Samsung Elect Ltd

Hello, everyone, and welcome to the Samsung Electronics 2025 Second Quarter Financial Results Conference Call. I will 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.

Hello, everyone. Thank you for joining us today for Samsung Electronics Second Quarter 2025 Earnings Core. I am Daniel Oh, Head of Investor Relations. It's my great pleasure to welcome you all to this earnings core. Before we proceed with the presentation, I want to take a moment to address some important housekeeping and legal matters. As a reminder, you can follow today's broadcast and presentation deck on our IR website at www.samsung.com backslash global backslash IR. Additionally, this call is being recorded and webcast and it will be accessible on the same platform for those who wish to review it at a later time. We ask for your full attention and cooperation as we move forward since this session is designed to provide you with comprehensive insights into our financial performance and strategic outlook. We kindly request your attention to the fact that this conference call may include forward-looking statements which are based on our current expectations regarding future events. Please note that these statements are not intended to serve as guarantees of future performance. Our actual results could differ materially from these expectations due to a variety of factors, including but not limited to market conditions, regulatory changes, and operational challenges. We appreciate your understanding and attention to these important considerations as we strive to provide transparent and correct information. With that, I would like to extend my gratitude once again for your presence and participation. Let us now proceed with the presentation during which I will go through the key highlights of our second quarter performance, capital expenditures, and sustainability management, which will be then followed by EVP Central Park, our head of corporate management office and CFO, with our outlook for the second half of the year and comments on shareholder returns. We will then turn the call over to our executives, who will take this opportunity to discuss their respective businesses in detail. Following their presentations, we'll open the floor to our valued analysts for any questions they may have. Please note that this call is planned to last approximately one hour, and we appreciate your time and attention throughout the discussion. In addition to myself and our CFO, the other executives joining today's call are EVP Jae-Jun Kim representing memory, VP Hyuk-Man Kwon for system LSI, VP Mi-Jung No for Foundry, EVP Joon-Young Park for Samsung Display Corporation who is joining us for the first time, and VP Daniel Arauo for the mobile experience. Last but not least, EVP Kale Rowe for visual display. Let us commence with the details of our consolidated financial performance for the second quarter of 2025. Our total revenue decreased by 5.8% quarter-on-quarter to $74.6 trillion. Turning our attention to the DS division, sales rose by 11% sequentially, driven by increased sales of high-value-added memory products for server, such as HPM3e and DDR5, as well as the expansion of major customers in Foundry. In the DX division, revenue declined by 16% compared to the previous quarter due to the diminishing launch effects of new smartphone models coupled with intensified competition in TV and other segments. On the cost management front, SG&A expenses were successfully reduced by $0.6 trillion, bringing the total to $20.8 trillion. This reduction was achieved through the efficient management of sales and marketing costs reflecting our commitment to optimizing operational efficiency. At the company level, operating profits stood at $4.7 trillion representing a sequential decrease of $2 trillion compared to the previous quarter. Consequently, the operating margin contracted by 2.2 percentage points settling at 6.3%. During the second quarter, the DS division, despite the mentioned revenue growth, recognized inventory value adjustments in the memory business and booked one-off costs related to the impacts of export restrictions related to China in the non-memory business. In the DX division, operating profit declined quarter-on-quarter, weighted on a bicentennial decline in sales volume following the launch of new smartphone models in the first quarter. Regarding currency effects, The relative strengthening of the Korean won against the U.S. dollar has adversely impacted our operating profit by approximately 0.5 trillion won compared to the previous quarter. This impact is primarily observed in our component business, where a significant portion of transactions are conducted in U.S. dollars. Now, turning to capital expenditures. In the second quarter of 2025, CapEx experienced a decrease of 0.9 trillion won on a quarter-and-quarter basis, resulting in a total of 11.1 trillion won. Of this amount, 9.8 trillion won was allocated to the DS division, while 0.8 trillion won was invested in the display business. This strategic allocation reflects the company's ongoing commitment to optimizing resource distribution across its key business areas ensuring sustained growth and operational excellence. In memory, investments remained steady quarter on quarter as we continue the transition to advanced nodes, not only strengthen competitiveness in HBM and other high-valuated products, but also to ensure readiness for anticipated demand. Boundary CapEx was down quarter on quarter, reflecting on a conservative investment approach focusing on line conversions. For display, CAPEX increased slightly quarter on quarter due to line upgrades for small to midsize panels. I will now highlight our key achievements in sustainability management. On June 27, Samsung Electronics published its 2025 sustainability report. The report incorporates materiality assessments that align with global disclosure standards and it features broadened disclosure of climate related scenarios to reinforce compliance with international requirements. In the environmental domain, we remain committed to securing renewable energy as we demonstrated by signing the new power purchase agreements at key sites. As a result, the DX Division achieved a renewable energy transition rate of 93.4%, while in the DS Division, we are scaling efforts to reduce direct carbon emissions by continually expanding the implementation of our internally developed regenerative catalytic system at our production sites. Also, we are committed to reducing scope three carbon emissions across the value chain. As an example of our diverse initiatives, the application of a high efficiency energy technologies in major products achieved an average power reduction of 31.5% compared to the 2019 levels. Meanwhile, we continue to advance our sustainability goals through the broad application of recycled materials in newly launched Galaxy Z Fold 7 and Z Flip 7. The new models incorporate an additional recycled material compared to their predecessors, bringing the total number to nine. The recycled materials are accounting for 13.7% of the total weight for the Zip Fold 7 and 18.2% for the Zip Flip 7. Notably, the cathode materials used in the batteries are made with 100% recycled cobalt and lithium. Once again, we reaffirm our unwavering commitment to further enhancing and expanding our sustainability initiatives. We recognize the critical importance of these efforts addressing global environmental challenges, and contributing to a more sustainable future. Our dedication to this cause remains steadfast, and we are actively exploring innovative strategies and solutions to ensure that our sustainability efforts are both impactful and enduring. With that, I will now pass the conference call over to our CFO, Soonchul Park.

Thank you, Daniel. And good morning, everyone. I am Sunchul Park, CFO of Samsung Electronics. It's a pleasure to join you once again on our earnings call. I will now present our outlook and review our shareholder return policy. Let's start with the outlook for the second half. Despite ongoing global economic concerns driven by uncertain trade policies, and the geopolitical tensions, the IT industry appears forced for a gradual recovery, fueled by increasing momentum in AI and robotics. In this context, we anticipate a rebound in our performance in the second half, following a bottoming out in the second quarter, with earnings expected to improve steadily as the year progresses in the ds division we are making on all our efforts to restore fundamental technology innovation also we've taken steps to address operational inefficiencies and have reflected inventory value adjustments in the second quarter looking ahead We are truly preparing for a turnaround in the second half. In addition, we aim to further reinforce our technology leadership and proactively position ourselves to meet the growing demand for high-value added and AI-driven products. We expect the demand for memory to maintain its momentum across all applications. In this regard, we are actively focused on AI-related products, such as HBM3e, as well as high-capacity, high-performance offerings. For system LSI, we are working to drive sales growth by enhancing the capabilities of our flagship associates and capitalizing on their rising demand for ultra-high resolution image sensors. For our foundry business, we expect a gradual improvement in profitability from expanding our customer base and utilization rates, while also strengthening our nanotechnology. In the display business, we anticipate improved results supported by new product launches from key smartphone customers. Additionally, we plan to expand sales in the IT, Auto, Monitor, and other segments. In the DX Division, with the uncertainties stemming from tariff policies likely to persist we are thinking diverse methods to minimize related impacts. In the MX business, we'll drive sales of premium mobile AI devices, including our newly launched foldables, and aim to lead the market by expanding our ecosystem through innovative form factors like the upcoming tri-fold device and our first XR headset, as well as services such as Connected Health. As the world's leading seller of mobile devices, MXWare established a distinctive AI ecosystem through the collaboration with leading global AI and tech companies. By positioning our devices as the central platform of a truly open and advanced AI ecosystem, will secure AI competitiveness while continually driving business innovation. For the VD business, we'll further solidify our market leadership with strengthened AI features to deliver unique viewing experiences. Owing to diverse challenges due to stagnant growth and intensified competition in the market, TV market. For the DA business, we aim to reinforce innovative AI-based products and focus on aligning the business around high-value-added segments such as HVAC. Overall, we are actively driving AI transformation across whole business circles to enhance the internal productivity and strengthen business capabilities. We'll extend our leadership in launching products with internally developed AI functionalities and maximize product differentiation and service value by connecting AI infrastructure, models, devices, and services. Moving on to shareholder returns, today the Board of Directors approved a quarterly dividend of 367 Korean won per share for both common and preferred stock. Under our shareholder return policy from 2024 to 2026, The annual payout of regular dividends is set at 9.8 trillion won, and the quarterly distribution of 2.45 trillion won for the second quarter is scheduled for payment in late August. In November 2024, we announced the 10 trillion won face-to-share repurchase program. As of May 2025, we've acquired shares worth 6.1 trillion won across two separate phases. The 3 trillion won worth of shares acquired in the first phase were canceled in February, while the 3 trillion won worth of shares from the second phase, excluding common shares worth 0.5 trillion won earmarked for executive and employee compensation are scheduled to be canceled in due course. For the third and final share repurchase of 3.9 trillion won approved by the Board of Directors on July 8, 1.1 trillion won worth of shares will be allocated for executive and employee stock compensation, including incentives, with the remaining balance of 2.83 and 1 designated for shareholder returns. We expect to complete the full program on October 8th, ahead of the original one-year target of November 14th. Our primary objective is to fulfill our commitment to shareholders and executing these buybacks more quickly than originally planned shows our dedication to delivering on our promise in a timely manner. The 1031 repurchase program will be completed as promised and in the near future, will determine the appropriate timing to cancel the repurchased shares aimed at enhancing shareholder value. Thank you.