4/29/2021

speaker
Ben Seo
Investor Relations

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.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

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.

speaker
Cho Jang Ho
Vice President of the SystemLSI Marketing Team

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.

speaker
Han Seung Hoon
Senior Vice President of the Foundry Marketing Team

Good morning. This is Sean Ahn from the Foundry Business. In the first quarter, earnings declined due to a disruption of production at Austin Fab in the United States due to major power and water outage. Positively, we continue our effort to strengthen our technological leadership by starting the development of the second-generation 3-nano process and completing the development of the 14 and 8 nano RF processes to actively lead the 5G market. Turning to our outlooks, in the second quarter, we fully normalized the production line in Austin. And we will try to improve profitability and sales by flexibly managing our product mix and using pricing strategies to secure future investment resources. In addition, we will prepare to expand supply in the second half of the year through the startup mass production at Kyungtech Line 2. And we will reinforce our differentiated high-performance heterogeneous integration technology package solutions by completing the development of the 2.5D interposer package and starting development of 5-nano-based 3D IC packaging. In the second half, we expect growth in the foundry market to exceed previous projections due to rising demand from accelerating 5G penetration a continuation of the work-from-home trend, a resumption of corporate IT investments, and growing demand from customers securing safety stock. We plan to respond to increasing customer demand through active supply expansion, centering on advanced processes via full operation of Pyeongtaek Line 2. We will strive to secure the basis for future growth by expanding our global customer base and by diversifying within the applications such as HPC, network, automotive, and others. The explosive increase in digital transformation demand is accelerating the rapid growth of the foundry industry. To seize great opportunities, we are striving to provide the best service to our customers with advanced technologies, differentiated solutions, and strong ecosystems. Furthermore, we will lead semiconductor industry through cooperation with all customers and partners so that the semiconductor industry can grow and develop. Thank you.

speaker
Choi Geon Young
Senior Vice President of Samsung Display

Good morning. I'm Kwon Young Choi from the business planning department at Samsung Display. In the first quarter, although the mobile display business posted a decline in earnings year-on-year, due to shortages for some smartphone components and weak seasonality, Growing adoption of OLED displays by flagship right-to-entry level models is driving growth year on year. For the large display business, a rise in demand triggered by the expansion of contactless services and increasing VOD viewing hours led to positive changes in market factors such as an increase in ASP. However, earnings declined quarter-on-quarter as we continue to convert our manufacturing lines to in preparation for the next generation TV market. Next, let me share the outlook for the second quarter. The mobile display business is likely to see a slowdown in quarter-on-quarter growth affected by the prolonged impact of weak seasonality and component shortage in the first quarter. and latent demand for the new smartphone models scheduled for release in the third quarter. However, we are determined to raise our utilization rate and secure profitability through securing key display components and further collaborating with our customers. A large display will continue to pave the way for a smooth transition to new the business model based on QD display technology. Next, let me turn to our outlook for the display market and our core strategies for the second half of 2021. We expect the smartphone set market to continue to recover in the second half thanks to rising 5G smartphone demand and economic recoveries. We at Samsung Display will strive to secure panel components and fulfill all orders for customers' new product launches scheduled in the second half of this year. We also work to ensure a stable supply of products via timeless development of new technologies. In particular, We will strive to increase OLED market share in the mobile-dependent market by diversifying within new application areas that are expected to grow post-COVID, including IT devices such as tablets, laptops, and foldable phones, as well as automotives. We will work to ensure OLED becomes the standard in the premium displays. The large display business will channel our efforts toward preparing for the successful mass production of QD display, our next generation panel technology, so that it can set a new standard in the premium TV and monitor markets. Thank you for listening.

speaker
Kim Sung-gu
Vice President of the IT and Mobile Business

Good morning. This is Sung-Guk Kim from the mobile communications business. I'd like to discuss IM Division's Q1 results and outlook. In Q1 2021, market demand is expected to have decreased on quarter-on-quarter basis due to seasonality, but have recovered on year-on-year basis from Q1 2020 when the market was significantly impacted by COVID-19. As for our mobile business, Flagship smartphone sales increased QoQ as the Galaxy S21, which we launched in January, has been well received by the customers. Meanwhile, the Galaxy A series, equipped with innovations and price competitiveness, continued its solid sales performance. In addition, we have long been striving to enhance connected, convenient, and rich experiences across our device ecosystem, and such efforts are leading to material growth in contribution from our tablet, PC, and wearable businesses. Thanks to the above-mentioned factors, our revenue and profits saw material growth QOQ. For our network business, sales increased compared to the previous quarter, led mainly by those in North America and Japan. and we maintained robust profitability. Now let me move on to the Q2R loop. Market is expected to decrease QOQ due to component supply shortage issue amid continuing seasonally weak demand. As for our mobile business, we expect sales to ramp up for A72 and A52, which we unpacked our first four A series models and also the new notebook PC, Galaxy Book, which we unpacked just yesterday. In addition, we expect robust sales of tablets and wearables to continue. On the other hand, we expect partial decrease in new flagship launching effect and component supply shortage, which are likely to lead revenue to decrease QoQ. However, we will try to minimize the impact of supply shortage and secure robust profitability by rebalancing supply via our global SCM capabilities. For the network business, we will continue responding to 5G equipment expansion in Korea and network rollouts in global markets, including North America and Southwest Asia. Now let me move on to the second half and annual outlook. We expect market demand to recover to a pre-COVID level on annual basis amid a gradual economic recovery and full-fledged expansion of 5G market. As for our mobile business, we will strengthen our leadership in the premium segment by continuing surge momentum of Galaxy S series and by popularizing the foldable category, which includes Z Fold and Z Flip. At the same time, we will strive to maximize sales of the new competitive mass market 5G models and to further grow our tablet, PC, and wearable businesses. Through these efforts, we will try to achieve solid profits. In addition, we will continue our efforts to further strengthen the Galaxy ecosystem to provide more valuable and richer experiences to our customers by not only enhancing our own services, but also by collaborating more closely with the global leading partners. For the network business, we will remain active in 5G commercialization globally and continue to seek new business opportunities. Thank you.

speaker
Song Won-joon
Vice President of the Visual Display Business

Good morning. I'm from sales and marketing team of Visual Display. First, I would like to review the market conditions and our performance in the first quarter in 2021. The TV market in the first quarter contracted quarter-on-quarter after year-on-year and peak season, but expanded year-on-year due to strong demand in advanced markets. Samsung proactively addressed strong demand using our global SEM capabilities, and we expanded sales and improved our profits year-on-year by prioritizing high-value-added products such as QLED, super large-screen TV, and lifestyle TVs. In particular, newly launched Nino QLED have garnered positive feedback from both consumers and our channel partners in every aspect, such as picture quality, sound, and usability. and it has been showing strong sales at the early stage. For digital appliances in the first quarter, amid a continuing release of pent-up demand, consumer needs for home appliances are becoming more diversified as people spend more time at home and become more interested in home decor. We achieved revenue growth not only in advanced markets, but also in emerging markets such as Southwest Asia and Latin America. By expanding sales of premium products, including customizable bespoke products, that can meet the diverse needs of consumers. Also, profitability improved as we focused on operational efficiency based on modular concept. Now let's look Let us look at our outlook for the second quarter and the second half of 2021. We expect TV demand in the second quarter to increase year-on-year due to major sporting events such as the EuroCup and Olympics that were postponed last year. However, there are still market uncertainties as several countries have resumed lockdown policies following additional waves of COVID-19. As I mentioned before, we will expand the sales of new models which are receiving positive review in the market and implement promotions for high picture quality products and super large screen TVs to proactively target the ongoing rising demand for home cinema, and home entertainment, as well as demand-inducing bike sport events. Along with Neo QLED, which delivered the best viewing experience, offering ultra-slim design and AI-based sound with the industry's highest contrast and black detail. We will further strengthen our leadership with successful launch of MicroLED for Home. For digital appliances in second quarter, although market demand is expected to increase year on year, business condition may face risks such as a rising material and logistics costs. We will provide a new experience in home appliances and expand the ecosystem through bespoke home, which was introduced in the Korean market in first quarter. For the global market, we plan to expand the launch of Bespoke to new regions in phases, which will consolidate our unique identity. For air conditioners, as peak season begins, we will lead the market by popularizing our differentiated wind-free feature. And we will continue to grow throughout all our old products, In the second half of the year, as demand moves from home entertainment to outdoor activities and travel amid an increase in vaccinations, we expect TB demand to decrease compared to the second half of last year when impacts of pent-up demand were strong. So we will keep monitoring market demand and preemptively address shifts in a dynamic market. We will strengthen our premium readership and continue sustainable growth by expanding high-value-added products such as Neo QLED Micro-LED and Lifestyle TV like the Frame, which is designed to satisfy the diverse needs of our customers. For digital appliances, market uncertainties have a potential to keep rising but we will spread the successful bespoke DNA globally and keep gaining growth momentum with innovative products as well as new life products to meet consumer needs while fostering growing channels such as B2B and online. Thank you very much.

speaker
Ben Seo
Investor Relations

Thank you for the presentations. That 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. For DRAM in the first quarter, our bid growth was in the mid single digit percentage, and ASP increased in the mid single digit range as well. For the second quarter of the year, we expect market bid growth to be in the low single digit range, and our bid growth should be around the market level. For the full year, we expect market bid growth to be around 20%, and our bid growth to be similar. For NAND in the first quarter, our bid growth was in the low double digits, while ASPE declined in the mid single digit range. For the second quarter, we expect market bid growth to be in the low single digit range, and our bid growth should be similar. For the year, market bid growth is likely to be in the mid-30% range, and we expect to perform better than the market. In the display panel business in the first quarter, the OLED portion of sales was in the high 80% range, and OLED sales volume declined by a percentage in the late teens. In the mobile business in the first quarter, sales volume was around 81 million units for handsets and 8 million units for tablets. The blended ASP, including tablets, was $243. And the smartphone portion of handset sales volume was in the mid-90% range. For the second quarter, we expect quarter-on-quarter shipments to decline for handsets, but rise for tablets. And the blended ASP is likely to decline quarter-on-quarter. We expect the smartphone portion of handsets to be in the low to mid 90% range. In the TV business in the first quarter, sales volume declined by a mid 20% range, and we expect shipments in the second quarter to decline by a mid-teen percentage. With that, let's now move on to the Q&A session.

speaker
QD Display

The first question will be presented by Nicola Godoa from UBS. Please go ahead with your question.

speaker
spk00

Good morning and thanks for taking my questions. First question is regarding overall Samsung. Could you explain how semiconductor component shortage is influencing the overall business for SETs and how you manage an issue going forward? And certainly regarding memory, despite the fact that bid shipments were somewhat better than expected in Q1 and pricing trends have started to improve, we've seen some lag in profit improvement versus market expectations. Some of that could probably relate to some delay in technology migration, as well as the initial ramp-up costs of new fabs. For me, could you share a view on the transition process to one Z-nanometer DRAM and then one alpha and one 28-layer NAND, followed by the next technology migration, starting in Q2? And what is the timeline on the back of this for significant cost reduction? Thank you.

speaker
Kang Tae-gyu
Investor Relations

There are two questions. The first question is about the wire. There are a lot of questions about the supply and demand of semiconductor parts. In terms of Samsung Electronics, what kind of impact do you expect on the entire business, and how will you manage this part? The second question is a semiconductor-related question. Despite the good output and price situation in the first quarter, it seems that the improvement in the memory of the market was a little lower than expected. Perhaps this is due to the cost of the process change and the initial costs related to the early ramp-up. In this context, Please tell us how you expect the transition to 1G nano, 1-alpha, and 128-stage land in the future. At what point do you expect to see a significant increase in the cost-effectiveness?

speaker
spk10

Thank you for your question. I will answer the supply issue related to the war.

speaker
Ben Seo
Investor Relations

In fact, due to the lack of global semiconductor supply, our company is also in a situation where some of the difference in production of set products and displays is occurring, but we are working in all aspects to minimize the impact.

speaker
Kang Tae-gyu
Investor Relations

To take your first question, due to the global semiconductor shortage, we are also experiencing some effects, especially around certain set products and the display production. But we are approaching this from multiple angles to minimize the impact.

speaker
Ben Seo
Investor Relations

First of all, in the case of smartphone, TV, home appliances, and other set products, while cooperating closely with major suppliers, . . . . .

speaker
Kang Tae-gyu
Investor Relations

So for example, at the step level, such as smartphones, TVs, and consumer electronics products, we are, first of all, talking closely with the major component suppliers in order to gain the necessary component inventory. At the same time, we are also discussing with retailers and major channels about supply plans so that we are able to allocate the components to the products that have more urgency or higher priority in terms of supply. So reflecting that feedback we are currently rebalancing our overall production. At the same time, we are also trying to optimize our supply lead time that's required from receiving the parts, producing the product, and then delivering the finished products to the channels. This is in order to minimize any loss-fail opportunities that may be caused due to the component shortage.

speaker
Ben Seo
Investor Relations

Especially with large-capacity data processing capabilities, In that context, we are actually preparing to implement our next generation ERP system, NERP,

speaker
Kang Tae-gyu
Investor Relations

This has capabilities in terms of large-scale data processing and also can support AI-based decision making. The plan is to start this implementation and roll this out to all of our local subsidiaries globally until January of next year. We think that with this next generation ERP system, we will be able to better respond more efficiently and more quickly to such macro issues going forward.

speaker
Ben Seo
Investor Relations

As the supply shortage of DJI has continued since the second half of last year, we have secured the necessary supplies in advance to minimize the impact of the first quarter. Currently, we are cooperating closely with our supplier to secure parts supplies, and we are negotiating supply plans by continuously updating the supply status with customers.

speaker
Kang Tae-gyu
Investor Relations

On the display side, actually the DDI shortage started from the second half of last year. So we were able to actually preemptively secure the necessary inventory. And so our impact during the first quarter was minimized. Currently for the display, we are focusing on securing the necessary inventory by closely cooperating with the suppliers. And also we're giving updates frequently to the customers regarding the situation

speaker
Ben Seo
Investor Relations

in order to discuss supply plans.

speaker
Kang Tae-gyu
Investor Relations

Also to switch hats, we're also a semiconductor supplier, and so to respond to this current situation, we're focusing on maximizing the efficiency of our current capacity in foundries, and also we'll be actively responding to customer demand, especially by expanding our capacity around the cutting edge processes, once the Pyeongtaek Line No. 2 comes into full-scale operation in the second half?

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

Yes, first of all, in relation to the first quarter, despite the good flow of our dispatch and DRAM ASP, the sales interest has been greatly reduced due to the initial cost of the new FAB for the change of the process and the impact of the drop in NAND ASP. However, in the second quarter,

speaker
Kang Tae-gyu
Investor Relations

I think your second question about the memory business, the reason why the operating profit decreased slightly in first quarter despite the strong shipments and also positive DRAM ASP is mainly because of the initial cost necessary for the new FAB for the migration, and also the decrease in NAND ASP. However, looking towards the second quarter, we expect to see strong demand across all applications, and so we're expecting in the second quarter our results to significantly improve.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

Yes, and if you're talking about the original DRAM in the question, you're talking about our 15-nm DRAM. This process and NAND's 6th generation 128th generation, the more we go down to the

speaker
Kang Tae-gyu
Investor Relations

About the 1Z DRAM migration, that would be our 15 nano DRAM. And so we will be scaling up this migration towards the 15 nano DRAM and also these six generation 128 layer NAND as we go forward. And so as we pass through the second half of this year, we expect the magnitude of cost improvement to continue to increase.

speaker
QD Display

Yes, thank you for your answer. The next question is from Lee Soon-hak from Hanwha Investment and Securities. Please go ahead with your question.

speaker
Lee Soon - hak

Thank you for the opportunity to ask a question. I will ask a question one by one on the Foundry and Display. In February last year, the FACS operation was stopped as a blackout occurred at Austin FAP in the U.S. According to this, what is the specific size of the damage, how much it has been reflected in the performance of the first quarter, and what the current recovery situation is like. Also, regarding the large-scale display business, we are still continuing to produce because the LCD time is good, but I wonder if there is a possibility of additional production extension of the LCD line. Please answer the business strategy related to the QD display, which is scheduled to be mass-produced in the second half of the year.

speaker
Kang Tae-gyu
Investor Relations

About the Austin fab power shortage, can you share with us specifically the magnitude, the size of the damage that the company incurred and how much of that has been reflected in your first quarter results? Can you also give us an update on the restoration of the Austin operation? Second question is about the large size displays. We do know that the LCD production has been continuing given the positive market situation. I'm wondering if there's a possibility that you would decide to further extend your LCD production. Also, can you share with us your business strategy for the QD display?

speaker
Han Seung Hoon
Senior Vice President of the Foundry Marketing Team

I'll give you an answer related to the Foundry. On February 6, the factory operation was stopped due to the ups and downs in the Texas region, Since the supply of electricity has been normal, it has been gradually restored, reaching more than 90% of production moving at the time of March 31, and is now completely normalized. In the process of repair and restoration of factory operation, the production quality of wafers has increased, and the number of wafers that have been damaged is about 71,000. This is about 3 to 4 billion won. This accident is a foreseen shortfall. In order to reduce the damage caused by the accident before the accident occurred, we planned the operation of the equipment after the damage occurred in advance, and the damage recovery work after the accident was quickly carried out as planned, and the customer and the situation were To answer your first question, as you know, there was a major snowstorm and a cold wave in Texas on February 6, which caused power and water outage, and this

speaker
Kang Tae-gyu
Investor Relations

caused us to stop the operation of our Austin fab. After the power and water supply was returned to normal, we started on restoring the operation, and as of March 31st, we were able to achieve 90% level of production moving, and currently the Austin fab is fully normalized. There was wafer production disruptions due to the stopping and the recovery of the fab, About 71,000 wafers were affected, and this corresponds to around 300 to 400 billion Korean won of damage. The power outage and the water outage was actually pre-announced, so we did have time to prepare for shutting down the plant, and we also had time to prepare for how we will be recovering the operation. Also, from the very start of the event, we carefully shared our information closely with our customers, Also, we were able to, I think, bring back the operation back to normal earlier than was expected because all of our employees were able to focus on this effort according to the plan. Also, going forward, in order to prevent this from being repeated, we are currently talking with the state as well as the municipal government and also talking with the local utility companies to find solutions.

speaker
Choi Geon Young
Senior Vice President of Samsung Display

Yes, I will answer the display part. The company has developed a QD display for the long-term competitiveness of large display business, and we are currently focusing on improving the completeness. We are continuing to cooperate with customers to release successful products. We are doing our best to release the product as planned in the second half of the year. On the other hand, LCD products Considering the market situation and customer requests, we are currently producing a portion of the volume. However, there is still no final decision on the additional extension or size. Basically, the LCD market is currently in a situation where there is a dramatic change compared to the past in terms of the current economic situation and supply and demand. Rather than such a medium-term plan, To answer your second question about the displays, as you know,

speaker
Kang Tae-gyu
Investor Relations

QD Display is a major project that we have developed in order to enhance the long-term competitiveness of our large-size display business. Currently, we're focusing on raising the level of completeness of the QD Display, and we'll try to launch the product as originally planned during the second half of this year. We're currently continuing to work with our customers to do this. Regarding your first part of the question, which was about the LCD products, as you know, we are continuing to produce LCD products, certain volumes, based on market situation and customer requests. Currently, we have not reached any firm decisions regarding going forward, whether the production will be extended in terms of timing or scale. The LCD market, we think, is currently under very unprecedented volatility due to unexpected and unexperienced economic situation as well as the component shortage situations. So, we think that given that nature, it's best for us to continue to respond flexibly based on market demand or market movements and customer demand rather than taking any mid to long term approach to LCD production.

speaker
QD Display

The next question will be presented by Peter Lee from Citigroup.

speaker
Peter Lee

Please go ahead with your question. Please explain the demand and supply of memory in the second half of the year that Samsung Electronics sees. In particular, please explain in more detail about the demand for memory in the second half of the year. And recently, there are some investment stories from memory companies. Please give us your opinion on the influence of the second half of the year on the memory industry. And the second question is on the mobile side. As the results of the performance announcement today, the performance of the 1 minute wireless company is strong, My first question is about the second half memory demand and supply outlook that the company has.

speaker
Kang Tae-gyu
Investor Relations

I think the market is very interested in how the memory market will unfold. Can you share your views regarding this, especially Some more details about the memory side on the second half. The second question is about the IM side. First quarter, performance has been strong. You've mentioned that second quarter may be a bit softer. But I'm wondering what you see in the rest of the year in the second half. Do you think that this trend will continue? And can you share with us some of your strategies in terms of profitability?

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

Yes, I would like to talk about the future of memory. In terms of set build, there seems to be some impact of chip shortage on PC and mobile. If the supply and demand situation is eased, PC will be able to grow in demand based on the 1-person 1-PC trend, and mobile will be able to grow in demand thanks to the 5G spread and continuous supply and demand of each country.

speaker
Kang Tae-gyu
Investor Relations

So to answer your first question about our memory outlook, in terms of set bills, we think that the impact of the chip shortage would be focused mainly on PC and mobiles. And if the component supply situation improves, there are factors that will drive further demand growth. For example, for PC, there is this trend of one PC per person. Also for mobile, there seems to be an additional penetration of 5G. And also many countries are continuing to implement economic stimulus policies. So these would actually be able to drive further demand growth in PC and mobile. And so given that, I think this is a market situation that calls for constant monitoring.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

In this situation, if we look at the price outlook, in the case of DRAM, the price will turn around in the first quarter, but it seems that the price will continue to rise in the second quarter. Overall, when we consider the demand intensity, it is expected that the price will rise even more. And because the rapid increase in supply is limited to the entire industry, it seems that this trend will continue until the second half.

speaker
Kang Tae-gyu
Investor Relations

About prices, as you know, DRAM prices turned around in the first quarter. We think that this trend will continue in the second quarter. Assuming that there will be a strong demand growth going forward, we think that the magnitude of price increase could actually become larger as time passes throughout this year. Also, given the fact that additional upside on supply is limited, we think that this trend can continue until the second half.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

On the NAND side, mobile content per box is continuing to accelerate.

speaker
Kang Tae-gyu
Investor Relations

there is definite increase in storage demand from the server side. And so we think that from the second quarter, actually demand may exceed supply in certain solution products, such as SSD, which is an area where we have strength.

speaker
Kim Sung-gu
Vice President of the IT and Mobile Business

Yes, I will give you a brief answer. In the second quarter, it seems that demand will decrease compared to the first quarter due to the decline, and in the second quarter, there is a growth factor of demand, such as gradual economic recovery and 5G spread, but on the other hand, Parts supply issues, long-term effects of COVID-19, etc. are also uncertain. The company may have a sales effect due to the lack of parts supply, and there may be a cost burden due to pre-marketing for foldable recognition. However, not only the sales of flagships, the foldable trend, and the general public, but also the innovative and powerful A series, such as A72 and A52, which were first introduced through Unpacked in March of the A series,

speaker
Kang Tae-gyu
Investor Relations

Your second question about the mobile business, second quarter is a slow season, and so we do think that demand for mobile will decrease versus the first quarter. Looking towards the second half, there are some growth factors such as gradual economic recovery being expected and also the further rollout of 5G, which may drive demand growth. But on the other hand, there are still uncertainties, including the component shortage and the impact of COVID-19 still lingering. Also, there are some cost increases that we're anticipating in the second half, such as preemptive marketing that we're planning to drive up sales of our flagship in the second half, as well as to raise the awareness of our foldable. And the component shortage may have impact on our sales as well. But despite these challenges, we will be focusing on maintaining a robust profit margin by maintaining strong flagship sales, Also, increasing and expanding the user base of our foldable products, as well as continuing to introduce a very innovative and powerful A series, as was embodied by the A52 and the A72, which were unpacked last March. Also, by expanding the device ecosystem that includes tablets, PCs, and wearables.

speaker
spk10

Thank you for your answer. Next question, please.

speaker
QD Display

The next question will be presented by Claire Kim from Hana Financial Investments.

speaker
Claire Kim

Please go ahead with your question. First, there are articles that recent competitors are doing well in the transition between GM and NAND. In the case of GM, Samsung Electronics' early introduction of EUV, and NAND may be Marillec's single-step technology maintenance. Please give us your opinion on how to evaluate the level of technology competitiveness from a medium-term perspective. The second question is, I have two questions.

speaker
Kang Tae-gyu
Investor Relations

The first question is about the technology migration. I think there was a recent media report that your competitor is actually going or leading or taking ahead in terms of DRAM and NAND migration. So in that context, In the case of DRAM, the early adoption of EUV, and for the NAND, the maintenance of the single-stack technology can end up being a bottleneck in terms of your technology migration. So in that context, can you share with us your assessment of the technology competitiveness levels from a mid- to long-term perspective? Second question is about the VNAND V8. Can you share with us an update on your plans of adopting V8 or development plans that would follow the 7th generation V-NAND?

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

Yes, first of all, I would like to talk about D-RAM and NAND separately. In the case of D-RAM, our company is currently producing 15-nano nodes. This 15-nano process is currently at the highest level in the industry in terms of node balance.

speaker
Kang Tae-gyu
Investor Relations

To answer your question for DRAM first and then to answer the part about NAND, in the case of DRAM, our most cutting-edge node that is in full-scale mass production is 15nano. And currently in the industry, we have the largest share of 15nano process in our overall node.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

Also, we are planning to produce 14nano DRAM in the second half of this year. In the case of the 14nm process, the evaluation of the main chipset company has already been successfully completed. And unlike the previous generation process that applied EUV to single layers, we plan to apply EUV to multiple layers from 14nm. In the use of such differentiated EUV ecosystem, we are protecting the technology that leads the industry.

speaker
Kang Tae-gyu
Investor Relations

Looking forward, what we are planning in terms of mass production in the second half is the 14 nano DRAM, which has already successfully completed evaluation by the major chipset companies. Whereas the 15 nano process used EUV on a single layer, the 14 nano will be using EUV on multiple layers, and this demonstrates the fact that we have technology leadership in terms of utilizing EUV ecosystem in a differentiated manner.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

In terms of the fine-tuning of the DRAM process and the change in the technology paradigm, the application period and know-how of EUV are very important, so our company's pioneering introduction can be considered a mid-term step in securing technology and raw materials competitiveness.

speaker
Kang Tae-gyu
Investor Relations

The reason why this EUV technology leadership is important is because when EUV is applied and the know-how necessary in using EUV will be critical in further DRAM process migration as well as the changing technology paradigm. And so we think that the early introduction of EUV will actually serve us very well going forward in terms of providing us the technology and cost competitiveness on a mid- to long-term perspective.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

In the case of NAND, the 128-stage 6th generation V-NAND based on the only single-stack in the industry has already greatly expanded its production capacity in the first quarter. Our company is planning to continue to expand the capacity of 512GB of high capacity, which has the highest cost competitiveness in the industry. We are going to actively respond to the demand from our company through more than 8TB of high-capacity SSE demand, product mix, and resilient operation.

speaker
Kang Tae-gyu
Investor Relations

On the NAND side, as you know, we have been significantly increasing the scale and the share of the sixth generation VNAND with 128 layers on a single stack, the share of that within our overall production has increased quite significantly during the first quarter. Going forward, we are planning to continue to increase the share of the high capacity, for example, 512 gigabit which has the industry's best cost competitiveness, and also actively respond to the demand of the high-capacity SSDs of 8TB and above, which is an area where we are getting quite intensive demand from by flexibly operating our product mix.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

In the future, the paradigm of end-to-end technology development I think the efficiency aspect of stacking is also very important. Based on the single-stack technology, which has the strength of the industry's minimum stack height, we plan to maintain excellent price competitiveness by securing a pure structure of development difficulty and applying double-stack technology up to the second half of 200 steps based on cell layers.

speaker
Kang Tae-gyu
Investor Relations

I think going forward in terms of the NAND technology paradigm, not only the number of layers, but also the efficiency of the stacking technology will become a very critical factor. As you know, we have the strength of having the lowest stack height in the industry based on a single stack technology. This will give us the positive feedback structure in terms of development difficulty going forward. And we are planning to maintain outstanding cost competitiveness by using double stack technology to achieve stacks of up to layers of up to the high 200 layer ranges on a cell layer basis.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

Your second question was about our VNAND, our seventh generation VNAND to give you an update.

speaker
Kang Tae-gyu
Investor Relations

We're planning to go into a full-scale mass production of solution products starting from the second half and we will be announcing them as each application or product is prepared.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

For the V8,

speaker
Kang Tae-gyu
Investor Relations

Eighth generation VNAND. Actually, our lab has already secured the working die. Our milestones going forward is to pass the cost crossover point by second half of next year and then to carry on to mass production. And this will also be part of our efforts to maintain product competitiveness.

speaker
spk10

Thank you for your answer. Next question, please.

speaker
QD Display

The next question will be presented by Dongwon Kim from KB Securities. Please go ahead with your question.

speaker
Dongwon Kim

Yes, thank you for the question. I would like to ask a question related to memory and display strategy. According to recent media reports, the consolidation of the NAND industry is expected as the M&A potential of Kioxia, which is evaluated as a company value of $3 billion, is set. If possible, please give us your opinion on what is the specific land strategy of Samsung Electronics to maintain the influence of Samsung Electronics and market share between the companies in the future. Next is related to small OLED. In the small OLED market, where Samsung Display maintains its exclusive supply status, it is expected to have a competitive advantage in the future with the entry of Korean and Chinese competitors. Please tell us about Samsung Electronics' OLED business strategy for such competition.

speaker
Kang Tae-gyu
Investor Relations

I have two questions. First question is that there was a media report recently of an M&A of Kioxia and Kioxia being evaluated at around 330 billion US dollars. This has triggered some expectations of NAND industry going through a consolidation phase. In that context, can you share with us what implications do you think there will be on the company by NAND industry consolidation process? Also, what is your strategy in trying to maintain your market share in the NAND business going forward? Second question is about the small and mid-sized displays. As you know, in the small and mid-sized OLED market, Samsung display has had a dominant position, but recently there's been new entry by Korean and Chinese competitors. So first question is, How does the company plan to respond to this additional competition going forward?

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

Yes, as we have emphasized before, we do not plan to drive artificial consolidation in our NAND strategy. Based on our technology leadership, we actively respond to customer demand based on our cost competitiveness and production capacity.

speaker
Kang Tae-gyu
Investor Relations

To answer your first question, as we have emphasized several times before, we have new plans of driving an artificial consolidation in the NAND industry. The focus of our NAND strategy still remains on gaining a cost competitiveness through technology leadership and actively responding to customer demand based on our mass production capabilities.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

To add a little more, The NAND market, which has more players than D-Land, seems to lead the market for the time being. Therefore, in this market, it is decided that the scale economy that can supply products based on cost competitiveness will determine the future business performance of suppliers in the future. Therefore, I think that companies that cannot meet the market requirements of this personality will have to weaken their position in the market.

speaker
Kang Tae-gyu
Investor Relations

Now, that said, to just share some perspective regarding that topic, we do think that the demand market does have a larger number of players versus the DRAM market. So, it seems that supply will be leading the market for some time. Given this market situation, it appears that the economies of scale is critical because that will enable a supplier to supply products that are cost competitive and at the right time. And so whether a company has the economies of scale or not will determine whether that supplier can succeed going forward. Inevitably, companies that do not have that capability will not be able to meet the market demands and will be losing its position in the market.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

In the end, among the questions you asked, we are not able to directly intervene in the changes or reforms of the industry. But once again, an industry transformation consolidation is an area that we are not interested in directly getting involved in.

speaker
Kang Tae-gyu
Investor Relations

And so we will continue to maintain the focus of our NAND strategy in increasing our cost competitiveness and technology leadership.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

In fact, in the current NAND market, the demand for SaaS and NVMe high-capacity solution products with our strengths is very high. The market response of the company's products is also very good. We will continue to meet the needs of customers based on high-capacity and high-capacity products, and we plan to strengthen our position as an indoor supply company in the NAND market. Thank you.

speaker
Kang Tae-gyu
Investor Relations

Because, in fact, from our perspective, currently in the NAND market, there is very strong demand for, for example, high-capacity solution products, SAS or NVMe, which is an area where we offer quite a lot of strength. Also, the market response to our products is very positive. And so, from our perspective, the strategy for us in NAND is to continue to provide high-value-added, high-capacity products that satisfies the customer's needs in order to maintain our position as a trusted supplier within the NAND market.

speaker
Choi Geon Young
Senior Vice President of Samsung Display

I will answer the display question. As you just asked, in the medium-sized OAD market, where the company has had a unique position, competitive panel companies have begun to participate in earnest, We are already aware that there is a growing concern about the deepening of the OED market competition. So, Samsung Display has been looking for a multidirectional response strategy to promote market leadership in preparation for such competition chases from a few years ago.

speaker
Kang Tae-gyu
Investor Relations

To answer your second question about the small size displays, we are aware that the market is a bit concerned about the increased level of competition in the small size oil leading market as new competitors enter the small and medium size oil leading market where we had traditionally been a dominant player. However, we had actually foreseen this possibility from several years before. and we have been implementing various strategies in order to further strengthen our market leadership and continuously maintain our market share.

speaker
Choi Geon Young
Senior Vice President of Samsung Display

First of all, in terms of technology innovation, we are the first company to introduce a display technology such as camera hold, low-frequency operation, and foldable. We have continuously improved the technical completeness with our many cooperating companies so that they can be released less frequently in the market. We believe that it will not be easy for competitors to enter the smartphone market in a short time due to the potential technology input and SM competitiveness that the parties have shown so far.

speaker
Kang Tae-gyu
Investor Relations

One of the key strategies in responding to the additional competition has been technology innovation. As you know, we have been the player that introduces many new technologies, display technologies, first in the industry, including the camera hole, low-frequency operation, and foldable displays. Also, we have continuously worked with various suppliers in order to raise the level of technology completeness. As you know, it has been this ability to introduce new technologies on a preemptive basis, and also the high level of SCM capabilities we have does give us a definite advantage versus any new competition.

speaker
Choi Geon Young
Senior Vice President of Samsung Display

Not only this, but in terms of the cost competitiveness, we have developed a system we have made large-scale investments in advance for 2-3 years. As a result, we believe that we also have a long-term advantage in terms of raw materials. Considering this, in preparation for the competitive system, we will actively use the intellectual property rights accumulated by the party to strengthen long-term cooperation relations with customers through stable flagship product supply,

speaker
Kang Tae-gyu
Investor Relations

On top of this technology advantage, we also have a cost advantage, given the fact that we have made the major investments at least two to three years ahead of the new competitors. So that will give us quite a lot of cost advantages. So based on this technology and cost advantage, our focus will be to continue to maintain a strong relationship with our customers by supplying the products necessary for the flagship smartphones on a stable basis, and also to actively utilize our proprietary intellectual property in order to effectively maintain the first mover advantage in the OLED market.

speaker
QD Display

The next question will be presented by Won-sik Lee from Korea Investment and Securities.

speaker
Lee

Please go ahead with your question. First of all, in terms of DRAM, please explain about the market entry plan for Samsung Electronics' DDR5, as it is currently in talks with DDR5. Secondly, in terms of mobile, it seems that interest in foldable smartphones has continued to grow recently. Please answer about the line-up of foldable smartphones in the second half of the year and the plan to separate them. Thank you.

speaker
Kang Tae-gyu
Investor Relations

I have two questions. The first question is about DRAM. In DRAM, DDR5 is a major topic. So in that context, can you share with us your plans, for example, of how Samsung is planning to enter the DDR5-related market? Second question is about the foldable smartphones. I think there is building interest in the company's foldable strategy. In that context, can you share with us your second half foldable lineup and how you plan to differentiate the foldable?

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

To answer your first question, DDR5 can actually be used in a wide range of applications including supercomputers, high-performance servers,

speaker
Kang Tae-gyu
Investor Relations

cloud data center network as well as edge computing. And so we are currently working very closely with the major CPU companies as well as data center companies in terms of technology and marketing.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

Our DDR5 is the first D-RAM product in the industry to develop a 512GB DDR5 memory module with a maximum capacity of 512GB with 8-stage TSP technology and a high-key metal gate process. Our offering to DDR5 is a 512GB DDR5 memory module, which is the largest capacity in the industry.

speaker
Kang Tae-gyu
Investor Relations

was the first general purpose DRAM product to adopt an eight layer TSV technology and high K metal gate technology. Also, therefore, we expect that our DDR5 memory module will be able to deliver high capacity, high performance, low power consumption at the top industry levels and will play a key solution

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

role in the cutting-edge industries such as next-generation computing, high-capacity data centers, and artificial intelligence.

speaker
Kang Tae-gyu
Investor Relations

On the research side, main focus of our memory research currently is to developing a memory that supports CXL, which is one of the next generation high capacity memory solutions. Also, we will continue to achieve technology innovation to maintain the technology leadership in DDR as well.

speaker
Kim Sung-gu
Vice President of the IT and Mobile Business

In 2021, we will actively promote foldable trend and popularization with the G-Fold, G-Flip lineup. G-Fold is positioned as premium by differentiating it into big screen, entertainment, and productivity, and G-Flip aims to satisfy the needs of millennials and female customers by improving stylish design and usability. It is difficult to say in detail about the foldable lineup in the second half of this year, To answer your second question about the foldable, the focus of our foldable strategy this year would be to popularize or expand the user base of our foldable phones.

speaker
Kang Tae-gyu
Investor Relations

So the focus of Z Fold this year would be to emphasize its large screen and the differentiated experience in entertainment and productivity to position the Z Fold at a premium positioning. For the Z Flip, we are going to emphasize the stylish design as well as improved usability to appeal to millennials as well as the female user base. Even though I'm not at liberty to talk about the details of our second half foldable lineup today, what I can say is that we are focusing on improving the functionality and form factors compared to the previous models based on customer feedback. Also, we are emphasizing a stronger foldable ecosystem by closely working strategically with the partners so that customers will be able to experience an improvement in not only the level of product completeness, but also in terms of customer experience.

speaker
QD Display

The last question will be presented by Sungkyu Kim from Daiwa Capital Market. Please go ahead with your question.

speaker
Sungkyu Kim

Thank you for the last opportunity to ask a question. I have a question for the memory side, and then I will ask a question for the VD business department. First of all, memory is related to mobile demand. Since the second half of last year, the demand for pent-ups has been very strong, and according to the enlarged 5G model this year, it is expected that the demand will be strong on both sides of the volume or capacity. On the other hand, there is an issue of supply of AP and other parts, and there is an opinion that the demand for mobile will be less than expected due to the relatively low 5G network infrastructure in the region. Please give us your opinion on the demand for the market for this. And in the case of our memory business, we know that the mobile application is quite high. I would like to ask you to explain the competitiveness of the company in the mobile market. In the case of VD, as the lack of LCD panel supply has been prolonged, the price of the panel has also risen considerably. It is still rising, but it seems that you have achieved a very solid performance in the first quarter, and it is expected that the profitability of the TV business department will also deteriorate. According to this, some product strategy or

speaker
Kang Tae-gyu
Investor Relations

My first question is to the memory division about their outlook or their view about the mobile market going forward. On one hand, there's been very positive expectations such as the pent-up demand coming online from second half of last year for mobile demand. Also, the expectations that with the 5G models being introduced this year, there will be an increase in not only hands-on volume, but also content per set. But on the other hand, there's been some negative issues, such as the shortage of certain components, including APs, and also some views that in certain areas due to the weak or underdeveloped 5G network infrastructure, mobile demand may actually be softer than expected. So given this different mix of factors, I'm wondering how the memory division looks upon the mobile market. Also, I am aware that mobile takes on a larger share within the memory business. Can you share with us what competitive advantages or competitiveness you think the mobile business has in terms of mobile supply? Second question is about the VD business with the Supply of LCD panels continuing to remain short. LCD panel prices have increased quite significantly. This may have a negative impact on your TV business. So, in that context, I would like to hear how you plan to respond and what you expect going forward.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

Yes, I will give an answer related to the mobile market. In this quarter, the mobile market is in a situation To answer your question about the mobile market outlook, in the second quarter, we are expecting that there will be some issues in the short term

speaker
Kang Tae-gyu
Investor Relations

due to the supply issues of other semiconductor components. But looking towards the second half of this year, we're expecting that there will be an increase in both handset sales as well as content per box as major OEMs are expected to launch new products. And also, we're expecting that there will be a wider adoption of 5G.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

. . . . . . . . . . . To continue to answer their question, we think that in the mobile segment, the demand for LPDDR5 products will grow.

speaker
Kang Tae-gyu
Investor Relations

especially for the 5G flagships and the high-end models. And therefore, we are continuing to collaborate with the AP chipset companies using our product competitiveness. And the chipset companies are also expanding their AP production in line with the production of our LPDDR5 UMCP. So major companies are planning to apply in their mass production the LPDDR5, our LPDDR5, and the UFS 3.1-based UMCP. We think that with our active efforts and technology, we will be able to accelerate the creation of a 5G ecosystem.

speaker
Hanjin Man
Executive Vice President of the Memory Global Sales and Marketing Office

You've also asked about our competitiveness in mobile.

speaker
Kang Tae-gyu
Investor Relations

And actually, our supply is increasing not only to flagship, but also to the high-end model using the 256 gigabyte and also in mid-range models with a 128 gigabyte. Also, leveraging our excellent cost competitiveness, we are planning to increase the competitiveness in the high and mid-end markets based on the 512 gigabit, a six-generation VNAT product.

speaker
Song Won-joon
Vice President of the Visual Display Business

Yes, I will answer the VD side. As you asked, due to the increase in demand for TVs that continued from the second half of last year, there is a part of the demand for major materials such as LCD panels and semiconductors. This trend is expected to continue for the time being. In this regard, we will continue to develop and develop so that there is no problem with the supply of products in the second half of the year. At the same time, we plan and proceed with the key distribution and promotion in advance for the main maturity season of each country, and we will expand the sales of lifestyle TVs, a differentiated product group,

speaker
Kang Tae-gyu
Investor Relations

To answer your second question about the TV business, as you mentioned, due to the very strong TV demand that's been continuing from the second half of last year, there are some impacts to the supply of key components including LCD panels and semiconductors. We think that this trend will remain for some time going forward. In response, one approach that we have is to leverage our global SCM capabilities to avoid any production disruptions during the second half. At the same time, we're focusing on securing profitability, especially around the high-end products. by, for example, planning preemptively promotions with key retailers and distributors in time for the peak season for each country this year so that we will be able to expand, especially our premium new model offering, Neo QLED, ultra-large size TVs, as well as the Lifestyle TV, which is a product group that we have differentiation.

speaker
Ben Seo
Investor Relations

Okay, so that concludes our conference call. Once again, thank you for joining us. And we wish all of you and those close to you to stay strong and in good health.

speaker
Kang Tae-gyu
Investor Relations

Thank you.

Disclaimer

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