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Semiconductor Manufacturing International Corporation (NYSE:SMI)

Q2 2011 Earnings Conference Call

August 10, 2011 8:30 p.m. ET

Executives

En-Ling Feng – Senior Director, IR

T.Y. Chiu – CEO

Gary Tseng – CFO

Analysts

Randy Abrams – Credit Suisse

Steven Pelayo – HSBC

Rick Hsu – J.P. Morgan

Owen Fletcher – Dow Jones

Operator

Welcome to the Semiconductor Manufacturing International Corporation's Second Quarter 2011 Webcast Conference Call.

Today's conference call is chaired by Dr. T.Y. Chiu, Chief Executive Officer; Mr. Gary Tseng, Chief Financial Officer; and Mr. En-Ling Feng, Senior Director, Investor Relations.

Today's webcast conference call will be simultaneously streamed to the internet at SMIC's website. Please be advised that [the dial-ins] are in listen-only mode. However, at the conclusion of the management presentation, we will be having a question-and-answer session, upon which you will receive further instructions as to how to participate. The earnings press release is available for download at www.smics.com. Webcast playback will also be available approximately one hour after the event at www.smics.com.

Without further ado, I would like to introduce to you Mr. En-Ling Feng, Director, Investor Relations, for the cautionary statement.

En-Ling Feng

Good morning and good evening, everyone. Welcome to SMIC's second quarter 2011 earnings conference call. For today's call, we are happy to have our newly-appointed CEO, T.Y. Chiu, joining us. Dr. Chiu will give a brief opening statement. Then our CFO, Gary Tseng, will give the overall business and the financial commentary. This will be followed by our Q&A session.

As usual, our call will be approximately 60 minutes in length. The earnings press release and quarterly financial presentation are available for you to download at www.smics.com.hk, under the Events & Presentations section.

Please also be reminded of the Safety Harbor Statement which provides as follows. SMIC's statements of its current expectation are forward-looking statements, subject to significant risks and uncertainties. The actual results may differ materially from those contained in such forward-looking statements. Information as to those factors that could cause actual results to vary can be found in SMIC's Form 20-F filed with the United States Securities and Exchange Commission on June 28, 2011.

I will now turn the call over to our CEO, T.Y. Chiu, for the opening remarks.

T.Y. Chiu

Thank you, En-Ling. Good morning and good evening to everyone. Thank you for joining us.

I'm very honored to be here today as SMIC's new CEO. I've been working in the semiconductor industry for 27 years and all of my 15 years of working experience in Asia has been in the foundry industry. I first joined SMIC in 2001 when we were [piling] for our first [8-inch] operation. I'm very happy to be back in this big family. I'm bringing back to SMIC my operation, R&D and management experience for U.S., Mainland China, Taiwan and Malaysia. I'm confident that we can establish a strong and a cohesive team to address the critical issues at hand.

Our primary target is to achieve profitability while maintaining our momentum in technology development. Within the past few days, my team and I have been working on coming through the situation of the company and assessing how to approach our business strategy that will bring the best value to our stakeholders. I hope to bring clearer direction to SMIC to focus on its specific value-added opportunity, and I hope to share with you more as soon as possible.

Given its criticality to China's semiconductor industry, SMIC has an important role to be independent and international. SMIC still has room for a lot of improvement and for opportunity to capture market globally and have lots of potential to grow its value. We recognize the severe macroeconomic condition out there, and though we hope that the situation may recover quickly, we need to prepare for the worst, and we are preparing for a long industry downturn.

I will work with my team to implement cost reductions, identifying low-hanging fruits and speed up technology and new product development. In that order, we must complete the planning and start to implement within weeks.

At this moment, your continuous support and trust are extremely important to us and we greatly appreciate all of your support. I personally am looking forward to meeting some of you in person, and please do feel free to contact our team anytime for your valuable comment and suggestion.

I will now hand over the call to our CFO, Gary Tseng, for overall business remark and financial commentary.

Gary Tseng

Thank you, T.Y. Good morning and good evening to everyone. I will now take a few moments to highlight our second quarter performance, [outlook of] the year, technology and operation progress, second quarter financial results, and the third quarter guidance. You may also refer to our quarterly financial presentation of our website. Please know that all currency figures are in U.S. dollars unless otherwise stated.

Highlighting our second quarter performance, revenue decreased 4.9% quarter-over-quarter to $352 million. This decline was partially due to our customer transition to 65-nanometer and the 45-nanometer and largely due to unexpected change in a few of our customers' programs, including some customers skipping 65-nanometer to work on 45-nanometer, and one specific customer pending their low-end [inaudible] business. Despite these changes, we have continued to have new [checkout] for 65-nanometer and the customer committed to working with us on their 40, 45-nanometer products which will likely contribute meaningful revenue next year.

Looking into the third quarter, the overall demand for both international and the domestic customers is weaker than expected due to relatively soft end-market consumption and a high inventory. In addition to certain customer product change, the combination of these factors will pose a diverse impact to our revenue for the third quarter of 2011. Our visibility into fourth quarter demand is currently limited and the overall global economic outlook also contributes to uncertainty. We currently do not see any particular strength from customer demands compared to school and the holiday seasons. So we remain cautious on our overall second half 2011 outlook.

Now, let's move in onto our advanced technology development. Our 65-nanometer revenue has grown from $45 million to $67 million, an increase of 50% quarter-over-quarter, and it contributed 20.7% of wafer revenue in the second quarter. 65-nanometer continues to be a key revenue driver for us this year, though its growth so far is actually slower than originally expected due to some of our customers' program change to go directly to 45-nanometer, as I stated previously. Despite this, new [checkout] for 65 and the 55-nanometer are planned to increase 40% in the third quarter compared to the second quarter of 2011.

Our 45, 40-nanometer are also progressing well as we continue to receive [checkout] requests from lead customers. We maintain our target to begin mass production and have [inaudible] ready towards the end of 2011, with initial revenue contribution in the first half of 2012. Meanwhile, our 32 and the 20-nanometer are in research and development stage, which is very encouraging result, and our target is to achieve progress, qualification in mid-2013.

Looking at the financial of second quarter of 2011, total revenue decreased 4.9% quarter-over-quarter to $352.4 million, primarily due to the decline in wafer shipment. Wafer revenue from Xinxin and Cension totaled $29.4 million in the second quarter, contributing 8.3% of our total revenue. Since early 2011, Wuhan capacity has continued to ramp up from 3.6 thousand 12-inch wafer per month to 7.4 thousand at the end of second quarter, while maintaining full utilization. Wuhan's current target is to ramp up to 9.5 thousand 12-inch wafer per month by the end of 2011. Excluding wafer revenue from the [inaudible] for both quarters, the company's revenue decreased 6.4% quarter-over-quarter.

Gross margin in the second quarter was 14.3% compared to 18.6% in the first quarter. Roughly 2.5 percentage points were from not booking management fees from Wuhan fab while we booked $6.9 million in Q1, and a 0.1 percentage point was from the lower wafer start in Q2 compared to Q1, and fixed costs for wafer were higher in Q2. The rest are from the other factors, including depreciation costs and [foreign] exchange.

Looking into our operating expenses, the actual OpEx in the second quarter was $86.8 million. However, this OpEx was offset by cash receipt of $6.4 million plus a $13.7 million account payables forgiven from Chengdu Government for Cension settlement, $6.6 million in government grants and incentives, a management fee income of $6.1 million from Wuhan fab management, and a gain of $3.6 million on disposal of our assembly and testing operation in Chengdu from last quarter. Therefore, the recorded OpEx was $50.4 million.

The loss attributable to holder of ordinary shares was $3.8 million in the second quarter of 2011. Fully diluted EPS was about negative $0.01 per ADS in the second quarter of 2011 compared to a gain of $0.02 per ADS in the previous quarter.

Let's move to the balance sheet. At the end of second quarter 2011, our debt to equity ratio lowered to 47.1% compared to 49.9% in the first quarter of 2011, as we received a cash proceed of $215 million from issuing convertible preferred shares to [CIV] in HK$5.39 per share. [CIV] is now our second largest shareholder, owning 11.7% of SMIC shares.

Following [CIV's] new liquidity injection, Datang, our largest shareholder, also exercised their preemptive right to further inject 58 million into SMIC. It is estimated the proceeds will be received by the third quarter of 2011.

In terms of cash flow, we generated $79.4 operating cash, similar to the level in previous quarter. Cash used in investing activity decreased mainly due to lower CapEx spending in the second quarter. Meanwhile cash flow in financial activity increased mainly due to the receipt of proceeds from the issuance of convertible preferred share of $250 million and their increase in short-term loan. Therefore, cash and cash equivalents at the end of the second quarter was $411 million compared to $394 million in the previous quarter.

Regarding our revenue breakdown by applications, due to customers' product transition, our communication revenue recorded a quarter-on-quarter drop about 20%, contributing 37.7% to our total revenue. Meanwhile, consumer revenue recorded 11% increase quarter-over-quarter, mainly due to the growth in revenue from [more fresh] products from Wuhan fab.

Regionally, revenue for North America has increased about 7% quarter-over-quarter, contributing 57.6% to our total revenue, mainly driven by the major customers on [inaudible] from U.S. However, revenue from China decreased 20% quarter-over-quarter due to customer inventory buildup from weaker-than-expected sales, contributing 13.1% of revenue. Eurasia recorded an 11% revenue decrease to 12.3% of sales in the second quarter.

In terms of capacity, our Beijing monthly capacity went up from 27.8 thousand 12-inch equivalent wafers per month, including 10,000 65-nanometer capacity in the first quarter, to 29,000 including 13,000 65-nanometer capacity at the end of the second quarter. We are also prepared to convert some 90-nanometer capacity to 65-nanometer based on customer demand.

Recently we have revised our target to grow Beijing fab capacity to 30,000 wafers per month at the end of this year instead of 45,000. Shanghai 8-inch capacity will remain unchanged. Tianjin 8-inch fab capacity is planned to increase from 34,000 8-inch wafers per month to 39,000 at the end of 2011, and mainly due to product mix change.

Our CapEx totaled $670 million in the first half of 2011. Due to the recent market slowdown, we are cautious on expansion. As a result, we have revised down our [annual] CapEx for 2011 from $1 billion to $800 million. In the second quarter, our utilization was about 75% while our total monthly capacity at the end, at quarter-end, increased 2%, compared to the first quarter of 2011, to around 190,000 8-inch equivalent wafer per month.

Looking ahead at the third quarter of 2011, we are guiding revenue to decrease 14% to 17% compared to second quarter as overall market demand is weak, customer product transition is still undergoing, and there is continued adjustment to inventory level. Gross margin is expected to range from 0% to 3% due to low utilization. We expect our operating expenses to range from $86 million to $89 million.

I'll now hand the call back to En-Ling for the Q&A session of this call.

Question-and-Answer Session

En-Ling Feng

Thank you, Gary. I would now like to open up the call for Q&A as usual. Please be reminded to limit your questions to two per person. Operator, please assist. Thank you.

Operator

Ladies and gentlemen, if you wish to ask a question, please press star 1 on your phone. If your question has been answered or you wish to withdraw your question, press star 2. Questions will be taken in the order received.

And your first question comes from the line of [Evan Chen] with Credit Suisse. Please proceed.

Randy Abrams – Credit Suisse

Yes. Thank you. This is Randy Abrams, Credit Suisse. I wanted to ask just a bit more on the company focus now. The past year or two, I think you've wanted to be a little bit more aggressive going after scale and spending a bit more in CapEx, like $1 billion was the original target for this year. I wondered if your strategy, and this is assuming decent market conditions, would still be to be aggressive to get scale and market share, or if it's more to focus on optimizing profitability.

T.Y. Chiu

Okay. Mr. Abrams, thank you for the question. We have not changed drastically our overall strategy, but indeed that we will put a little bit more focus on the profitability, and this is the consensus of the board and the management team at this moment. Looking at the overall economic situation, we have the feeling that maybe this downturn will be slightly longer than we had expected a few months back. So indeed, as Gary said, the capital expenditures will be cut back to $800 million.

And for exact execution, please allow me some time to formulate a business plan, and report to you at a later date.

Randy Abrams – Credit Suisse

Okay. Thank you for that. I wanted to see in the guidance, you mentioned three factors, the inventory, the demand factor, and then some of the ongoing customer transitions. Maybe if you could talk about the, for the customer transitions, how long do you think that could have an impact. And maybe if you were to say how big a factor that was in your guidance for third quarter and then maybe how much you think the demand issue versus an inventory issue, if you can kind of break some of that out.

Gary Tseng

Well, actually -- this is Gary, Randy.

Randy Abrams – Credit Suisse

Yeah.

Gary Tseng

It is somewhat hard to distinguish and tell one from the other. But our current setback, to me, is quite unexpected, especially from the customers' customers change in the product strategy, which influenced us in quite a big way. The third quarter I expect our business will be still quite slower. But in terms of when will we come back, our limited look into the future make us very hard to predict into future.

Randy Abrams – Credit Suisse

Okay. Maybe if you could adjust the China customers, which I think started to adjust inventory, what's the potential to move through that? And I think on the China customers, any applications that are showing promise or could drive a rebound in that customer base?

Gary Tseng

Our China customer really has also been hurt by the whole worldwide economic slowdown and also the whole communication in products line slowdown. So they are not immune from there. We are watching very closely, see when they can come back; however, some of our customers also give us a quite encouraging outlook into the early next year.

Randy Abrams – Credit Suisse

Okay. Thank you.

Operator

And your next question comes from the line of Steven Pelayo with HSBC. Please proceed.

Steven Pelayo – HSBC

Yeah, a couple of questions. I guess everything is kind of centering around your cost structure and kind of your targets and your current breakeven levels. I'm a bit surprised that your operating expenses are going up with revenues down so much. So, effectively, your breakeven appears to be rising, in addition to your depreciation costs I think were rising as well. So, could you talk a little bit about what's going on there and where you think you can get your breakeven, what kind of gross margins are going to be required for that? And where do you really want to target OpEx, I guess you could say?

Gary Tseng

Okay. Thanks, Steve. This is Gary.

To us, the breakeven point at this point in time will be still somewhere ranging 85% to 90% of utilization rate. The beginning of this year, we're starting to increase our CapEx, trending above capacity and hoping our customer will be fully utilized at those capacity. And as we stated earlier, with some unexpected program change and some of our customers' customers program change, this occurs in unexpected way, and this has caused our current low utilization rate in our fab.

Towards the beginning of this year and also in July, we did structurally increase our payroll structure in order to be able to compete with our environment, and this is also the reason we -- our OpEx spending has been scaled up. As I said earlier, we are right now somewhere around in the $86 million to $89 million situation. We hope in the future when we work closely with our customers, we should be able to produce our capacity, and hopefully we will be able to bring back the level which we expected.

Steven Pelayo – HSBC

Okay. Just a quick follow-up then on that. It's been very difficult to try to predict your guys' operating profits given some of the one-time benefits and charges that come in R&D credits, subsidies, disposals, payable forgiven, all these types of things. I think last quarter you guided OpEx I think 82 to 86 or something, but this quarter you had, whatever, $30 million or so in these benefits. Do you see any more of those benefits pending here for fourth quarter, or third and fourth quarter? I know you guys used to get kind of R&D credit towards the end of the year. Is there any more of these kinds of benefits that are going to be helping you in the second half of the year?

Gary Tseng

To my better knowledge now, into the future we will have less this kind of big-number adjustments. But still, we would have on quarter-on-quarter basis receive the government R&D grants and incentive, which number will be not fluctuate too much from now.

Steven Pelayo – HSBC

Okay. And I'll just sneak in one more and then I'll get back in the queue. I think your share count is going to be going up here. Can you give us a reminder where it is at quarter-end or what your expectation is for the third quarter?

Gary Tseng

I'm sorry?

Steven Pelayo – HSBC

Your share count I think is increasing. Could you just remind me what your share count expectations are for the third quarter?

Gary Tseng

The number of shares?

Steven Pelayo – HSBC

Correct.

Gary Tseng

Well, in the third quarter, we only expect we will receive 58 million from Datang's follow-on investment, and they will at the 5.39 dollars of 53.9 cents per Hong Kong shares. It will be somewhere around 31 billion now in our total shares.

Steven Pelayo – HSBC

Okay, 31. Thank you.

Gary Tseng

Thank you.

Operator

And your next question comes from the line of Rick Hsu with J.P. Morgan. Please proceed.

Rick Hsu – J.P. Morgan

Yeah, hi. First of all, congratulations to T.Y. Chiu as the new CEO.

And I've got a few questions here. The first one is maybe for Gary, for your 65-nanometer contribution in the second quarter, can you break it down into how much is coming from [inaudible] and how much is coming from [inaudible].

Gary Tseng

How from the --

Rick Hsu – J.P. Morgan

Yeah, your 65-nanometer --

Gary Tseng

-- probably I can supply the number later on to you.

Rick Hsu – J.P. Morgan

Yeah, sure. Okay. Yeah. Second question is about your CapEx. You reduced your CapEx to US$800 million. Can you talk about, elaborate a bit about the capacity impact, when you [inaudible] and how much -- I presume most of the impact would be on the 12-inch capacity. Can you elaborate a little bit more?

T.Y. Chiu

Yeah. Most of our CapEx spending is in 12-inch both for Beijing fab and also for our 12-inch Shanghai fab before. Now as we look at the capacity utilization, it's pretty low in our company, so we are totally slowing down our CapEx somewhere around for May-June timeframe. And now, in August, we expect the current capacity we have equipped is quite enough for us to go through the rest of the year. And this is the reason why we believe the second half of this year we would need to have new or more CapEx to build up our capacity, unless there is customer demand strongly or the quick order for us.

Rick Hsu – J.P. Morgan

Okay. So, can I ask one more question? About your Beijing fab capacity, how much it is right now and how much would you expect by the end of this year post the CapEx reduction?

T.Y. Chiu

By the end of this year, the Beijing fab capacity will be around 30,000 12-inch, and among that 30,000, we sure have 17.5 thousand in 65-nanometer capacity.

Rick Hsu – J.P. Morgan

Okay, 17.5, all right. Great. Okay. Last question is, you were talking about the OpEx for second quarter. Originally you were supposed to be 86-something million. But in reality it was only 50. So the difference is about 36 million. And I know you did run through the numbers before, but I couldn't follow. Could you talk about this detail again?

Gary Tseng

Sure. Let me give you -- again. There is almost a $20 million from our settlement with Chengdu government project. Among the $20 million, $6.4 million is from the cash received and $13.7 million is account payable settlement with the Chengdu government. So this totally will be $20.1 million. And there is $6.6 million in government grants and incentives. And also we've received $6.1 million management fee from Wuhan government, the fab we managed for the previous accounts receivable. And also there is a $3.6 million on disposal of our assembly and testing facility in Chengdu. So, those put together is somewhere around 30-plus million.

Does that answer your question?

Rick Hsu – J.P. Morgan

Okay. Yeah, yeah, perfect. Thank you so much. That's all I have. Thank you.

Gary Tseng

Thank you.

Operator

As a reminder, ladies and gentlemen, that is star 1 to ask a question. You have a question from the line of Steven Pelayo with HSBC. Please proceed.

Steven Pelayo – HSBC

Yeah, T.Y., you mentioned that there's a lot of room for improvement. I guess, besides just giving the top line going and more utilization, what else can you guys do to lower your breakeven? Where else do you see that room for improvement?

Gary Tseng

Okay. Actually we are working, a lot of work in the last 12 months to 18 months in order to transforming SMIC into a more competitive company. And [while] people are more focused on technology development and operation efficiency, we are also working on some fundamental work, and I can give you a couple of examples. The first example is our fab is not as automated as our competitor. So we are working closely with a couple of consultants in order to make our fab more automated, both hardware-wise and also software-wise. And this is a new project which probably, give us another 12 months, we should be able to [taking up] the competition.

And also we believe our office efficiency is not up to the competition. So, beginning of this year, we're starting re-implement our business process reengineering [inaudible] we implement the SAP project, quickly trying to renovate the whole company's backend service and also the customer service. This project should be able to get online as early as the end of this year and no more later than April 1 of next year. This will also give great input in data, providing management to make a pretty good decision. And this is really totally [inaudible] the whole company into a more modernized organization.

And so these two examples give you the idea, the management team before and the current work hard trying to fundamentally improve SMIC's competitiveness.

T.Y. Chiu

Steven, this is T.Y., to follow up, okay. In the past few days we already are doing some studies and there are areas in R&D, and then that we have already identified ways to do things that I have done before that can save a significant amount of money. And then I'll be also looking back at some of the mature technology to install some of value-added features so that we'll be able to increase our total technology offering as it's valid. Okay?

This is what I can say up to this point and we will elaborate this in the next few sessions.

Steven Pelayo – HSBC

I guess if I could try to continue down to quantify a little bit here. Let's say you're guiding to roughly 300 million in revenues in the third quarter, you got as high as over 400 million for a couple of quarters, you don’t know how long the downturn is going to last, let's say, I don’t know, three or four quarters from today, you're back at that 400 million revenue run rate, what type of gross margin and operating expense number do you think you can get the company to?

Gary Tseng

Actually when I look at our last few quarters, our standard margin, which I believe is still quite healthy, is quite stable, is around 30% plus. Our current problem is really the utilization rate. We need to work even closer with our customer to get more new projects and to get [inaudible] with the volume out. This will greatly improve our profitability.

Steven Pelayo – HSBC

Okay. And then one final accounting question. You changed your CapEx guidance for this year, so I assume that's going to impact your depreciation. I'm really interested in the depreciation that falls within your cost of goods line. So, what are you thinking that does, first of all, in the third quarter? And then what do you think it is for the full year?

Gary Tseng

I would expect, as you can see, our second quarter depreciation is $133 million, I would expect in the third quarter move up somewhere around $8 million to $141 million, and probably fourth quarter I would forecast somewhere around $148 million to $150 million. So the whole year, the depreciation will be reaching $550 million level.

Steven Pelayo – HSBC

Okay, that's the overall depreciation, but I thought it was interesting to look within your depreciation and your cost of goods sold. It actually fell from $104 million in Q1 to $101.6 million in Q2. So I guess I should be thinking, is that also tracking higher now given what your overall depreciation is doing? Is that a fair way to look at that?

Gary Tseng

Yes, that's correct.

Steven Pelayo – HSBC

Okay. Thank you.

Gary Tseng

Thank you.

Operator

And your next question comes from the line of Owen Fletcher with Dow Jones. Please proceed.

Owen Fletcher – Dow Jones

Hi. Thanks for taking my question. I wanted to ask about any more plans to raise additional funds, whether the equity financing or other methods.

Gary Tseng

Well, with our CapEx capped at $800 million, looking to future, I probably have less needs for new equity funding. And for the company's future direction, as T.Y. mentioned earlier, we probably need to take a few moments to study that and we come back to give you the answer to the market.

Thank you.

Owen Fletcher – Dow Jones

Okay. Thanks.

Operator

And your next question comes from the line of Steven Pelayo with HSBC. Please proceed.

Steven Pelayo – HSBC

I'm sorry, last question, just one more. When you put on kind of your long-term secular cap, thinking cap, what type of capital spending intensity level are you thinking SMIC needs to spend? Do they need to be spending $1 billion a year or is it a target on a percentage of revenue? How would you think about that over the next few years, what kind of CapEx numbers you want to be spending?

Gary Tseng

Thank you, Steve. The company really is working closely with our customers. Back to the 65-nanometer era, when the new management came onboard, that has been on the table already. Right after that, the 40, 45-nanometer, we worked very closely with our customer including internationally and also from China. And not to mention, right now we are talking on 32 and 28-nanometer as well. Already we have somewhere around 12-month to 18-month account horizon to discuss with our customers and get a mutual consensus before we're starting to build our capacity onwards.

So, to answer your question, whether we need to spend $1 billion or $2 billion a year, that is not the question from management decision, but more working close relationships with our partner customers in order to decide properly 12 to 18 months ahead of the CapEx number.

But now, we stated earlier our customers' program change for the last six months is quite unexpected. So, right now we are coming back to work closely with our customers. Again, what we can assure though is our customer both internationally and locally is still quite closely working with SMIC, and we expect [inaudible] and the next-generation technology, we should be able to get a good market share from our customers.

Steven Pelayo – HSBC

All right. And then I just want to verify that, even when I look at your guidance for the third quarter, especially given what your depreciation numbers as well, and your lower CapEx, it still looks like you're going to be sustaining positive free cash flow in the second half of the year. Is that a fair way to look at it?

Gary Tseng

Well, yes and no, because for the next quarters, since when we buy the machine, as you know, we need to issue letter of credit, and some of the payment is in [TD] term. So, even from the booking CapEx perspective, we may not have anything to spend, if any. We still have a cash outflow in order to repay all of this letter of credit and the [TD] term. But still, with our good depreciation, the cash flow in, I would expect our operating cash flow should be positive as well.

Steven Pelayo – HSBC

Understood. Thank you.

Operator

This is the end of SMIC's second quarter earnings conference call. We thank you for joining us today.

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