A：Welcome to SMIC’s First Quarter 2026 Earnings Conference Call. Today’s meeting will be broadcast live via both the internet and telephone. After the management statement, we will have a question and answer session.

A：The company achieved sales revenue of $2.505 billion billion in the first quarter, up 0.7 percent from the previous quarter. In terms of service types, this year's revenue accounted for 93.9 percent of total revenue, with the amount increasing by 2.3 percent month-on-month, with shipments down 0.2 percent month-on-month and the average unit price of wafer sales up 2.5 percent month-on-month.

A：There are two main reasons: first, due to the fluctuation of demand for artificial intelligence chips, mobile phone manufacturers lowered their orders in the fourth quarter of last year for fear of insufficient supply, which was partially transmitted to the first quarter; second, new factories entered the start-up period in the first quarter, and the new capacity increased the denominator of the overall utilization rate. In terms of application areas, smartphones, computers and tablets, consumer electronics interconnection and wearables, and industrial and automotive sectors accounted for 19%, 14%, 46%, 7% and 14% of revenue, respectively.

A：China accounted for 89%, the United States 9%, Eurasia 2%. In terms of amount, China's revenue increased by 2% month-on-month, reflecting the effect of sufficient industrial chain.

A：Gross profit margin in the first quarter was 20.0, up 0.9 percentage points month on month, mainly due to higher sales unit price and product structure optimization.

A：The company's revenue guidance for the second quarter is 14% to 16% month-on-month growth, and shipments and average unit sales are expected to increase significantly. The gross profit margin guidance is 20% to 22%, an increase of two percentage points from the previous quarter, mainly due to the increase in average sales unit price. The company is negotiating with customers to raise pricing to cope with the price reduction effect, and some customers are concerned about the uncertainty of the external environment and raise supply chain prices in advance, which makes the company have sufficient orders on hand. Based on this, revenue is expected to grow 14% to 16% in the second quarter, with a gross margin of 20% to 22%.

A：The AI boom has directly driven the demand for chips such as power management and data transmission, and has squeezed non-flash memory capacity. The company fully covers the logic simulation BCD embedded storage, independent display memory display drive image sensor, power devices and other fields, in which the car-level process platform demand is strong, full orders. The ultra-low power logic public welfare platform products also provide wired and wireless connectivity solutions for cloud AI and edge AI applications.

A：Based on the improvement of customer demand and orders in hand, the company is more optimistic about the overall operation this year. The main reasons include: 1) the strong demand for matching chips by artificial intelligence leads to a shortage of power management chips; 2) The overseas red flag effect of artificial intelligence urges consumer IOT customers to seek production capacity and place orders in the mainland; 3) Artificial intelligence drives the demand for new applications such as electric vehicles and robots, and local companies actively explore the market; 4) The demand for localization of the industrial chain promotes the stability of domestic logic netcom. In addition, the company will continue to promote capacity construction and sign long-term agreements with customers to lock in future demand to ensure steady growth.

A：In the current complex global macro environment, the company is using its years of experience to continuously strengthen supply chain resilience management and minimize negative impacts through multi-channel procurement strategies. At the same time, the company will pay close attention to customer needs, flexibly allocate resources, and speed up product response to maintain high-quality delivery and ensure stable operations even in complex situations.

A：The company attaches great importance to market value management, and established a corresponding market value management system in the first quarter of 2025 and strictly implemented it. Over the past year, the company continued to optimize the main business, operating performance to a new level. The company actively invests in technical research, promotes the common development of the industrial chain, and strengthens the construction of talent team and green sustainable development. In addition, the Company has deepened its communication with investors and actively delivered its value to the capital markets through a variety of online and offline methods.

A：The company believes that strong demand for artificial intelligence (AI) supporting chips is directly driving growth in areas such as power management, which is currently facing shortages. In addition, overseas markets are seeking chip production capacity in the mainland through customer return and other means. At the same time, AI has also driven the demand for chips in emerging fields such as electric vehicles and robots, which has led to an increase in the localization demand for domestic logic and network chips. Facing the concern of insufficient supply in the future, the company is actively adjusting its product line, including logic, special memory, clock, analog front end and ADC products, taking advantage of its technology reserve, diversified platform layout and flexible capacity conversion, and continuously expanding its production capacity, signing long-term cooperation agreements with customers to lock in future demand, so as to ensure stable growth momentum. Regarding the demand for artificial intelligence, the company does not produce the main chip, but has a large number of customers and mainstream market share in power management, power supply, digital transmission and data drive. As demand increases, products in these areas are currently in short supply, and SMIC is limited by capacity and is fully mobilizing capacity to meet this demand. In addition, the company's products are widely used in artificial intelligence fields such as household appliances and robots. The demand for various logic circuits has increased significantly, and many customers have jointly promoted this trend. With regard to the increase of gross profit margin, the company has taken measures in two aspects: first, to strengthen the cooperation with SMIC in the subdivision track, make use of its comprehensive technical advantages and early close cooperation with customers, as well as the high quality and high performance of platform products, so that the proportion of high-priced products increases; second, with the growth of market demand, the company timely adjustment of prices, the effect of high-priced products gradually appears. Although it is expected at the beginning of the year that SMIC's depreciation expense will increase by about 30% compared with the end of last year, efforts will be made to achieve a steady increase in gross profit margin.

A：SMIC started layout packaging and advanced packaging in 2015, with 11 years of experience. At present, it mainly focuses on the packaging requirements of internal customers in front-end factories. In the past ten years, it has been carrying out advanced packaging of 3D CIS and combining Simon c major sensor with standard logic ISP image center processor through back-end processing. At the same time, SMIC also provides inter poser services for external advanced packaging plants. In order to meet the needs of customers, the Advanced Packaging Research Institute has recently been established to deepen the research on cutting-edge technologies, and new production capacity has been built to meet the needs of modern customers. For other opportunities in the industry, the company will pay close attention to and closely meet the needs of customers, and flexibly promote the relevant business layout.

A：SMIC North's equity acquisition has been approved by the Shanghai Stock Exchange Merger and Reorganization Committee and is now submitted to the CSRC for registration, but the registration approval time is uncertain. First-quarter Northern profit was merged into SMIC's net profit at 51%. After the registration is approved and the delivery is completed, the northern profit can be fully included in the scale net profit, which has a positive impact on the company's scale net profit, earnings per share and return on net assets and other financial indicators. The exact point in time to complete the incorporation could not be determined.

A：Yes, it is normal for R & D expenses to fluctuate between quarters, which is related to the pace and timing of R & D expense settlement. Usually at the end of Q4, R & D spending is relatively concentrated, so Q1 R & D spending will be lower than Q4.

A：During Q1, the impact of start-up costs led to a decrease in general administrative expenses as the new plant was in the start-up phase. In addition, some renovation projects were delayed or canceled, saving administrative costs and further reducing administrative expenses.

A：Yes, the increase in depreciation for the whole year still maintains the previously predicted growth rate, which increased by 26% in the first quarter. Depreciation will continue to increase in the following quarters, and the annual growth will basically remain at about 30%.