Samsung Elect Ltd

Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2022, 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, that is star N1 on your phone during the Q&A. For cancellation, please press star 2, that is star N2 on your phone. Now we shall commence the presentation on the fiscal year 2022, second quarter earnings results by Samsung Electronics.

Welcome everyone. This is Ben Seo from Investor Relations. Thank you for joining our second quarter 2022 earnings call. For additional details regarding our quarterly results, please refer to our earnings presentation, which is available on our IR website at .samsung.com slash global slash IR. On the call today, I am joined by the following representatives from each business unit. EVP Han Jin Man representing memory, EVP Pi Jae Geol for System LSI, EVP Kang Moon Soo for Foundry, EVP Choi Geon Young for Samsung Display, which I will call display in the presentation, VP Kim Sung Gu for Mobile Experience, and VP Kim Young Mu for Visual Display. I want 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. 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 reviewing our quarterly results, I want to confirm the second quarter dividend. Today the board of directors approved a quarterly dividend of 361.1 per share for both common and preferred stock. Based on the annual dividend payout under the current dividend policy, the total quarterly payout is 2.45 trillion won and will be paid in mid-August. Now I will move on to the results for the second quarter. Despite a highly challenging business environment marked by inflationary and supply chain issues, we recorded the company's second highest quarterly revenue and a new all-time high for a second quarter at 77.2 trillion won. The DS division led such performance with a new quarterly revenue record for a second quarter in a row by actively adjusting the product mix to meet solid server demand and increasing the supply of system semiconductors. In addition, the DX division posted significant -on-year growth on solid sales of premium smartphones along with strong sales of seasonal digital appliances such as air conditioners. Growth profit increased by 0.2 trillion won sequentially to 30.9 trillion won mainly due to profit-focused memory sales and yield improvement in foundry. Growth margin also increased slightly to 40.1 percent. SG&A expenses increased 0.2 trillion won -to-quarter to 16.8 trillion won and the gross profit as our continued investments in R&D outpaced reductions in advertising and promotional spending. As a percentage of sales, they were also up slightly. Although profits in the DX division declined due to macro issues such as increased material and logistics costs and currency effects, we delivered a similar operating profit -on-quarter at 14.1 trillion won. Operating margin improved moderately thanks to -the-board improvements in the DX division. On a -on-year basis, operating profit increased by 12 percent or 1.5 trillion won also led by the DX division. I will now briefly review the results of each business unit. In memory, although bit gross came in below guidance due to weaker than expected mobile and PC demand, results improved both -on-quarter and -on-year as we maintained ASP by preemptively shifting our focus to meet solid server demand and by maintaining our disciplined sales strategy. The positive effects of a strong dollar also contributed. In system semiconductors, operating profits were up 61 percent -on-quarter, achieving a record high as system LSI expanded sales of DDIs and volume zone SOCs and foundry yields entered our targeted trajectory also for advanced nodes as we increased supply to global customers. In addition, we further improved our technology competitiveness through the world's first mass production of the GAA process and supply of 200 megapixel image sensors. For display, the mobile panel business delivered its highest ever second quarter revenue and operating profit thanks to continued solid demand by our major customers for their flagship models despite weak seasonality for smartphones. The large panel business surpassed its yield target for QD display, but its results still weakened due to initial ramp-up costs of QD display and a decline in LCD ASP. For the MX business, earnings decreased sequentially due to elevated operating costs mainly in material and logistics and adverse currency effects, but revenue rose -on-year as an improved component supply enabled increased sales of new premium models such as the Galaxy S22 and Tab S8 series. In addition, the new network business saw its revenue growth slightly compared to the previous quarter with consistent sales as it also continued to pursue new opportunities highlighted by the addition of DISH network as our newest U.S. customer. In VD, earnings decreased due to a decline in revenue caused by sluggish global TV demand and a rise in sales costs, but we reinforced our market leadership by focusing on the premium segment including QLED and super big TVs. Digital appliances saw its profits decline due to lingering cost burden issues, but it achieved record high quarterly revenue for a second consecutive quarter thanks to the increasing global expansion of bespoke products and a strong start of seasonal air conditioner sales. Regarding currency effects relative to the Korean won, the component business benefited from the strong dollar resulting in an approximately 1.3 trillion won company-wide gain in operating profit compared to the previous quarter. The DX division, however, experienced some adverse currency impacts. Next, I would like to share our business outlooks for the second half of the year. Under expectations that macro uncertainties are unlikely to dissipate, we will actively monitor demand trends to respond swiftly and flexibly. DS will focus on operating a high value added portfolio, expanding advanced nodes, and adopting new applications. DX will continually reinforce our leadership and lineups in premium segments. And we have started full-fledged expansion of multi-device experiences based on SmartThings, which has a global user base of 230 million. Now, for each business unit's outlook, in memory, we expect fundamental server demand to remain solid, but macro issues are likely to cause continued weakness in PC and mobile demand. While closely monitoring impacts on the demand side, such as releases of new mobile products by our major customers, we will continue to focus on our high value added and high density portfolios. For SystemLSI, we plan to further increase our Volume Zone SOC business and strengthen our leadership position in image sensors by expanding our customer base for 200 megapixel products. For Foundry, we aim to exceed market growth by adding new global clients, while we continue to reinforce our technological competitiveness, including through the development of the second generation GAA process and by evolving derivative processes of existing nodes. For Display, in the mobile panel business, we anticipate that earnings will grow, driven by new smartphone launches and increased entry into new application areas, such as automotive and gaming. In the large panel business, we expect earnings to improve with the shutdown of LCD production and increasing demand for QD display. The SystemX business will work to secure solid profitability on multiple fronts. We will target sales of foldable products to surpass those of the Galaxy Note series as we fully mainstream the segment by delivering a differentiated consumer experience enabled with global partnerships. We will also expand the Galaxy ecosystem through successful launches of wearable products and boost overall operational efficiency. For Network, we plan to maintain revenue growth momentum by actively expanding our overseas businesses and by meeting domestic needs for 5G installations in a timely manner. We will also continue to reinforce our technology leadership in 5G core chips and virtualized radio access networks. For VD, we aim to increase to capture demand in the premium market during strong seasonality by expanding sales of strategic products such as Neo QLED, SuperBig and Lifestyle lines. For digital appliances, we will focus on improving profitability by increasing sales of premium products, strengthening the B2B and online sales and working to further enhance cost efficiencies. Now turning to capital expenditures, CAPEX in the second quarter was $12.3 trillion won with $10.9 trillion won invested in the DS division and $0.8 trillion won in display. CAPEX in the first half of the year totaled $20.3 trillion won with $17.6 trillion won invested in DS and $1.5 trillion won in display. Similar to last quarter, memory investments concentrated on infrastructure at P3 and on capacity expansions and process migrations at FABS in Hwasong, Pyeongtaek and Xi'an to address future demand. Foundry investments focused on increasing production capacity of advanced processes of 5 nanometer and below. Next, I would like to share some of our key activities in sustainability management. To start, in June, we published our 2022 sustainability report which includes our key activities and achievements for the past year such as the reinforcement of the board's oversight function of sustainability management, expansion of sustainability management activities by businesses, and our joining of the UN Global Compact or UNGC. For more details, please refer to the sustainability report which is available via our website. Meanwhile, in recognition of the award, we were honored at the beginning of May with our ninth sustained excellence award for product brand owner, the highest level of recognition in the manufacturing sector in the U.S. Environmental Protection Agency's Energy Star Awards. And we also received the partner of the year award for energy management, the highest level of EPA recognition. In addition, 11 models of our new TV products for 2022, including our Neo QLED 8K, earned reducing CO2 certification as part of the carbon trust carbon footprint labeling. The DS Division achieved a waste recycling rate of .5% through its multi-pronged approach towards recycling. It received global recycling standard certification by developing eco-friendly clean room garments using waste plastic bottles. And it brought two more of its work sites to the platinum level for zero waste to landfill. Additionally, to reduce GHG emissions, we developed and then installed process gas treatment equipment at our domestic work sites. We expect to reduce greenhouse gas emissions by approximately 190,000 tons monthly through this in-house technology. Along with such activities, we are currently establishing a comprehensive mid to long term environmental strategy that includes a climate change response, and we expect to be able to share detailed plans in the near future. We will continue to systematically promote sustainability management and are committed to transparently communicating our ESG direction and achievements with our customers. I will now turn the conference call over to the representatives 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. For the memory market in the second quarter, server demand remains solid, but demand for consumer products such as mobile weakened due to a widening impact of macro issues. As a result, DRAM and NAND shipments were below big guidance. However, our performance improved both year on year and quarter on quarter as ASP stayed at a better than expected level thanks to our disciplined sales strategy to meet the market demand and also the benefits of a strong dollar. In DRAM, for server there were some disruptions in set bills due to supply issues for certain components, but continued expansion of the proportion of high core CPUs kept fundamental end demand on a solid trend and memory demand on an upswing. Inventories increased at major PCOM companies due to low sale out amid intensifying macro issues such as inflation and demand weakened accordingly. Mobile experienced weak demand trend as well as consumer sentiment worsened due to lockdowns in China and price instability caused by the prolonged Russian-Ukraine war. We achieved the highest sales of server products in the industry for any quarter by optimizing our portfolio and actively responding to solid demand centering on servers. However, we missed guidance for total big growth due to weak demand for consumer products such as PCs and mobile devices. Next, I will talk about the NAND market. The server SSD along with continuously rising demand for high density products thanks to investment by data center customers, demand extended to low density products as customers beat to minimize set bill disruptions caused by a shortage of active passive components. For client SSD, set shipments were flat due to weak purchase demand for PCs attributable to macro issues such as inflation, but SSD content per box and attach rate kept growing thanks to the rising proportion of high end products. For mobile, despite the continued trend toward high density, demand weakened as overall consumer sentiment deteriorated due to the persisting Russian-Ukraine war and lockdowns of major cities in China. We continued to expand the proportion of high density products of 512 gigabit and higher for server SSD and actively responded to the high density trend in client and client SSD and mobile, helping us maintain a decent ASP. However, overall big growth came in below guidance as mobile demand was much weaker than expected. Now, let's move on to the outlook for the second half. For server, even though server demand and macro issues show a relatively weak correlation, there is a possibility of customers temporal inventory adjustment amid some IC component supply problems, as well as a concern over widespread economic recession and geopolitical issues. However, centering on major data center companies, investment in core infrastructure and new growth areas such as AI and 5G are expected to keep expanding so fundamental demand should stay solid. On the other hand, consumer products like PC and mobile are more sensitive to macro factors than servers are and current forecast indicates that related demand is likely to weaken in the second half of the year. And for PC, it is possible that the risk may spread to enterprise segments that are expected to remain relatively solid. But we cannot rule out chances of positive effects on consumer demand during the year-end promotional season. For mobile, chances of a recovery in consumer sentiment toward the end of the year are likely to depend on various factors such as economic policies of major countries and the stabilization of commodity prices. In addition, high density adoption is expected to continue given launches of new mobile products by major customers. Amid the highly volatile market situation, we are planning to maintain our stance of operating an optimized portfolio that centers on high density, high value added solutions based on supply flexibility in accordance with market conditions and customer needs. For product specific strategies, as always, we will improve the quality of its business by staying disciplined against excessive expansion of sales and flexibly managing supply in line with demand. Then we will focus on creating demand mainly for high density products while considering characteristics of high price elasticity. And we will continue to strengthen our market leadership by actively responding to demand based on our excellent cost competitiveness. Finally, as an industry leader, we are sustaining our efforts to reinforce ESG management. For example, based on our accumulated product technology as a leading memory company, we are working to establish a recycling business model that will produce a virtual cycle and streamline resource use. Moreover, as our customer's business pattern shifts from ownership to usage-based, we will make great efforts to develop business models that reinforce our customer's agility and flexibility and also improve the future investment efficiency of our memory business. Thank you.

Good morning. This is .W.P. from System LSI Business. In second quarter, demand for products in major applications was sluggish due to unfavorable economic conditions such as geopolitical issues and inflation. However, System LSI second quarter earnings has improved quite a bit. In third quarter, demand for products in major applications has increased by one quarter on quarter owing to exchange rate movement and growing supply of major components such as volume zone SOC and TDI. We further solidified our leadership in mobile image sensor technology by supplying the world's first 200 megapixel sensor. Furthermore, we have also established a foothold to expand our automotive SOC business by securing U.S. customers in addition to our ones in Europe. Also in the second quarter, our TDI claimed the top market share position in revenue. In the second half of this year, despite high uncertainties such as weak demand for consumer electronics and manufacturers' inventory adjustments, we aim to exceed revenue and profitability growth year over year by expanding our 5G SOC lineup and increasing customer base to maximize the supply of our technology leading 200 megapixel image sensors. Thank you.

Good morning. This is Moon-Soo Kang from the Foundry Business. In the second quarter this year, we achieved our highest ever second quarter revenue thanks to solid demand for advanced processes especially from HPC applications, sustained demand in mature processes, and overall yield improvement. In addition, we also achieved our highest ever second quarter profit through price realization and cost reduction, taking one step closer to securing future self-investment capacity. We have strengthened our technological competitiveness through the world's first mass production of the 3-nano GAA process, accomplished in June. Further, we have expanded application areas through continuous evolution of both advanced and mature processes such as preparing advanced automotive process, developing processes for RF or radio frequency applications, and optimizing performance power and area of our technologies. In the second half of the year, we expect that HPC and 5G related demand will continue to be solid, but uncertainties related to geopolitical issues and inflation exist. We are aiming to exceed market growth this year through yield improvement of advanced processes alongside a proper pricing strategy while responding flexibly to demand predictions via close cooperation with our customers. Additionally, we will strive to improve the maturity of second gen GAA process, which will be our base for future growth, and to expand our customer base for large scale orders. Lastly, in October, we will host offline forums for the first time in three years. We aim to strengthen networking with our customers through our Samsung Foundry Forum in the U.S., Europe, Japan, and Korea, and our Samsung Advanced Foundry Ecosystem, in short, SAFE Forum in the U.S. Thank you.

Good morning. I'm Gwon Young Choi from the Business Planning Department at Samsung Display. In the second quarter, for the mobile display business, overall demand for the smartphone market declined due to deteriorating consumer sentiment attributable to inflation and rising inflation rate, interest rate, sorry. However, we achieved solid earnings growth thanks to strong sales for flagship smartphone models based on our proprietary technologies and product performance. Our profit increased year on year backed by positive effects of foreign exchange movement with continued increase of all-eddy adoption by laptops and portable gaming devices also contributing to the growth. For the large display business, losses persisted due to a decrease in LCD ASP and initial cost of QD display development. However, we expect an increase in sales and profit margin from the second half of 2022 driven by rapid improvement in QD display yield and a rising number of brands adopting QD display products. Next, let me share the market outlook and Samsung Display's core strategies for the second half of 2022. In the second half, for the smartphone market, we expect earnings to improve half on half as a number of major customers plan to release new products. However, we expect earnings to be more volatile than they were last year due to a number of difficult to predict external factors. We expect our all-eddy peners to continue to record sales growth given the high demand for their use in premium products which are relatively unaffected by economic fluctuations. For laptops, although we forecast that the market will contract due to an overall downturn in consumer markets, we expect our all-eddy display sales volume to keep growing driven by rising consumer preference for displays featuring high resolution and a fast response time. Meanwhile, for the large display market, our QD display will feature in TV and monitor the market, makers new products which are scheduled to roll out in earnest around the globe. Samsung Display will channel all of its efforts to promote the excellence of QD displays to consumers by launching joint promotion with our customers aiming to lead the premium market. Thank you.

Good morning and good afternoon. This is Sung-goo Kim from the MX Business. I would like to share our Q2 results for 2022 and the outlook for the MX Business for the second half of the year. In Q2 geopolitical issues and concerns over inflation on top of continued seasonal weak demand caused the smartphone market to decrease compared to the previous quarter. For MX, revenue and operating profit decreased QoQ due to the market situation, but revenue was up compared to Q2 last year. Even though total revenue of smartphones established decreased QoQ, smartphone sales of flexi models remained solid. The supply disruption in Q1 was mostly resolved in Q2 and that contributed to the sequential increase in the Galaxy S22 sales, which were driven by the Galaxy S22 Ultra, the top model in the series. Also, the flagship Galaxy Tab S series, which embraced growing demand for big screen premium tablets, continued strong sales. However, profitability decreased QoQ due to increased material costs caused by recent price increases for components and logistics, as well as headwinds from exchange rates. Let me now share the outlook for the second half of this year. Given the persistent geopolitical volatility and economic uncertainties, we expect market demand for smartphones in the second half to stay similar YOY or grow by a low single digit percentage. Despite the challenging market conditions, MX plans to expand sales with a focus on flagship products. In particular, through a successful launch of new foldable models, we will strive to solidify foldable products as a key category in the flagship market. To that end, we are committed to preparing thoroughly in our areas, including product completeness and supply. The new foldable models feature upgrades in design and durability, and in addition, close collaboration with global leading partners has helped us provide richer experiences tailored to the form factor. We will secure sufficient supply in advance to ensure we can meet the demand of every customer who wants to experience our products right after release. By doing so, we are striving to make our foldables the mainstream that our customers love even more than they did the Note series, and achieve continued high growth to drive flagship-centered revenue growth. Meanwhile, although the smart watch market in the second half of 2022 is forecasted to fall in the fall term, we will try to maintain high growth momentum with the release of new watch models. The new watch models will be unpacked alongside the new foldable models in the second half, and their more intuitive and convenient Galaxy-connected experience will help us expand sales of Galaxy ecosystem devices. Going beyond providing customers with convenient technology and devices, Samsung will add valuable experiences and enrich customers' everyday life through services such as Samsung Wallet, which was introduced in Q2. Moreover, in collaboration with the overall DX businesses, we are making broad efforts to provide richer multi-device experiences based on smart things, including through the introductions of various life scenarios customized to individual life patterns. Finally, given expectations that the market will remain uncertain for some time, we will endeavor to maintain profitability in the double digits in the second half by improving our product mix centering on flagship products through fully mainstream foldables, and by continually enhancing operational efficiency to respond to challenges such as adverse currency effects. Thank you.

Good morning. I'm Youngmoo Kim from sales and marketing team of Visual Display. First, I'd like to review the market conditions and our performances in the second quarter of 2022. Market demand for TV contracted both quarter on quarter and year on year. The former caused by entering weak seasonality and the latter due to the base effect of the last year's pent-up demand, as well as decreasing consumer confidence resulting from high interest rates, inflation, and other factors. For Samsung, our performance declined due to a decrease in revenue amid declining market demand and cost increases related to the intense market competition. But we improved the quality of our sales mix and are maintaining our leadership by focusing on expanding series of premium products such as new QLED and lifestyle. Next, I'd like to talk about our outlook for the second half of 2022. For TV market, although there are opportunities to expand sales such as peak seasonality and global sporting events, several macroeconomic risks are likely to continue to cast uncertainties on overall TV demand. Samsung will closely observe the rapidly changing market and we will capture peak season demand and secure profitability by focusing on strategic products such as new QLED lifestyle and through strategic partnerships with major channel partners. At the same time, we will proactively target signage markets where B2B demand has been more active recently while also further solidifying our status as a market leader with innovative products such as microLED and Odyssey Arc. Thank you.

Thank you. 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. However, once again, we will not be providing annual guidance considering the persistently high macro and geopolitical uncertainties. First, for DRAM, in the second quarter, our bit growth increased by a mid single digit percentage and ASP was flat quarter on quarter. For the third quarter, we expect market bit growth and our bit growth to stay flat compared to the second quarter. For NAND, our bit growth compared to the first quarter decreased by a percentage in the high single digits while ASP increased by a low single digit percentage. In the third quarter, we expect market bit growth and our bit growth to both rise by around 10% quarter on quarter. For display in the second quarter, the market the mobile portion of revenue was a percentage in the high 90s and sales volume declined sequentially by a percentage in the high single digits. In mobile, in the second quarter, shipments were approximately 62 million units for smartphones and 7 million units for tablets. Smartphone ASP was $281. For the third quarter, we expect smartphone shipments and ASP to both rise quarter on quarter and tablet shipments to stay similar. For TVs, sales volume in the second quarter declined sequentially by a percentage in the mid-20s. For the third quarter, we expect sales volume to increase by a high single digit percentage. I will now move on to the Q&A session. First, we will start taking questions from the conference call.

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

I have two questions. The first question is about the inventory. It seems that the company's inventory has increased by about 9% QoQ. With that in mind, can you give us some details about the reasons for the inventory increase, the company's position regarding the higher inventory and also your expectations going forward about your inventory levels? Second question is towards the MX business. The company has been emphasizing connectivity, for example, that connects the mobile device with other devices such as tablets, wearables or PCs. The company I have been told is expecting this to be a source of additional synergy and has been focusing on actively developing new products. With that in mind, can you give us some more details about what kind of solutions the company is developing, its strategy and some updates on new products? To answer your first question about inventory, as you will recall, there was the sort of serious global supply chain issue last year and watching that, the company has since been continuously looking for ways of first of all minimizing the impact on our business and also allowing us to supply products without disruption to our customers. And strategically, since end of last year, we have been securing inventory around the key components through close cooperation with the key suppliers.

And this year, the Russian-Ukraine war and some of China's blockade measures have been implemented.

The supply chain situation actually worsened as we passed through this year with the Russian-Ukraine war and also some lockdowns in parts of China. And so watching that, we have been increasing our inventory levels this year. And this was actually one of the key factors of why we were able to continue stable supply of products throughout the

first half.

Regarding our outlook on inventory, we do expect that our inventory would be adjusted to fair balance levels during the second half, especially around the DX business. But that said, given the fact that these macro uncertainties are continuing to exist, we will at the same time maintain a flexible approach while closely monitoring the situation. We will also be implementing a fair or balanced inventory policy at the DX business in connection with market situations.

Thank you. To

answer your second question about the connectivity, we see that the competitive paradigm in the market is shifting from the smartphone, the mobile device stand alone to an ecosystem experience that is centered around the smartphone. And that is why we have been continuing to strengthen the connectivity experience between ecosystem devices such as tablets, laptops, and wearables. This effort to strengthen the connectivity experience is not just within the MX business, but also it is at a corporate level, including the VD and our domestic or digital appliances business. For example, now customers are able to control and manage various home appliances such as TVs using the smart things from their smartphone. They are, for example, able to continue to watch a video from their smartphone seamlessly onto their TV, opening the Buds case with trigger window on either a TV, a smart monitor, or a free style projector so that the user can connect the Buds to these devices with just one click. These are some of the examples of how we are providing a very convenient user experience that covers multiple devices in the home. Actually, our concept of things connectivity goes beyond connectivity between our own devices We have been carrying out a do the smart thing, the smart things daily lives campaign where we show our customers the various scenarios that they can actually experience themselves by connecting not only our products and services, but also third party devices such as lights or power curtains in the home to provide a customized experience that is fit for everyone. And so based on the smart things, our aim is to go beyond just providing convenient technologies or devices, but to become recognized as a premium brand with stronger position and value that actually makes life richer through a multi-device experience.

Thank you. I have two

questions. The first question is about the memory side. You did miss your second quarter bit growth guidance by a significant margin. Can you give us some background to why it came in so low? A second question is to the VD side. I think the market is concerned quite a lot about TV demand going forward. Can you share your second half outlook for TV demand, your plans about the premium segment line up, and also how you plan to defend your profitability? To answer your first question about the memory, actually in second quarter our performance, our business results in terms of both revenue and profits grew on a quarter on quarter and year on year basis thanks to healthy pricing and also positive impact from FX. But that's the second quarter memory market conditions. Looking towards the second half, we think that the second half there will be a mix of uncertainty. We think that the best approach would be to continue to carefully watch the market and respond flexibly. In the case of NAND, I think the outlook is that demand for consumer products would be somewhat weak, consumer products such as PCs or mobile. But then when we sense the market, at least at the end user level, there is definitely a very clear demand for more storage capacity at the device level. So we are currently discussing ways of tapping that together with our customers. To answer your question about the VD, you've asked first of all about our outlook for the TV market. Currently looking towards the second half, it would be seasonality positive. There will be positive seasonality and also there are some sports events which would be an upside factor. But then there are various other macro variables that are difficult to predict. And so overall the visibility about demand in the second half is limited. Given this uncertainty of market demand, our focus is to gain a stronger edge in the premium segment and also to secure profitability by continuing to expand our high value high-end product and also optimizing our internal operation.

And

so our strategy towards the premium segment is number one to continue focus on premium sales around the NeoQLED products but also same time lead the ultra super large size 90 inch plus market by increasing the sales of our 98 inch offering and also to introduce new sizes using micro LEDs which currently is offered in 110 inch will be adding new sizes such as 89 inches in order to open up new territory within the premium market. My first question is on the system LSI, the Exynos business. There are I think concerns about the competitiveness of that business in the market. We've been hearing some rumors that the company may fold up that business. Can you confirm whether those rumors are true and if not how does the company plan to increase the competitiveness of its Exynos business? Second question is towards the foundry. The foundry has been making significant investments over the past several years and that has resulted in growth of its top line above market growth rates. But I guess the profitability wise it's not at a satisfactory level from the market perspective and so can you give us how what you expect in terms of the foundry business profitability in the future?

First I will answer the system LSI. First of all, the rumor that the Exynos business will be closed is not true. Currently the company is re-establishing the SOC business and strengthening the business. The company is focusing on the 4th generation mobile Exynos competitiveness and is working with each IP company to strengthen the cooperation and to develop the main competitiveness through the use of the market share of the main customers.

To answer your question about the Exynos business, the rumor that we may fold the business is completely not true. We are currently in the process of reviewing, revising our SOC business model with a focus on gaining mid to long term competitiveness by efficiently delegating or dedicating our resources appropriately. Within this new resource plan, the focus is on strengthening the competitiveness of the next generation mobile Exynos and currently we are focusing on expanding the market share of our key customers by increasing the level of cooperation with the leading IP holders for each area and also starting the development cycle early on so that we have the core competitiveness.

Also,

to further strengthen the competitiveness of the SOC, we are looking into improving the business model which is currently more relying on the dependent on the mobile side to expand that to other applications such as wearables, laptops and Wi-Fi products. Also, at the same time, we are focusing on expanding the ecosystem partnership around the SOC by building stronger partnerships and new cooperation models with various companies within that value chain such as OEMs, ODMs, the module companies and software vendors. To answer your question about the FOUNDRY profitability, at least we think that the demand will remain solid especially around the advanced nodes. So our plan is to continue our investments by analyzing multiple factors including mid to long-term market, global customers demand, economic outlook profitability so that we are able to continue stable supply. In terms of timeline, our plan is to start operation of our Pyeongtaek new line in 2023 and in 2024. We also think that we will be able to continue to improve our profitability by introducing healthier prices and also improving our cost side so that we are able to fund our investments from our operation. So if we are able to continue our growth momentum that we see, we expect that we will be able to reach a level of profitability where we will be able to source the funding of investment from our own operation. Next question is about the memory, the server demand visibility. I think there are some concerns in the market that in the second half even server demand may slow down. Can you give us your views of the server demand in the second half? Second question is about the display. While the overall display market globally is going through a difficult period, SDC relative was able to deliver positive results. Can you give us some more detail of how that was possible? You've asked about server demand. I think one thing we've noticed about server demand is that it's relatively less sensitive to geopolitical issues or macro issues. That's because servers have sort of a nature as an infrastructure that enables a lot of the things we do in daily lives and at work that we take for granted. So there's that nature as an infrastructure essential. Then there are some new growth areas such as AI where investments into core infrastructure is continuing to expand. Another thing we've been noticing in the market is that many enterprises are now adopting what's referred to as a hybrid server that combines their on-prem servers together with the data center public cloud servers in parallel. That is also adding to a solid support for fundamental server demand. Despite that resilience in server demand, I think it's difficult for us to say that everything would be optimistic because as you mentioned, there are some reasons to be concerned such as there are some still icy parts that are going through a supply disruption. And also if the global economic recession occurs as some are concerned, I think at that point even the server customers will have to go through an inventory adjustment which may impact the memory demand at our end. So our assessment of the server market is that uncertainty is at high levels and that is why actually we are updating our forecast and outlook at any time in order to improve the fidelity of our forecast. An example of how that works is what we did in the second quarter where we were able to optimize our product portfolio earlier on so that we were able to fully capture the demand on the server side and record the highest quarterly server sales in the industry. Looking towards the second half, there are some upside factors. For example, the mass production of DDR5 at full scale market is expected to therefore expand and therefore server markets are expected to record meaningful increase in share. And so our approach to that is to continue to maintain an optimized product portfolio around the high end and high density solution products but maintain a supply that's flexible and fit to the demand.

Thank you.

To answer your question about the display and the relatively better performance compared to competitors, well first of all if you just look back on the market, as you mentioned overall the economic environment is challenging. The display market this year has been going through a decreasing demand and also a decline in ASP so it's a challenging market. We are concerned about these market volatilities as well as the possibility of an economic recession and so we are carefully monitoring market demand and also the supply chain. Despite these challenging environments, as you mentioned there seems to be a divergence of company results and the reason why we are pulling away from the other competitors and staying healthy I think is mainly explained by the fact that we were able to preemptively start to readjust our business strategy.

Thank you.

As you recall based on our market analysis and analysis of consumer needs we had decided to fold our LCD business several years ago and having going through that process we completely closed down the LCD business as of the first half of this year and we were able to actually focus our resources on building a full line up of OILD offerings that covers not only the mobile but also IT and also the QD display and that has actually given us the fundamentals to weather through various disruptions that we've been going through the past several years including the pandemic and the rapid decline in market demand and despite that we maintain a stable performance. Going forward we will continue to focus on building our competitiveness on these different applications such as mobile IT, auto and QD displays and focus on providing focus on developing our technologies and providing greater customer satisfaction.

The next question will be presented by Nicolas Godoie from UBS. Please go ahead with your question.

Good morning and thanks for taking my question. The first one is on memory. In light of demand and certainty in the market we believe that memory makers are reconsidering and reducing the initial capital spending budget into 2023. Does this actually apply to Samsung as well and could this imply a reduction in overall CAPEX and with the public spending in the near term into next year? And secondly regarding the phone business for the 3nm gate around second generation 3G AP, what is the development stages now and mass production time and how are you executing in winning large scale customers for 3G AP? Thank you.

I think the first question is on memory. In light of demand and certainty in the market we believe that memory makers are reconsidering and reducing the initial capital spending budget into 2023. Does this actually apply to Samsung as well and could this imply a reduction in overall CAPEX and with the public spending in the near term into next year? And secondly regarding the phone business for the 3nm gate around second generation 3G AP, what is the

development stages now and mass production time and mass production time and with the

First, to start your, to answer your question about memory, I guess a good place to start is about our memory market outlook. As we've been talking, we do agree that there is a possibility that memory markets may be somewhat weak in the second half, but we are, as we mentioned, updating our demand forecast weekly and even daily basis. So I think at this point, the best approach we can take is to not be too optimistic or too pessimistic about the memory market, but to just continue to check all of the factors we can both internally and externally and respond flexibly to what we see. Now, despite all of that uncertainty and changing forecast, our overall investment principles still stand as we have mentioned several times. Our basic principle and approach towards investments is to continue to make the appropriate level of inventory and advanced node investments to capture mid to long-term demand, but at the same time, manage our facility equipment investments more flexibly, closer tied to the actual industry situation. So that principle still stands valid. Now that said, with the huge amount of uncertainty in the market driven by a wide variety of macro issues, we will place priority on using inventory to continue our supply and also regarding our short-term equipment related investments. Wouldn't you agree that at this point, the best to just flexibly respond by revisiting the situation? You've asked about the update of our 3GAP, the 3.9 second generation GAA development process. As you know, compared to first generation, the second generation has further improved the size, performance and power efficiency. Also, we have adopted an improved development process, so that we're able to do checks from stage to stage during the development phase. And also, we have designed the development process so that resources are intensively invested in the first part of the development process, so that we're able to ramp up the And so, our overall development is on track with mass production aiming for 2024. Regarding the orders, we have already secured several mobile application customers and we're currently under discussion, negotiation with a large number of mobile customers and we expect that the size will continue to grow.

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

Thank you for the question. I will ask questions one by one on the memory side and one on the display side. First of all, I would like to ask about the supply outlook from this year to next year. As you said, the uncertainty of the demand for the second half of the year is now quite high. On the other hand, I think that the lead-time issue of semiconductor equipment supply is also continuing. Accordingly, the demand for D-RAM supply is also increasing and the supply is slowing down. I expect that to happen in the future. I would like to ask how much you expect to increase supply this year and next year. The second question is about the future growth of the display. As you said, the future growth of the Samsung display is a key issue. Please explain in detail.

The first question is about memory supply outlook for second half and next year. I do agree that currently, at least the second half demand, there is a lot of uncertainty around that. Another factor regarding supply side is that there are some disruptions in the equipment supply, the lead time. That, according to us, is slowing down the process of migration of especially the D-RAM nodes. Given all of those factors, what is your outlook on D-RAM supply, memory supply for this year and next year? Second question is about the display side. As you mentioned, Samsung display has taken the preemptive initiative to restructure its businesses and preparing for future. With that in mind, can you give us more details of which specific business areas Samsung display is preparing for? To answer your question about D-RAM supply, yes, given the high level of uncertainty that we see going forward, our basic approach is to continue to maintain an optimized product mix so that we are able to supply products that the customers actually need. Looking towards next year, as you mentioned, there are possibilities of equipment lead times being delayed due to continued issues in the component parts supply. If there are delays in the equipment deliveries, this would cause delays in migration to the advanced nodes. Also considering the difficulty at the advanced nodes in terms of production, this is causing already some restrictions in bit growth throughout the industry. With that structural constraint in production, we expect there may be actually a quite low level of bit growth in the D-RAM at an industry level. What's happening at the same time is that the new product markets are opening up, especially around the new interfaces such as DDR5 and LPDDR5X. With the variety of products being introduced, it's going to be critical for the memory companies to start with the right product mix in place. That is why we have been focusing on sensing the market demand and closely cooperating with the customers.

With

that outlook, our basic policy towards supply next year would be to maintain a flexible inventory policy based on close collaboration with our customers and also to carefully monitor the market with a very wide product lineup prepared so that we are able to emphasize profitability in terms of our supply.

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