Samsung Elect Ltd

Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2020 first quarter earnings results by Samsung Electronics. This conference will start with a presentation followed by a divisional Q&A session. If you have a question, please press star 1, that is star N1 on your phone during the Q&A. For cancellation, please press star 2, that is star N2 on your phone. Now we shall commence the presentation on the fiscal year 2019 first quarter earnings results by Samsung Electronics.

Good morning. This is Ben Seo from Investor Relations. Thank you for joining our earnings call for the first quarter of 2020. With me representing each of the business units are Mr. Hanjin Man, Senior Vice President of the Memory Marketing Team, Mr. Shindong Ho, Senior Vice President of the System of Assigned Marketing Team, Mr. Han Seung-hoon, Senior Vice President of the Foundry Marketing Team, Mr. Choi Kwon-young, Vice President of Samsung Display, Mr. Lee Jong-min, Vice President of IT and Mobile Business, and Mr. Kim Won-hee, Vice President of the Visual Display Business. In addition, Mr. Kang Tae-gyu from Investor Relations is present on this call as well. I would like to remind you that some of the statements we will be making today are forward-looking, based on the environment as we currently see it. And all such statements are subject to certain risks and uncertainties that may cause our actual results to be materially different from those expressed in today's discussion. Before we start our normal review of quarterly results, I would like to address a topic on everybody's mind, the COVID-19 pandemic. COVID-19 has created unprecedented challenges for the global community. At this point, it is impossible to determine how big of an impact it will have or how long it will affect our society and economy, leading to a period of extremely heightened uncertainty. For our part, Samsung Electronics is doing everything we can to carry out our vital roles, taking care of our employees, supporting our customers, and helping affected communities at home and abroad. First and foremost, the health and safety of our employees and their families is our top priority. We launched regional response teams around the globe to provide our employees with timely and up-to-date information and resources based on the latest guidelines from local health authorities. We have restricted business travel, have strongly advised global employees to work from home where possible, and have closed some of our facilities to support social distancing efforts where necessary. In our operating facilities, we have implemented additional safeguards by mandating health screenings and temperature checks to enter our offices or facilities, which are disinfected on a frequent and regular basis. Also, we are providing masks to our employees at such facilities. Next, we are closely collaborating and sharing information with our key partners to jointly address problems this crisis may bring. And we are doing our utmost to ensure that our customers have reliable access to our products and services by flexibly managing operations across our global production and supply networks. For the global community, we are actively supporting governments and communities around the world in their relief efforts through financial contributions and donations of medical supplies and electronic devices, including products to help facilitate online education. In Korea, we provided a facility for use as a treatment center and offered the expertise of our engineers to improve the efficiency at mass manufacturing operations. Also, all employees at Samsung Electronics, via a company-wide initiative, are exploring ideas on how we can use our technologies and capabilities to further support those affected by COVID-19. In terms of financial performance, we delivered solid results in the first quarter despite this difficult environment. However, a surge in the number of cases of COVID-19 across the globe in March led to disruptions or shutdowns of our distribution and supply networks, offline stores, and manufacturing facilities, hurting production and sales amid lower demand. As a result, certain areas of the company, mainly our set businesses, will be under stress in the second quarter, and we expect uncertainties to continue into the second half of the year. We will keep monitoring the situation and based on our technology leadership and product competitiveness, respond quickly and flexibly to new developments to minimize impacts on our business and customers. In spite of the current challenges, we will continue to enhance the competitiveness of our core businesses and invest strategically in R&D in order to emerge from the pandemic well positioned for future growth. Finally, we would like to express gratitude and pay respect to everyone working to combat this crisis. From all of us at Samsung, we wish good health to you and all those close to you. Now let's move on to our first quarter results. Total revenue in the first quarter was 55.3 trillion won, a decrease of 7.6% from the previous quarter, mainly due to weak seasonality for our display business and CE division, and partially due to the effects of COVID-19. Year on year, revenue increased by 5.6% due to higher demand for memory and other components related to mobile. Gross profit fell 0.8 trillion won quarter on quarter to 20.5 trillion won, while gross margin was slightly higher at 37.1%. SG&A expenses decreased by 0.1 trillion won quarter on quarter, led by a reduction in marketing costs. However, they increased as a percentage of sales. Operating profit was lower by 0.7 trillion won quarter-on-quarter to 6.4 trillion won, affected by the same factors that weighed on revenue, with a corresponding decrease in operating margin, even though memory earnings were higher. Year-on-year operating profit increased by 0.2 trillion won, with an improved product mix in the mobile business, and additional diversification of our customer base in mobile OLED. Foreign exchange movements had little effect on our overall operating profit in the quarter, as positives from a strong US dollar and euro against the one felt mainly in the component business were offset by weakness in currencies in major emerging markets. I will now briefly review the performance of each business unit. In the memory business, profits improved sequentially amid solid demand, primarily from server and PC, as well as steady demand from mobile. For system semiconductors, earnings rose due to an increased supply of mobile components to our major customers, while profits for foundry declined slightly due to lower high-performance computing demand from China. In the display business, mobile panel earnings decreased quarter-on-quarter amid weak seasonality and a reduction in sales in China due to COVID-19-related shutdowns. The large panel business recorded a narrower loss as smaller declines in the market price were more than offset by other factors. Mobile earnings grew quarter-on-quarter and year-on-year despite COVID-19-related weakening sales toward the end of the quarter due to an improved product mix with the launch of S20 flagship devices and efficient execution of marketing costs. The CE division recorded weaker results sequentially due to seasonality as well as early effects of COVID-19. Earnings in the TV business dipped year on year amid aggressive price competition, but the home appliance business improved its performance backed by strong sales of new premium products. Harman's results were affected by significant one-off costs related to the relocation of a European manufacturing plant. Next, I would like to share our business outlook. In the second quarter of 2020, while we expect memory earnings to remain solid, our overall earnings are likely to fall quarter on quarter due to a sharp increase in the impact of COVID-19 that will affect demand for several of our core products. For the component business, memory demand is forecast to remain solid for server and PC as more people work from home, but possibly slip from mobile. OLED earnings are likely to be weaker due to a stagnant smartphone market. In the set business, many of our key products are expected to see a significant drop in sales and profits due to shrinking demand related to COVID-19 and also store and plant closures around the globe. To address this, we will leverage our global production flexibility and supply networks while also strengthening our online sales capabilities. Harman earnings will remain soft due to temporary shutdowns of automotive plants globally, which are also due to COVID-19. In the second half, uncertainty levels are expected to remain high given the unknown duration of the pandemic and its effects. Considering this, we will flexibly respond to changes in demand and focus on optimizing resource allocation in the short term while continuing to strengthen semiconductor technology leadership and develop innovative set products for accelerated growth post COVID-19. For the component business, in memory, we will add to our technology leadership and cost competitiveness via node process migration while staying agile to changes in the market with flexible investments and product mix adjustments. In OIL-ED, we will actively address demand for new product releases and also expand our presence in new application areas such as foldables and IT devices. For the SET business, we will continue to develop leading products that will take consumer experiences to the next level. Mobile will strengthen its lineup by introducing new premium models and expanding offerings of 5G models for the mass market. Network will focus on developing technologies and enhancing global competencies to reinforce the 5G business. TE will efficiently execute marketing and promotional programs tailored to conditions in each country, and will work to expand sales of innovative products like micro-LED and 8K TVs, along with our new lifestyle offerings in the second half. Now I will address capital expenditures. CapEx in the first quarter was approximately $7.3 trillion, with $6 trillion allocated to semiconductor and $0.8 trillion to display. For memory, we are continuing expansion in our production sites and investment in node migrations as planned. In Foundry, investments are focused on expanding capacity of advanced EUV process nodes. Finally, I would like to address the first quarter dividend. Today, the Board of Directors approved a quarterly dividend of 354.1 for both common and preferred stock. Even though we expect to face challenging business environment in the second quarter, mainly in the set businesses, as more effects of the COVID-19 pandemic take hold, first quarter dividends will continue to be based on our current dividend schedule. I will now turn the conference call over to the gentlemen from each business unit to present first quarter performances and outlooks for the corresponding business segments. Thank you.

Good morning. This is Hanjin Man from the Memory Marketing team. In the first quarter, despite weak seasonality and effects of the spread of COVID-19, purchasing demand for overall applications remained solid. backed by demand from cloud applications resulting from an increase in remote working and online education and continued investment in 5G infrastructure. For DRAM, demand was solid from data centers, centering on cloud services, as the stay-at-home economy has expanded usage of online shopping and streaming services, among others. For mobile, even though set demand decreased due to effects of COVID-19 and seasonality. Related negatives were offset by rising demand from the ongoing trend toward high density in new products and major customers, and growing concerns over supply stability in the second half. For PC, the closure of some manufacturing sites had an impact on set bills, but overall demand remained steady thanks to a growing reliance on virtual meetings related to social distancing policies, and also because of the mentioned concerns over the stability of supply in the second half. In the quarter, we used our product mix flexibility to actively address upside demand from major customers, such as PC and server, enabling us to exceed our previous bid growth guidance. We have also increased our product competitiveness by expanding the sales portion of high density server products based on 16 gigabit and accelerating process migration for one wide nano products. Next, I will talk about the NAND market. For mobile, even though macro uncertainties weighed on demand, especially from set makers in China, demand for mobile memory overall was relatively solid due to wider adoption of high-density storage with more than 128 GB in major customers' products. For SSDs, demand for server SSDs keeps growing, mainly for data centers, alongside rising demand for high-volume content. For client SSDs, although set production at the beginning of the quarter was partially affected by a drop in utilization at ODMs due to COVID-19, Utilization recovered at the end of the quarter and propped up purchasing demand to an extent. We actively addressed demand for high-value-added server SSD focusing on data centers. We also improved our profits by enhancing cost competitiveness via increased migration to fifth-generation VNAND. Next, I'd like to talk about the second quarter outlook. For DRAM, We expect demand to remain firm across all applications, despite a likely continuation of weakened consumer confidence related to the worldwide pandemic. Specifically, the rapid rise in the number of people working from home relying on online education and using streaming services is likely to create robust growth in demand from server, while that for PCs is expected to remain steady. For mobile, however, We expect that demand to stay highly uncertain amid soft consumer confidence and considering characteristics of the mobile market, which include a high offline portion of sales. We will flexibly manage our product mix to align with changes in demand with a particular focus on growing demand from server. Also, we will strengthen our cost competitiveness by expanding technology migration. In the NAND market, as is the case for DRAM, there will be impacts from a decrease in smartphone set demand. These effects, however, will be offset by growing demand for SSD. So we expect the overall NAND demand to continue to grow. In color, demand for video content has accelerated due to social distancing policies. And demand for server SSD is expected to keep rising. as data centers work to support various high-definition content more reliably. We will focus on expanding demand for high-density, high-value-added server SSD above 2 terabytes, while continuing to extend migration to fifth-generation VNAN to secure cost competitiveness. Next, I will talk about the prospects for the second half. In the memory industry, mobile demand has been most affected by COVID-19, and any recovery will depend on factors such as the containment of the pandemic, as well as the rate consumers in major countries regain confidence. Given the high uncertainties related to the virus and other macro factors, it is difficult to provide annual guidance at this time. However, even as such uncertainties persist, Overall conditions in the memory industry are likely to be favorable due to server and PC demand related to supplying a faster and more reliable cloud service experience. If COVID-19 persists in the longer term, there are risks that demand may further decline for overall applications, including server. However, in this case, even in this case, Chances of sudden market fluctuations are likely limited by possible impact on supply as due to factors such as delays in equipment procurement. Despite these unexpected challenges, the recent digital transformation trend is likely to accelerate further in the mid to long term as a new lifestyle based on online services quickens its spread throughout people's daily lives. As a result, Demand for high-end, high-performance memory will continue to grow. We will maintain a flexible product mix and investment approach based on market changes, while focusing on increasing sales of differentiated products such as mobile LPDDR5, GDDR6, and high-density server SSD, along with accelerating the conversion to cutting-edge products such as 1Z Nano DRAM and 6th Generation Green Ant. Additionally, the recent two to three years have highlighted that rapid price fluctuations in the short term can result in significant negative effects on the stability of growth, not only for memory suppliers, but also for the IT industry as a whole. Thus, we are preparing for numerous scenarios, including ones where the COVID-19 crisis is prolonged or even ends early. and are actively utilizing previous market sensing data and our SEM strength to ensure we can satisfy customer demand, which can change rapidly in an uncertain environment. Moreover, as we announced in March, we are actively expanding our use of EUV and preparing to adopt a process in earnest for 1A nano DRAM in the low 14 nano range as planned. We believe the adoption of EUV is not just another means to reduce size, but rather a critical transition to break through technological barriers. Despite these unprecedented uncertainties in the market, we as a leading company will do our best to contribute to stable growth of our customers and the IT industry as a whole by continuous development and innovation of new technology alongside timely and sustainable investment with a view to the mid-to-long term. Thank you.

Good morning. This is Dong Ho Shin from the System RSI business. In the first quarter, System RSI earnings increased quarter over quarter, a result of a rising supply of 5G mobile processors and ultra-high resolution image sensors launch of new flagship and high-end smartphones by domestic and Chinese customers. In particular, we continue to lead technology in image sensors with the launch of a new product featuring NanoCell, a complementary technology for low-light performance for our ultra-high 108-megapixel chips. In addition, we diversified our product portfolio by launching a security chip that protects personal information on mobile devices and a powerful management chip for TWS earphones, which have been rapidly gaining popularity. In the second quarter of this year, we expect overall demand to contract due to fading impacts of launches of flagship smartphones, production disruption at global manufacturers, and soft consumer sentiment due to COVID-19. We will monitor fluctuation in market and customer demand while focusing on minimizing impact by maximizing the supply of high-pixel image sensors and expanding 5G SoC market. In the second half of this year, demand for 5G SoCs and premium image sensors is forecast to remain solid due to rise in the number of 5G subscribers, launch of new low to mid-priced 5G smartphones, and increase in adoption of high-resolution sensors and multi-camera with triple quad sensors in China. However, COVID-19 has greatly increased market uncertainties, and it is difficult to determine the timing or shape of economic recovery. Therefore, we will closely monitor the market and secure solid SCM, as well as respond flexibly to any changes, while also seeking to enter new applications through highly competitive new products. Thank you.

Good morning. This is Sean Han from the Foundry business. In the first quarter, even though demand for 5G and image sensor chips increased, thanks to launches of 5G smartphones and major customers and the increasing trend toward higher camera specs, overall earnings decreased slightly compared to the previous quarter due to a decrease in the demand for HPC chips from China. Revenue in the quarter, however, grew in double digits compared to the same period last year. We responded in a timely manner to customer demand with operations of the EUB dedicated V1 line and stable mass production of EUB 6 nano products. We also added to our foundation for growth by preparing to mass produce computing chips for major customers, completing design of HPC products, as well as by expanding orders from large companies for chips used in consumer applications. In the second quarter, we expect earnings to improve sequentially, but we must be mindful of uncertainties caused by the COVID-19. We plan to closely monitor the situation and keep diversifying our products, customer space, and use applications in line with changes in mobile demand. This quarter, we aim to expand leadership in EUV processes with startup mass production of 5nano products alongside our efforts to keep monitoring and securing orders from 5nano and below processes. In addition, we will endeavor to further stabilize our base for future business by completing the design of computing and EUV products for automotive and mobile applications. In the second half of this year, to address current COVID-19 uncertainties, we plan to focus on diversifying applications beyond mobile to include areas such as consumer and computing applications. In addition, we will continue investing in advanced process nodes and start mass producing 5-nano products this year, as mentioned. And we will also continuously improve 5-nano derivative FinFET processes to enhance price, performance, competitiveness, and also focus on the development of the GAA 3-nano process. Thank you.

Good morning. This is from the planning department of Samsung Display. In the first quarter, overall display earnings decreased quarter-on-quarter due to reduced shipments of OLED and LCD panels. To be more specific, mobile display earnings were lower quarter-on-quarter as the shipment and utilization declined. amid low seasonality. Meanwhile, in the large display business, losses narrowed slightly quarter on quarter, thanks to a combination of short-term market factors, such as movements in ASP and foreign exchange rate. Looking ahead to the second quarter, we expect earnings in the mobile display business to decrease due to falling demand in developed regions. such as the US and Europe caused by COVID-19 pandemic. The display industry is specialized by nature, offering customized products to each customer. So a significant drop in customer demand will inevitably lead to a substantial decline in shipments and thus profit. To address this, we strive to secure profitability by enhancing sales based on the differentiated performance and design of our mobile panels. For the large display business, earnings are likely to remain weak under risks of an accelerated market slowdown in the wake of the postponement of mega sporting events such as Tokyo Olympics. In response, we endeavor to raise profitability by focusing on our business on high value added panels for TVs and monitors that offers features such as ultra high resolution and ultra large screens and covered designs. Next, I would like to share our outlook for the display market and our core strategies for the second half of this year. In the mobile display business, uncertainties are likely to linger due to the spread of spread and effect of the COVID-19. Accordingly, we are preparing for various scenarios by enhancing our ability to swiftly respond to market changes. In particular, we are determined to fortify leadership in the already market. by exploring new application areas including foldables and other IT devices to actively address our customers' needs in various smart devices after the COVID-19 crisis ends. A global economic downturn combined with intensified competition will lead to unfavorable business conditions. but we'll keep investing to improve our technology capabilities and cost competitiveness. For the large display business, we'll seamlessly fulfill all our customers' needs amid the scaling down of the LCD business. and will expedite the development of products featuring our new technologies such as QD display. Thank you.

Good morning. I'm Jongmin Lee from the mobile communications business. I'd like to share our first quarter result and outlook for the IM division. In the first quarter, overall market demand drastically decreased quarter on quarter, as a result of supply chain issues in China. Caused by the COVID-19 outbreak early in this quarter and travel restrictions in the last few weeks of the quarter following the global spread of the pandemic. As the impact of COVID-19, including those on logistics, began to take effect in March, our smartphone shipments also decreased per on quarter However, we maintained sound profitability quarter on quarter by efficiently deploying marketing investment by improving overall product mix while including the sales portion of a premium and 5G model. In particular, flagship ASP rose compared to previous years thanks to a higher than expected sales portion of the S20 Ultra and solid sales trends of our new foldable Galaxy Z Flip. The Galaxy S20 series, released in February, provides our customers with new and more innovative mobile experiences by offering a fully enhanced AI-powered camera and 5G availability in all three S20 variants. The newly launched Galaxy Z Flip, our second foldable after Galaxy Fold last year, is highly acclaimed among millennials and female customers because of its stylish and compact design, as well as the flex mode, which helps to fully enjoy the new form factor. For the network business, Our performance improved quarter on quarter as 5G commercialization expanded in Korea as well as abroad. Now, let me move on to the outlook for the second quarter. With the global spread of COVID-19, demand is expected to drop sharply in most regions due to the economic downturn caused by lockdown across the globe and a corresponding decline in consumer sentiment. As the market shrinks and effects of store closures continue to have direct impacts, a drop in sales of our major products and overall performance seems inevitable. Although market uncertainty is higher than ever, we will focus on improving cost effectiveness and strengthening online and B2B channels. In case there are additional disruptions at our production sites, we will respond by flexibly utilizing our diversified manufacturing capabilities around the globe. Above all, We are committed to protecting the health and safety of our employees as well as preventing community spread. We have been thoroughly implementing disinfection and prevention measures in our offices and production facilities in all regions. For the network business, it is possible that Investments in 5G network will be reduced or delayed domestically and internationally as more effects of COVID-19 unfold. Finally, I will share our outlook for the second half. In the midst of uncertainties, such as the possibility of the prolonged pandemic and the timing of market recovery, We expect competition to intensify further as companies strive to recover from weakness in the first half for the mobile business while continuing to offer differentiation in the premium segment with new foldable and note model launches. We plan to widen the range of choices for our customers and enhance competitiveness within each price range by introducing 5G models to our mass market lineup. In addition, we will also improve operational efficiency across all areas, including R&D, production, supply, channel, and marketing. For the network business, despite uncertainties around the 5G investment plan, We will continue to strengthen our technological competitiveness while improving our 5G business compatibility globally for the mid to long term. Thank you.

Good morning, everyone. My name is Kim Wonhee from Visual Display Business. First of all, I'd like to review the market condition and our performance for the first quarter 2020. In Q1, TV demand declined both quarter-on-quarter and year-on-year as the market entered low season following end-year peak seasonality as well as due to a decline in global demand starting in March. For Samsung, our earnings declined year-on-year due to a sharp downturn in market conditions. Despite the difficulties, we continue to solidify our leadership by increasing our market share not only in the total TV market, but also in the $2,500 and above premium segment, mostly driven by increased sales of QLED, super large screen TVs, and lifestyle TVs. For digital appliances, despite the reduction in consumer confidence, our results slightly improved both quarter on quarter and year on year, largely due to a growing sale of premium products which include those for the Grande AI washing machine and dryer. Next, let me share our market outlook for the second quarter and the second half of 2020. The TV market in Q2 is projected to decline both quarter-on-quarter and year-on-year, mostly due to deteriorating market conditions overall and the postponements of major sporting events such as Euro 2020 and the Olympic Games. Under such circumstances, we will focus our efforts on maintaining sales, identifying new sales opportunities in each country, mainly online, and concentrating on risk management. Although our total sales are decreasing due to the shutdown of offline stores in multiple countries, the online portion is increasing. We will actively address growing online demand by strengthening our efforts in target marketing, while also expanding our online product lineup and promotional offerings. Moreover, we will work to satisfy the needs of consumers related to lifestyle changes, such as increased use of IT devices caused by prolonged stays at home. For those who enjoy content such as movies, sports, and gaming, we will boost sales of super large screen TVs, including our QLED 8K models, that deliver immersive experiences based on the best picture quality and dynamic sound. Furthermore, we will provide a diverse range of beneficial features to consumers by addressing various use case scenarios, which include homeschooling and remote working with our Smart TV features. In response to the growing trend of working remotely, utilizing video conferencing and as subsequent increases in PC screen time, we aim to expand sales of signage that can be used for video conferences as well as sales of gaming and curved monitors. We will continue to maintain our leadership despite the dynamic changes that are taking place. For the digital appliance business, we will prepare for peak summer demand for air conditioners and continue to improve our online sales amidst the COVID-19 pandemic. We will also do our best to strengthen our response to the crisis by cooperating with our channel partners to optimize marketing strategies. In the second half of the year, both the TV and digital appliance markets may not be able to avoid contractions due to the current uncertainties and risks of an economic downturn. We are closely monitoring the market situation and we'll continue to focus on minimizing negative impacts by investing in efficient marketing and promotions tailored to each region and by optimizing our logistics. We will also continue to lead the industry with innovations such as QLED 8K, micro LED, and bespoke. Thank you.

Thank you for the presentations. This is Ben Seo again from the IR team. So this sums up the first quarter results presentations. Before we move on to the Q&A session, I would like to share several data points in key business areas. Considering the heightened COVID-19 related uncertainties, especially in the second half, we will not be providing any annual guidance at this time. For DRAM, in the first quarter of 2020, our bid growth decreased by a mid single digit percentage but ASP rose in the single digits. For the second quarter, we expect bid growth to stay flat for the market as well as for us. For NAND, in the first quarter, our bid growth saw a low single-digit decline, but ASP increased by a mid-single-digit percentage. For the current quarter, the bid growth of the market is likely to reach the low to mid-single digits, and our bid growth is forecast to come in slightly below that of the market. For the display panel business in the first quarter, the OLED portion of sales was in the low 80s, and sales volume declined in the high 20% range. In wireless, in the first quarter, sales volume was 64 million units for handsets and 5 million for tablets. The blended ASP, including tablets, was $266. And the smartphone portion of the handset sales volume was in the low 90s. In the second quarter, we expect shipments to decline quarter on quarter for handsets, but rise for tablets. And blended ASP is forecast to decline quarter on quarter. The smartphone portion of handset sales should stay similar in the low 90% range. In the TV business, sales volume in the first quarter declined in the high 20% range. In the second quarter, we expect shipments to also decline. So now I will move on to the Q&A session.

Now Q&A session will begin. Please press star 1, that is star and 1, if you have any questions. Questions will be taken according to the order you have pressed the number star 1. For cancellation, please press star 2, that is star and 2, on your phone. The first question will be presented by Nicholas Godoa from UBS. Please go ahead with your question.

Hi, good morning, and thanks for taking my questions. First of all, on memory, data center demand appears to have remained stronger to date. Could you help us understand what is, in your view, temporary in nature? For instance, an hyperscale customer responding to a spike in mobile or gaming application usage due to lockdowns, and what could be more structural, such as server demand coming from cloud services? How do you translate this all together in your prediction for server demand growth in 2020 and 2021? And secondly, for smartphones, how have you seen COVID-19 impacting cell phones so far by regions? Which measures can you take to mitigate the impact on IM's bottom line whilst also being ready to catch up demand when it ultimately comes back? And briefly, could you explain the H2 product launching plans for folder nodes and whether there are any possibilities of delays of product launches due to COVID-19? Thank you.

Thank you for the question. There are two questions. The first is a memory-related question. The demand for data centers has been strong since the beginning of the year, but some of them are temporary. For example, the demand for hyper-scale customers has increased depending on the increase in mobile and game apps, and some of the data center demands are more structural. What do you think about the demand for servers for cloud services? What do you think about the demand for servers for DLAM BitGrowth in 2020 and 2021? The second question is related to wireless. What are the effects of sales through due to COVID-19 in each region? Also, despite this impact, the impact on profitability is still minimal, and when the demand for the future is restored, we need to be prepared to secure it at the same time. I wonder what measures you are taking for this. And in the second half of the year, what are the plans for the release of new products such as folders? Is there any change or delay in the release plan due to COVID-19?

Yes, I'll answer the question first. In the case of the server, there was a part of the demand to secure last quarter's stock. Because there was a clear demand for Fundamental in the center of the data center customer center based on the activation of stay-at-home economy such as online shopping, video conference, and online games.

To answer your first question about the data center demand, if you look at the data center demand that we saw last quarter, there was some demand that was for inventory. But there is clearly a fundamental demand for data center customers as more and more people stay at home and there are more usage of online shopping, teleconferencing, and online gaming. So this has translated into a solid demand base.

I think the server demand will continue to grow even after COVID-19, and the KPEX plan will depend on the data center companies. However, as the company's needs for various fields of the online platform continue to grow, we are focusing on cloud services.

Now the question is whether this solid server demand will continue and be sustained over the long term. That we think will depend on two major factors. One is how the COVID-19 situation unfolds going forward and whether data center companies would change their capex plans. As we see it up till now, we think that there will be a continuous solid server demand given the fact that especially around cloud services,

given the fact that there are needs for various online platforms.

If we broaden the horizon towards the mid- to long-term implications, I think one of the unexpected effects brought about by COVID-19 is that actually what people thought was the way of the future, people spending more time working and learning online, that has become the new normal for many people as a result of COVID-19.

Yes, so in the medium term, for more diverse and stable services, The needs of customers for online infrastructure are expected to grow faster in the future. Therefore, I expect that the service will also continue to be solid.

And so given this new lifestyle that people are getting used to, we believe that there will be continuous need to build out larger online infrastructures by our customers in order to provide a wide variety of services in the mid to long term in a stable manner. And so we expect there to be even a faster pace of growth, which will naturally lead to a solid demand for servers.

I will answer this question. After the COVID-19 pandemic, many countries have been locked down due to the spread of retail stores, and in most of the regions, the demand for smartphones has been greatly reduced. Recently, the spread of smartphones in North America and the U.S. has begun to slow down, but I think it is still a step forward to be relieved, and in particular, it takes time for the real economy to recover,

Your second question was about COVID-19 and the impact to the mobile side. Since the COVID-19 was declared as a pandemic, as you know, many countries went into lockdown. This led to retail stores being closed down and also some logistics disruptions in some parts. And so there was a significant decrease in smartphone demand in most of the regions, even though these The pace of the spread seems to be slowing down somewhat in North America or Europe. I think it is too early to be sure. Also, there will be some time needed for the real economy to actually recover. So it's difficult still for us to predict how much of a decrease we will see in demand during the second quarter.

First of all, we are focusing on online sales to respond to the current retail market trend. At the same time,

So while we are focusing on online sales to counter the retail slow closures, we're also preparing our supply as well as channels so that we are able to immediately respond to recovery and demand by region by closely monitoring the market situation.

We are preparing both the new Note and Foldable models that will be released in the second half of the year, and we will show you more competitive products.

You've also asked about our second half new product launch schedules. We are preparing our new Note as well as the Foldable launch as schedules, and we are looking forward to providing the market with even a more competitive product.

Thank you for your answer. I'll take the next question.

The next question will be presented by Claire Kim from Hana Financial Investment. Please go ahead with your question.

Thank you for your question. First of all, I would like to ask a question related to memory. YMTC, a Shinhwa Unigroup, is starting to mass-produce NANDs and DRAMs and is advancing the market. Are you feeling the risk? How do you plan to maintain the gap? The second question is related to the Foundry testimony. Recently, ASML announced that the setup of old equipment will be delayed. Recently, Samsung Electronics has been doing a lot of 5nm and 7nm UV process testimony. I would like to know what the actual impact is.

Thank you. I have two questions. The first question is about the memory side. Second is about the foundry business. Actually, recently, YMTC has started mass production of NAND as well as DRAM and started to move into the market. I'm wondering whether, Samsung, you're already starting to feel the threat from this new competitor. And given the new competitor, how are you planning to maintain your leadership in this market? Second question is about Foundry. Recently, ASML, in its conference call, mentioned that there are some delays in litho equipment setup. I was wondering, given the fact that Samsung Electronics has a lot of EUV expansions going on, on both 5 and 7 nano, whether you are experiencing any impact due to these equipment setup delays?

Yes, I will answer that question. I think it's more important to supply high-quality, high-quality products that satisfy the needs of customers rather than simply mass-producing them.

Through media reports, we've also recently heard that Chinese suppliers have started to enter the memory market. But we think that given that today's memory market is a place where the customers are demanding to a higher bar, a higher level of technical difficulty in the memory. And also, it's a market where features such as high density, high quality, low power are very important And so today's memory market is a place where, rather than the timing of mass production, supplying customers these high-end products also in a stable manner is a much more important factor.

We believe that the entry of Chinese companies into the memory market is a very important change of momentum in the market. So, of course, we are constantly paying attention to it. But in order to maintain and expand Samsung's current technology leadership,

of course the entry of Chinese companies into the memory market is a factor that would change the market momentum and so we are continuously monitoring the situation but our top priority is to continue our technical advantage and leadership based on our high-quality and high-performance products, and also continue our node, especially the cutting node migration, so that we're able to maintain and even further widen the technology leadership we have.

Yes, and like the EUB case, we will actively pursue innovation, and support new and existing customers to strengthen the win-win relationship. In addition, through the development of new growth products,

EUV was a very good example of how our preemptive and active pursuit of innovation provides support to not only existing but also new customers and also creates a win-win relationship. We will continue to do these pursuit of innovation efforts and also we will focus on developing products for new growth areas at the right time, so that we're able to contribute to the growth of the overall IT industry while maintaining our market leadership.

Yes, the founder will answer. Due to the uncertainty of COVID-19, there is a risk that the supply and demand of equipment and raw materials will be affected, but the market situation To answer your second question about the litho equipment,

It is true that due to the uncertainty brought about by COVID-19 that there is a concern of potential disruptions happening in the sourcing of equipment or raw materials, but our current plan is to continue our expansion as scheduled on target and carefully analyze and monitor market situation and customer demand so that we're able to respond to customer demands without issues.

Thank you for your answer.

The next question is from SK Kim from Daiwa Capital Market. The next question will be presented by SK Kim from Daiwa Capital Market. Please go ahead with your question.

Thank you for the question. I have two questions for Memory and CE. Regarding Memory, due to COVID-19, It is understood that the order reduction of mobile transactions is starting recently. In particular, in the second quarter, the demand for Chinese and domestic trade lines will be quite weak. Please tell us if this can affect the change in the price or supply environment. Also, in the second half of the year, there is an expectation that we will use 6GB depending on the release of 5G phones in the main strategic trade line. Please tell us about the demand for 5G mobile in the second half of the year. As you mentioned earlier, there is a delay in the demand for TV in the second half of the year due to the cancellation of the Olympics and other global sports events, and the demand for TV seems to have deteriorated considerably since the second half of the year. By any chance, is there a possibility that there will be a drop in the number of new products released by the company? Also, if there is a demand for pent-up in the second half of the year, I have two questions.

First question is about the memory business. I think we are only recently starting to see mobile customers starting to reduce their orders as an impact of COVID-19. Especially in the second quarter, we're expecting demand to be weak for not only Chinese customers, but also the captive customer. In that context, do you think that this could actually impact the overall a mobile memory demand and supply situation, including prices. Also, on the other hand, looking towards the second half of this year, with the major strategic customer launching 5G phones, some are expecting that there will be an increase in 6GB adoption on the mobile side. So, given all of that, taking all of that into account, can you share with us your second half 5G mobile demand-related outlook? Second question is for the TV business. As you mentioned during your presentation, due to the cancellation of major global sports events, including the Olympics, second quarter TV demand is going to be very weak. Would that have any impact on the launch schedules of your new products? On the other hand, do you think that there's a possibility of results rebounding quite strongly when there is, for example, a pent-up demand coming online in the second half?

Yes, I will answer in relation to the mobile CEO perspective. As you well know, in the case of mobile, the market characteristics are that the offline purchase is very large, so in the current situation where outdoor activities are limited,

To answer your first question about mobile demand, the mobile handset market itself, as you know, has a very high reliance on offline sales channels. And so in today's situation where people are not going out and don't have much outdoor activity, mobile handset demand inevitably will be impacted. we think that that demand decrease would be somewhat inevitable.

Recently, the spread of the virus has been eased, and economic activity has been restored. The continued spread of 5G is a positive signal. As you said, 5G has spread to the mid-end segment, and the use of high-capacity products such as 6GB is increasing.

However, fortunately, some regions have started to resume their economic activities as the spread of the virus slows down, especially starting from the greater Chinese area. Also, the 5G roll-up continues, so that is also a positive signal. As you mentioned during your question, 5G is being rolled out even to the mid-end segments of the handsets. Also, high-density products such as the 6GB is being adopted on more models. So once the situation stabilizes after COVID-19, there is definitely an upside point for mobile DRAM demand.

Yes, I will answer the question. As you all know, the demand for the second quarter is expected to decrease worldwide, and this is why it is impossible to adjust the sales plan. We are adjusting the actual sales point of the new model according to the national situation, and we are promoting efficient new model operation while reviewing promotion plans and marketing investments.

Regarding the TV, as you mentioned, we also agree that due to COVID-19 and its impact, the demand second quarter inevitably will decrease. And so we are inevitably adjusting our sales plans that we had originally had planned out. We are adjusting, for example, the rollout or the sales timing of our new models by country, depending on the situation locally. And also, we are revisiting both our promotion plans and also marketing investments so that we are able to have a more efficient operation of the business.

As for the second half of the year, COVID-19 is still spreading all over the world. and negative effects on the real economy, so it will be difficult to exactly predict the recovery of market demand.

Regarding the second half, because COVID-19 is continuing to spread globally, and the negative impact that it brings to the real economy is also expanding, it's difficult to exactly forecast whether market demand would recover.

So given that outlook, our current focus is on risk management of the market situation and also at the same time thoroughly preparing our plans

for post-COVID-19 so that we're able to preemptively respond to changes in the market.

Thank you for your answer.

I'll take the next question. The next question is from Kim Dongwon of KB Securities. The next question will be presented by Dongwon Kim from KB Securities. Please go ahead with your question.

Thank you for your question. I have a question for the display and home appliances. First of all, I would like to ask for your opinion on the future plans to expand the QD and next-generation display business in relation to the early withdrawal decision of the LCD business. Please also tell us about the release of the LCD FAB in Asan and Suzhou and whether the government will approve it. Next is a CE question related to this. According to the Samsung Display LCD output strategy, how to supply the LCD panel replacement to the VD in the future I have two questions.

First question is about the display. Second question is about CE. First question is the recent decision to pull out exit from the LCD business. Some people have interpreted that as a signal that the QD display business would be actually rolled out earlier than originally scheduled. What is your view regarding that interpretation? Also, can you give us an update on the LCDFAB situation for both ASEAN and the Chinese LCDFAB and the status of the government approvals? Second question is on the consumer electronics side. Once SDC pulls out of the LCD business, some are concerned that for you, sourcing of the LCD panels may become an issue. What alternatives or what countermeasures do you have?

First of all, First of all, I would like to answer the question about the release of LCD business and QD display business. It is true that we are gradually reducing the production of LCD panels. However, this does not mean that we will expand the QD display business in the near future. The QD display business is planned to proceed according to the planned schedule, Uh, uh, uh, uh, uh, uh, uh,

Regarding your first question about people connecting the gradual decrease or folding of our LCD business with an early rollout of our QD display business, actually, it is true that we are gradually reducing the size of the LCD business, but that does not necessarily mean that the QD display business will be commercially launched earlier. We have a timeline for our QD display business, and we are pursuing that timeline as originally planned for the time being before it becomes a commercial business. We are focusing with priority on building up our product competitiveness and also product capabilities and productivity. Also, at the same time, we are working, collaborating with the set makers in order to develop the right product for us. And also, we will be focusing on securing a stable customer base before launching the business. On the other hand, while we scale down our LCD business, we're also at the same time focusing so that our customers for the LCD business are not unnecessarily disrupted.

And the second question is about the LCD line utilization. First of all, the LCD line in Asan We plan to switch to new products and new technology displays such as QD. And China's Suzhou factory is currently reviewing various solutions. When these solutions are decided, we will proceed with the line-treatment through appropriate procedures.

You've also asked about the LCD lines, what we plan to do with the fabs. For the Asam plant, our plan is to use that, convert that to new product productions, for example, for the QD and other new products. For our Suzhou, our Chinese Suzhou fab, we are currently considering various options. And once a direction is decided, we will carry out that direction according to due procedures.

Second question, you've asked about the LCD sourcing side.

As you know, we have been continuing to expand our sourcing from several panel suppliers in order to diversify our sources, and we have been maintaining a balanced relationship with multiple suppliers and not dependent on a few. Also, with a few of these panel suppliers, we have been building a long-term cooperative relationship to provide a stable supply, and so we have not been experiencing any issues in terms of LCD panel supply.

The next question will be presented by Peter Lee from Citigroup. Please go ahead with your question.

Yes, hello. I'm Lee Se-cheol of Citi Group. I have a question about semiconductor and IEM. First of all, I would like to ask about the possibility of a rapid price drop in terms of semiconductor and IEM. Second question is about IEM, China's supply of parts and India's factory shutdown. I have two questions.

First question is about the memory side. Can you share us what you sense in terms of the inventory level at major customers as well as the memory vendors? And if the inventory is high right now, do you think that going forward or currently this high inventory may actually trigger a possible rapid decline in prices again. A second question is about the IM, the mobile side. As you know, there were some component or component supply disruptions from China and also the plants in India have shut down. And some are concerned that this will have a disruption in the smartphone production side. Can you give us some of your insight into the situation in terms of the production on smartphones? And also, do you have any plans of responding, for example, if another production site goes into lockdown in the future?

Yes, Memory, I will answer your question first. I will answer your question about the stock price of the server first, and then I will tell you about the stock price and the price of the server in order. It is difficult for us to answer the stock price of the server in detail,

To answer your first question, I think we can answer your question by first sharing the inventory that we sent at the server customers level, then our inventory as well as the pricing outlook that we have. It's difficult for us to give you a specific number as to where customer inventories stand, but I think we can say for sure that at least compared to, for example, late 2018, when we entered this inventory adjustment cycle, customers' inventory overall is low.

However, as we said in the last few presentations, the server demand that increased since the second half of last year seems to have included a certain part of the demand to recover.

And as we have mentioned during the past several conference calls, even though server demand was growing throughout last year's second half, as we mentioned, part of that we already knew was part of that was to build up inventory. And even though in first quarter we saw solid demand, Part of that, once again, was perhaps a demand for inventory in order to prepare for possible supply disruptions in the second half.

To give you an update on our inventory levels, as we mentioned, our NAND inventory

reached normal levels at the end of 2019, and it's currently staying at that normal level for DRAM. We are planning that to reach normal levels in the second quarter, as we mentioned during the previous conference call.

A lot of people are very interested in whether there will be a sudden price change in the past stock collection or adjustment process of server customers. We do understand that there are still concerns that perhaps another

price fluctuation may reoccur as customers continue to build inventory and then another inventory adjustment cycle starts. But even though it is true that part of the demand that we've been seeing for the past several quarters, part of that demand is for inventory, at least the customer's inventory levels are definitely lower than when we started the past inventory adjustment cycle. Also, our inventory levels are currently very stable, which is a large difference compared to what we saw before. And so as of now, we think that the possibility of a large price adjustment happening due to an inventory adjustment, as we saw at the late part of 2018, is limited.

Uh, I am. Uh, to answer your second question about, uh, the, the, uh, smartphone, uh, production disruptions, as you mentioned during the early days of COVID-19 outbreak, there were some

Temporary supply disruptions regarding components that we sourced from China. But because we basically have a dual sourcing strategy for our key components, we are able to respond to that flexibly.

In terms of production, the Brazilian factory is currently stabilized, but in the case of the Indian factory, production will resume after May 3, as the lockdown is extended.

To give you an update on the production sites, our Brazil plant actually has resumed operation and is currently stabilizing. In the case of the India plant, there's a lockdown going on in India, and so we're expecting production to resume after May 3rd.

당사는 글로벌 생산 거점을 적극 활용하여 특정 국가에서 락다운이 시행될 경우 해당 생산 물량을 다른 지역으로 이관하는 등 And we have been responding by leveraging our global production network so that if there's a lockdown in a certain country, we could transfer the volume to another site in order to minimize any impact to supply.

And while we operate our production sites, we place top priority on maintaining the health of our employees as well as preventing spread within the community. And so we have very thorough disease control measures and prevention measures being practiced in the production sites, which we will continue.

Thank you for your answer.

Next question. Next up is JJ Park from JP Morgan. The next question will be presented by JJ Park from JP Morgan. Please go ahead with your question.

Yes, thank you for the question. There are two questions. I think there is a big line in terms of the demand for land in the second half of the memory period. I think the demand for SST is very strong, but the mobile demand, which is still very high, is expected to increase in the second half of the period, as you have said. On the PC side, considering the CPU and Titan supply, I wonder if there is a possibility of over-supply coming back in the second half of the year. Secondly, it's the IM side, but recently in the medium-sized market, Apple is selling the iPhone SE at 350% and the Chinese company is launching a new model, so I think the competition will be very severe, but I would appreciate it if you could tell us about our large-scale strategy related to medium-sized products.

Well, I have two questions. First is about the NAND side. I think there is still some concern that in the second half, a NAND supply, demand supply situation may deteriorate, even though, yes, there is growth, especially driven by enterprise SSD demand. There is concerns about a decrease in mobile SSD demand, which mobile accounts for a large share of SSD demand. And also, Considering that there is a shortage of supply of PC CPUs, that is tying into some concerns that maybe we'll see an oversupply in the NAND market in the second half. So given that concern, we would like to hear the company's outlook for supply and demand situation NAND in the second half. Second question is about the mobile side. We think that the mid to low-end segments, the mass segments, is probably going to be where competition further increases. worsens given the fact that, for example, Apple has launched a $3.50 phone in this segment, and also the Chinese companies are launching a lot of new models here. So can we hear some of the company's strategies in the mass segments?

Yes, I'll answer your question. I think it will be similar to what I said earlier. In order to decide after the second half of the year, To answer your first question about the NAND,

This may sound very similar to what we said about DRAMs but it is because ultimately the supply and demand for even NAND in the second half would depend on many of the same factors of how long COVID-19 will continue and also how much of an economic recovery we will see by country and application.

and also how the consumers' consumption sentiment will recover as well as whether companies will change their investment plans.

But if we look at some of what we experienced in the first quarter, With a lot of companies doing social distancing and the increase of a stay-at-home economy, the related applications have increased quite a lot in terms of demand. And also, we think that in this process, this strong demand, especially around server demand, will continue in the second half.

Before COVID-19, it was a fast-growing media streaming service that expanded consumers' new lifestyles. For example, the media streaming service was already growing at a very fast pace even before COVID-19.

It has gotten a big boost through the situation we've recently gone through, and we think that this will actually stick as a new lifestyle for many consumers. So considering those examples, We think that the server demand growth that we're seeing is not a temporary nature, but is more of a structural nature that would actually drive demand growth across all memory.

Of course, as I said before, if the COVID-19 situation is prolonged, the market may expand in a completely different direction. But as I said, I think we should consider the supply side with demand in general. Overall, of course we cannot completely rule out for example a scenario where covet 19 prolongs longer than what we expect that would actually bring about or

take the market to a totally different direction. But even under that scenario, as we previously mentioned, a prolonged COVID-19 situation will impact not only the demand side but also will have some supply implications. So when we weigh the uncertainty around the mobile demand side versus the upside on the server side, we do think that the demand, especially related with the stay-at-home economy around servers, would be able to offset any uncertainty coming from the mobile side of the market, so that currently we stand, think that the second half NAND market supply and demand situation would be favorable.

IAM will answer your question. In order to provide innovative experiences at various prices, A-series and M-series have been quickly applied to various new technologies to increase product competitiveness and strengthen the portfolio by price range. In particular, this year, we plan to continue to present a medium-priced 5G new model with a large screen, multi-camera, high-definition selfie, and high-capacity battery so that we can enjoy more experience with social networks and video games in the 5G era.

To answer your second question about our mass segment mobile strategy, as you know, we, in order to provide innovative experiences across many price segments, we have been very quickly adopting the latest technologies on our A series as well as M series, which helped enhance the product competitiveness in these segments and also give us a very rich portfolio across different price segments. This year, with the introduction or the wider rollout of 5G technology, we are planning to launch a 5G new models in the mass segment that would feature large screens, multi cameras, high pixel selfie cameras, and also high-capacity batteries so that users will be able to take full advantage of multimedia and new social networking experiences that are implemented with 5G technology. So our strategy in the mass segment is to drive up our sales in the mass segment by introducing products that satisfy customers' various needs and also giving customers a wider range of choice.

Thank you for your answer. Since we're running out of time, we'll take two more questions and wrap up the Q&A session.

Given the limited amount of time, I think we'll take two more questions before ending our Q&A session.

The next question will be presented by Jongwoo Yoo from Korea Investment and Securities. Please go ahead with your question.

Yes, thank you for the question. I also have two questions. One is related to the supply of memory. The second is related to the network business. First of all, the situation is getting better in China. On the other hand, other countries are still limited in moving. So, in the second half of the year, I would appreciate it if you could tell us if there is a difference in the ramp-up plan of our Chinese factory. Currently, the ramp-up plan of our Siyang factory What do you think about the future of the NAND service plan? Secondly, it is related to 5G network investment. China has a movement to lead the government's investment, but it seems that it is likely to be delayed in the case of American and European telecommunications companies. I have two questions.

First question is about the memory side, whereas China shutdown situations are now being resolved. Other countries are actually still under lockdown or shutdown. So there seems to be a country-by-country difference. In that context, we're wondering whether there will be any changes or disruptions to your second half ramp-up plan for memory. For example, especially in the Xi'an plant, would ramp-up be carried out as scheduled? Can you give us an update on that situation? And also in that context, can you share with us some details about your capex plans, for this year for NAND. Second question is about the 5G network business. If we look at the network business, whereas in China, actually the Chinese government is planning to push ahead base station installations or invest that earlier to bring ahead base station investments, the 5G rollout in other countries such as the U.S. and Europe is probably going to be delayed. So we are wondering, from your perspective, how do you sense the 5G rollout plans by region this year? And in line with that, how are your business expectations this year?

Yes, I will answer your question. First of all, we are ramping up the 2nd phase of the market according to the existing plan. As I have said before, we are going to be flexible according to the demand. In addition, the market uncertainty is very high, We have a lot of questions about our investment plan. We have the principle that we will make the best investment for sustainable growth along with existing investment mechanisms. So, according to the COVID-19 situation, we are conducting a variety of scenario analysis, not only in the event that the situation becomes prolonged, but also in the event that it ends in the early stage, based on the sensing of the precise demand situation.

To answer your first question, our Xi'an Phase 2 mass production is currently going through a ramp-up as originally planned, but we have room to respond flexibly depending on how the demand outlook looks in the future. Given the very high level of uncertainty in the market, we do understand that there are many questions about our CAPEX plans. But our CAPEX has always been according to our principle of executing optimal investments to support our sustained long-term growth. And so we are currently analyzing a wide variety of scenarios that assume, for example, on one extreme, COVID-19 prolonging in the long term, versus the other extreme, for example, this situation actually ending earlier than expected. And under these scenarios, we have plans being prepared. We, at the same time, are very carefully sensing the demand situation so that we are able to respond flexibly, even in terms of our investment plans, by having a quarterly review of our investment plans.

I will answer your question. First of all, I would like to talk about the 5G introduction plan for each region. As you said, China is accelerating its 5G infrastructure for domestic supply. And the U.S. and India have a lockdown due to COVID-19, which is delaying the installation of the machine and the 5G frequency auction schedule. Europe also expects a 5G frequency auction and commercial schedule delay. In the case of Japan, the Tokyo Olympics have been postponed, but the existing 5G development schedule seems to be in order.

To answer your question about the 5G network business, our understanding of the 5G rollout plans by region, first of all, is that, as you mentioned, yes, it seems that the Chinese government is looking at accelerating the 5G rollout as a way of stimulating its domestic economy. But on the other hand, in countries such as the U.S. and India, due to especially the lockdown brought on by COVID-19, installation of 5G base stations as well as auctioning of 5G frequencies are being delayed. And also, Europe is also seeing a delay in terms of the 5G frequency auctions and commercialization schedules. Japan, even though the Tokyo Olympics has been postponed, it seems that they will start 5G rollout as originally planned.

In the case of Dangsa Network Sub, in the first half of this year, the expansion of the 5G network of domestic exchanges is continuing, and the actual commercialization of 5G of major overseas exchanges is also taking place. However, if the impact of COVID-19 is amplified or prolonged, there is a possibility that 5G investment in domestic and foreign exchanges will be delayed, which will lead to a negative impact on the business in the long term.

To give you the outlook on our 5G network business, despite everything, during the second half, the Korean carriers have continued to expand their 5G network nationwide. Also, the key overseas carriers, have started to commercialize 5G service at a larger scale. However, I think it's difficult to rule out that if, for example, the COVID-19 impact expands or becomes more prolonged, carriers both in Korea and overseas may decide to delay some of their 5G investments, which may have a negative impact on our business.

The last question will be presented by Hyunwoo Do from NH Investment and Securities.

Please go ahead with your question. The memory part seems to be quite slow for the tech migration plan this year. It is known that the production of raw nanometers based on EUV will proceed as planned. It is expected that the initial cost reduction will be a bit difficult in terms of investment costs, but I am curious about the active background of the introduction of EUV. The second is a question related to the system LSI image sensor. As you know, the smartphone market is a bit poor. I have two questions.

First question is about the DRAM memory side. It appears that this year's DRAM tech migration plan may be quite slow. On the other hand, you've said that the EUV-based 1Z nano DRAM production will be carried out as originally scheduled. Despite the fact that it appears difficult to actually gain enough cost savings versus the amount of investment that this will require, can you explain to us a bit more in detail what is the reason for adopting EUV despite the uncertainties that still surround the demand side? Second question is about the system LSI image sensor business. Despite the weakness in the smartphone handset market, it appears that globally image sensor capacity may increase by more than 40%. So given these two factors, do you see a possibility of the image sensor market becoming an oversupply situation? And in that context, what is your outlook for the demand and supply in the future?

Yes, regarding the question, I will answer it by sharing the current status of the generation change and the introduction of EUV. Regarding the process of process change, we are making a process change according to the plan. Of course, as you said, you may feel that the time consumed in the pearl process is longer than in the past. Unlike the past, the generation change of DRAM products is not a process change for all applications at the same time, but a process change for each application and customer.

To answer your question about the tech migration for DRAM, I think I can first answer that question by giving you an update on our node migrations and then following with our EUV adoption. First of all, about the node migrations, our node migration, to give you an update, is going ahead. It's being carried out according to plan without issues. We do understand that perhaps it may appear that the call process is taking longer than before the previous migrations. This is mainly because of a different approach being used for the DRAM migration currently. In the past, the node migrations were done across all applications at the same time. But now, actually, the migration schedules are planned out differently depending on applications or customers. and that is resulting in what appears to be a longer time for qual.

Regarding the adoption of EUV, I think an important significance that we place on EUV adoption is

The fact that as the technology leader of this area, we want to be the company that actually overcomes the technical limitations of node migration.

Through our own analysis, we determined that EUV would be more effective if the process scale was less than 14nm. It is true that EUV is more mature, but there is a possibility that there will be unexpected problems in the production process. In order to increase the productivity of EUV, we have to consider various aspects such as developing high-sensitivity, high-performance photo resist, and so on. We have continuously researched the development and application of EUV products.

So under that premise, we have been trying to find the area where EUV adoption would be most effective, and we believe that it's the area of the low 14-nano area where we will be able to most effectively adopt EUV. Even though, yes, EUV equipment has matured a lot compared to before, there are still many unexpected problems that will happen as we use EUV in actual production. Also, in addition to the EUV equipment, in order to actually produce with EUV, there has to be development, for example, of high-sensitive, high-performance photoresists. And so there are many factors that need to be taken into account, which we are doing in determining the EUV, which products to use EUV for development, and also the timing of when that EUV adoption would be.

As we said in March, based on our know-how from the ongoing research and evaluation results and our founding business and the development process, we have recently applied EUV process based on D1X products And so, as we mentioned through press releases last March,

By leveraging our, for example, know-how, actual EUV know-how that the foundry side has built up through mass production and our continuous study and research of these multiple factors in using EUV for production, we have supplied more than 1 million pieces of D1X based DDR4 DRAM modules to customers using EUV and also have completed global customer evaluation. So we have already established an EUV-based mass production system. We are already using EUV partially in the D1Z process. But we will be starting UV application for production starting from the D1 AED RAM, which is the lower side of the 14 nano, in order to establish and further our technology leadership.

Yes, I will answer the question based on the system. Depending on the location of the market in the first half of the year, the smart phone companies will use high-speed multiple cameras will accelerate demand competition. The image sensor industry has continued to provide evidence to address supply shortages. Even if the market demand for COVID-19 is plummeting due to COVID-19, it is expected that the supply balance will be balanced rather than turning into supply excess.

To answer your last question about the image sensor supply and demand outlook, we think that actually smartphone companies, in order to make up for the difficulties that they had in the first half, will focus on launching products with high-end specifications in the second half, for example, with higher pixel count and multiple cameras. And so even though, as you mentioned, the image sensor industry as a whole has been increasing their production capacity in order to make up for a supply shortage, Even counting in possible contraction of market demand due to COVID-19, I think the market will be more of a supply-demand balance rather than an oversupply situation.

That completes our conference call.

Thank you very much.