Samsung Elect Ltd

Good morning. This is Ben Seo from Investor Relations. Thank you for joining our earnings call for the first quarter of 2021. With me, representing each of the business units, are Mr. Hanjin Man, Executive Vice President of the Memory Global Sales and Marketing Office, Mr. Cho Jang Ho, Vice President of the SystemLSI Marketing Team, Mr. Han Seung Hoon, Senior Vice President of Foundry Marketing Team, Mr. Choi Geon Young, Senior Vice President of Samsung Display, Mr. Kim Sung-gu, Vice President of the IT and Mobile Business, and Mr. Song Won-joon, 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 the review of our quarterly results, I would like to address the first quarter dividend. Today, the Board of Directors approved a quarterly dividend of $361 per share for both common and preferred stock. As part of the shareholder return policy covering the three-year term, from 2021 to 2023 announced in January, the regular dividend will be $9.8 trillion for each of the next three years. Accordingly, the total payout for the first quarter to be paid in May is $2.45 trillion, or one-fourth of the 2021 annual total. With that, I would like to present the results for the first quarter. Despite many ongoing challenges, including the effects of COVID-19, we once again achieved solid results thanks to the dedication of our employees and support of our customers and partners. Total revenue in the first quarter increased 6.2% quarter-on-quarter to $65.4 trillion, a new all-time high for a first quarter. Despite weak seasonality for the display business, Strong smartphone sales and PC and mobile-led memory demand drove such results. Compared to the same period last year, revenue increased by 18.2%, mainly due to solid sales of finished products, including smartphones, TVs, and digital appliances. Gross profit grew slightly on a sequential basis to $23.9 trillion As a significant increase in contributions from the IM division, more than offset declines from the other businesses. Gross margin was 36.5%. SG&A expenses decreased slightly quarter on quarter to 14.5 trillion won, with reduced advertising and promotional costs. As a percentage of sales, they declined by around two percentage points. Operating profit increased quarter-on-quarter to 9.4 trillion won, as solid sales of smartphones and improved profitability in the CE division outweighed weak seasonality in display and a decline in semiconductor profitability. On a year-on-year basis, both operating profit and operating margins increased, backed by strong sales of finished products and an increased utilization rate for mobile OLEDs. I will now briefly review the results of each business unit. For the semiconductor business, despite solid memory shipments, mainly for PC and mobile, profits edged down primarily due to the production disruption at our Austin fab, which was caused by a major power and water outage. NAND price declines and initial costs associated with ramping up new memory fabs also weighed on the results. In display, earnings fell sequentially due to weak seasonality for mobile products. On a year-on-year basis, however, earnings improved significantly, led by a higher OLED utilization rate. In the mobile business, earnings improved significantly both quarter-on-quarter and year-on-year, as sales of flagship and mass-market smartphone models grew considerably, and as contributions of products in the device ecosystem line up such as tablets, PCs, and wearables also grew. The network business maintained its solid performance as 5G continues to expand globally. For the CE division, profits grew both quarter-on-quarter and year-on-year due to continued pent-up demand for digital appliances alongside expanding sales of premium TV products. Regarding currency effects, There was weakness in the US dollar and strength in the Euro and major emerging currencies against the Korean won. This was positive for our finished product businesses, but the weak dollar was negative for the component business, resulting in a net neutral position for the company as a whole. Next, I would like to share our business outlook. In the second quarter, we expect earnings to grow in the semiconductor business mainly due to improving memory market conditions, but to decline in the IM division as the new product effects weaken. For memory, strong server demand should lead to improved earnings. In system semiconductor, foundry is already seeing full resumption of manufacturing at the Austin FAB, while system LSI is likely to continue to feel some effects of last quarter's disruption in foundry production. For display, we expect mobile panel sales to decline due to weak seasonality for smartphones and the effects of some component shortages. In mobile business, revenue and profitability are likely to decrease as flagship new product effects decline. And some components experience supply issues, but we will work to minimize the impacts of the component issues by actively managing our local SCM capabilities. In the C division, for TVs, we will focus on bolstering sales of new products, such as nail QLED models, and actively capturing demand from sporting events. The digital appliance business will strive to grow by expanding bespoke product sales globally. Now let's move on to our outlook for the second half of the year. For our component businesses, we expect market conditions to improve, and we will continue to extend our product and technology leadership. For our finished products businesses, we will focus on strengthening our premium segment leadership in our product lineups. However, global macro risks, including demand uncertainties related to COVID-19, are likely to persist. From memory, we expect the business environment to remain favorable including positives such as solid demand for server and mobile products. We will enhance our market leadership by accelerating migration to 15 nanometer DRAM and six generation VNAND, while also expanding application of EUV process in our products. System LSI will work to maximize its supply capabilities by cooperating with foundries at home and abroad. And foundry will expand its supply with full-fledged mass production at Pyeongtaek Line 2. For display, we will continue our efforts to increase adoption of OLED panels while also establishing a foundation for QD display in the large panel business. The mobile business will strive to secure solid profitability by further popularizing foldable models, expanding our lineup of mass market 5G models, and bolstering growth of tablets, PCs, and wearables. The network business will continue to address demand from growing domestic and global 5G commercialization as it also continues to explore new business opportunities globally. Amid demand uncertainties related to COVID-19, the CE division will work to secure profitability by further expanding sales of premium products including nail QLED and ultra-large screen TVs, as well as new life digital appliances. Now, I will address capital expenditures. CapEx in the first quarter was $9.7 trillion won, with $8.5 trillion won allocated to semiconductor and $0.7 trillion won to display. Memory investments concentrated on capacity expansions and advanced process migrations in Pyeongtaek and Xi'an to address growing demand. Foundry investments focused on capacity expansions for advanced processes, including for five nanometer EUV. Finally, I would like to share some of our activities aimed at enhancing governance for sustainability management, as well as our key achievements in this area. We continue to strengthen our sustainability management. Our efforts to protect the environment are enabled by a range of activities, which include reducing our environmental footprint and increasing our role in the circular economy. We also strive to create a better society as we engage in activities related to human rights, diversity, digital responsibility, and the education of the future generations. We achieved our goal of meeting 100% of the energy needs at our operations in the U.S., Europe, and China from renewable sources by 2020, a goal we announced in 2018 as part of an effort to increase use of renewable energy. In addition, our commitment to developing energy-efficient products and reducing energy use in our operations was recognized at the U.S. Environmental Protection Act 2021 Energy Star Awards. Samsung became the first company in nine years to receive the Corporate Commitment Award. We also received our eighth Sustained Excellence Award, which is the highest honor among the annual awards. In particular, the Rare and Procedious Corporate Commitment Award, which was created in 1993, is only given when there is a company with outstanding leadership in product efficiency and energy management, and Samsung became the first non-US company to receive the award. The Sustained Excellence Award is granted to companies that receive ENERGY STAR certification on a high majority of products released in the US, which enhances ENERGY STAR's brand awareness among consumers. Meanwhile, we are now including sustainability management as part of the evaluation criteria for all business units and executives to better reflect sustainability achievements in performance evaluations and compensation. We believe this will help further our achievements in sustainability management throughout the company. We'll keep bolstering our sustainability management through continued efforts to strengthen our response on ESG issues while also enhancing our financial performance. I will now turn the conference call over to the gentlemen from each business unit to present first quarter performances and outlooks for their corresponding business segments.

Good morning. This is Hanjin Man from the Memory Globe Global Sales and Marketing Office. Overall demand was decent in the first quarter. backed by strong demand from mobile and mainly from laptops from PCs. However, profit slightly decreased due to initial cost of new line ramp-up that is associated with advanced node migration and a downward trend in N prices. For DRAM, demand for mobile stayed solid despite weak seasonality due to releases of new models by major customers and increased penetration of 5G smartphones centering on the Chinese market. Demand from PC was partially affected by a shortage of some components, but it remained strong as online-based activities became routine for global consumers amid continuing effects of COVID-19, followed by an expansion of the one PC per person trend. Server demand in the first quarter increased moderately quarter-on-quarter and significantly year-on-year as content per box rose due to increasing adoption of a new server CPU and demand was solid mainly from data centers. Demand for consumer products was also strong despite weak seasonality due to an increase in 4K high-definition content and growth in TV and set-top box memory content to use streaming services. Our results meet our big growth guidance thanks to our active response to growing mobile demand in the burgeoning 5G market, a rising server demand for data centers, while also benefiting from sales of PC and TV products related to the rise of home entertainment culture. Now, let's talk about the net market. Demand from mobile was robust, in accordance with strong smartphone sales and along with rising demand and content per box, mainly from Chinese customers. Server SSD saw growth in demand compared to the previous quarter, thanks to the base effect of weak demand in the last quarter as major data center companies resumed storage investment. Demand for client SSD, especially for laptops, also stayed strong as contactless activities such as telecommuting and online education continued. Amid full-fledged migration to 128-layer sixth-generation VNAND, we exceeded our bid growth guidance by actively addressing the recovery of demand for server SSD and solid demand for mobile and client SSD. Now moving to the outlook for the second quarter. In the second quarter, we expect our profits to improve significantly backed by strong demand centering on DRAM across all applications. For DRAM, there is some set build risk for mobile products due to supply issues with some components, but demand is likely to stay robust thanks to the expanding 5G market and related growth in content per box. For server, we expect the set build of major OEMs to pick up with the release of a new CPU, and demand from data center companies will continue to be strong, backed by solid demand for cloud. For PCs, centering on laptops, demand from PCs should stay solid as educational laptops enter peak seasonality, and build demand for addressing back to school is strong. Amid growing demand for overall applications, we will continue to strengthen our cost competitiveness and market leadership by ramp-ups and timely sales of cutting-edge products such as $15 DRAM. For an end in the second quarter, in mobile, similar to DRAM, we should keep an eye on the possibility of disruptions in set bills due to component supply issues. But we expect demand to pick up because of growing content per box from expanding 5G lineups and major customers. Demand for server SSD is likely to stay strong due to increased storage demand from customers and a high capacity trend with the release of a new CPU. We also expect demand to stay solid for client SSD. While demand for low to mid-priced laptops continues to rise, thanks to the influence of back-to-school effects, along with the rising penetration of high-capacity products. We will actively address the increase in demand for high-capacity SSDs with 8 terabytes or more, which focuses on us, while accelerating migration to the industry's only single-stack-based 128-liter, 6th-generation, 512-gigabit VNet, and strengthening technological leadership and cost competitiveness. Let me present our outlook for the second half of this year. Amid the rapidly changing landscape of the memory industry, our R&D and investing constantly aims to meet needs for fast and higher energy efficient products to increase our performance. At the same time, we are enhancing our core capabilities with the responsibility of leading memory company. In the second half of this year, Amid the accelerating economic recovery due to persisting stimulus programs in numerous countries, we think demand for servers and storage will keep growing because of expanding investment in data centers and the high capacity trend with the release of a new CPU. With the launch of new models for major customers and the broad penetration of 5G, which are likely to positively affect both set shipments and content per box of smartphones, we think mobile demand will keep rising. Furthermore, we expect demand from PC to remain strong in the second half, backed by continuing demand for upgrades and additional units in households around the world, with a steady increase in PC product content per box. However, we need to stay abreast of demand uncertainties caused by global macro issues, such as geopolitical risk and supply risk for some components. Based on strong across-the-board demand, we think DRAM prices will continue their first half trend and keep rising through the second half. For an end in the second half, due to a controller supply demand imbalance for solution products, we expect demand for certain applications to exceed supply. So we will focus on staying in front of changes in the market demand. via big data analysis and by responding actively to IT infrastructure for data centers and consumer demand in areas such as mobile products. In addition, as mainstream technology, 15 nanometer DRAM and 128-layer sixth-generation VNAN will drive our big growth and cause competitiveness in the second half. And we will continue to strengthen our technology competitiveness. by applying EUV on multiple layers of the 14 nano DRAM based on our industry-leading technology, and by ramping up the solution products in the second half, adopting double-stack-based, 176-layer, seventh-generation VNAND. In closing, we recognize the unprecedented importance and responsibilities that are now on the semiconductor industry. Memory in particular has progressively become the most relevant and vital element of our daily lives as well as in the workplaces. We are now living in a generation that is increasingly emphasizing social and environmental values rather than simply a product's features. With our most advanced technology and extraordinary talents, we will proactively contribute to the standardization of next-generation memory and continue to solidify our leading position as a trusted partner in the IT industry. Thank you.

Good morning. This is from the business. In the first quarter, we increased supply of mobile associates and image sensors, backed by launches of flagship and high-end smartphones by major customers. but earnings remained mostly flat quarter-on-quarter due to impacts of mobile DDI supply issues caused by disrupted foundry production. However, we endeavored to reinforce our technological leadership by releasing Exynos 2100, our first product to integrate a 5G modem into a premium mobile SoC as well as a 15-megapixel ISOCELL image sensor with the advanced DO Pixel Pro technology. Now, let me talk about the outlook of the second quarter. In the second quarter, we expect overall demand for mobile components to weaken due to a seasonal decline in smartphone demand and continuing effects of the disruption of foundry production in the previous quarter. But we will focus on achieving targeted results through flexible product mix adjustment and pricing policies considering the tight global supply of semiconductors. In the second half of this year, we believe it will be prudent to prepare for the possibility that the current shortage situation will persist due to geopolitical factors such as escalation of US-China tension as well as environmental factors that may affect semiconductor production. WSSI will maximize our capability to supply chips by strengthening cooperation with the in-house foundry and expanding use of outsourced foundries. And by implementing flexible pricing policies, we will strive to keep growing. Thank you.