Samsung Elect Ltd

Good morning and good evening. Thank you all for joining this conference call, and now we will begin the conference on the fiscal year 2023 second quarter earnings results by Samsung Electronics. This conference will start with a presentation, followed by a deep-standard Q&A session. If you have a question, please press star 1, star N1 during the Q&A. For cancellation, please press star 2 on your phone. Now we shall commence the presentation on the fiscal year 2023 second quarter earnings results by Samsung Electronics.

Welcome, everyone. This is Ben Seo, Head of Investor Relations. Thank you for joining Samsung Electronics' second quarter 2023 earnings call. Fairly different from those expressed in today's discussion. I will start with our results for the second quarter of 2023. Although we delivered a slight recovery in revenue for the DS division in the second quarter, consolidated revenue declined 5.9% sequentially to $60 trillion, mainly due to a decreased smartphone shipment number. Consolidated gross profit increased to $18.4 trillion, up $0.6 trillion quarter-on-quarter, increased sequentially, rising 2.8 percentage points to 30.6%. STNA expenses increased by $0.6 trillion quarter-on-quarter to $17.7 trillion for the future, even amid a very challenging business environment. Operating profit increased slightly quarter-on-quarter to $0.7 trillion despite a decline in smartphone shipments, mainly as DS narrowed it. We improved our results quarter-on-quarter as our preparations for robust demand for AI-centric products such as HBM and DDR5, led to higher-than-guided DRAM shipments. However, our system semiconductor business is to sluggish demand from main applications. For display, the mobile panel business reported similar profits sequentially, even in the seasonally weak second quarter, thanks to solid sales centering on expanding QD OLEDs' presence in the premium market. Despite continuing overall weak demand, the DX division achieved strong profitability, mainly due to increased sales of premium TVs and digital appliances business improved its profitability amid strong seasonality, mainly attributable to increased sales of premium products and lower costs, including shipping. Harman reported growth in both revenue and profits bolstered by consumer audio demand which centered on portable and TWS products, and via cost management throughout the businesses. Harman also continued to solidify its foundation for strong growth by winning the largest automotive order ever in its history. In terms of currency, the Korean won showed weakness against the U.S. dollar, the euro, and major emerging currencies in the second quarter. This resulted in an effective gain in operating profit compared to the previous quarter in both the component and the finished product businesses. Next, I would like to share our business outlooks for the second half of the year. We expect global IT demand, especially in our component businesses. However, challenges associated with a demand recovery are also likely to persist due to macro risks and other factors. FOR THE DS DIVISION, AMID EXPLEATENESS OF THE GATE ALL-AROUND PROCESS IN FOUNDRY. HOWEVER, WE DO NEED TO MONITOR THE POSSIBILITY OF CONTINUED CUSTOMER INVENTORY ADJUSTMENT PRODUCTS FEATURING ENERGY SAVINGS MODE UNDER SMART THINGS. WE EXPECT HARMON TO POST IMPROVED PROFITABILITY ON THE BACK OF EXPANDING SALES OF CONSUMER AUDIO PRODUCTS DURING STRONG SEASONALITY FOR MATERIALS AND SHIPPING. Moving on to capital expenditures, capex in the second quarter was 14.5 trillion won with 13.5 trillion won invested in the DS division and 2 trillion won invested in the DS division and 0.9 trillion won in display. Similar to the previous quarter, memory capex concentrated on facilities in Pyeongtaek, which included completing P term supply. and also on equipment to prepare for advanced node demand. In addition, we continued our R&D and back-end investments to further bolster future competitiveness. Boundary investments continue nodes, while display investments remain focused on infrastructure and module production enhancements. Next, I would like to address the second quarter dividend. Today, the Board of Directors approved a quarterly dividend of $361.1 per share for both common and preferred stocks. Based on the annual dividend payout under the current dividend policy, the total quarterly payout is $2.45 from our sustainability report 2023, which was released in June. Regarding the environment, the DX Division completed its transition to 100% renewable energy at all DX in Brazil. We also increased our use of plastic with recycled resins by three times to reinforce resource circularity. In the DS Division, we continually increased the number of gases. Through these efforts, we lowered our greenhouse gas emissions by 10.16 billion tons and on a corporate level reached a renewable energy transition rate of 31%, an assessment of human rights management at global companies as measured by the World Benchmarking Alliance, a global alliance for sustainability. For more details, please refer to the Sustainability Report 2023. I will now turn the conference call over to the representatives from each business unit to present second quarter performances and outlooks for their respective business segments in more detail.

We will start with EVP Jaejun Kim of the... The memory demand in the second quarter showed somewhat different aspect for each application. For servers, due to strong demand for generative AI, investment from data center area was concentrated on AI servers in limited . As a result, our demand for general servers and storage was relatively limited, and our supply growth for servers exceeded that of the industry. Thanks to our overall sales expansion and active response to rising demand for DDR5 and HVM for generative AI for cutting-edge nodes, we actively responded to the demand. especially for flagship smartphones with our competitiveness in UFS 4.0. In addition, considering increasing production costs in the industry, while inventory adjustments by customers are likely to wind down. Especially in mobile and PC applications, with the normalization of major customer set inventory levels, Set build demand is expected to improve due to the launch of a new smartphone and PC promotion in the second half of the year. In addition to this, for memory, we expect to see a continuation of the trend toward high density based on price elasticity. In server application, although customer inventory adjustment began relatively late compared to mobile and PC, inventories are likely to become increasingly depleted in the second half of the year. Therefore, we expect server demand to recover gradually, and byproduct demand for DDR4 product as well as DDR5 is also expected to gradually improve. compared to the first half of the year.