Samsung Elect Ltd

Hello, everyone, and welcome to Samsung Electronics' 2024 Third Quarter Financial Research Conference Call. I'll be your coordinator. All participants will be in a listen-only mode until we open the question-and-answer session following the presentation. As a reminder, this call is being recorded. I would now like to turn the conference over to the Investor Relations Team. Please go ahead.

Good morning to those here in Korea, in Asia, and good evening to those in the Americas and Europe. I am Daniel Oh, Head of Investor Relations. Welcome to Samsung Electronics Earnings Call for the third quarter of 2024. Before getting into details of our performance, I want to inform you that presentation deck and other supplementary information can be found on Samsung Electronics Investor Relations website at www.samsung.com. backslash global, backslash IR. And a webcast of today's call will also be available on the website. Today's discussion will include four looking statements based on current environment. These statements are subject to certain risks and uncertainties, and actual outcomes may differ materially from the views expressed in today's call. Please note that information we are giving you on this call is as of today's date. I will start with an overview of our third quarter performance and outlook for the fourth quarter and 2025. We will then discuss CapEx, quarterly dividends, sustainability management, and other current topics. Afterward, we will turn the call over to executive team members who will comment on their respective business areas before starting the Q&A session. For today's call, I'm joined by following executives EVP Jae-Joon Kim representing memory. VP Tommy Kwon for system LSI. VP Tae-Jung Song for Foundry. EVP Charles Hur for Samsung Display Corp. EVP Jong-Min Lee from the CXMDE Center. VP Daniel Araujo for the mobile experience business. And finally, VP K.L. Rowe for visual display. We also have other executives attending today's call for the Q&A session. Let's start with the consolidated financial performance. During this call, we will refer to device solutions division to DS and device experience to DX. In the third quarter, company-wide revenue increased by 7% sequentially to $79.1 trillion. The MX business recorded 13% growth led by the launching effects of new smartphone models, DS revenue was up 3% thanks to increased sales of high-end memory products. And display booked a 5% increase driven by major customers launching of new products. Gross profit increased slightly quarter on quarter to $30 trillion, mainly due to the MX business's improved sales performance centered on flagship products. However, gross margin came in at 37.9%, down 2% to percentage points sequentially due to the effects of a significant decline in the value of inventory valuation reversals and the impacts of depleting aging inventories. SG&A expenses increased sequentially by 1.5 trillion won to 20.8 trillion won, with R&D expenses rising to a new high once again, as we continue to invest in advancing our technological competitiveness. As G&A expenses as a percentage of sales moved up to 26.3%. Operating profit declined by 1.3 trillion won quarter on quarter to 9.2 trillion won, mainly due to one off cost, including the provisioning for incentives in the DS division. In perspective, the one-time cost in the DS division were more significant than the gap between companies operating profit and consensus estimates. Operating margin decreased by 2.5 percentage points to 11.6% compared to the previous quarter. In terms of currency effects, the Korean won showed strength against the U.S. dollar and major emerging currencies, adversely impacting our operating profit by approximately $0.5 trillion. The impact mainly felt in our component businesses, where a significant portion of our transactions are in U.S. dollars. Now, I will share our business outlook. Please note that our business representatives will provide more detailed information in their presentations during this call. In the fourth quarter, we expect the semiconductor business to deliver improved results, although relatively lackluster performances in finished goods may constrain overall growth. Within this context, we are prioritizing sales of high-value-added products and reinforcing the technological leadership of our component businesses. We are also continuing to promote sales growth in premium segments and advancing our AI strategy for finished products. In the DS division, growth in AI and the data it creates should keep memory demand robust while we expect to encounter softness in mobile and PC. Considering these dynamics, we will concentrate on driving sales growth of HBM and high density products and fulfilling the demand for server SSD. In Foundry, We are committed to increasing our order volume by enhancing and maximizing the competitiveness of our advanced technologies, particularly our GAA2 nano process. For display, we expect demand for major customers' new smartphone models to continue and IT and auto sales to grow. However, due to rising competition, we have a conservative outlook toward performance improvements. In the DX division, while our commitment to robust growth in premium segments by delivering exceptional products is unchanged, we expect sales to decline slightly compared to the previous quarter. Now, looking ahead to 2025, although macroeconomic uncertainties are unlikely to ease, we see potential for market demand to trend positively in the coming year. We remain laser focused on enhancing our competitiveness in advanced technologies and consolidating leadership in premium segments and products featuring AI. Aiming to keep delivering new experiences to our customers and driving a long-term value, we'll continue to improve connectivity across products, field expansion of next generation businesses, and identify powerful new growth engines. Getting into more specific for 2025, in the DS division, shifting to a profitability-focused portfolio is essential to our strategy. We'll achieve this goal by addressing the demand for differentiated products based on advanced technologies and strong interest in high-value-added products such as HBM and server SSD. Furthermore, we leveraged the mass production of the two nano GIA process to pursue opportunities with the top tier clients. For display, we'll maintain our leadership in high-end products and discover new opportunities to broaden our portfolio. In the DX division, we'll continue to deliver exceptional customer experiences through innovations across our premium product lines, enhanced AI engagement, and product connectivity. Company-wide will ensure prompt and flexible responses to changing conditions by closely tracking the global economic situations and growth trends of real demand. Now, moving on to capital expenditures. CapEx in the third quarter increased by 0.3 trillion won sequentially to 12.4 trillion won. of which 10.7 trillion won was invested in the DS division and 1 trillion won was invested in display. Year-to-day, CapEx as of third quarter end declined 0.9 trillion won year-to-year to 35.8 trillion won, with 30.3 trillion won invested in DS and 3.9 trillion won invested in display. We expect annual capex to increase by approximately $3.6 trillion to $56.7 trillion, with DS investments down slightly to $47.9 trillion, while display investments increase to $5.6 trillion. As a reminder, the full year numbers are projections, and the actual figures may differ depending on future market conditions the timing of equipment deliveries, and other factors. For memory, while maintaining a flexible approach toward equipment investments, we are prioritizing investments in advanced technology to meet demand for high-value-added products such as HBM and DDR5. This, combined with investments in the backend process and for R&D, should result in similar annual capex to last year. For Foundry, investments are centered on tech migration on existing lines, considering market conditions and investment efficiency. Overall, we expect Foundry's annual CapEx to decline. In display, we expect annual CapEx to be higher than last year's total due to our proactive investment strategies. Specifically, we preemptively invested in new FAPs for mobile display and strategically invested in enhancing production lines to maintain our competitive advantages. Now, turning to third quarter dividend. Today, the board of directors approved a quarterly dividend of 361 Korean won per share for both common and preferred stocks. Based on current dividend policy, the total amount distributed for this year will be 9.8 trillion won Accordingly, the payout for the third quarter is 2.45 trillion won, which will be paid near the end of November. I will now cover our sustainability management achievements and other current topics. I'm pleased to say that Samsung Electronics has taken the number five position in Interbrand's top 100 best global brands for the fifth consecutive year and is still highest ranked non-US company. Over the past year, our brand value grew by 10% to reach $100.8 billion, breaking through the $100 billion threshold for the first time. Interbrands cited several factors behind this achievement, including our early presence in the mobile AI market, expanded offerings of products featuring AI, strengthened connectivity experiences that provide meaningful benefits, and enhanced sustainability policies and actions in sustainable management. Overall, our dedication to expanding and strengthening sustainability activities throughout our business is stronger than ever. Finally, our management recognized a significant interest in the value of program and its importance to our stakeholders. Given the highly uncertain business environment, We are conducting a thorough review of all our options as we speak and plan to share specific details when they become available. Let's move forward and invite the executives from each business segment to present more detailed information regarding each business third quarter performance and outlook. We will divide the following section into two, the DS division including display and the DX division. For the first section, we'll start with EVP Jae-Joon Kim from Memory Business.

Good morning. This is Jae-Joon Kim from Memory Global Sales and Marketing. In the memory market in the third quarter, for server, as major data center and tech companies continue to invest, demand for AI and conventional servers was strong. However, in the case of mobile segment, demand was relatively soft due to inventory adjustments by some customers, and the supply-demand situation was impacted somewhat by the increasing supply of legacy products in China market. Thus, in the third quarter, as demand focus on server application and cutting-edge products was strong, The market decoupling by each application and product seemed to be intensified. In this situation, we focused on adjusting the business portfolio mainly toward cutting-edge and high-value-added products, aiming to strengthen our business fundamentals. To accomplish this, we focused on depleting aging inventories mainly consisting of legacy products to further improve our inventory level and mix. On the other hand, in the case of cutting edge products, we actively responded to the demand for high profitable products for AI and servers. Thus, compared to the previous quarter, we achieved sales revenue growth of over 70% for HBM, the mid-teens for Server DDR5, and the mid-30s for Server SSD. As a result, compared to the previous quarter, despite the impact of depleting aging inventory, both DRAM and NAND ASPs increased by a high single digit, and sales increased by a mid-single digit in dollar terms thanks to the sales of high profitable products. However, our performance decreased due to reduced reversal of inventory valuation loss compared to the previous quarter, one-time charges such as incentive provisioning, and currency effect due to a weak dollar. Now let's move on to our look for the fourth quarter. In the memory market, we expect the trends experienced in the third quarter to continue in the fourth quarter. Specifically, while demand for AI is likely to remain strong, we expect some mobile customers to continue adjusting inventory following the previous quarters. On the other hand, we will continue to monitor factors that influence demand, such as geopolitical issues and interest rate and stimulus package in key countries. In the fourth quarter, as this market decoupling trend remains, we plan to continue improving our business portfolio focusing on profitability. On top of that, we are flexibly lowering down our production for some legacy DLMN land products, in line with market demand in order to accelerate the conversion of cutting-edge nodes in legacy lines. In addition, following the previous quarter, we aim to strengthen our business fundamentals by completing the normalization of inventory level and mix by the end of the year. For D-Lab, we plan to expand sales in line with the increase in HBM capacity accelerate the transition to 1B nano for server DDR5, and actively expand the Sage portion of high-density module based on 32GB DDR5. In addition, we will secure leadership on high-value added products with mass volume business of 10.7Gbps LPDDR5X and GDDR7, which are developed for the first time in the industry. For NAND, while server SSD demand continues to stay strong, we will actively respond to the demand for TLC SSDs, which account for the main portion of the market, and further expand the sales of V8-based PCIe Gen5. Especially for QLC market that has high growth potential, we plan to mass produce the 64TB product and sample the 128TB product in this quarter. Therefore, by the first half of next year, we expect to mass produce up to 128TB in QH SSD lineup. Now let's move on to the outlook for 2025. For server, data center and enterprise investments are likely to remain strong in association with AI, and build demand for conventional server as well as AI servers is expected to be strong and stable. In particular, we are anticipating that the size of generative AI data will dramatically increase, and the trends toward high density in HBM, DDR5, and server SSDs will be consequently accelerated. For mobile, as major customers launch more and more on-device AI smartphones and the higher specs are required, mainly in the flagship segment, we expect memory contents per box to increase. And also for PC, we expect a gross momentum in demand due to the discontinuation of Windows 10 services and the arrival of the replacement cycle for PCs that were sold during the early period of pandemic. But we will continue to monitor some uncertainties such as the macroeconomic recovery trend and potential for the launch of killer application for device AI. Likewise, although demand in 2025 is forecast to be robust overall, we expect the demand increase to be driven primarily by high-density and high-end products based on cutting-edge nodes rather than legacy products. Therefore, in the next year, we plan to accelerate to process conversion of our existing lines to reduce the portion of legacy products and to expand the portion of cutting-edge nodes. Considering the bill loss during the conversion process, we expect production big growth to be limited for both EDEM and NAND, But we will focus on the portion of differentiated product based on advanced node rather than short-term B shares, preparing for a competitive business portfolio focused on profitability. For DRAM, we plan to further expand the sales of HBM3E, and we are scheduled to develop and mass-produce HBM4 in the second half of the year. In addition, by accelerating the transition to 1B nano in the legacy lines, we plan to reduce the portion of DDR4 and LPDDR4 products based on legacy process that are seeing intensifying competition and to expand the portion of high-end products such as 128GB or higher DDR5 server modules and LPDDR5X for mobile PC server and so on. For that, while expanding server SSD sales, we will proactively respond to the high-density trend based on QH products, including 64TB and 128TB SSDs. Also, we will solidify our leadership in the PCIe Gen 5 market by accelerating the tech migration from V6 to V8. Focusing on improving our portfolio towards cutting-edge products, and strengthening our business structure, we will secure sustainable business competitiveness. Thank you.

Good morning. This is Tommy Kwan from the system LSI business. Smartphone shipments are expected to grow by around 2.5% this year, with a roughly 5% increase in the first half, but slowing growth in the second half. leading to increased set inventory levels and vehicle purchasing demand. In anticipation of vehicle purchasing demand in the second half and fourth quarter, we have increased third quarter sales through effort to reduce inventory. But earnings have declined due to increased one-time costs such as incentives. SOC sales rose As flagship products were designed in a new project, sensors are being adjusted due to customers' inventory accumulation in the first half, and DDI sales expanded due to the launch of new projects. Throughout the fourth quarter, SOC will continue to increase supply of Exynos 2400, and sensors will reinforce new product development verification and reduce work-in-process inventories amid weak market demand. DDI is focusing on growth area in a stagnant display market through the commercialization of mobile OLED T-DDI products and support for the expansion of OLED for IT. Although there is little chance of recession 2025, the smartphone market is expected to grow by less than 1% next year compared to 2.5% this year. However, the momentum of on-device AI is expected to be strong. The impact of China's economic stimulus could be an upside opportunity in the smartphone market. In our business division, we plan to focus on supplying our SOC to major customer flagship products while preparing for next-generation 2 nanometer products. Image sensors are expected to expand camera function differentiation as smartphone component prices stabilize. We aim to strengthen our leadership with high dynamic range capability, low power consumption, and Zoom functionality. Stabilized strategies to improve yield and secure cost competitiveness in the logic die remain valid. DDI plans to develop advanced low-power products and integrate PDDI and T-CON. Thank you.

Hello, everyone. This is Taejoong Song from Foundry Business. In the third quarter, The overall market showed continued growth in advanced technology nodes, largely driven by rising demand for AI and HPC applications. However, recovery in mobile and PC applications was slower than anticipated. As a result, our overall earnings declined compared to the previous quarter. due to the impact of a one-off cost related to employee incentive and inventory provisions of engineering runway parts. Despite these short-term challenges to our business, we successfully met our order targets, particularly in sub-5 nanometer technologies. To be specific, we have released our 2 nanometer GAA PDK, enabling our customers proceed with their product design. Our mature technology portfolio has been diversified with improvements in RF technology and design infrastructure. Looking ahead to the fourth quarter, a delayed rebound is expected in mobile and PC market, leading to potential customer demand weakness. However, HPC and AI-related market will continue to show robust growth. Although inventory adjustments among our customers may continue beyond this quarter, we are committed to improving our business performance by focusing on streamlining operations, targeting high-growth products of key customers. In this quarter, we will also strive to acquire customers by improving the process maturity of 2nm GAA technology. Furthermore, we will continue to develop competitive technology and design infrastructure for additional business opportunities. For 2025, the Foundry Market is expected to show doubled growth driven by HPC and AI application in advanced technology. Samsung Foundry aims to expand revenue through ongoing early improvement in advanced technology while securing major customer demand through successful 2nm mass production. In addition, we are enhancing the competitiveness of our 4nm technology and design infrastructure to address the growing demand for mobile and HPC. Finally, I would like to highlight Samsung Foundry's close collaboration with Memory Division. Integrating advanced technology and packaging solution to develop HBM Puppet Eye will help us acquire new customers in AI and HPC sectors. Our major technologies continue to evolve, focusing on specialty technologies such as RF and automotive, further diversifying our business portfolio. This concludes the key message from Boundary Business. Thank you.

Good morning, everyone. This is Charles Seo from the Corporate Strategy Team at Samsung Display. I will now brief you on our results for the third quarter of 2024. for the mobile display business. We performed sequential improvements in both sales and profit thanks to the launches of major customers' flagship products. The sales contribution of the mobile display business stayed over 90%, which is similar to the previous quarter. In addition, the smartphone segment achieved double-digit sales growth. For the large display business, Sales volume has increased compared to the previous quarter, driven by stable demand of both TV and monitors. However, earnings have underperformed compared to previous quarter. Next, I will share our outlooks and strategies for the first quarter. For the mobile display business, flagship demand for smartphones is expected to continue into the first quarter along with sales growth in IT and automotive business. However, our performance outlook is quite conservative considering the rising competition among panel makers. For the large display business, we'll continue to address the demand from major customers by improving production efficiency and keep striving to expand sales compared to the previous quarter. Also, will respond to the demand for 2025 new products with a timely supply. Next, I will share our outlooks and strategies for the mobile display business in 2025. We expect overall growth in the smartphone market will be limited. However, OLED penetration rate is predicted to keep rising as more smartphones with OLED panels are projected to be released. As high-performance display is required with the spread of AI devices, OLED adoption trend will continue to increase. We'll maintain our leadership in foldable and high-end smartphones with our innovative OLED technologies, such as low power consumption and high resolution, which is optimized for AI devices. Additionally, we'll accelerate the expansion of IT and automotive sectors to diversify our business portfolio further. Finally, for the large display business, we continue to leverage the performance advantages of OLED panels to strengthen our position in the premium TV market. And for monitors, we'll broaden our lineup by adding new high-resolution products and diverse refresh rate options consequently we will not only solidify comparative edge in gaming monitor market but also actively enter the b2c market in 2025. thank you many thanks to our ds division representative we will now move on to the second section which will cover the x division first evp jongmin lee from the cx md center will discuss

the company's overall AI strategies followed by other DX business representatives.

Hi, everyone. Before we move on to performance over DX business, I'd like to discuss our multi-device AI strategy driven by Samsung's extensive product lines and cutting edge technologies. Every year, Samsung delivers over 500 million diverse products to our consumers around the globe with the tailored application of AI in each product, helping secure our position as a market leader. Samsung devices are becoming more and more connected each day, and we are striving to deliver AI functionalities that bring practical benefits to daily life, making it safer, more convenient, and more efficient. So you can reclaim your time and effort while saving energy in the process. At the base of this is SmartThings, our platform with 360 million users Using the capabilities that we have developed so far, which include product intelligence, spatial intelligence, and personalization, we will establish our presence in the future home where AI is the norm. First, we believe security is the key priority in the AI era. and Knox and Samsung account are its core. We have expanded and applied our proven Knox Bolt technology across our product lines from mobile to TVs and home appliances. In fact, our home appliances recently received a diamond-level rating, the highest level of security in the industry. Device connectivity also carries increased risks. To further protect against such threats, we have applied Knox Matrix, our trust chain-based solution that creates a safer AI home. Second, I'd like to address convenience. Devices in your home will not only automatically connect to smart things, they will also evolve to understand your lifestyle. When you power on a newly purchased Samsung product, it will automatically connect to SmartThings, allowing you and your family to easily use it along with other previously connected devices. This is made possible through our AI-based calm onboarding technology. a stepping stone to convenient life. Samsung TVs and home appliances come equipped with HUB functionality right out of the box, enabling seamless connections with various products from partner companies without having to buy a separate HUB device. In addition, our technology can automatically create a map of your floor plan, allowing you to arrange devices and furniture in 3D. This provides a visual for you to ensure that air quality and power consumption are maintained at an optimal level throughout your home. Furthermore, Samsung's voice assistant Bixby can recognize different users and offer tailored experiences to each individual. Third, our intelligent saving technology makes our customers wiser. It helps them to reduce energy costs, reduce time spent on household chores, and even supports environmental protection. For example, our technology can detect when no one is at home and power down unnecessarily appliances, which saves energy and helps protect the environment. Last, our technology can help you take care of your health and well-being of loved ones. We will expand the AI connectivity experience from the home to health with the ability to monitor sleep quality health metrics, and your diet. Through diet coaching, providing multiple ways to help you take care of yourself and your family. In June, we introduced Family Care, a service that analyzes devices, patterns of elderly parents or those under your care, helping you ensure their well-being even when you are apart. With KidCare, we are currently in the process of expanding this service to include children. Given our customer-first approach, we will keep working to build a warm, welcoming home AI environment centered on well-being of everyone in its space. In addition, we are continually advancing dedicated solutions for the B2B sphere, such as SmartThings Pro, aiming to expand in commercial space like public housing, hotels, stores, and offices, and contribute to growth in our B2B businesses. Now, let's discuss the performance and direction of each business unit. Thank you.

This is Daniel Araujo from the MX Division. I'd like to share our results for Q3 and the outlook for Q4 and next year. The smartphone market in Q3 was affected by lingering global inflation, which delayed the recovery in consumption. Despite major vendors releasing new products, demand only increased slightly. The MX Division recorded shipments of 58 million smartphones, and 7 million tablets in Q3 with a smartphone ASP of $295. We achieved growth in both revenue and operating profit compared to the previous quarter due to the release of new smartphone, tablet, and wearable products. Although material costs rose as product specifications improved to enhance their competitiveness, our expanded sales focused around flagship models drove profitability close to the double digits. Now let me move on to our outlook for Q4. The smartphone market in Q4 is forecast to grow quarter on quarter due to seasonality, but competition in the mass market segment is to intensify amid an increase in demand, especially in emerging markets. The MX division expects shipments of smartphones and tablets to decrease and ASP to decline compared to Q3 when many new models were released. With the holiday season in mind, we will implement various sales programs to continue the solid sales of AI smartphones such as the Fold 6, Flip 6, and S24 series. aiming for double-digit growth in annual flagship sales. For tablets and wearables, we aim to expand sales linked to year-end seasonality with a particular focus on new premium products featuring significantly enhanced performance in order to contribute to MX's sales and profits. Next, I'll share our outlook for 2025. We expect the macroeconomic environment to stabilize somewhat in 2025 due to the impact of interest rate cuts, and the smartphone market should grow slightly. In particular, we expect the mass market segment to grow, given the expansion of AI functionality from primarily premium products in 2024 to mid-range products, along with overall improvements in hardware performance. Market demand for ecosystem products is also likely to increase. The tablet and Note PC markets will grow due to demand from the product replacement cycle and increasing AI functionality. The smartwatch and TWS markets will also see applications of AI functionality and expansion of premium demand. And as for the smart ring, Rising demands for new wellness experiences, such as sleep management, should lead to continued market growth. In the MX business, we plan to drive sales growth centered on flagship products based on further advancements of Galaxy AI. The S25 series, scheduled to be released in the first half of next year, will offer an even more complete Galaxy AI experience driving innovation around real use cases in everyday life. We also aim to expand sales through strengthened marketing and hands-on experiential programs aimed at spreading Galaxy AI. For foldable phones, we will strengthen product competitiveness with design innovations and AI specialized for foldables, further solidifying our leadership in AI phones from 2024 onwards. Galaxy Tab and Book will offer more advanced Galaxy AI features, and we will focus on expanding sales of premium products. In wearables, we aim to increase sales by further differentiating products by refining them and improving usability. We will expand the Galaxy Watch's position in the premium market by focusing on AI functionality. And for the Galaxy Buds, we will bolster premium sales by establishing an AI-specialized lineup while also enriching sound quality. The Galaxy Ring, which launched this year, will contribute to expanding the Samsung Health ecosystem by enhancing our sleep management experience, and we will improve the connectivity between our products, including upcoming XR devices, to further elevate user experiences in the Galaxy ecosystem. Lastly, in 2025, we anticipate seeing an increase in the prices of major components due to improved product specifications as we strengthen product competitiveness. However, we aim to improve profitability by further enhancing Galaxy AI, as well as expanding sales centered on flagship products. Thank you.

Hello, everyone. I am K.L. Rowe from the sales and marketing team of Visual Display. Let me brief you on the market condition and our result in the third quarter of 2024. TV market demand increased quarter-on-quarter thanks to seasonal effect, but it declined slightly year-on-year mainly due to global sporting events pulling demand into the first half. For Samsung, we improved the profitability both year-on-year and quarter-on-quarter. by focusing on sales of strategic products such as Neo QLED, OLED, and Big TV. At the same time, we expanded sales in the service business and optimized resource management. Now, let me go over the outlook for the first quarter and for 2025. In the first quarter, TV market demand is expected to recover thanks to year-end peak seasonality although competition is likely to intensify. To preemptively capture peak season demand, we will enhance our sales program focusing on premium model, big TV, and lifestyle screen through strategic collaboration with major retailer. Also, we will focus on expanding sales and securing profitability by emphasizing the non-price competitiveness of our TV related to security, design, and contents, which have recently emerged as important consumer value. The TV market in 2025 is projected to grow slightly with strategic products such as QLED, OLED, and Big TV continuing to gain share. We will continue to differentiate AI functionality and innovate our product centering on premium and lifestyle screen to solidify our position as number one player in the global market. In particular, we will actively employ AI technology to not only advance core TV performance such as picture and sound quality, but also enhance the overall customer experience. with the SmartThings ecosystem, thus expanding the role of TV to become the hub of the AI home in the era of hyper-connectivity. Byproduct, for Neo QLED, the backbone of our premium TV lineup, we will sustain our key differentiator and related communication. And for OLED, we will improve the picture quality of our main model and reinforce regional lineups to drive dual premium sales of Neo QLED and OLED. Furthermore, we will strengthen our lineup in 9-inch above Super Big TV to target growing demand in this segment. As for lifestyle screen, we plan to make full use of our competitive edge over later commerce products to solidify our position at the forefront in this category. Lastly, by leveraging our extensive installed base secured with our leadership in hardware, we will keep expanding our service platform business driven by advertisement and media such as TV+. Thank you.

Thank you, everyone. With that, we have concluded our preferred statements. Let's open the line for questions. The following Q&A session will be conducted in Korean.

The first question will be by Mr. Kim Sung-kyu from Taiwan Securities. Please go ahead. Mr. Kim Dongwon from KB Securities will make the first question, please. Yes, thank you for the opportunity to ask some questions about memory and MX. Well, you already... What is your outlook in terms of big growth for DRAM and NAND in the fourth quarter? And also, what do you intend in terms of innovating or reinforcing your foldable lineup for 2025 as well? Let me take the first question regarding fourth quarter big growth first. First for DRAM, we will be expanding HBM production and sales. And so we expect that DDR5 and LPDDR5X products will likely see limited production growth. Meanwhile, amid inventory adjustments by Chinese mobile clients, mostly for legacy products, plus the base effect from sales of aging inventory in the third quarter, we expect our DRAM bid growth to decline to a mid-single-digit level in the fourth quarter. For NAND, as we see continued solid demand for server SSDs and boosted by an upside in QLC SSD sales, we expect server SSD revenue to increase by an additional 10% Q-on-Q on a bid basis. However, amid weaker mobile demand, we expect demand growth to be constrained. And this, when combined with the base effect from low bid shipments in the third quarter, overall NAND bid shipment is expected to see limited growth at around the low single-digit level.

So we aim to offer a differentiated foldable experience that actually transforms our users' mobile lifestyles. We try to create these new mobile experiences by improving the product itself on the one hand, while at the same time incorporating AI functionality tailored to the form factor. We will continue to further differentiate our premium products as we make the Fold slimmer and lighter with a powerful camera experience and enhance the Flip's unique design and cover screen experience. And since customers of our foldable devices have high levels of product satisfaction, we're also considering ways to ease the purchase barriers so that more people can experience foldable products firsthand. We're preparing a new form factor for consumers seeking an even more powerful and innovative mobile experience, aiming to introduce it when we can ensure that the quality and the real-life experience meets our users' expectations.

Thank you. Thank you for your answer. Next question, please.

The next question will be by Mr. Kim Sung-gyu from Daiwa Securities. Please go ahead. Yes, good morning. I have two questions on semiconductors. First is on the memory side. Third quarter performance was actually below market expectations. So, can you explain more on the memory business results in terms of both sales and profit? And second, regarding your flagship SOCs, could you provide a status update on the development of the Exynos flagship SOC and comment on possible applications on next-gen flagship models? Okay, let me take the question on the performance for DS. In the third quarter, we boosted the share of sales from high-valued products as we focused on improving profitability. Also, to normalize inventory in volume and quality, we also expanded sales of aging inventory. Third quarter bid growth was flat queue-on-queue for DRAM down to single-digit growth for NAND. The increase in ASP was also slightly more constrained versus budget from the impact of aging inventory. Still, overall, DRAM and NAND ASP both saw high single-digit growth compared to the second quarter. Also, total revenue for the memory business in dollar terms posted mid-single-digit growth quarter-on-quarter. And for DRAM, we saw HBM sales grow by more than 70% Q-on-Q as we ramped HBM through EMAS production. Meanwhile, as production was focused around HBM, there was limited supply capacity for DDR5 products based on advanced nodes. Nonetheless, server ASP increased by more than DRAM ASP, while DDR5 sales accounted for more than 80% of total server DRAM sales. Notably, as AI models become bigger in size, we have been seeing an increase in demand for high-capacity DDR5 Our 128 gigabyte product, which is the first time in the industry based on 1B nano 32 gigabit technology has increased as a percentage of the sales mix now accounting for a high single digit percentage of total server DDR5 sales. NAND also continues to see a rise in server SSD sales and we reported a record high in the third quarter and now accounts for 50% of total NAND sales. Amid inventory adjustments by some mobile customers, however, there was a slight decrease in purchasing demand, and coupled with our operational focus on profitability, then sales volume came in below our bid guidance. For earnings, despite the Q1Q increase in sales, Third quarter operating profit was down on a quarter-on-quarter basis as right back of provisions for inventory valuation loss was lower versus the second quarter, also impacted by one-off costs such as incentive provisioning and weakening USD. So, let me take your question on system LSI. While I cannot comment on details concerning customer projects, we are in close collaboration with the Foundry side. to secure sufficient supply capacity for our next-gen flagship SOCs as we look to start application on flagship series models next year. We're also looking to expand adoption of current generation SOCs in our current upcoming flagship models for next year. So as AI spreads further, building on our experience and capabilities in the flagship SOC space, we're working to move beyond smartphones to expand into on-device related business opportunities. We're focusing on acquiring relevant technologies, including on-device AI software, XPU link technologies, also telecommunications, sensor displays, security power, to identify further business opportunities in the solutions space. Thank you. The next question will be by Mr. Nicolas Godoy from UBS Securities. Please go ahead with your question.

Yes, good morning. Thanks for taking my question. In your recent statements alongside the Q3 24 prelims, you mentioned experiencing delay with one of your major customers for HBM3E commercialization. What's the business status and plan for HBM overall and specifically HBM3E from here? Thank you.

So, first let me take you through the status of our HBM business. So, in the third quarter, total HBM sales grew by more than 70% queue on queue with both HBM3E8 and 12-stack layer products in mass production and generating sales. The share of HBM3E increased to low to mid-10% of total HBM sales. But of course, there were some commercialization delays, and so the figure will likely be below guidance that we provided in Q2. But still, we expect HBM3Es to account for about 50% of HBM sales in the fourth quarter. As explained together with our preliminary results, While we did experience some delays in the supply of HVM3 for a major account, we have nonetheless made a meaningful advance as we have now completed an important phase in the qualification process. We expect to start expanding sales in the fourth quarter. Additionally, we are working to increase and expand into more number of projects as we seek to expand supply both HBM3E8 and 12-stack products for multiple customers to broaden our revenue base. Additionally, we are preparing an improved HBM3E offering for several of our key customers optimized for their next-gen GPU programs. Mass production of these enhanced products is planned for sometime in the first half of next year. We're currently in talks with our clients on scheduling. So we're looking to expand supply of existing HBM3 products to previously awarded projects while driving additional sales of enhanced HBM3 products to supply for new projects to expand the addressable demand pool. For HBM4, development is underway according to plan as we target starting mass production in the second half of 2025. We're working on custom HBM business development for multiple clients And for custom, because meeting customer requirements is key, when choosing a foundry partner for production of the base dye, customer requirements will be the priority and we'll be flexible in our approach regardless of whether it involves an internal or external partner. The next question will be by Mr. Lee from Citi Group. Yes, good morning. This is Lee from Citi. I have a question for memory and also foundry. First, regarding memory, I would like to hear more about your outlook for memory in 2025. You did mention some, but could you elaborate more on decoupling and other developments that you expect? And in a related question, could you share more on your CapEx plans for next year as well? The next question has to do with your foundry business. I'd like to ask about the current status of your advanced process node development for Foundry, and I'd like to hear an update on development of your two nanoprocess nodes, which we've heard will enter mass production next year. So, we'll start with the memory question first. Next year, in terms of overall industry-wide supply conditions, we expect Chinese memory makers to increase supply of their legacy products while conversion to more advanced process nodes is likely to accelerate among existing players, mostly around DRAM. Amid continued supply constraints for clean rooms across the industry, increasing the share of advanced nodes will likely be achieved not so much through capacity expansion but by conversion of existing lines to more advanced nodes. Considering the bid loss that can occur during this kind of line conversion, I think supply bid growth will likely be constrained to a certain extent for next year. In addition, for DRAM, as production is concentrated on HBM, the existing outlook that production bid growth for conventional products would be constrained, I believe this outlook still holds valid today. For NAND, when CapEx was constrained across the board for the industry during the downturn, we did see supply still increase in 2025 from higher utilization rates, However, as we do not see further scope for further utilization applied next year, we expect supply growth to slow down to a certain extent in terms of the pace or extent. On the demand side, market decoupling is expected to continue at least up to the first half of 2025. For server applications, solid demand is expected to continue for AI-related HVM, server DRAM, and server SSD. We expect enterprise demand to also see some growth momentum as Windows 10 services are discontinued for PCs, and PCs sold during the pandemic reach their replacement cycle. On the other hand, for mobile applications, due to inventory adjustments from some clients, we expect limited demand conditions to continue for the time being. But potentially, we may see some recovery in purchasing demand in the first half of next year, once the inventory adjustments wind down and as on-device AI is deployed on flagship models around that time as well. As demand is expected to vary between different use cases, there may be bipolarization of demand between different end-use applications. And as production bid growth for advanced node products continue to be constrained, we believe decoupling of supply-demand dynamics between advanced process nodes versus legacy products are likely to continue for some time. Based on this outlook, we are setting capex at levels similar to this year. Our priorities will include building next-gen semiconductor R&D complex, investing into HBM packaging, making advanced investments to secure clean rooms for the mid to longer term as we focus on strengthening our future competitiveness. For facility investments, our focus will be on investing in conversion to advanced process nodes rather than capacity expansions. We plan to accelerate conversion of existing lines to 1B nano DRAM and V8, V9 NAND processes so that we can focus on the high value add markets enabled by advanced process nodes to benefit from strong demand momentum. For DRAM and NAND, rather than simply targeting big share, we'll focus on tapping the high margin market, strengthening the competitiveness that the market demands. We'll manage production and capex in a flexible manner as a baseline position. Now, let me address Foundry. Our 2nano process is under development, designed to be an enabling technology platform that is optimized for mobile and HPC applications. Based on improved process maturity and expansion of our IP portfolio, development is currently underway targeting mass production in 2025. We're doing PPA analysis for performance, power consumption, and area. Mindful that our two nano GAA gate all around PDK and design infrastructure will be used to customize different products for our key accounts. Other evaluation work is also underway for certain customers to assess IP content and to characterize silicon through NPW. To acquire additional sources of competitiveness for our two-nano GAA process, we've been developing several fabrication processes and design technologies like BS, PTN, and automotive technologies. Customers are not just looking at the competitiveness of process nodes, but seeking a total solution that includes advanced packaging technologies So based on our 2-nano GAA process with competitive PPA, we're aligning with customers on differentiated packaging, aligning with them on roadmap for differentiated 2.5D, 2.3D, and 3D packaging technologies, and seeking strategic partnerships to secure more diverse customers, not only for mobile, but also HPC, AI, and automotive. The next question will be by Yi-Jun He from Goldman Stocks. So thank you for the opportunity to ask. I have a question for Foundry and one for VD as well. So could you provide more color in terms of the CapEx investments for Foundry this year and next year? What will be your main areas of investment for Foundry as well? For VD, it seems that competition is getting more intense, mostly in the mid to low-end markets. So how does the company intend to respond? Yes, let me answer your question on Foundry. In foundry, our foundry investments were mostly focused on customer demand for mobile and HPC. However, in light of market conditions and investment efficiency, conversion of our existing lines for reutilization was our biggest priority. We expect the amount of capex executed this year to decrease. For 2025, we will maximize utilization of our existing production infrastructure. to provide a timely response to customer orders for advanced process and legacy products. And apart from R&D for cutting edge process nodes, any investments into capacity expansion will be considered thoughtfully and efficiently considering utilization and profitability.

Here's the answer for Vidi. Demand for strategic products like QA LED and large TVs continues to grow while Entry-level demand is also rising within each category. This expands the mid to low range market and intensifies competition. In response, we will strengthen our leadership in the premium segment while expanding entry-level lineups across key product categories to capture mid to low range demand, focusing on cost efficiency and manufacturing competitiveness. Also, we will emphasize smarting security ESG content to deliver unique customer experiences by promoting customer value through differentiated products and services like NOX security solution with high stability and slim high resolution design achieved through advanced technology. We will expand sales in the volume zone and secure profitability at the same time. Thank you. I'll take one more question due to time constraints. The last question will be by Dongjae Woo with Bank of America. Please go ahead, sir. Thank you for the opportunity. My first question is for MX about smartphone enhancement and their functionality enhancement How will they evolve in the future? And the second question will be on SDC. Could you provide the timeline for the 8.6 generation FAB utilization and revenue outlooks and any plans for capacity expansion?

So as our AI phones rapidly evolve, product hardware specs and AI functionality are expected to further develop. So we aim to provide our customers with first-rate AI features. So we're analyzing adopting APs and memory that can meet these requirements. To run a generative AI model on device requires high performance APs and memory, which is also expected to increase heat generation and battery consumption. So we're also considering various technologies and solutions to address these issues. Regarding Bixby, Samsung introduced the upgraded Bixby AI voice assistant to home appliances and televisions beginning at the end of August. And in the future, we also plan to release a smartphone version capable of performing more complex functionality.

Thank you. I'll take your second question for display. In April 2023, to support Rising demand in notebooks and tablets, we announced investments in our 8.6 generation IT OLED line, which is on track for mass production in 2026. The facility has completed receiving its main equipment, and we are now setting up the FAB, fine-tuning specifications and boosting overall technical maturity. In IT markets like notebooks and tablets, Demand for high-resolution, high-performance display is driving OLED's adoption. With our extensive technology and early investments, we will achieve economies of scale ahead of our competitors, enabling us to capture the IT market, maximize utilization, and drive sales growth as well. For capacity expansion, we will focus on the previously invested 8.6 generation IT line ensuring stable technology and supply. Expansion timing and scale will be evaluated based on the market conditions and customer demand in the future. Thank you. Thank you for your answer. Finally, we will answer questions that were submitted online in advance. We received a wide variety of questions for this quarter as well, and I believe the majority of the submitted questions were sufficiently answered during the Q&A session. We will answer one more question on a topic that garnered a high level of interest from our shareholders but was not addressed during the Q&A session. The question is, do you anticipate a rebound in consumer demand for home appliances in 2025? If so, what is Samsung's plan to expand sales of major home appliances accordingly? VP Sung Yoon Kim, representing digital appliances, will answer the question. Here is the answer for your question. In 2025, demand is expected to return to growth due to easing inflation, increased investments in emerging markets, and rising international trade. Consumer sentiment in North America and Korea, which are our primary markets, is expected to improve slightly, easing the pace of negative growth. The demand in Southeast Asia, Southwest Asia, and Latin America is likely to grow thanks to recovery in production and export and expansion in infrastructure. With rising interest in AI technology for its convenience, demand for premium products, especially AI-powered home appliances, is expected to increase. in 2025 with our reliable security service we will offer voice id recognition for tailored experiences and appliances equipped with screens for home monitoring we will also enable easy ai controls to simplify household tasks and keep upgrading the ai connectivity experience furthermore we will boost global sales with innovative AI products like hybrid refrigerators and the bespoke AI combo focusing on premium segments. And to expand our B2B business, we will strengthen product lineups and sales capabilities, driving revenue growth with a focus on profitability. Thank you. Thank you very much. I would like to thank everybody who shared their valuable opinion. and we will be sure to refer to them in our decision-making process. That completes our conference call for this quarter. We wish all of you and those close to you stay strong and in good health. We thank everyone for joining us today. Thank you.