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Executives

En-Ling Feng – Senior Director, IR

Tzu-Yin Chiu – CEO

Gary Tseng – CFO

Analysts

Bill Lu – Morgan Stanley

Randy Abrams – Credit Suisse

Dan Miller – Bank of America

Steven Pelayo – HSBC

Patrick Neil – Nomura Securities

Patrick McNulty – Nomura Securities

Semiconductor Manufacturing International Corporation (SMI) Q3 2011 Earnings Call November 7, 2011 7:30 PM ET

Operator

Ladies and gentlemen, welcome to the Semiconductor Manufacturing International Corporation’s Third 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 of Investor Relations.

Today’s webcast conference call will be simultaneously streamed through the Internet at SMIC’s website. Please be advised that your dial-ins are in listen-mode only. 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, Senior Director of Investor Relations, for the cautionary statement. Please go ahead, sir.

En-Ling Feng

Good morning and good evening, everyone. Welcome to SMIC’s third quarter 2011 earnings conference call. For today’s call, our CEO, TY Chiu will give an opening statement then our CFO, Gary Tseng, will give the financial commentary. This will be followed by our Q&A session.

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

Please also be reminded of the Safe Harbor statement, which provides as follows. SMIC’s statements of its current expectations 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, TY Chiu for the opening remarks.

Tzu-Yin Chiu

Thank you, En-Ling. Good morning and good evening to everyone. Thank you for joining our earnings webcast. Since the last update, we have completed extensive assessment of SMIC’s situation from various aspects. So today, I would like to address what has been completed, our directions and strategy, technology status and state of our business. In the past three months, our focus was on stabilization of both external and internal stakeholders. I met with all of our key customers in North America and the Greater China, which I will continue to do soon on a quarterly basis.

We have communicated to our customers that SMIC intends to be globally competitive foundry powerhouse and will continue to be their long-term partner. We remained committed to pushing advanced technology R&D. I am pleased that our customers maintain their high expectations of SMIC and their partnership and the partnerships remain unlevered.

Stability has returned to SMIC organizations, our fabs are running smoothly and our technology development is making steady progress. We have enlarged our core management team from 5 to 7 individuals including a nil technology development ahead and there are two operation leaders. These changes ensure attention to execution, it’s follow through to the details and decision is made with speed.

As a result, our teamwork and coordination improved. Thus, improving our overall execution in that business effectiveness in fact, we witnessed a short end cycle time, process enhancement, better defect density level and simply continued overall operational improvement. As a result of the initiative to better execute, to better execution. One of our 65-nanometer product from our key customer has recently passed full qualification. We believe these positive improvements in coordination and execution will result in improved overall loading.

Now let me address SMICs direction and strategy. Our objectives remains step passed, we will work towards sustainable profitability and as the preferred boundary provider in China as we continue our partnering with our international and domestic customers. In order to achieve this, our strategy is two folds. In the near term we’ll work on boosting overall capacity utilization and efficiency. And secondly, we will maintain our technology advancement as well as pursuing value-added differentiation.

In the near term we will focus on effectively filling our fab to improve our profitability. To do this we are working closely with our customers on enhancing each fab’s technology, flexibility and in shortening the project cycle for production. As an example of recent actions, we have qualified our changing fab platform for CIS production to accommodate business expansion and first increase changing fab utilization.

For long term, we will continue our technology advancement and pursue value-added differentiation by focusing on markets that is best addressed by our position in China. We are now in process of researching and analyzing methods for differentiation as well as identifying specific markets, especially in China that are best suited for SMIC. We will update you more on our progress in due time.

As for technology development we are very encouraged by our 45 and 40-nanometer progress with very positive feedback from our customers. We are targeting some 45 nanometer wafer revenue by the end of the year. Our 32 and 28 nanometer development is on schedule as planned and we target to have both public – ready in 2013.

As far as the business is concerned the third and the fourth quarters are very weak in contrast to the normal business cycle. We believe this is mainly due to global economic uncertainties and industry wise inventory adjustments. We’ll remain cautious despite our solid improvement in customer segment.

All-in-all, we are cautious on the market outlook and we’ll be preparing ourselves for the worst case scenario and in doing so, we will continue to focus on execution of new technologies and product (inaudible) improving loading and implementing our differentiation strategies.

To conclude, we have stabilized our own team or customer and other important stakeholders. We continue to strengthen execution given the current business condition, we’ve recognized the challenge ahead and we’ll continue to work to increase fab loading speed up technology development and the differentiation aiming for sustainable profitable growth for the long term.

I thank you for your continued support and look forward to meeting with some of you in the future. I would now hand the call to our CFO, Gary Tseng, for overall business and financial commentary.

Gary Tseng

Thank you, Tzu-Yin. Good morning and good evening to everyone. I will now take a few moments to highlight our third quarter financial results, and the fourth quarter guidance. You may also refer to our quarterly financial presentation on our website. Please note that our currency figures are in US dollars, unless otherwise stated.

Looking at the third quarter 2011 financials, total revenue decreased to 12.9% quarter-on-quarter to $306.9 million and was down by 24% year-on-year primarily due to overall weak market demand.

Wafer revenue from Xinxin was 31.9 million in the third-quarter, contributing 10.4% of our total revenue, excluding wafer revenue from the managed fab for both quarters. The company revenue decreased 14.9% quarter-over-quarter. Gross margin in the third quarter was 1.4% compared to 14.3% in the second quarter. The decrease of 12.9% points was mainly due to decrease in capacity utilization.

The record OpEx, the recorded OpEx in the third was 80 million after being offset by government subsidy of 9 million. Thus, the normalized OpEx was 89 million compared to 86.8 million in the second quarter, before offset by management’s income from Xinxin, government subsidies and a bad debt recovery. The 2.2 million increase was mainly due to the larger R&D expenses for the (inaudible) development in other quarter. The loss attributable to holder of ordinary share was $88.1 million in the third quarter of 2011 and they’re fully diluted EPS was about negative $0.16 per ADS, compared to a loss of $0.01 for ADS in the previous quarters.

Let’s move to the balance sheet. At the end of third quarter 2011, our debt to equity ratio lower to 42.4%, compared to 47.1% in the second quarter of 2011, as we paid down $142 million of short-term borrowing in the third quarter.

On the equity side, following SMIC’s new investment received by us in June will receive the cash proceed of $58.9 million in September from issuing convertible preferred share to Datang at Hong Kong dollars 5.39 per share, as. Datang remained SMIC’s largest shareholder.

In terms of cash flow, we generated $106.9 million in operating cash in the third quarter, an increase from $79.4 million in the previous quarter, mainly due to improvement in working capital, as we managed to decrease accounts receivable by $70.8 million quarter-over-quarter from $236.7 million to $165.9 million. Cash used in investing activity decreased primarily due to less CapEx spending in the third quarter. Meanwhile, there was cash outflow from financing activity as we paid down $142 million of short-term borrowings. All in all, cash and cash equivalent at the end of the third quarter was $315.7 million compared to $410.9 million in the previous quarter.

Regarding the revenue breakdown by end market application, our consumer revenue dropped about 19.4% sequentially, as the overall demand on consumer goods was weak, contributing 45.8% to the total revenue. Meanwhile communication revenue was less impacted with sequential decline of 3.5% compared to the second quarter, contributing 41.7% to the total revenue in third quarter due to the weakened macro demand across the board.

Regionally, revenue from North America decreased about 15.7% quarter-over-quarter, contributing 55.7% to our total revenue. While revenue from China decreased 11.7% quarter-over-quarter, contributing 30.7% of revenue. Eurasia contributed 13.6% in revenue, representing a slight sequential decrease of 3% in the third quarter.

In terms of capacity, our overall monthly capacity will remain at the current level throughout the end of this year. The changing capacity variation was mainly due to product mix change. CapEx for the first three quarters of 2011, totaled $709.3 million, we target maintain our planned 2011 CapEx for around $800 million.

Our equipment utilization rate in the third quarter is 61%, down from 73.3% in the second quarter due to the overall weakened market. In the third quarter 2011, capacity utilization rate is reported base on actual equipment usage in the manufacturing process. Well as in the prior report utilization has been reported based on the total wafer out divided by estimated capacity.

Utilization rate for previous quarter has been updated in our report accordingly for comparison purpose, and we plan to continue using equipment utilization going forward. Looking ahead at the fourth quarter of 2011, revenue will continue to decline more than seasonally. We are guiding revenue to decrease 5% to 8% quarter over quarter and market demand is still weak.

Gross margin is expected to ranging from minus 3% to minus 6% due to product mix change. We expect our operating expenses to range from $89 million to $92 million, slightly higher than normalized OpEx of $89 million in the third quarter, primarily due to higher spending in advance now developed. I’d now hand the call back to En-Ling for the Q&A section of this call.

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.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And your first question comes from Bill Lu, Morgan Stanley. Please ask your question.

Bill Lu – Morgan Stanley

Yeah. Hi, good morning. Thanks for taking my question. Dr. Tzu, you had mentioned just now that the company is trying to look at assemblies to differentiate and address markets that are suitable for SMIC. It sounds like you’re not quite ready to talk about what these opportunities are, but can you just give us a little more detail as far as what do you think are SMIC’s core competencies in differentiation, maybe just give us a hint of where you might be going with this?

Tzu-Yin Chiu

Hello Bell, thank you for asking this question. Yes, we are doing a lot of study right now. I can give you one example where we feel that SMIC has a core competence and that is very suited for China market. We have very good embedded technology which is very suited for the smartcards application in China, and we realize that this particular product category is getting a lot of different applications in China and so we feel that we are particularly advantaged to use this particular competence to our advantage in China. Okay. Does that answer your question?

Bill Lu – Morgan Stanley

It does.

Tzu-Yin Chiu

And we...

Bill Lu – Morgan Stanley

Sorry, go ahead.

Tzu-Yin Chiu

So we’re looking at other opportunities similar to this and we need to spend a little bit more time to identify – such kind of market.

Bill Lu – Morgan Stanley

Okay so to use your example, maybe I’m wrong but my impression is the smart card type of applications are big volume seek good margins as you look at the company going forward, as you look at your competencies are there certain thresholds in terms of margins and profitability that you are shooting for, how do you think about that?

Gary Tseng

As we look at this market some of the emergent smart card applications, we believe the margin will be fairly good at least higher than our present margin. So that’s what I can say.

Bill Lu – Morgan Stanley

Okay, great second question is for Gary, if you look at your – guidance for fourth quarter OpEx it looks like if you exalt the government subsidies it may see flat quarter-on-quarter I’m assuming the guidance is without any subsidies. So a question will be one given that you fairly cautious on your business conditions in the short-term, is there a room to all reduced OpEx over the next couple of quarters and two is what do we expect as far as couple of subsidies in the several quarters?

Gary Tseng

Thanks Bill. For a government subsidiary somewhat just like the past is relatively close to predict that’s the reason why when every time we’ve given the guidance on OpEx we did not include the government subsidy but as fourth quarter goings on, I would expect, we probably would have a good chance to get very good – the same level of the government subsidy at the end of the third quarter, but still there is no guarantee, because the government (inaudible) risk process sometimes take time to debtors have been guaranteed for those subsidy.

And towards to the other question you asked, what room can we move ahead in order to reduce our OpEx? There is two directions in our OpEx, on one hand, we still need to spend a substantial amount in order to push ahead our advanced technology note, depend on especially in the engineering wafer usage. So, this will somewhat increase our OpEx in R&D sectors, but on the other hand beginning from almost of 18 months ago, we started to trying to automate our faculties in a more efficient way and also to win the business process in engineering but this take a little bit longer time than we expected.

So, after we have been able to implement our new automated back office system, I believe we will be able to either decrease our expense in OpEx more efficiently or when you scale up our sales, we should be able to keep our fixed cost in the faculties levels.

Bill Lu – Morgan Stanley

So, assuming revenues stays at roughly the same level, where might OpEx be, let’s say by the middle of next year?

Gary Tseng

I would hope that we will be able to maintain in the current level at our best.

Bill Lu – Morgan Stanley

Okay, all right, thanks.

Tzu-Yin Chiu

Thank you.

Operator

Thank you. And your next question comes from Randy Abrams from Credit Suisse. Please ask the question.

Randy Abrams – Credit Suisse

Yes, good morning, thank you. I wanted to follow-up on the research on the areas of differentiation. And as you do that research or maybe in the meantime over the next year, if you see applications or programs for SMIC they could allow it to grow above the foundry sector or do you think you need to go through this research process and bring in applications before we start to see growth beyond the industry?

Tzu-Yin Chiu

We are in certain area I think that certainly we want to enter down because the growth and the profit is better than our present product mix.

Gary Tseng

Randy if I can add some comments before TY joined SMIC, we have already execute a six month ahead of five years forward-looking study through a world class consulting company and maybe get us a lot of perspective into the future what is our core competence in technology and what is the application market we should searching for especially fit for the China market. And as TY just mentioned after he joined, he had spend more time to dig into the detail and starting to pick up one or the other application which should be – but still it will take some time if not a few quarter, it will be extended in order for us to be able to make a deeper R&D and make our (inaudible) into our customer. At this point of time still R&D we have difficult time to give you more specific answer on this part, but as our speech, by the due time we will starting to give all of the market and more insight of our development.

Randy Abrams – Credit Suisse

Okay and then thank you. And if I could ask on recent on your business, if you’ve seen any order stabilization and normally we have seasonality in the first quarter, but do you think given the second half and what you’re seeing from orders you will start to see recovery or how do you see that playing out?

Tzu-Yin Chiu

Hi Randy. This is TY. Yes, we are very cautious even though we are seeing some stabilization of customer order and even some positive sentiment. But I think with the very macroeconomic uncertainty, it’s very difficult to project beyond next quarter.

Randy Abrams – Credit Suisse

Okay and I mean, if I can ask a follow-up I guess your projection with excess capacity, how aggressive you want to be in your capital spending or is it limited just to some technology buys to roll out 40 and to really the 28 or 32 nanometer?

Tzu-Yin Chiu

Our capital investments are still being planned. So we will definitely give you a better picture as we reported in the next quarterly report.

Randy Abrams – Credit Suisse

Okay, thank you.

Operator

Thank you. Your next question comes from Dan Miller from Bank of America. Please ask the question.

Dan Miller – Bank of America

Thank you. Good morning Dr. Tzu and good morning Gary. I wanted to ask question on your current business status. You had mention that much of the decline was in the consumer electronics area, which has been an area that – foundries and I also know that’s a pretty sharp decline in the North American customers, some about $200 million to about $160 million. My question is to what you attribute those declines? Is that mostly inventory related, is it demand related or these products that would effectively come back at some point? So when would you see that business normalizing, and to a extent could we also see some new businesses coming in, new customer engagements offset some of the weakness in consumer? Thank you.

Tzu-Yin Chiu

Hi Dan, this is TY. Yes, we do see a pretty big drop in the last quarter and we believe mostly this is related to macroeconomic issue, and as experienced by other foundry, we are hopeful that better execution has allowed us to get new products followed by in the aligned. And so – as well as we are getting a increased tape out in our 65-55 technology node, and so we have reason to think that by next year, we hope that – will improve.

Dan Miller – Bank of America

Yeah, I guess just as a follow up on that, I am wondering if you have visibility into your customer inventory digest in it. It’s obviously demand and there is some inventory component, so do you have insight in to how far long they are and the inventory reduction, and how concentrated this correction is at few customers. Thanks.

Gary Tseng

We did study the inventory level among our customers. The inventory – they are about half of the customers that have improving inventory level and half of them having about worsening inventory level, but however, these conditions are improvement over the third quarter, where the third quarter, there a lot more customers having worsening inventory level. So that particular indicator show us that – perhaps things are stabilizing. Does that answer to your question, is that?

Dan Miller – Bank of America

Yes, it does, thank you. And on the capital spending side, I am trying to get a sense of what you think under you new strategy to focus on areas of differentiation, which appeared to be a little less capital in terms of – I think I am trying to get a sense of what capital spending needs this business may need next year, would it be roughly at the same run-rate or would you anticipate the capital spending needs to be below the current level and how do you go about funding those needs whatever you think they are?

Tzu-Yin Chiu

Hi, Dan. Thank you this is Gary. For CapEx into the future, definitely we are going to be very conservative. As we move to differentiate in our technology by using our core competence, yes, you are right we will be spending less. While we are working on the 2012 budget in CapEx, so I will not be able to comment on the number yet, but still we are going to be very conservative. Compared with the last year level, definitely I will believe it will be a substantial decrease.

Dan Miller – Bank of America

Okay I appreciate that. Thank you gentlemen

Tzu-Yin Chiu

Thank you.

Operator

Thank you and our next question comes from Steven Pelayo from HSBC. Please ask the question.

Steven Pelayo – HSBC

Great. You mentioned that your customers were – partnerships were on the wavering, I’m just concerned if any of them are expressing concern about your cash level, I guess is cash and equivalence are probably at the lowest. I think I have my balance sheet but you do have in restricted cash. Can you talk a little bit about your cash plant at this point in time and what you need to kind of run the business and plans for funding if any?

Gary Tseng

Thank you Steven Gary again. Yes our cash level is in the pretty low side for the time being, as we have a lot of liquid cash, which being restricted from our banking transaction with the bank. Still – so what in to the future, I would expect our CapEx will be slowing down, but as you can see our annual depreciation still will be in the $500 million to $600 million level. We believe we should be able to bring in the lot of operating cash when we’re slowing down our CapEx. I would expect, our cash will keep going down into the fourth quarter, but I would definitely expect it will come in back gradually into the next year, quarter-by-quarter as we’re slowing down our CapEx.

Steven Pelayo – HSBC

And do you anticipate any needs for external funding?

Tzu-Yin Chiu

Not in the equity said I believe in the short-run, but we’re still working with bank in order to increase our long-term funding from the bank law.

Steven Pelayo – HSBC

Okay. And then you talked about the goal strategy of filling the fab and the example you gave was, I think a little bit more 200 millimeter related. SMIC strategy over the last couple of years was really to – get this 65 nanometer capacity in place and that was going to be this fastest sustainable profitability. It’s unfortunate that the downturn has come, and probably pricing curves are a little different than what you guys originally thought now. So can you help me understand – filling the fab relate the 300 millimeter level, could you maybe also start by putting it in context – what are the utilization rates of 200 millimeter versus 300 millimeter and then how you plan to kind of fill the 300 millimeter fab?

Tzu-Yin Chiu

Okay. Steven, this is T. Y. Yes, I’ll only give you the example of the 200 millimeter case, but indeed we’re implementing actions in the 300 millimeter fab, we have a big number of new shape out and we are actually focusing on qualifying those new products that have been running in the fab in the last half a year. And so we do see that there are a couple of products, very high-volume products that will be going into the 300 millimeter fab being qualified, some of it already being qualified this quarter and some of it will be qualifying soon.

Steven Pelayo – HSBC

And what were the relative utilizations rate, is it 200 millimeter versus 300 millimeter in 3Q and 4Q?

Tzu-Yin Chiu

Okay. Our 200 millimeter loading is higher than our 12-inch loading. The, our 200 millimeter loading is about 80% and our 12-inch loading is above 50% or below 50%. So it will stay flat over the fourth quarter, but hopefully some of these new products we were mentioning will improve the overall 12-inch loading.

Steven Pelayo – HSBC

Okay. Then that brings me to really my last question, which is, a breakeven analysis. You know your operating expenses are still kind of flat to up on down revenues, you are doing I guess 30% of revenues, 90 nanometer and below of 20% of revenue, 65 nanometer and still kind of doing let’s just say gross margins around flattish or zero from somewhere around plus or minus 1% or 3Q or down 3% to 5% or so in 4Q. Help me understand what’s going to be required for breakeven, if it looks like kind of 15% to 20% the revenues are spent in OpEx, so you need that in gross margin, what kind of mix are you going to need to do that, just help me to understand a breakeven analysis in terms of mix utilization rates and what were kind of assumptions you would put into that?

Gary Tseng

Steven, this Gary. Our current breakeven utilization rates were probably in high 80 to low 90 depends on our product mix. For the third quarter, we did experiencing as I mentioned earlier the product mix change, which means the high margin production when it’s decreasing and the lower margin production symbol is increasing. So that was really a get or hurt in the third quarter as well.

But moving to the future unless definitely we would be able to – we can control cost otherwise, we probably will be maintained our breakeven utilization in a 90 for the next two or three quarters, but as we’re starting to moving into dig into more detail about the cost structure in the factory, and also as I mentioned earlier in the automated (inaudible) fees when we’re moving into more product in the 65, and then the next year in the 40, I hope the breakeven point would be able to dropping from the high 80s to the lower 80s. Thank you.

Steven Pelayo – HSBC

Okay, thank you.

Operator

Thank you. (Operator Instructions) The next question comes from Dan Miller from Bank of America. Please ask your question.

Dan Miller – Bank of America

Yeah hi Gary, I just had a few follow-up questions and some housekeeping questions if I may? Could you give us the depreciation target for next year, where you think that would be and if you don’t have that preferably the next couple of quarters or it’d be the quarterly depreciation and cost of goods sold?

Gary Tseng

I would expect for the next year again the 12th budget this deal about preparing, but I would expect very much differ from this year.

Dan Miller – Bank of America

Okay. And could you – do you have the fourth quarter and first quarter numbers in front of you?

Gary Tseng

The fourth quarter?

Dan Miller – Bank of America

Yeah depreciation forecast for fourth quarter and the first quarter?

Gary Tseng

Not for the next yield first quarter, but the next quarter in the quarter full, I would except equation will be somewhere around 145 to 150.

Dan Miller – Bank of America

Okay, excellent. What do you think your interest expenses will be next year, what you’re targeting for interest expenses?

Gary Tseng

Well, I don’t have the number with me, but as we probably will increase our long-term funding for the next few quarters and as everybody knowing the US dollars of funding in China right now is very tight. So I would expect this breakpoint for the money we are borrowing will be moving I would say 100-150 points higher than we used to borrow. So I would expect our US – our interest expenses are moving to high at a little bit, but I will not expect it’s going to be a high number – it’s a big number. You’re talking about above maybe 2 million, 3 million interest expense level than we used to be.

Dan Miller – Bank of America

Thanks, and then lastly on the accounting front. The cash flow from operations had a nice surge from 79 million to 161 million on a cash flow from operations and you had alluded to depreciation declining over the next couple of quarters. So where will the operational cash flow be in the fourth quarter and first quarter of your estimate?

Tzu-Yin Chiu

I don’t expect our fourth quarter operational cash will be still negative, because as we still have some commitment from our previous cash, which we still have a cash outflow in investing activity, but from the operational cash flow we will still, we will have a small positive inflow. So net in net I would expect the fourth quarter still be have somewhere around 60 million to 80 million or the free cash flow will be net of 60 million to 80 million.

In the first quarter our ability – at this point of time we are still low, but I will not expect a negative free cash flow as our CapEx is slowing down and all the – has been finished.

Dan Miller – Bank of America

Okay. But some of those prior commitments, I know that in downturns companies will negotiate with their suppliers. And – I mean, I am wondering to what extent you can push out some of these prior commitments.

Tzu-Yin Chiu

We have negotiated with all our vendors, especially the machine vendor and thanks for their support, we can push on a lot, but some of the commitment, which we also needs on some machine in order to improve our fed efficiency so that part we did execute in the third quarter and fourth quarter, but moving into the next year as we mentioned earlier, we are very conservative, so we are going to be very careful for future commitment. So I will not expect there is going to be high level of cash CapEx into the next few quarters – I mean first quarter and onward.

Dan Miller – Bank of America

Okay, but I don’t think your CapEx number declined much so, $800 million isn’t that where it was last quarter, your full year CapEx are still $800, so where the push outs – is that a $100 million going to be a cash CapEx or will the cash CapEx be below $800.

Gary Tseng

No, actually the cash CapEx from this year is little bit higher, probably reaching $900 to $950 million in cash CapEx.

Dan Miller – Bank of America

So what exactly was pushed out that. I mean how much was pushed out...

Gary Tseng

I would say somewhere around $100 to $150 million.

Dan Miller – Bank of America

Okay. So would have been higher otherwise, all right. Thank you very much, that’s it for me.

Tzu-Yin Chiu

Thank you.

Operator

Thank you. Your next question comes from Steven Pelayo from HSBC. Please ask the question.

Steven Pelayo – HSBC

Looking to next year, I know you don’t have a capital spending budget, but this concept is kind of a maintenance level of CapEx. What’s the bare minimum you think, you need to run, 400 million or 500 million a year or is that something that I can use as a floor, what would that number be?

Gary Tseng

No, if you’re talking about for the maintenance CapEx then we’re talking about 50 million to 100 million is quite enough for our situation. When we have CapEx into the new capacity then as you know every thousand capacity for 65 will cost us 50 million to 70 million. So if there is no new capacity at all, then our CapEx will be obviously below 100 million for the next years. But again as we discussed with our customer for the new technology, capacity at this point of time, we have not decided yet, but still as I mentioned, we are going to be more conservative into the future for our CapEx.

Steven Pelayo – HSBC

I guess, I’m trying to quantify the comment that CapEx would likely to be significantly down, what is significant, can you stay on more – meet all your commitments and still spend less than $500 million next year?

Gary Tseng

Steven I am sorry because of the fund details various not deciding yet, so I really have hard time to give you the number. Please give us more time to make it more result.

Steven Pelayo – HSBC

All right, understood. And then looking at your IDM levels revenues I think maybe one quarter 2008, there maybe two quarters they were at a lower level, but this is a fairly low level, I guess my question is there is, get any worse. Do you get the feeling that your IDM level business is at a bottom and do you have some visibility for it to improve, let’s say maybe in fourth quarter, but maybe in the first quarter instead?

Tzu-Yin Chiu

Well, for 2010, I really feel sorry to report our result in this way because originally we think we should have reasonable good year of 2010, but as everybody knowing and we reported in the two quarters, some of our customers either changed their product direction with us, 2011 – I’m sorry 2011 some of our customers changing their product direction and some of customers they are losing their end market. And when we retail our capacity for that IDM demand, it is all of a sudden disappear. I saw we have to work hard to get something new back. As TY mentioned, through the last two quarters we did look out and starting to get a couple of good new (inaudible) and we believe our long-term with IDM business, we will be still maintaining in a critical level, we have the confidence.

Steven Pelayo – HSBC

I guess ...

Tzu-Yin Chiu

Is that answered your question?

Steven Pelayo – HSBC

Yeah, a little bit. The second part to that question is, is your IDM business recovery tie to the next technology node, really ramping more 45-nanometer or do you think that you can get your IDM business back above these kind of very low levels, with just, with 65-nanometer?

Tzu-Yin Chiu

No, actually no. IDM business is not only for advance technology. It’s also for the leadership in technology as well. So, in the port side, we walk very well with our IDM partner or our IDM customer. So there is no, I mentioned that within above 40 and 45 nanometer capacity, our current capacity is 60-65, 50-55 and also all the 200 nanometers capacity, is some of what fit in to the niche market, our IDM customer niche still.

Steven Pelayo – HSBC

Okay, so then.

Gary Tseng

But we, when we are talking about the CapEx, we are already talking about more in the domestic and you already know capacity expansion.

Steven Pelayo – HSBC

So I guess just in general, is your IDM business, which meaningfully underperformed in the third quarter, underperformed the overall revenue growth. Do you think that’s at a low level now or about may be outperform the overall company going forward or what do you think about IDM business for the fourth quarter and may be looking into next year?

Gary Tseng

I will expect the fourth quarter still will be in a very size, but starting from the next year as they become mature and starting, and going to the (inaudible) production, yes the IDM business will be starting to move up gradually into the next year quarter-by-quarter.

Steven Pelayo – HSBC

Okay. And then you’re outlook for mix in the fourth quarter, 65 nanometer and below and then you started to mention that you may get some ForEx node coming in. How much of that, will come in the fourth quarter or maybe in the month of December or something like that and how much can ForEx be maybe by the end of next year?

Gary Tseng

Okay. As we have reported there will be a very small amount of revenue on the ForEx technology and we do hope that ForEx will give us reasonable revenue in the – by the end of the next year. We should see revenue around in the mid 10s and at the end of year, we hope to have it in the high 10s – high single digit by 2012 – end of 2012. Does that answer your question?

Tzu-Yin Chiu

Yes for 40-nanometer, and then what about 65-nanometer and below into the fourth quarter?

Gary Tseng

Okay. Let me say that we continue to have very robust 65 and 55 new tape-out, and we believe – we hope that the 65-nano loading will be actually in the high teens – no in the 20s – in the mid 20s by the end of Q4, next year.

Steven Pelayo – HSBC

Thank you.

Operator

Thank you. Your next question comes from Patrick Neil from Nomura Securities. Please ask the question.

Patrick Neil – Nomura Securities

Hey, I got a question that you’ve mentioned for the 29 mil no revenue, could you also give a kind of color for the advanced technology capacity readiness, and then we have a one of the above likely CapEx needed or not? Thank you.

Gary Tseng

Patrick, this is Gary, for the most advanced technology to SMIC at this point of time definitely its 40-45. And from a financial perspective, really like to be very cautious to our management team when we expand our 40-45 nanometer capacity, because I see, I saw two of the other, our foundry friends when they get into the first step into the 40, the experience is quite a challenging time in order to ramps things up.

So on one hand I was quite encouraged by our new development in 40-45 nanometers progress, but on the other hand I would like to be a little more conservative on the CapEx side for 40 and 45 nanometer until we see, both – one, good ramping up yield and second got commitment from our customer. At this point of time, we’re working very hard with our customer on this part. So I am somewhat still quite promising. We should have some more 40 and 45 nanometer capacity ramp up in the next year. At the current point, we have some coil 4000 40-45 nanometer capacity.

Patrick McNulty – Nomura Securities

Okay. Thanks , then would you consider if not really increase the total capacity kind of and hence the technology content of the current capacity, with that be likely viable strategy? Thank you.

Tzu-Yin Chiu

No, not really no. For our Beijing fab we are more focused on 65 nanometer capacity, for our Shanghai 12-inch fab, we will be focused on 40-45 nanometer capacity. So when we increase our capacity in 40-45 it will be most probably in Shanghai and we will probably keep our 65-nanometer capacity at its covering level in Beijing fab.

Patrick McNulty – Nomura Securities

Right. Thanks. Then, would that be a likely idea of, say, cash level (inaudible) improved outflow utilization rates, would that be a kind of sense on that or really depends on what product mix?

Tzu-Yin Chiu

I am certain you’re right.

Patrick McNulty – Nomura Securities

Yeah. I am just thinking would that be a very simple idea, since people asking lots about the cash questions, then would that be easy idea that at what kind of level not just in the year breakeven, but also cash balance position for – would that be a kind of sense on that, will be very helpful.

Tzu-Yin Chiu

Well everyone – utilization is going down below or breakeven point or even low to low level, it will cost loss and we will not be able to free recovery our depreciation, which is a case in a general sense. So from that perspective we need to make our business enable to bring up our – enable to get the cash inflow into the company. So in that situation we have to maintain a good scale of operation in order to have a very healthy cash inflow.

Patrick McNulty – Nomura Securities

Okay, thank you.

Operator

Thank you. I’ll now like to hand the call back to CEO, Dr. Tzu for closing remarks.

Tzu-Yin Chiu

In closing, I would like to take this opportunity to again thankful of our shareholders, customers, employees and the suppliers for their trust and the support. We also thank the analysts who participated today for their questions and comments. I look forward to speaking to you again in the future. Thank you.

Operator

Thank you. This is the end of SMIC’s third quarter earnings conference call. We thank you for joining us. We will now hang up your lines.

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