capacity constraints, we have really worked through that for the similar products, we can run both in 12-inch and 8-inch, so that we can back up one or another. And that's one of the solution we have. So when we talk about 12-inch in Beijing side for further expansion and we also work together to expand the 8-inch capacity. So quite a couple for customers and the platforms are running at this moment on both 12-inch and 8-inch, so we'll move concurrently 8-inch and 12-inch. So to conclude that, make it simple, we will go for expansion, but slowly, gradually.
Your next question comes from the line of Szeho Ng from China Renaissance.
Congratulation on a strong quarter. My first question is regarding the account receivables in Q3. I saw a pretty strong increase quarter-over-quarter. I just want to know if it's a short-term phenomenon or any implications you can share.
Szeho, could you say your question again? It's about accounts receivable?
Right. It's a big jump up in Q3, right? I just want to know the reason behind. Is it a short-term thing or any implications that you can share?
[Foreign Language]
[Interpreted] We actually issued a $500 million corporate bond in 2014, and it's due on the 7th of November this year. Therefore, we have prepared this equivalent account of cash at other account receivables to pay this corporate bond.
Okay. Second question, regarding the 14-nano and 12-nano. Could you guys provide an update on the tape-out activities for the moment?
Could you say what kind of activities?
The tape-out, the customer tape-out.
Customer tape-outs. Okay.
Okay. Let me try to answer this one. At this moment, year 2019, most of the tape-out on the 14s are starting from early this year to earlier next year. We will see more the 12-nanometer tape-out coming in, yes.
Okay. All right. Okay, Dr. Liang. Congratulations.
Your next question comes from the line of Gokul Hariharan from JPMorgan.
My first question is on 28-nanometer. What is the anticipation on 28-nanometer going into next year? Do you expect that the situation starts to get better, given other nodes are starting to see some demand recovery in second half of this year?
Second question, specifically to Q4 gross margin, moving up to 23% to 25%. Could you talk a little bit about what are the reasons for that move-up, given this is a level we have not seen since the first half of 2018? Is there any one-off there? Or is it primarily because of utilization increase in 8-inch and mature 12-inch?
Gokul, thank you for the questions. The first question is for 28-nanometer perspective into next year, and basically, we should say SMIC's loading next year overall will be better than this year since we are working together with customers on both high-K metal gate and [ C+ ] new applications and PolySiON applications. We do have more tape-outs on the products ongoing. But since overall, in the world, 28-nanometer capacity is -- overcapacity situation is still there, and the price gross margin still not running 28-nanometer. We are not in a very strong demand to push this area for further loading. And basically, we just meet up our customers' expectation and request on the capacity. We do not have a plan to expand the capacity on 28-nanometer. So this is the answer to your first question.
And for the 24%, 25% gross margin and 5% growth from third quarter, a couple of reasons. The first reason is the loading situation for our Beijing 12-inch wafer fab for the new fab, a new capacity or to get it fully loaded. And the second reason is from the disposal of LFoundry. You know that LFoundry fab has been running in a very low gross margin for 3 years.
And the third is for small wafer fab in Shanghai running 12-inch, 14- and the 28-nanometer technologies in the past couple of years, that's the Shanghai fab. And in the webcast, we already said that we closed that fab operation and relocate the machine to Beijing. So that we consolidate [ 40-nanometer ], 28-nanometer operation in Beijing, there's a lot of push on the gross margin.
Just one quick question on 28, if I may. So when you think about 14-nanometer and 12-nanometer ramping up, do you think that 14, 12 will be higher gross margin than 28 when it comes to, let's say, second half of next year or exiting 2020 once it ramps up to sufficient scale?
Gokul, are you referring that increasing of 14 and 12 will better improve our gross margin in the next second half?
No, I was just asking, since 28 gross margin still remains under pressure due to industry issue, do we expect once 14 and 12 ramp-up, let's say, by end of next year, we reach, let's say, 15K that we talked about, do we expect 14 and 12 gross margin to be higher than 28? Or is it still going to be taking some time to get there?
Okay. I think that's a great question about 14-, 12-nanometer ramping. Now to repeat 28-nanometer gross margin to overall situation. So as I said earlier, to answer Leping's question, we will be very cautious about advanced technology capacity built into versus our customer demand for our FinFET fab. Yes. So not to encounter this similar situation on 28.
We'll take the final question from the line of Roland Shu of Citigroup.
I think my first question is a look at your mature node. I think now that they are fully loaded, I expect probably about 100% utilization. So question is, how much upside for you to still to improve your utilization for mature nodes? And you plan to expand 8-inch and 12-inch mature node capacity next year. So how big is the capacity you are going to spend this year?
Roland, thank you for the questions. And upside on the mature technology nodes, temporarily, we can't. Simply, we are running fully loaded. And we also have the commitment on the delivery of the cycle times. That means we have to deliver the wafer out and we think certain time frame. And furthermore, loading into the fab will fail this kind of delivery. So we won't -- short term, we won't go for an upside type of loading right away. So we'll maintain the current situation.
And for the add on capacities on 8-inch and 12-inch, that's a slow progress. And just now we already said that for Beijing fabs, for the new fab space, we already used [ three-fourths ]. And hopefully, in the next 1-year time frame, we can set up the last quarter of that new space. And for 8-inch, we do have a new fab in Tianjin. And it depends on the machine delivery on our vendor side. And we believe at this moment, it's a slow progress because of the market situations that we can't build our capacity right away. And we should say that, okay, this gradual slow building up capacities on the add-on capacity to our existing 12-inch and 8-inch wafer fabs mainly happens in Beijing and Tianjin. And Shanghai, there's mainly advanced and FinFET technology capacity.
Okay. And since next year, you have this continuous capacity build plan on FinFET and also on this mature technology node. So what's your CapEx plan for next year? And also, what would be the overall depreciation next year?
And we should say this way because this year, we spent USD 2.1 billion. Majority of that part is used for the FinFET technology capacities. And next year, we should say the similar CapEx or higher than this CapEx will be there because we have add-on mature technology capacities building up.
How about the overall depreciation next year based on the $2.1 billion CapEx spending this year and next year?
Now we do not have the calculation right away. The depreciation just now from our CFO's report, we have the current depreciation numbers. And this year, we have add-on $2.1 billion. And possibly, we both can calculate.
I would now like to hand the call back to IR Director, Tim Kuo, for closing remarks.
In closing, we would like to thank everyone who participated in today's call and believe our special arrangements today would help you to understand SMIC more. Again, thank all of you for your trust and support to us. Thank you very much.
Ladies and gentlemen, this is the end of SMIC's third quarter earnings conference call. We thank you for joining us today.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]