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Samsung Elect Ltd
7/29/2021
Good evening and good evening. Thank you all for joining this conference call. And now we will begin the conference start of Fast Career 2021 Second Quarter Earnings Results by Samsung Electronics. This conference will start with a presentation followed by a divisional Q&A session. If you have a question, please press Star 1, Star N1 on your phone during the Q&A. For cancellation, please press Star 2, Star N2. Now we shall commence the presentation on the Fast Career 2021 second quarter earnings results by Samsung Electronics.
Welcome, everyone. This is Ben Seo from Investor Relations. Thank you for joining our earnings call for the second quarter of 2021. For additional details regarding our quarterly results, please refer to the earnings presentation, which is available on our IR website, at www.samsung.com slash global slash IR. On the call with me today representing each of the business units are EVP Hanjin Man representing memory, VP Cho Jang-ho for system OSI, SVP Han Seung-hoon for foundry, SVP Choi Geon-young for Samsung display, VP Kim Sung-gu for IT and mobile, and VP Song Won-joon for visual display. In addition, VP Kang Tae-kyu 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 present our quarterly results, let me first address the second quarter dividend. Today, the Board of Directors approved a quarterly dividend of 361.1 per share for both common and preferred stock. The total payout for the second quarter is the same as it was for the first quarter, which is 2.45 trillion won, or one-fourth of the 2021 annual total of 9.8 trillion won, in accordance with the shareholder return policy we announced in January. The dividend will be paid in mid-August. Now I would like to present the results for the second quarter. Total revenue in the second quarter came in at 63.7 trillion won, down slightly sequentially, mainly due to lower smartphone sales amid seasonally weak demand and component supply shortages. However, we achieved a new all-time high for revenue in a respective quarter for the second quarter in a row, where our active response to server-led memory demand and the solid performance of premium home appliances led such results. Compared to the same period last year, revenue increased by 20.2%, mainly due to strong sales of memory, TVs, and digital appliances. Gross profit increased by $2.7 trillion sequentially to $26.6 trillion as a significant increase in contributions from the component business led by migration-enabled cost reductions in memory more than offset declines in the IM division that were mainly due to disruptions in smartphone production. Gross margin grew considerably to 41.8% with improvement across all of our businesses, especially in the semiconductor business. SG&A expenses came in at $14.1 trillion, down slightly quarter-on-quarter and also as a percentage of sales, largely due to a reduction in advertising and promotional costs. Operating profit increased by $3.2 trillion quarter-on-quarter to $12.6 trillion as market conditions improved in the memory market, operations normalized at the Austin foundry fab, and as a one-off gain and price increases lifted profits in the display business. Our finished product businesses also contributed to the strong results, maintaining solid profitability by effectively managing our global supply chain amid strong headwinds such as component supply shortages. Operating margin increased considerably to 19.7%. On a year-on-year basis, both operating profit and operating margin increased with improvement in all of our business units. I will now briefly review the results of each business unit. For the DS division, results improved significantly both quarter-on-quarter and year-on-year. In memory, bid shipments surpassed bid gross guidance, price increases exceeded forecasts, And we also improved our cost competitiveness. Profits in system semiconductors increased as production normalized at the Austin Fab. In display, earnings improved quarter on quarter despite weak seasonality for mobile products, primarily due to a one-off gain as well as an increase in overall ASP. For the mobile business, sales declined sequentially, influenced by a component supply shortage and COVID-19 related production disruptions amid weak seasonality. However, we secured solid profitability by effectively managing our global supply chain capabilities, improving our cost structure and marketing efficiency, and with another quarter of solid contributions from tablets and wearables. The CE division once again generated strong results by expanding sales of premium products AMID A CONTINUATION OF PENT UP DEMAND. REGARDING CURRENCY EFFECTS, SLIGHT STRENGTH IN THE U.S. DOLLAR, THE EURO, AND MAJOR EMERGING CURRENCIES AGAINST THE KOREAN ONE POSITIVELY AFFECTED BOTH THE COMPONENT AND FINISHED PRODUCT BUSINESSES WITH A COMBINED EFFECT OF APPROXIMATELY 200 BILLION WON TO OPERATING PROFIT WHEN COMPARED TO THE PREVIOUS QUARTER. Next, I would like to share our business outlook for the second half of the year. We expect to see favorable overall market conditions in the component business, and we will focus on enhancing our leadership position in both products and technology. As for our finished product businesses, we aim to keep profitability at a solid level by strengthening our leadership and lineups in the premium segment. However, risks of continued disruptions in the component supply and uncertainties related to COVID-19 are likely to persist. From memory, we expect continued demand growth from server and mobile, propelled respectively by rising adoption of a new CPU and releases of new smartphones by major customers. We will improve our market leadership with bit growth driven from our accelerated migration to 15 nanometer DRAM and 6th generation VNAND, and by expanding the application of EUV in our DRAM production. In system semiconductors, we expect demand for system LSI products to increase as we enter strong seasonality for smartphones. And Foundry will accelerate growth by expanding Pyeongtaek S5 line capacity and by adjusting pricing to enable future investment cycles. For display, we expect the mobile panel business to improve its performance as major customers launch new flagship models. And we will focus on finalizing the mass production process for QD display to enable product shipments to start within the year. In the mobile businesses, we will target achieving solid revenue and profits by boosting the competitiveness of our smartphone lineup with the launch of greatly enhanced foldable models and the expansion of our mass market 5G models. We will also continue to grow sales of our Galaxy ecosystem lineup. For network, we will drive revenue growth in our key markets, including North America, and continue to explore new opportunities in Europe and other parts of the world. In the CE division, we will solidify our leadership in the premium TV market by expanding sales of high-value products, such as Nail QLED and Super Big TVs. We also aim to increase DA revenue by bolstering global sales of our bespoke product line. Let me now move on to capital expenditures. CapEx in the second quarter was 13.6 trillion won with 12.5 trillion won invested in semiconductor and 0.6 trillion won in display. The cumulative total for the first half of the year was 23.3 trillion won with 20.9 trillion won in semiconductor and 1.4 trillion won in display. Memory investments concentrated on addressing growing future demand via capacity expansions and process migrations, including to 15-nanometer DRAM and 128-layer VNAND in Pyeongtaek and Xi'an. Foundry investments focused on capacity expansions for advanced processes such as 5-nanometer EUV to respond to customer demand. Finally, I would like to share some of our activities and key achievements in sustainability management. First, the board of directors today approved to reorganize the governance committee into the sustainability committee. The new committee, through its increased duties, will strengthen the board's role and responsibility in sustainability management. The sustainability committee will assume the roles of the governance committee, which include practicing corporate social responsibilities and enhancing shareholder value. In addition, the committee will also address a broad range of ESG issues, including climate change, the circular economy, labor and human rights, diversity and inclusion, supply chain, and ethical management, thus setting the direction for and monitoring the progress of the company's sustainability management. The committee will be composed entirely of independent directors to ensure its independence and will also receive reports on the main issues discussed at the Sustainability Council, a company-wide consultative body. The Sustainability Committee connects sustainability management throughout the company from each business unit right through to the Board of Directors, advancing our goal of making sustainability an inherent part of our business. Next, I will brief you on the key takeaways from our 2021 Sustainability Report released in June. We actively pursued company-wide initiatives to strengthen the sustainability of our products and services, including programs such as Galaxy Upcycling and the Samsung Global Gold Campaign in the IM Division, the use of eco-packaging in the SEA Division, and our commitment to increase energy efficiency of products in the DS division. We were recognized by the UK's Carbon Trust for our management of water use at the Hwaseong campus, and we received zero waste to landfill validation of gold level or above for all of our semiconductor sites. The sustainability report also summarizes our responses to COVID-19 and our commitment to our employees partners, customers, and communities, including our efforts through various partner support programs. For more details, the report is available on our IR website in the sustainability reports section. Our company will continue to promote sustainability management and transparently communicate our direction and achievements with our stakeholders. I will now turn the conference call over to the gentlemen from each business unit to present second quarter performances and outlooks for their corresponding business segment. We will start with the memory business. Thank you.
Good morning. This is Hanjin Man from the Memory Global Sales and Marketing Office. In the second quarter, our shipments exceeded our bid guidance due to strong memory demand mainly from server and PC. Moreover, higher than expected increases in ASP for both DRAM and NAND combined with cost reductions from expanding the cutting edge portion of processes contributed to a significant improvement in our results. In the case of DRAM, mobile demand was affected somewhat in the short term by the spread of COVID-19 in major smartphone producing countries as well as by manufacturers' production disruptions caused by component supply issues. On the other hand, for servers, on top of recovering investment sentiment in enterprise, new set bills at OEMs have increased due to the release of a new CPU, and demand from data centers stayed strong backed by solid demand for cloud. In addition, a continuation of the stay-at-home trend kept PC demand at a strong level, while demand for Chromebooks for education has also increased ahead of a new semester. Consumer products such as TVs and set-top boxes also showed robust set demand, and the move toward high density has accelerated with the spread of 4K content and streaming trends. Demand in the graphics market has been strong, going to increase demand related to cryptocurrencies. And growing demand for graphic cards for gaming PCs is a byproduct of widespread home entertainment usage. Thus, the market for game consoles showed robust demand, backed by initial sales successes and launches of new titles. By preemptively adjusting our product mix, we actively addressed strong demand from the server and PC markets, and exceeded our previous speed growth guidance. Next, I'd like to talk about NAND. For mobile, the set bill growth was not significant due to component supply issues, but demand was solid from the high density trend centering on major customers. For server SSDs, demand for 8 terabyte and 16 terabyte products was strong thanks to increased server investment and high-density trend at major data center companies. Demand for client SSDs also stayed robust, primarily from laptops, as online activities such as remote working and education continued. We achieved shipments that exceeded our bid guidance. By actively addressing increasing demand for server SSDs and strong demand for mobile and client SSDs, while expanding the sales portion of 128-layer sixth-generation VNAND. Now let's move on to the outlook for the second half. The market view for the second half is a mix of concerns and expectations. The spread of variant COVID strains requires urgent attention, and supply issues of some non-memory chips are likely to persist. and various geopolitical issues escalating, all of which are risk factors to market demand. Positively, however, we expect the fundamentals of market demand to be robust. First of all, in the case of mobile, along with the high density trend for memory related to the expansion of 5G, launches of new models from major manufacturers bode well for demand. Furthermore, for servers, we expect enterprise investment sentiment to recover with the expansion of vaccine supply combined with economic stimuli. We expect server demand to be strong with the rising adoption of the new CPU alongside the ongoing trend toward high density. In the PC market, due to prolonged effects of COVID-19, we are witnessing fundamental changes in the way people buy and use their PCs. With the proliferation of a hybrid work model, we expect enterprise demand to be strong, while replacement demand should be solid, driven by the release of a new OS. On the other hand, our inventory has fallen to a substantially low level due to the impacts of our higher than expected shipments in the last quarter. In this situation, we will maintain our leading position in cost competitiveness while generating big growth by expanding migration and production of our main nodes, such as 15 nano DRAM and 128 layer VNAND. Moreover, amidst such uncertain market conditions, we are working to preemptively identify various issues that can affect customer demand, such as issues in the supply chain. Accordingly, we are flexibly managing our product mix to better meet market demand. Also, we are securing additional capabilities to stably supply our products in a timely manner, even amid demand fluctuations, by extending the range of our demand forecast for each application and by using big data to sharpen our own predictive tools. Furthermore, our 14-hour DRAM is the smallest design rule in the industry's 14-hour class. We will mass produce this product in the second half by applying EUV to five layers. In addition, our preparation is going smoothly for mass production of consumer SSD, which adopts double-stack 176-layer seventh-generation VNN technology. And we expect to start mass production in the second half as planned. We, as the leading company in comprehensive memory solutions, will spearhead the establishment of the next generation ecosystem of the IT industry. Thank you.
Good morning. This is from business. In the second quarter, solid demand for 100 megapixel image sensors, mainly from Chinese customers, and an increased supply of DDIs and other Products backed by normalization at OCNF contributed to earnings. However, earnings improvements were limited somewhat by a decline in launch effects of major customers' flagship smartphones and the seasonal decrease in associate demand. We released a variety of products in the second quarter with industry-leading technology. In particular, we launched an image sensor that applies 0.64 micrometer ISO cell, the smallest pixel size in the industry. And we released our first image sensor product for automotives. In addition, we expanded our business areas by releasing three types of PMICs for DDL5DM modules. Now let me share our business outlook. In the second half of the year, especially in the third quarter, we expect overall earnings to improve, sequentially due to increasing demand for associates and OLED DDIs as we enter the peak season for smartphones, and also due to growing demand for the parts related to rising global IT and TV demand. We will maximize our capability to supply chips, by strengthening cooperation with major foundry companies, and we'll flexibly adjust our product mix to prioritize high-value-added products. By doing so, we aim to achieve double-digit sales growth this year. Thank you.
Good morning. This is Sean Han from the foundry business. In the second quarter, we improved our earnings sequentially and set a new high for Q2 sales by maximizing our chip supply capabilities and through the earlier than scheduled normalization at the Austin FAB. In addition, as demand for mature process products such as CIS, RF, mobile DDI is expected to keep growing, We work to strengthen our competitiveness by improving existing processes and diversifying our portfolio through the development of various new derivative processes. Turning to our outlooks, in the second half, we expect overall demand to exceed supply due to rising demand from the accelerating penetration of 5G the continuation of the work-from-home trend, and growing demand for safety stock from customers. As a result, we believe our overall market growth will be higher than our previous estimate. To address increasing demand, accelerate growth, and resolve growing industry concerns over supply, we will maximize our capabilities to supply chips by a full-fledged operation of Pyeongtaek S5 line, especially for mass production of second generation of 5nano and first generation 4nano based products. We are targeting annual sales growth of well over 20% as well as significantly improved profits. We will work to achieve these goals through pricing strategies to sustain future investments, customer and application diversification, and capacity expansion. Thank you.
Good morning. I'm from the business planning department at Samsung Display. In the second quarter, although sales of mobile display business declined quarter on quarter, affected by weak seasonality, operating margin remained strong as the supply of OLED components has been more stable than that of LCD panels, with set manufacturers continuing to prepare the adoption of OLED panels. On a year-on-year basis, both sales and operating profit increased substantially thanks to growing adoption of OLED panels on a top-of-low base. For the large display business, the conversion of manufacturing lines to 2D display weighted on revenue quarter on quarter, but a rise in ASP of panels for TVs and monitors helped to improve profitability. Next, let me share the outlook and our core strategies for the second half of 2021. For the mobile display business, we expect earnings to rise compared to the first half of 2021, spurred by new product launches at major smartphone customers and an increase in supply of high-value additive products, including foldables. At the same time, however, we may see a potential drop in shipments for some products due to a supply crunch of certain components such as DDIs. Meanwhile, starting from the second half of 2021, we are preparing full-fledged sales growth of IT and portable gaming products featuring OLED screens, satisfying consumers that are accustomed to the quality of OLED smartphone screens. We at Samsung Display have been satisfying the expectation of consumers and maintaining a substantial gap with our competitors with timely and successfully commercialization of new technologies each year, including on-site touch and whole design and et cetera. We will further fortify our innovative leadership by aggressively introducing under-panel camera technology and technologies related to low power consumption in the near future. For the large display business, we have been strategically preparing QD display to target the high-end market, and we expect manufacturing to start in the second half of this year. We will channel all our efforts to thoroughly prepare its development and mass production so QD display can make a successful debut as planned. Thank you for listening.
Good morning. This is Sung-Guk Kim from the Mobile Communications Business. I would like to discuss the IM Division's Q2 results and outlook for the second half of the year. In Q2 2021, market demand is expected to have decreased quarter-on-quarter due to seasonality and a resurgence of COVID-19. For our mobile business, revenue decreased from the previous quarter due to the component supply constraint in the mobile industry and production issues at our factory in Vietnam. Under these circumstances, we strive to minimize the impacts by prioritizing on critical production reasons, utilizing our global SM capabilities to optimally rebalance supply. Meanwhile, production in our Galaxy ecosystem, including tablets, PCs, and wearables contributed substantially to the Q2 performance. In addition, our improved cost structure and efficient resource allocation helped us maintain a solid double digit operating margin. In the network business, our performance improved quarter on quarter backed by growth in North America and 5G network expansion domestically. Let me move on to the second half of our loop. As the adoption of 5G and the contactless trend continue to thrive, we expect the annual mobile market to recover to 2019 level. However, uncertainties regarding the component supply constraint and COVID-19 are likely to linger. In our mobile business, we'll continue to strive to further solidify our leadership in the premium segment by mainstreaming the foldable category and maintaining sales momentum of the Galaxy S series throughout the year. In the third quarter, we will concentrate on successfully launching new foldable smartphones. We prioritize consumer needs and work to reflect such needs in our new G series models, which offer remarkably enhanced product competitiveness and user experiences. In addition to our own innovations, we have enhanced the open collaboration with our global leading partners to add more meaningful innovations to our customers' daily usage. We expect to provide unique mobile experiences and enrich customer lives. Onto our Galaxy S series, it is our flagship lineup that features premium design and the utmost innovative technologies, including professional-grade cameras and superior display. We will continue to generate solid sales of Galaxy S series by emphasizing their optimized user experiences and unique value. Regarding our mass market smartphones, we will provide new innovative technologies and more broadly adopt 5G, including entry-level models. With these efforts, we will proactively address various regional needs while also broadening our customer choices. In addition, we will work to increase sales of Galaxy ecosystem products, including tablets, PCs, and wearables by promoting easier, more convenient connected experiences throughout our extended Galaxy ecosystem. We will strive to achieve solid sales and profits in the second half by carrying out the strategies that we have outlined. In the meantime, We will continue to strengthen the foundation for future growth by maximizing customer satisfaction and increasing retention based on enhanced user experiences within the Galaxy ecosystem. For the network business, we aim to promote growth of the business by increasing sales in North America and Japan. And we will continue to seek new business opportunities in Europe and other regions. Thank you.
Good morning, everyone. This is from the sales and marketing team of Visual Display. I'd like to review the market condition and our performance in the second quarter of 2021. First, the TV market in the second quarter contracted quarter on quarter because of seasonality, but increased compared to last year. Even amid supply issues of some materials, Samsung optimally allocated resources and proactively fulfilled demand for major sports events in second quarter, such as Euro Cup. Thus, we maintain the solid profit by expanding sales with a focus on premium products. In particular, the newly launched Neo QLED includes upgrades in all aspects, offering not only outstanding picture quality, but also sound design and usability, and it garnered positive feedback from numerous consumer reviews and major magazines. Based on the positive responses, Samsung expanded sales of Neo QLED in full swing from second quarter and improved our product mix. Furthermore, Lifestyle TVs, our unique product line, are securing a strong position in the market by actively targeting various consumer passion points, such as indoor home cinema and outdoor viewing, and by providing experiences that conventional TVs cannot offer. For digital appliances in second quarter, as people spend more time at home, consumers become more interested in their home surroundings and home decor. Also, pent-up demand continued to affect the market amid government's economic stimulus packages and strong housing markets. Samsung successfully launched the Bispo Global in May and expanded sales based on positive feedback from major markets. In addition, by launching new lifestyle appliances such as a shoe dresser and cordless stick vacuum cleaners, we fulfilled the diversifying needs of our consumers and expanded our sales. Now let us look at the outlook for CE in the second half of 2021. As the TV market moves into peak seasonality, we expect market demand to increase half and half.
However,
Business uncertainties related to COVID-19, including effects of the surging Delta variant, are likely to persist. Samsung will keep monitoring the rapidly changing market conditions and will swiftly respond to changes in demand using our global SM competitiveness, thereby securing profitability and maintaining our leadership in the market. To do so, based on closing collaboration with channel partners, we'll plan peak season promotion tailored to each region to expand sales and we'll keep improving our product mix. Also, in order to capitalize on the trend of increasing online purchases during peak seasonality, will improve our contactless sales infrastructure by enhancing the online buying experiences for our consumers while also expanding digital content. Moreover, we will strengthen cooperation with online channels to expand the sales opportunities. For digital appliances market in the second half, we also expect uncertainties related to COVID-19 to remain high, and external risks such as increases in low material and large costs are likely to linger. However, Samsung will strengthen the BISBOK lineup with top-notch products and expand its presence by launching in more regions, while also carrying out various online and offline marketing activities. By doing so, we will craft our own unique brand image of providing customizable digital appliances to not only the domestic market, but also global ones. Moreover, we will enhance our overall operational efficiency and will respond to external risks by optimizing the allocation of global resources by region and by further strengthening supply competitiveness based on product modularization. Through those efforts, we will continue to lead the digital appliances industry. Thank you for listening.
Okay, so that sums up the second 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 second quarter, our bid growth was in the low teen percentage, and ASP increased by a percentage in the high teens. For the third quarter, 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 in the mid 20% range, and our bid growth should be similar. For NAND in the second quarter, our bid growth was a high single digit percentage and ASP increased in the mid single digit range. For the third quarter, market bid growth is likely to be in the low teens and our bid growth should be around the market level. For the full year, we expect market bid growth to be around 40% and our bid growth should be similar to the market. In the display panel business in the second quarter, The OLED portion of sales was in the mid 90% range and OLED sales volume declined by a percentage in the high single digits. In the mobile business in the second quarter, sales volume was around 60 million units for handsets and 8 million units for tablets. The blended ASP including tablets was approximately 233 US dollars. And the smartphone portion of handset shipments was in the mid 90% range. For the third quarter, on a sequential basis, we expect shipments of handsets to grow but to stay similar for tablets, while blended ASP is likely to increase. We expect the smartphone portion of handsets to be in the mid to high 90% range. In the TV business in the second quarter, sales volume declined by a percentage in the high teens, but we expect shipments in the third quarter to grow by a high single-digit percentage. With that, we will now move on to the Q&A session. From now on, we will translate in order of Korean and then English.
Starting with this call, we are accepting questions via our web page in advance of an earnings release as part of our efforts to strengthen communication, and a variety of questions have been actually submitted.
I will answer the questions first. The question is as follows. Samsung Electronics' technology competitiveness gap is being narrowed at the moment. What is your opinion and explanation about this? In particular, is there any concern about the competitiveness of other companies due to the launch of the 176th NAND? Also, when the DDR5 was changed, Samsung Electronics' process was complicated due to the application of Hi-K Metal Gate technology,
among all of the questions that were submitted we would like to first answer the question that regarding the company's technology competitiveness which actually was a topic that received high interest from the market as well as investors so the first question that we received goes as follows I would like to hear the company's thoughts and explanations on the saying that the technology gap between Samsung and other rival companies are narrowing. In particular, I would like to know whether the company has any concerns over its competitiveness after the development of the 176th layer from other companies and whether its cost and price competitiveness will be weakened when it transitions to DDR5 as the high-K metal gate technology makes the process more complex. This question will be answered by EVP Jinman Han from the Memory Division.
Yes, I think I would have thought of it as an analyst's question if you didn't say that it was an individual investor's question. It was a very difficult and good question. I will answer NAND and DLM in order. First of all, if you think about the competitiveness of VNAND, Samsung's biggest concern is no longer its own subsidiary. Yes, that was a very good question.
Had I not been told, I would have thought that that was a question from an analyst. I will answer your question for NAND and DRAM each. First, regarding the competitiveness of the VNAND side, Actually, our key point as we develop our VNAND is no longer just in the number of layers. We have already secured the industry's top etching technology as we worked on the 128-layer single stack. And so as of now, our current focus is how to efficiently increase the stack itself, as well as what will be the right time and method of achieving that efficiency.
So we believe that the game is no longer just a game of who makes the highest number of stacks or high number of layers.
But our key point is currently in terms of the efficiency of the stack height, as well as the competitiveness in terms of cost.
And regarding DRAM, it seems that you are concerned about the competitiveness of the raw materials. In fact, as the generation of DRAM is built and the process is minimized, the slope of the reduction of raw materials is lowered and the difficulty is also increased. In that respect, we are also making various efforts to secure the competitiveness of raw materials. You've also voiced some concerns about the cost competitiveness of our DRAM
And it is true as the DRAM migration passes from generation to generation and as the nodes become more migrating or smaller, the slope of the cost benefit from generation to generation is flattening out and the difficulty of the technology is also increasing. And that is why in order to secure further cost competitiveness, we are exploring various avenues in addition to just process migration. And so the DDR5 that applies the high K metal gate technology is one of our various efforts to secure the key and the core technologies that will give us continuous cost advantages. Also, I would like to say that just because we have applied the technology does not mean that that technology will be applied in mass production. New technologies will be adopted when they go through a very close and careful consideration in terms of cost and efficiency.
Our 14-nm DDR5 product applies EUV in 5 layers to reduce the cost. By applying EUV, the number of processes is reduced, leading to cost competitiveness. The most cost-efficient DDR5 node For example, currently our 14-nano base DDR5 product actually uses EUV on five layers.
The logic is that by applying EUV on a larger number of flares, the number of total processes decreases, which gives us the cost advantage. And so we believe that the 14 nano will be the start of the DDR5 node that has cost competitiveness. We also think that with the DDR5 ecosystem becoming more active starting from next year, there will be a gradual bid cross.
Again, So to sum my answer, I just wanted to re-emphasize that we are devoted to various different approaches of R&D that will give us the
absolute technology competitive edge in memory going forward for both DRAM and NAND, and that we are planning to continue to secure competitiveness in all dimensions, including cost, performance, and power. Thank you. Now we will open the conference call for questions.
Now Q&A session will begin. Please press star 1, that is star and 1 if you have any questions. Questions will be taken according to the order you have pressed star and number 1. For cancellation, please press star 2, star and 2 on the phone. The first question will be presented by Nicolas Godoy from UBS. Please go ahead with your question.
Good morning, and thanks for taking my questions. First question is regarding IRAM. Given the solid recovery in server demand in the recent quarter, how is server demand developing in H221? and how much server unit and content growth would you expect to see for the full year of 2021? And secondly, regarding smartphones, could you update us on the situation in Vietnam and India? What has been the impact of possible production disruption due to recent COVID wave and how are you addressing those challenges and when would you expect effectively the situation to normalize? Thank you very much.
There are two questions. The first is a question about the server DRAM. Of course, the server demand is recovering because of the recent boom, but how do you see the server demand in the second half of the year? How much do you expect the number of servers and how much do you expect the content of each server? The second question is a wireless question. Recently, as COVID-19 resumed in India and Vietnam, What is the current situation of the Indian-Vietnam factory? How did you respond? When do you expect it to normalize? Yes, you asked a question about the service fee.
First of all, the 2nd quarter service fee is due to the expansion of investment in many companies and the release of new CPUs.
To answer your first question, yes, as you mentioned, server demand was very strong in second quarter for both DRAM and NAND as many companies started to increase their investments and also there was the benefit of the impact from the launch of the new CPU. And so we have responded to this by operating our product mix effectively to capture this strong demand.
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You've asked about the second half, and we think that the demand from servers will maintain solid in the second half even though there are many lingering uncertainties, including the possible spread of the variant virus, various geopolitical issues, and some uncertainty and volatility around IC supply. We think that, first of all, there is an ongoing trend of higher content on server, especially with the adoption of the new CPU. And also there is an increase of set build as, for example, the cloud-based overall infrastructure expands within the industry. And so given all of these factors, we think that fundamentally server demand will remain solid in the remainder of the year. Specifically, regarding the server unit increase, we are expecting that on a year-over-year basis, server unit will grow at a high single digit this year.
In the case of DRAM, we are already sampling a minimum of 14nm DDR5, which can be implemented in 14nm. Then, the existing plans are scheduled to be mass-produced in the second half of the year. Server SSDs will also be mass-produced Now, to tap that strong demand from the servers, as you know, we are currently in customer sampling for our DRAM 14, DRAM
that is using the narrowest circuit implementable at 14 nano for DDR5. We're expecting that to go into mass production as scheduled in the second half. Also, for the server SSD, we have a complete supply chain management formed, including in-house FAB all the way to the controller. And so we are fully prepared to provide the stable and timely supply as a leading supplier for servers.
Yes, first of all, I would like to answer about the Vietnamese factory in India. In the case of the Indian factory, the employees who are likely to be infected with COVID-19 have to work from home, and the main parts are sourced overseas. The production line also has a structure that can be partially closed so that the infection damage does not affect other lines. There is no special production issue due to COVID-19 in this thorough pre-management.
To take your second question about our mobile production in India and Vietnam, fortunately in the case of India, we have not gone through any special production issues due to COVID-19, thanks to the various preparation measures that we have made. For example, we instructed any employees in the Indian plan to not come to work if they have any symptoms. Also, we had taken the preemptive measure of finding dual supply overseas for the key components. And also, we actually preemptively restructured the production line so that we, if necessary, could close down, partially, the production line without affecting other parts. But fortunately, our Indian operation has not been affected.
In the case of the Vietnam factory, due to the COVID-19 lockdown, it had the ability to produce in the middle of the operation of cooperating companies such as private companies. However, the supply was centralized to India and Korea, and additional supplies were secured to minimize the impact.
In the case of our Vietnam plant, there has been some production impact mainly due to actually our injection molding supplier, for example, going on stopping operation due to the nationwide Vietnam lockdown due to COVID-19. However, we have made measures, for example, to find other alternative sources overseas outside Vietnam and also securing additional sources within Vietnam to minimize the impact.
We're expecting that Vietnam will be able to normalize within this month.
Yes, thank you for the question. I have one question for the memory section. Recently, it seems that some server companies' opinions about memory storage are being misled. If the storage level goes up in the second half of the year, there seems to be a concern about storage control from the fourth quarter. Please give your opinion on the storage level of the memory supplier and customer that the company is looking at. Thank you.
I have one question about memory, specifically memory inventory. I think depending on which server company we're listening to, there are different opinions regarding the current memory inventory level. And so this is driving some concern that if the inventory level continues to go up in the second half, we may actually go through an inventory adjustment in the fourth quarter. Within that context, can you share your views regarding the inventory levels of both the memory suppliers as well as the customer?
Yes, I'd like to answer regarding the stock. First of all, regarding the stock level of the customers, I'd like to ask for your understanding that it's difficult for us to tell you in a simple way. Since the impact of the supply and demand increases are all different, it seems that the stock level will be higher. However, when we look at the future supply prospects, we believe that the demand for stock build will continue.
You've asked about also the inventory level of our customer, but I hope you will understand that we are not in a position to give any definitive answers regarding the inventory level at our customers. But we are assuming that there will be a different inventory level from customer to customer, given the fact that there was the impact of the part supply issues that appeared differently depending on the application and also the recent surge in demand. But overall, we expect that, considering the overall demand forecast for going forward, that there will be continued build-to-inventory demand.
And in terms of supply stock, if we focus on our stock, as I mentioned in the previous presentation, we have been actively responding to the strong demand for last quarter. As a result, DRAM and NAND stock levels
you've also asked about the inventory at the memory suppliers well as as far as our inventory is concerned as we mentioned during the presentation our shipments in the previous quarter significantly increased than what we had expected and so as a result both our dram and nan inventory is at considerably low levels. Given the fact that solid demand is expected in the second half across applications, we're expecting that our inventory levels will continue to remain at low levels.
The next question will be presented by Peter Lee from Citigroup. Please go ahead with your question.
Hello, I'm from Citigroup. I'd like to ask a question about memory and mobile. First, I'd like to ask a question about the D-DAL 5, which is becoming a hot topic on the memory side. In the case of the D-DAL 5, the D-DAL 4 and the Rally ECC will come in as a team. If the D-DAL 5 is launched next year, it seems that the overall chip size may increase due to the embedded ECC. Regarding this, you can see in Samsung Electronics uh uh uh uh uh I have two questions.
First question is about DDR5, which is becoming quite a hot topic. There are expectations that the DDR5 would have to use an embedded ECC, and this would result in the entire chip size becoming larger. Given all of that, what do you think will be the impact of the increased penetration of DDR5 on the DRAM market in year 2022? Second question is about your mobile business, especially the smartphone lineup. I think there were media reports that the company will not be launching a new Galaxy Note model in the second half. What is the implication to your then overall flagship lineup and strategy, including the foldable. There's, I think, also a lot of talk that your new foldable that will be launched in the second half will be introduced at a lower price point. Does that imply that the foldable specs would also become lower than before, and how will that impact your profitability?
Yes, I will answer your question about DDR5. We are currently doing 14nm DDR5 sampling to match the new CPU that supports DDR5 and PCIe Gen5. DDR5 is a high-capacity product based on 16GB, so we expect DRAM's high-capacity conversion to become a real product. In order to meet the requests of cloud companies, we are developing a 24GB DDR5 product with the highest capacity.
To give you an update on our DDR5, we are currently in sampling of our 14 nano DDR5 in line with the schedule for the new CPU launch that supports DDR5 and PCIe Gen 5. The mainstream of the DDR5 is expected to be the 16 gigabit base high density product. And so we think that this DDR5 will be the product that significantly gives stimulates the trend of high density. Also, in addition to that, in order to meet the demands and requests by the cloud companies, we are also developing a maximum 24 gigabit DDR5 product.
Yes, but DDR5 is true that there is a cost increase factor, including die-sized overhead, compared to DDR4, which can be applied as a measure in terms of debt growth. Also, the supply of major chipsets that support DDR5 will also be an important factor in expanding the DDR5 market.
Now, that being said, looking towards the DEM market itself, as you know, the DDR5 does have some cost increase factors versus DDR4, including the die size overhead. Also, so therefore, this may act as a constraint in terms of BIT growth overall. Also, I think another variable that we need to look for in terms of DDR5 market growth is the supply situation of the major chipsets that would support DDR5.
Yes, I will answer first. We have continued to respond to market changes by providing a flagship portfolio that suits the needs of customers. In the second half of the year, we will focus on foldable phones To answer your question about our premium segment lineup, as you know, our flagship strategy has always been to prepare a lineup that meets the customer's needs and to respond to market change.
Our key top priority for the second half in terms of our flagship is to focus on mainstreaming the foldable form factor and to drive sales volume growth of the foldable by doing this. And so the new foldable model that we are preparing will be delivering even a higher level of product completeness and innovation. And on top of that, we are preparing an optimized and differentiated user experience that takes advantage of the foldable form factor.
And on top of that, we are preparing an optimized and differentiated user experience that takes advantage of the foldable form factor.
And so on top of this extremely competitive product, we are going to promote this with a full-scale flagship marketing, including far more visibility and exposure in offline displays to raise the awareness of the new foldable products that we'll be launching By increasing the overall sales volume of the foldable, we are planning to achieve economies of scale. And with optimized product design, we expect to achieve solid profitability for the foldable. Please stay tuned for the unpack event that is coming soon for the details of our new foldable models.
And on the other hand, we will maintain the sales momentum of the Galaxy S series. The Galaxy S series has satisfied the needs of various premium customers. Not only customers who want to experience the best innovative technology, but also customers who are looking for cost-effective products of high performance, and customers who are using the old model S series and A series, we will promote active upselling to maximize sales.
So in addition to the foldable, the second piece of our flagship strategy is to maintain the sales momentum behind the S series. As you know, the S series has always been satisfying the needs of various premium customers. So we will increase and maximize the sales of our S-Series throughout the second half of this year by appealing to not only customers that want the most innovative technology experience, but also those that are looking for a greater performance for price, and also by upselling to users of S-Series or A-Series that have a very strong loyalty towards the S-Series.
Thank you for your answer. I'll take the next question.
The next question will be presented by Claire Kim from Hana Financial Investment.
Please go ahead with your question.
My question is about your NAND technology. Can you share with us or give us updates of your NAND technology roadmap?
Yes, I will give you an answer related to NAND. Our NAND roadmap is defined as the 6th and 7th generations until 2022. And after that, the roadmap will be defined as the 10th generation. In particular, by the 5th generation, we already have a detailed roadmap for this element technology.
About our NAND roadmap, the focus of the NAND roadmap is 6th generation and 7th generation up to around year 22. And then even after that, we have a roadmap defined for 10 years to follow. And for the subsequent 5 generations, we have already prepared a very detailed technology roadmap regarding the key element technologies.
Especially, our 128th generation 6th generation VNAND, which is the only single-stack based in the industry, It is expected to expand in the second half of the year. As we have already announced, the 176th generation 7th generation V-NAND will be released in the second half of the year as a consumer-friendly SSD optimized for large-capacity and multitasking environments.
To give you some updates, the industry's only single-stack-based 128-layer sixth-generation VNAND has already grown to take up a significant part of our overall production volume during the first half. Also, our 112-gigabit share is expected to continue to grow. This is the technology that has significant cost competitiveness. and will benefit from the increased demand for server high-density SSD. Also, as we mentioned during the presentation, we are preparing to launch a consumer SSD that is based on the 176-layer, 7-generation VNAND, which is optimized for high-density and multitasking environments.
Let me tell you about the double-stack 176-layer RAMPUP. Based on the etching technology that we have already secured in the 128-stage single stack, we are running at about twice as fast as the previous generation. The 800-stage V-LAND product, which will have absolute cost competitiveness in the double stack, has already secured a moving house, so we are preparing for a lineup expansion.
To give you some updates on the yield ramp up for the double stack 176 layer, because we have already secured the etching technology by working on the 120 air single stack, we were confident that we will be able to ramp up much faster compared to the previous generations. And as we expected, currently we are achieving ramp up at around twice the speed that we did in previous generations. Also, the 200-layer plus 8-generation VNAM product, which would give us the absolute cost competitiveness in double stack. In that case, we have already secured a working chip and is preparing to expand the lineup.
Thank you. Next question, please.
The next question will be presented by Kim Sung-kyu from Daiwa Capital Market. Please go ahead with your question.
Yes, thank you for the question. First of all, I would like to congratulate you on your good performance. I have two questions. One is on the memory DRAM side, and the other is on the C side. First of all, the memory is related to EUB. Investors are wondering what kind of impact the EUB will have on supply by introducing it into DRAM production. You mentioned 14nm earlier. Other competition companies are also announcing EUB production plans. In this situation, compared to other competition companies, I would like to ask you to share your thoughts on the differentiated EUV production competitiveness of Samsung Electronics and the future technology roadmap in the possible range. Regarding CE, you mentioned it in the speech earlier. Depending on the price of raw materials and the increase in logistics costs, it seems that there will be a lot of pressure in terms of the cost of home appliances in the second half of the year. My first question is about the use of EUV on your DRAM operation.
I think many investors are wondering what impact the adoption of EUV in DRAM would have in terms of DRAM supply. During the presentation, you mentioned you've emphasized 14 nano. But also your competitors are announcing plans of adopting EUV technology. So given all of that, can you tell us what is the competitive differentiating factor that you have in EUV that sets you apart from your competitors? And also, if possible, can you share with us your roadmap for EUV on DRAM? Second question is about the CE, the consumer electronics business. You've mentioned during the presentation, but I think there are some concerns that especially the CE division will have to bear additional cost burden as raw material prices increase and logistic prices are also on an upward trend. In that context, can you share with us details of how you plan to maintain your profitability or reduce your costs?
Yes, I will give you an answer related to EEP. To answer your first question, yes, there are many memory companies have recently started to announce EUV-related plans.
It seems that finally EUV is becoming a mainstream trend in the industry. But as you will recall, we have been talking about EUV several times through earnings conference calls and media reports from 2018.
Rather than simply buying equipment and applying it to production, it is important to build an ecosystem such as masks and tests, accumulate and internalize relevant know-how, and maximize the synergy in terms of technology. We recognize the importance of EUV technology in memory, In the mid-2000s, we built a stable ecosystem through close cooperation with EUB-related suppliers around the world. Based on research on the application of the DRAM process, we have successfully accumulated technology knowledge and know-how related to EUB. As a result, we believe that we will be able to acquire raw material competitiveness by expanding EUB by 5 in 14nm DRAM.
Now, having already done UV, I think one thing that we have learned is that UV is much more than just simply purchasing the equipment and also applying this production, that what is much more critical is to maximize the synergy on the technology side and also to build the know-how and to internalize the know-how of the entire ecosystem, such as masks and inspections. And so, as you know, within the memory industry, we were early to realize the importance of EUV technology. We preemptively invested in EUV technology. And so we had a head start in, first of all, building a very stable ecosystem through close collaboration with the key EUV related suppliers around the world, starting from the mid 2000s. Also, we have already accumulated significant EUV-related technology knowledge as well as know-how based on various research through application of EUV in the DRAM process. And as a result of that, we were able to apply EUV in five layers in 14-nano DRAM, which naturally would give us a cost competitiveness.
Like this, the EUB specialized technology we have built is a powerful technical strength of Samsung's own. Our pioneering EUB memory process introduction is a long-term, absolute technology competitiveness beyond simply securing a technology in a process change. We will continue to study and secure preemptive technologies that can break through EUB's memory fairness.
And so you've asked about the strategic or the competitive differentiation that we have against other companies, and I think that this specialty that we have already built up using EUV technology is a key technology strength that is unique to Samsung. And so the preemptive adoption of EUV on our memory process was not just another step in our process and node migration. Actually, it was done in the context of giving us a long-term solution absolute technology competitiveness. And so in addition to, as we did with the preemptive adoption of EUV, if we find that there are leading technologies that will give us that breakthrough in a memory process migration, we will continue to make these preemptive investments.
Yes, I will answer this question. As mentioned in the speech, the price of raw materials Samsung will be Samsung doing yes, I'm damn you come on. I'm on. I'm on. I'm on. I'm on. We will continue to maintain competitiveness in existing offline stores and continue to enhance sales capacity on growth channels such as B2B and online to expand sales opportunities. In addition, we will continue to release new products with modular applications to increase the competitiveness of the original, and we will continue to increase the competitiveness of
Your second question was how the CE division plans to deal with the expected cost increase. As we mentioned during the presentation, we are also expecting there to be increase in raw material prices and logistics costs in the second half. But we are prepared to respond to this actively and to defend our profitability at a solid level on various fronts, including product distribution and operation. First, in terms of product, we will focus on further improving our product mix by increasing the sales of, for example, the Bespoke lineup that we have already launched globally in the first half. and also increase the sales of the high-end premium products such as the new lifestyle consumer electronics products that caters to the various needs of consumers. In terms of distribution, in addition, while maintaining the competitiveness of our existing offline channels, we will continue to also strengthen, for example, B2B and online, these growth channels to further gain sales opportunities Also, we will further build in our cost competitiveness by newly launching more modularized products. And at the same time, make sure that we are prepared to cope with any risks posed by COVID-19 by analyzing the competitiveness of our different manufacturing sites and also readjusting our overall volume to enhance our operational efficiency.
The next question will be presented by Lee Soon-ak from Hanwha Investment and Securities.
Please go ahead with your question. Recently, you have been emphasizing the device ecosystem between Galaxy products such as tablets and wearable PCs in the wireless business. I wonder how much of a locking effect consumers feel and buy in terms of efficiency. Also, I would appreciate it if you could tell us how much these products contribute to sales and profits this year. The second is a question related to QD display. I don't think there's much time left for the QD display to start mass production. I have two questions. The first question is about your IM division.
you have emphasized the Galaxy ecosystem products, for example, the tablets, the wearable and PCs. Can you share with us the amount of appeal this Galaxy ecosystem is having on the consumer's demand? Do you have a sense of how strong the lock-in effect is from the Galaxy ecosystem? And how much contribution are you expecting on your revenue as well as profits from these ecosystem products? A second question is about the QD display. It appears that the mass production of the QD display is imminent. If you say that it will go into mass production as scheduled, that will probably, we're assuming, be in the fourth quarter. At this point, can you share with us the preparation status as well as an update if there is on the mass production timing. Also, it seems that the initial mass production capacity for the QD display would be limited to around 30K. Do you think that there is additional room on that capacity?
First of all, we are expanding the sales of tablet wearable PC products by providing differentiated Galaxy ecosystem experience. The sales and profits of each product are not disclosed, In 2021, it is expected that the value of the Galaxy ecosystem product in the business sector will increase significantly in the next 20 years. In particular, the wearable market is continuing to grow high, and we plan to achieve higher growth than the market by presenting innovative products of new products in the second half of the second half.
Your first question about our Galaxy ecosystem products, by providing a differentiated Galaxy ecosystem experience, the sales of our tablets, wearables, and PCs are expanding. Even though we do not disclose the revenue or profits per product, we are expecting that in 2021 within our mobile or IM business division, the Galaxy ecosystem products' overall performance will increase considerably versus what they did in 2020. Also, the wearable market itself is continuing to grow at a high pace. But especially since we are planning to launch new models of our wearables, in the second half, we're expecting that our wearables will be growing, will be outgrowing the overall market.
And in the future, not only direct companies, but also to maximize customer retention within the Galaxy ecosystem, and to increase customer trust and flexibility, we will further promote premium brand entry.
And our strategic approach to the Galaxy ecosystem product is not to just gain the direct contributions to our business performance, but also to even further develop the connective experience across our devices so that it is a major driver to increasing our customer retention, also to raise the customer's trust in the Galaxy products, and also to make Galaxy itself a stronger premium brand with higher level of aspiration by customers.
Yes, I will answer the display question. You have two questions. You have a question about the QD display production schedule and investment. First, I will answer the production time. Uh, uh, uh, uh, uh, uh, uh, uh, QD display.
To answer your question about the QD display, actually, as you know, we launched or we announced our plans to invest in QD display in October of 2019. Since then, we have been developing the technology and acquiring the equipment. We completed the equipment, we brought in the equipment in the first quarter. We are currently, to give you a status update, going through the ramp up and test product after we complete the test product testing. As you mentioned, yes, we are planning to go into mass production in the fourth quarter. Currently, actually, we're preparing the QD display for both TVs as well as monitor products. This is per the request of our customers. We are currently still discussing about specific timing as well as sizes, and we'll not be able to share details today.
Yes, and in addition to that, as of now, according to customer requirements and market response, You've also asked about whether we have plans of additional capacity investments.
As you know, our basic approach to additional investment is to closely listen to the customer's demand and also sense the market movement. So according, our current capacity is, as you mentioned, 30K per month. And we, additional investments will depend on customer demands as well as market movement.
Like this, we expect to satisfy the needs of consumers of premium displays that can implement high-quality OTT or games through QD display. The QD display is actually a product that can satisfy the consumer needs
the needs of the consumers that are actually wanting a premium display that can deliver the high-quality OTT or game content. And so based on our past experience of how we led the mid-size and small-size OLED as the display of smartphones, we think that the QD display will provide that next engine of growth for the large-size display market that has actually been stagnant since the transition from CRT to LCD.
The next question will be presented by Lee Won-sik from Korea Investment and Securities. Please go ahead with your question.
Thank you for the opportunity to ask a question. I will ask a question on the LSI side and the display side. First of all, regarding the LSI side, there seems to be a lot of concern about the deterioration of competitiveness in the SOC area in the recent market. Please tell us about the strategy direction for improving competitiveness in the SOC area, especially the direction of improving competitiveness in the EPA area. I have two questions.
First question is about your SOC business. I think there is concern in the market that your SOC business is losing its competitiveness How does the company plan to recover the competitiveness of its SOC business, especially regarding the APs? Our second question is about the DP business. It's great to see how WayLady is now moving beyond smartphones and being adopted in new applications such as tablets, note PCs, and foldables. In that context, can you give us the update on the benefit of your OLED business, how your OLED business is expected to benefit from the newly created demand across these new applications and whether you have plans for additional investments?
First of all, we understand SOC very well. To answer your question about our SOC, we are aware of the concern in the market regarding the SOC business' competitiveness.
We are currently looking towards various approaches to enhance our competitiveness and expecting to see some visible results during the second half.
First of all, in terms of the product competition, through the introduction of a new GPU, there is an expected improvement in performance and power related to the GPU. In particular, we are trying to strengthen the competitiveness through the game-specialized features that were used in the console.
For example, in terms of the products, we have adopted a new GPU IP, which will give us improvements in terms of performance as well as GPU power. Also, by applying the functions that are specialized to consumer game devices onto mobile, we will be able to offer a competitive edge for game-related features.
Also, we are looking forward to the long-term demand of the main customers and the long-term demand of the main customers through the second half of this year. Also, we are promoting the engagement of new customers through this medium-sized SOC.
Our strategy specific to the mid- to low-end SOCs for the volume market is, first of all, to gain long-term contracts in order to drive our long-term revenue and also to gain on new customers for the volume market.
And lastly, since the mobile industry is in a situation of saturation, through the technology acquired in the existing mobile SOC business, new applications such as electronic devices
Also, given the fact that the mobile market is a saturated market, we are looking into leveraging the advantage that we have accumulated on the mobile SOC business to apply that to new applications. and also to develop a custom SoC business to further drive our business growth.
Yes, I will answer the display part. As you said, we have been experiencing the growth of premium smartphones since we first mass-produced OLED displays for the first time in 2009. Over the past 10 years, flexible form factor, touch, and the whole display technology to satisfy the needs of customers, and now it has become the mainstream technology for smartphone displays. Just like this, we have been trying to expand the success of smartphones to new projects such as tablets, laptops, PCs, and automotives, as well as TVs. Recently, we have been working on such projects.
To answer your question about the display side, as you mentioned, since we succeeded in the mass production of OLED displays for smartphones first in the world in 2009, we have been the leader driving the growth of premium smartphones. We have followed with introduction of innovative technologies such as flexible form factors on cell touch as well as whole display to meet the higher demand of the customers and consumers that has played a key role in making OLED the mainstream technology for smartphone displays. Leveraging this success experience in smartphones, we have been focusing on further expanding our display OLEDs to other applications, including tablets, laptop PCs, and automotive, and have started to see visible results.
Especially in the area of smart phones, uh high-end uh high-end uh high-end uh To introduce some of the key new applications that we have been focusing on, one would be the high-end laptop market.
As you know, the laptop market itself has benefited and is growing quite rapidly with the untapped or non-face-to-face demand. And the high-end laptop is a market where you have not only content creators that need productivity, but also consumers that actually want to enjoy videos and games. And we expect that this high-end laptop market will continue to enjoy growth in the future. In addition to that, the portable game device is another application that we have been focusing on. Also, we are quite interested in the EV. display market. I think with the launch of new electric vehicles, consumers are naturally expecting to see a higher-end, more sophisticated interior, and I think our curved or free-form factor flexible oil LED products will be a great offering for the EV interior displays, and we're currently discussing supplying the flexible oil LEDs to EV markets with customers.
Thank you. The company expects the 5H product line of this size to be a new driving force for the company's growth, and it plans to lead the market with a different technology innovation in the smartphone market as well. In particular, the company is the only company that has both a low-priced rigid line and a high-end flexible line at the same time, and uses its competitiveness in the full line-up Iran.
So we believe that these new applications will provide an additional driver, a new driver of growth for the midsize OLDD products. And as we did in the smartphone market, we will continue to lead the market by offering differentiated technology innovations. A key differentiating factor for us is that we are able to offer not only the low-end or low-price rigid OLEDs, but also the high-end flexible OLEDs. We have the full product lineup, which we will actively leverage to further develop business. Regarding additional investments, we will respond depending on the market situation and also our discussion with customers.
Due to the limited time, we'll take two more questions.
The next question will be presented by Do Hyunwoo from NH Investments and Securities. Please go ahead with your question.
Yes, hello. I have a question about the 14nm D-RAM. Please tell me how much you think the process is based on the 14nm D-RAM ramp-up time and the end of 2022. And of course, the long-term direction of EUV is correct, but I think there are various opinions about the effect of introducing a large-scale 14nm process. If you apply EUV, you can draw a small pitch, but the price of the equipment is a bit expensive, and the technical completion rate is a bit lower than the existing equipment, such as trickle, coat resist, and inspection equipment, so there seems to be a bit of a disadvantage in the price. Please give us your opinion on the price of the EUV that was applied in 14nm and the version that was not applied.
I have a question about the 14 nano process. First of all, can you give us when you expect to ramp up the 14 nano and also what would be the contribution within your overall production as of end of year 22? You have applied UV on your 14 nano quite actively, but I think there's conflicting views of whether this is a benefit or not even though, yes, by using EUV, you are able to implement smaller pitch sizes. On the other hand, that involves more expensive equipment, as well as other cost-increasing factors considering that other parts of the supply chain, such as the photo resist or the inspection machines, probably aren't as tested and proven as non-EUV processes. So I'm assuming that the company has compared the cost of using EUV on your 14 nano versus not. Can you share with us your cost comparison results?
To answer your question, yes, our 14nano
is a process that has implemented the smallest possible circuit size or pitch that's possible at 14 nano range. And it will be using EUV on five layers for our DDR5 product, which is currently in customer sampling with plans of going into mass production in the second half. Regarding the share that this 14 nano EUV will take up in our process, That will be actually tied to the formation of the DDR5 ecosystem.
Yes, and in terms of the cost, the cost cross has already occurred at 15nm, where we applied 2EV per layer. If you look at it that way, at 14nm, where we applied 5 layers of 2EV, you can expect that the cost decrease will be much greater.
You've asked about a cost comparison. Actually, in terms of cost, we already passed the cost point with 14 nano when we were using EUV only on one layer. So naturally, by using EUV on five layers with 14 nano, there will be a cost benefit.
Yes, thank you for your answer. Then I'll take the last question.
The last question will be presented by Kim Young-gun from Mirae Asset Securities. Please go ahead with your question.
Yes, hello. Thank you for your question. I would like to ask two questions regarding the Foundry and the network. First, regarding the Foundry, I would like to ask about the development of the GAA process and its competitiveness. Thank you.
First question is about your technology roadmap for the GAA process. Can you give us an update of where your GAA process development currently stands and what kind of competitiveness you are expecting? Also, can you introduce to us the new packaging solution that is receiving some attention as well as the competitiveness of that packaging solution? A second question is for the network business. Recently, you've announced that you want a contract with Vodafone to follow the contract from Verizon. Do you have any additional contract plans or orders with global operators in the second half and onward? Also, can you give us some details of the competitiveness of the VRAND solution that you recently announced?
First of all, I would like to answer about GAA. In the case of GAA process development, we plan to mass-produce 3-nano 1st generation process in 2022. In 2023, we are working on mass-producing 3-nano 2nd generation process with GAA as our goal.
To answer your first question about our GAA, our target for GAA is to go into mass production with first-generation process on three nano by year 22, and then to start mass production of second-generation process on three nano by year 23, and we are on track with this roadmap.
In the case of the 3nm GAA 1st generation process, the main customer base is currently designing the product. The 3nm 2nd generation GAA process is expected to expand Samsung's leadership in GAA process technology through our process development, manufacturing, and infrastructure capacity innovation and PAA improvement.
The 3nano first-generation process is currently in product design phase by a key customer. Also, looking forward to the 3nano second-generation GAA process, we think that this will further expand the leadership that Samsung has in GAA process technology by innovating our process development, manufacturing, and infrastructure capabilities, and also further enhancing our PPA technology.
The next question is about the advanced package solution. In order to strengthen competitiveness in the HPC field, we are developing our own 2.5D and 3D IC technologies, and we are working with various cooperatives and joint development companies
Regarding the cutting edge package technology, we have been internally developing differentiated technologies for packaging, including the 2.5D and 3D ICs, which will give us additional competitiveness in, for example, areas such as HPC. In addition to developing the technology internally, we are also focusing on building an open ecosystem by cooperating in various ways with global OSAT, as well as PCB companies, and also having joint development projects.
I'll give you an IM answer. Based on the previous 5G technology, we are currently adding a number of 5G trials with multinationals in Europe.
To answer your question about our network business, based on our 5G technology, we are currently in 5G trials with a large number of carriers within Europe, and we are actively promoting our 5G equipment to various operators in the European market in addition to Vodafone.
In terms of VRAN, our VRAN is based on a commercial server, and it has the performance of a conventional LAN, and it is the first company to secure a large-scale commercial 5G VRAN solution to provide network installation, management, efficiency, and expansion flexibility. And the VRAN solution is already supplied to US tier 1 businesses, and it has proven to be a leading company in the field of virtualization. We will continue to strengthen technical leadership,
You've also asked about our vRAND, which is a technology that is capable of delivering a performance that is similar to existing RAND technology, but by using commercial off-the-shelf servers. we were able to secure the large scale commercial level 5G VRAN solutions first in the industry, which offers advantages in terms of network deployment, management efficiency, as well as scalability and flexibility. We have already proven that we are the leader in these virtual base station area by supplying a re-RAN solution to a Tier 1 operator in the U.S. We will continue to further expand our technology leadership and preemptively respond to market changes, including the adoption of re-RAN by global operators to expand our customer base and also to build our business.
Thank you for your answer.
Most of the questions that we asked online seem to have been fully explained in the previous Q&A. However, I would like to answer one more question that was of great interest to the audience. The question is as follows. In a situation where the amount of M&A is constantly increasing and there is no meaningful M&A since the acquisition of Harman,
As we mentioned, we had actually received questions in advance, and I think most of the committed questions were sufficiently answered during the Q&A session that we just had over the conference call. But I would like to suggest that we take one more question. on a topic that received a high level of interest before ending today's call. That question is about our cash and M&A plans. The question was that even though our cash is continuing to accumulate, there has not been a significant size M&A to follow the Harmon acquisition, and the person wanted to know our plans to execute M&As to drive our future growth.
Yes, I will answer this question.
As of today, as the paradigm of the business changes rapidly and the competition becomes more and more fierce, I think that strategic M&A for companies that have a key capacity to find a breakthrough for future growth is absolutely necessary. The party has prepared a lot for M&A in various areas, and currently there is a lot of uncertainty inside and outside, Although it is difficult to determine the time of implementation, as we said in January, in the next three years, we are looking positively at the possibility of implementing a meaningful M&A. When promoting M&A, if it helps the company's continuous growth, we do not have any restrictions on the business area or scale. For example, we are looking at various areas that are judged as new growth powers, including AI, 5G, and power. I would like to answer that question.
In times when business paradigms change rapidly and competition becomes increasingly fierce, I believe strategic M&A is necessary to make a breakthrough by acquiring companies that possess the core capabilities. We have been undertaking preparations for M&A in various fields, and although it is difficult to specify a timing due to the domestic and global uncertainties, we remain positive on the prospects of carrying out an M&A of a meaningful size within three years, as we mentioned in January. We are open to considering businesses in various areas and of various sizes when we push ahead with an M&A, as long as the deal will contribute to the sustainable growth of our company. And so we are actively reviewing numerous fields that are deemed to be new growth engines, including AI, 5G, and automotive. However, it is difficult to specify a particular field over concerns of revealing our business plan.
Thank you for your valuable comments. Due to the limited time, we were unfortunately unable to answer all of the questions that were submitted in advance.
However, I would like to thank everyone who shared their opinions and providing us with valuable information that we will reference in our decision-making process And that completes our conference call for this quarter. We wish all of you and those close to you stay strong and in good health. Thank you.