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.

Thank you, Chair, for Central Park. Now, each executive from different business segments will provide more detailed information on their respective business units' second quarter performance, followed by their outlook. We will then start with Choi Joon Kim, EVP of Memory Business.

Good morning. This is Jaejoong Kim from Memory Global Sales and Marketing. In the memory market in the second quarter, the recovery of demand became more feasible than previously expected thanks to strong AI server demand. And demand for server SSD also increased as previously suspended data set of projects resumed. In addition, we saw an increase in the market price for DRAM legacy products as the supply reduced with the impact of the industry's capacity transition to cutting-edge nodes. In this situation, we increased the sales of HBM3e products and responded to robust demand for servers while expanding the portion of high-density DDR5 products. Moreover, we delivered initial mass products of LPDDR5X for AI servers to the major customer. As a result, compared to the previous quarter, big growth for DRAM increased by a low 10% in line with initial guidance. For NAND, we exceeded big guidance as the big growth increased by a high 20% compared to the previous quarter, by actively responding to server SSD demand improvements. Thus, our inventory level decreased significantly. In the second half of the year, although uncertainties such as tariffs are likely to persist, AI demand should remain robust thanks to continued investments at major cloud service providers. Therefore, we expect server demand for both DRAM and NAND to remain strong. In addition, demand for PC and mobile is expected to show momentum, driven by seasonal effects in the second half and the spread of on-device AI. We plan to keep operating our business focusing on profitability for both DRAM and NAND in the second half of the year. For D-Lab, to align with strong AI server demand, we plan to proactively address the trends toward high-density and product diversification with our HBM, high-density DDR5, LPDDR5X for AI servers, and so on. For NAND, as we expect inventory levels to be normalized, We will prioritize the sales of high-density and high-performance SSDs for server and storage. And we will continue to enhance our cost competitiveness by accelerating the transition to V8 for all applications. Thank you.

Good morning. This is Yangmang Won from the system LSI business. In the second quarter, macroeconomic growth forecast faced repeated downward revisions, underscoring a notable economic slowdown. Nevertheless, the smartphone market maintained a gradual recovery bolstered by temporary U.S. TANF exemption and Chinese subsidies. In addition, the launch of new models by major customers further catalyzed component demand. contributing positively to market dynamics. Amid expanding external uncertainties, we delivered resilient performance through strategic product mix optimization and market diversification. In the SOC business, we commenced mass production and expanded supply of flagship products utilizing the GAA process. which is specialized in improving performance and power consumption for the future products. Combined with the sensor business's robust sense of 200 megapixel tele and wide product lines, these efforts drove record high revenue for the first half of the year. However, increased development cost for advanced products constrained the extent of profitability improvement. Looking ahead to the second half, the smartphone market is projected to experience a moderate growth momentum, while the first half will benefit from distributors' inventory buildup to mitigate the risk and the impact of Chinese subsidies. Demand expansion is expected to be limited as major customers focus on depleting accumulated inventory. In the SOC business, we will prioritize stable supply for flagship models launched in July while concentrating on securing process and yield competitiveness for next generation flagship products to secure entry into major customers' 2026 lineups. In the sensor business, we will continue to lead the ultra-high resolution market and expand the adoption of nanoprism technology-based products with enhanced low-light image quality. These initiatives aim to sustain revenue and enhance profitability. Through these strategic efforts, we are committed to strengthen our competitive position and driving sustainable growth in the challenging market environment. Thank you.

Hello, everyone. This is Mi Jong-no from the Foundry Business. In the second quarter, the broader market faced continued headwind from muted mobile demand and persistent U.S.-China trade restrictions. Even so, solid momentum in AI HPC application underpinned overall industry growth. We commenced full-scale volume production of three nanometer GAA mobile products and expanded sales on the back of strong demand from U.S. and Chinese key customers, resulting in a significant quarter-over-quarter revenue increase. Even so, U.S. export control on advanced AI CHIPS FOR CHINA LED TO SALES RESTRICTIONS AND RELATED TO RELATED INVENTORY VALUE ADJUSTMENT WHILE SUSTAINED RAW FAB UTILIZATION AT MOTOR NODE WEIGHED ON PROFITABILITY. DESPITE THESE CHALLENGES, WE COMPLETED RELIABILITY ASSESSMENTS FOR THE FIRST GENERATION 2-NANOMETER PROCESS, ENSURING SIMILAR WIDENESS FOR MASS PRODUCTION. ADDITIONALLY, we established the technical infrastructure necessary to support customer design enablement for the second generation two nanometer and performance and power optimized four nanometer processes in a timely manner. This effort bolstered our advanced node competitiveness, enabling us to secure increased orders from major customers. In mature nodes, We enhanced our specialty process capabilities by completing the development of PPAC-optimized raw polyphen fat process for image sensor applications. This has allowed us to actively pursue and expand new business opportunities. Looking to the second half, geopolitical uncertainty driven by intensifying U.S. China technology rivalry and potential U.S. semiconductor tariff policies will likely persist. Nevertheless, robust AI and HPC demand is expected to sustain strong growth and advance news. We anticipate revenue improvement in the second half, driven by the full-scale mass production of new mobile products using the first-generation 2-nanometer process. By continuing to expand sales to Chinese and U.S. customers with strong demand, we aim to simultaneously enhance web utilization rates and profitability. In advance notes, we will focus on stabilizing the 2-nanometer process while ensuring mass production readiness for automotive grade 4-nanometer processes supported by stable yields. Furthermore, we will strengthen our advanced node portfolio by securing 2.5D 3D advanced packaging technologies. For mature nodes, we will enhance our competitive edge in specialty technologies, including 14 nanometer automotive, RF millimeter wave, and 17 nanometer DDI platforms. By leveraging these advancements, We will actively pursue new business opportunities and expand customer orders. Thank you.

Good morning. This is Joon Young Park from Samsung Display. I will now brief you on our results for the second quarter. For the mobile display business, we achieved revenue growth compared to the previous quarter, despite the stagnant demand in the smartphone market. The growth was supported by timely supply of new smartphone products to our major customers and increase in sales for IT and automotive segments. For the larger display business, sales volumes for TV and monitors increased quarter-on-quarter, driven by strong performance of QD OLED. In detail, we responded to our major customers' needs in the TV market. And for monitors, following our high-resolution products, we further strengthened our premium lineup with the launch of a 500-hertz refresh rate model and achieved sales growth, especially in the gaming market. Now I will share our outlook and strategies for the second half of the year. For the mobile display business, we expect our sales to increase as our major customers launch flagship smartphones. However, uncertainties are likely to persist due to external factors such as . In response, we will concentrate on driving sales growth and maintaining our leadership in the smartphone market by further enhancing our differentiated technologies. These include the world's first commercialized polarizer-free technology, which enables low power consumption as well as slim foldables with enhanced durability. We will also continue to expand the sales in IT and automotive segments. Lastly, I will discuss our outlook for the large display business. In the premium TV market, the OLED adoption rate continues to rise. In the second half, we will not only address demand for TVs, but also strengthen our market presence in the premium segment by continually developing high-performance products. In addition, we expect QD OLED monitors to continue their strong momentum driven by rising demand for gaming monitors. By offering diverse refresh rates, we aim to broaden our product lineup across both B2C and B2B sectors, accelerating the penetration of QD OLED in the monitor market. Thank you for listening.

Hi, everyone. This is Daniel Araujo from the MX division. Let me share our results for Q2 as well as our future outlooks. The smartphone market remains seasonally down in Q2 with demand declining compared to the previous quarter. For the MX business, Q2 saw smartphone shipments of 58 million units tablet shipments of 7 million units, and a smartphone ASP of $270. While smartphone shipments decreased compared to Q1 when our new flagship models were released, both revenue and operating profit showed year-on-year growth. This was made possible by robust sales of flagship models, especially the S25 series, as well as strong performance across our major products, including the A series and tablets. Some components, including memory and displays, saw a slight decline in price versus last year, while we also continued initiatives focused on resource efficiency. And as a result, we maintained double digit profitability in Q2. Moving on to the second half of the year, overall smartphone demand is expected to contract slightly year on year due to concerns about rising tariffs in mature markets. and a continued slowdown driven by persistent inflation. However, the premium segment is projected to grow modestly, driven by shifting consumer preferences toward higher-end products due in part to economic growth in emerging markets. While the tablet and wearable markets are also expected to decline year-on-year due to macroeconomic uncertainties, the TWS market is poised for growth. as adoption expands in emerging markets. For the MX business, we expect an increase in smartphone shipments and ASP in the third quarter, while tablet shipments are expected to decline sequentially as we transition to new models later in the year. We will continue our flagship first approach in the second half, and we are confident in the strong market reception of our newly launched seventh generation foldable products which features significant advancements in performance, design, and durability. The Galaxy Z Fold 7, the thinnest and lightest model in the Fold series to date, combines the portability of a bar-type phone with the expansive display of a tablet, featuring ultra-level features such as a 200 megapixel camera. The Galaxy Z Flip 7 delivers improvements in two key areas, design and portability. and optimizes the Galaxy AI experience for the larger flip cover screen. With the integration of One UI8 optimized for the foldable form factors, alongside an expanded lineup, we aim to drive new demand and broaden our customer base. For the Galaxy S25 series, we will focus on maintaining sales momentum with seasonal promotions, as well as an earlier launch of the S25 FE. We're also strengthening the A series lineup with new entry level models while emphasizing awesome intelligence and extended OS upgrades to differentiate our product experience. Furthermore, we're expanding channel presence in growth markets to increase our market share. Beyond smartphones, we're accelerating our ecosystem strategy in the second half of the year with a range of new products designed to maximize Galaxy's competitive edge, including a next generation form factor. First, we are set to release the Galaxy Tab S11 series, powered by enhanced AI capabilities, and new mid-tier and entry-level models will complete our portfolio. In wearables, the recently launched Galaxy Watch 8 series introduces a bold new cushion design across all models and integrates Gemini for innovative AI functionality. With the refresh of the Galaxy Watch Ultra model for 2025, and the return of the Galaxy Watch Classic after a two-year hiatus, we are poised to strengthen our position in the premium wearable market. In addition, with the pending acquisition of U.S.-based digital healthcare company Zelf, we aim to accelerate the transformation of Samsung Health into a connected care platform. In TWS, our Galaxy Buds lineup will expand in order to address demand across all price segments. Meanwhile, we are also preparing to introduce next generation innovative products, including our XR headset and trifold smartphone this year. Our XR headset, which seamlessly integrates the XR ecosystem developed in partnership with Google, as well as multimodal AI capabilities, will serve as a key stepping stone in solidifying our leadership in future technologies and further expanding the Galaxy ecosystem. Despite ongoing macroeconomic uncertainties and anticipated increases in material costs, the MX Division will focus on expanding flagship sales and our ecosystem business with a focus on new premium products. We will also continue to optimize operations across the board in order to maintain robust profitability. Thank you.

Hello, everyone. I'm K.L. from the sales and marketing team of Visual Display. Let me brief you on the market condition and our results in the second quarter of 2025. In the second quarter, TV market demand is projected to decrease slightly year-on-year due to the impact of last year's big sporting events. However, demand for premium and big TV remained solid. For Samsung, we expanded the sales portion of premium products by driving sales of Neo QLED, OLED, and SuperVIC TV. Even so, our profitability decreased year-on-year due to stagnant TV market demand declining the sales and increased costs driven by intensified competition. Now, let me go over the outlook for the second half of 2025 In the second half, TV market demand is expected to decrease slightly year-on-year as economic uncertainties raise the concern over inflation. However, the growth trend of high-value-added products including QLED, OLED, and Super Big TV will continue. For Samsung, Based on the new lineup with enhanced AI feature and viewing experience, we will preemptively capture peak season demand and achieve a turnaround in sales growth. In addition, we will reinforce growth engine by enhancing communication of our key strengths such as smart things, NOX security, slim design, and art store. Lastly, With an unmatched leadership in global TV sales for 19 consecutive years, the service business will drive solid profitability and growth momentum by advancing TV Plus content and advertisement. Thank you for listening.

Many thanks to all the executives who present their business updates. That concludes our presentation on second quarter performance of 2025. and brings us to the Q&A session, which will be conducted in Korean. Given that the company's presentation lasted longer than we expected, we will try to receive as many questions as we can today. Questions regarding company-wide matters will be addressed by our CFO, Soon-Chul Park, and the other business segments will be answered by each business representative. Operator, you may now open the line for analyst questions.

We will now begin Q&A session. If you have a question, press star and one on your phone. If you wish to withdraw, press star and two. The first question will be made by Simon Woo from Bank of Korea. Thank you for the opportunity. I am Udongjae from Bank of America. I'd like to ask about tariff impacts. This morning there was a news article that U.S.-Korea have reached an agreement on trade. How will it impact your business and what's your response strategy? We believe that the conclusion of the negotiations between Korea and the U.S. has helped to reduce uncertainties. We will actively monitor the detailed aspects of the agreement by closely paying attention to the follow-up discussions between the two governments and will prepare response measures accordingly. Additionally, in mid-August, the U.S. Department of Commerce's Section 232 investigation on semiconductors and derivative products is expected to be announced, and we are paying close attention to the results. Considering the investigation includes semiconductors along with smartphones, tablets, PCs, monitors, and other end products, the findings may significantly impact our business. We've been sharing our views on the Section 232 investigation directly and indirectly and are in communication with the relevant authorities of both countries. Potential risks and opportunities stemming from both the investigation and agreements will be thoroughly analyzed to prepare response measures in a way that minimizes the impact on our business. Thank you.

Yes, thank you very much. We'll move on to the next question, please. The next question will be made by Mr. SK Kim from Daiwa Securities. Please go ahead. Yes, good morning. Thank you for the opportunity to ask some questions. I'm Sungkyu Kim from Daiwa. I have some questions regarding your foundry business. So I think there was a recent announcement about a large-scale order win. So if you could elaborate more on those details. And does this mean that there's a likelihood of increased capex either this year or next year, including at the Taylor FAB? Yes, let me answer the question on the foundry business. Well, regarding the major client award, I would like to first seek your kind understanding. We're not able to comment on detailed contractual terms. That being said, we have won a $16.5 billion order from Tesla for a next generation product to be built based on our advanced process technology, which demonstrates the competitiveness of our advanced process capabilities. So with this as an inflection point, we hope to win additional orders from other major customers and we expect it to help boost higher and more stable fab utilization at our advanced nodes, including the paid Taylor plant, which will in turn help boost revenue and profits. Regarding investments, our goal has been to win next-gen chip awards from diverse U.S. clients as we set up our new Taylor fab, which is set to ramp up operations from 2026. Currently, we are working to strengthen local execution to ensure timely operations and customer engagement at the new FAB. Meanwhile, our investments in the Taylor plan for this year is projected to be inside the scope of our existing CapEx plan for 2025. That said, when considering the ramp-up timeline for the Taylor FAB, we'd expect higher CapEx in 2026 versus this year. Yes, thank you. And we'll move on to the next question, please.

Next question. will be made by Kim Do Won from JP Morgan.

Yes, thank you very much. This is Jae Won Kwon from JP Morgan. I have some questions about memory. So changes to ASP trends in the second quarter for DRAM and NAND, if you could provide some more details. And then if you look at the tentative earnings disclosure for the second quarter, it does seem that you recorded some one-off expenses. So do you expect Similar one-offs in the third quarter as well. Yes, I will cover your question regarding second quarter performance for memory. So due to U.S. tariffs and other geopolitical issues, we did hold a rather conservative outlook on the memory market in the quarter. Later, however, as GPU supply conditions across the industry started to visibly improve, That's when AI-related demand really started to scale, and we saw a clear turnaround in the business cycle from the midpoint of the second quarter onward. For DRAM legacy products like DDR4 and LPDDR4X, supply declined amid a broad shift in industry capacity to advanced process nodes, coupled with anxiety from clients over uncertainty of future supply. This led to a steep increase in market pricing across distribution channel starting the second half of Q2. Given these conditions, we focused on capturing the short-term upside in demand for legacy DRAM like DDR4, LPDDR4X, while boosting sales of advanced products such as HBM3E, DDR5, LPDDR5X, and GDDR7. As a result, DRAM bid growth increased by a low teens percentage, Q on Q, in line with our bid guidance. while inventory decreased to below normal levels. For a conventional DRAM, at the start of Q2, based on our conservative market view at the time, we expected ASP to drop by mid-single percentage, but pricing actually ended the second quarter up by a low single-digit percentage versus the first quarter. So after declining in Q1, ASP started rebounding in the second quarter, considering most clients do price negotiations on a quarterly basis. The uptrend in market prices will likely become more fully reflected in ASP starting in the third quarter. For NAND, driven by growing server SSD demand, big growth increased by a high 20 percentage queue on queue exceeding our prior guidance. And we saw significant reduction in NAND inventory for two consecutive quarters. The rebound in demand resulted in a notable improvement in market conditions. limiting the decline in ASP to a low to mid single-digit percentage, Q on Q. And for some NAND products, ASP even increased slightly versus the first quarter. That being the case, memory business earnings declined compared to Q1 due to one-off expenses, including inventory valuation adjustments, which were recognized in the second quarter as part of conservative financial management. But this is expected to significantly be reduced in the third quarter. Thank you.

Thank you for your answer. We'll move on to the next question. Sorry, the previous question was made by from JP Morgan, and this question will be made by from KB Securities. Thank you for the opportunity. I am from KB Securities. I'd like to ask you two questions. First, with three major M&As this year, visibility on Samsung's strategy seems to be clearing, and market expectations for a major M&A deal in the second half are also rising. What's the company's M&A strategy? And also for the display part, competition among peers to expand their smartphone market share is intensifying. What is SDC's response strategy? First, regarding shareholder expectations on M&A, As a means to secure growth engines, we have delivered tangible results this year as promised. Following the acquisition of a controlling stake in Rainbow Robotics at the end of last year, Samsung signed agreements in May to acquire Massimo's Audio Division and Global HVAC Specialist Flat Group. In July, we started the acquisition process of digital healthcare platform Zelf. These M&Es are a part of our strategy to swiftly respond to trends in future growth industries, such as AI, robotics, data centers, and digital health, while further strengthening our position as a premium brand and enhancing overall customer experiences. In the first half of this year, in addition to M&Es, aiming to send future technologies and exploring corporate with leading tech companies, we made venture investments of over $120 million combined in around 40 companies, mainly in AI, robotics, and digital health, marking the largest half-year venture investment in Samsung's history. Despite the high uncertainties involving geopolitics and tariff impacts, as mentioned at the AGM, as part of our commitment to growth and shareholder value, Samsung will continually review its business portfolio while actively seeking opportunities for growth. and organic growth. In addition to strengthening the competitiveness of our business, we will proactively address rapid changes in global tech trends to secure technological leadership in a wide range of swiftly evolving industries, such as AI, HVAC, medtech, robotics, automotive, electronics, fintech, and components. We will share specifics when details are finalized. Thank you. Let me give you an answer for the display part. As the smartphone market matures, competition is intensifying. We're using differentiated strategies through technological innovation to reinforce our competitive edge. Among them are polarizer-free low-power technology named LEED is an industry's first technology to be developed and mass-produced in 2021, where we reduce panel thickness while lowering panel power consumption by over 30%. With the recent expansion of AI, there is a growing demand for low-power and high-resolution technology in the market. With the aforementioned LEED technology, we'll keep addressing the demand and further strengthen our competitiveness. Also, as for our foldable product, we have demonstrated our stable technological capabilities and production capacity through which we have introduced increasingly advanced technologies each year. In the latest foldable product, durability has improved as demonstrated by passing the 500,000 folding test. And with a slimmer panel, design competitiveness was also reinforced. To summarize, touch integrated and power efficient technologies that combine LTPS and oxide and other high-spec and innovative products have been proactively introduced. Going forward, informed factors like LEED will continue to develop performance and design differentiated technologies. Thank you for your answer. We'll move on to the next question. Next question will be made by from NH Investment and Securities. Thank you for the opportunity. I am from NH Investment and Securities. I'd like to ask questions about the Amex business. All seven is receiving better than expected feedback. How are the initial sale trend and sales outlook for this year?

Sure. So in light of stagnation in last year's foldable product sales, we very thoroughly revisited our consumer insights and reviewed the products from all angles. And so this year, we've significantly enhanced the product performance and overall user experience. The Galaxy Z Fold 7 and Flip 7, which we unveiled at this year's New York Unpacked event, reflect technological innovation that surpass what existing foldable smartphones are capable of. They feature slimmer, lighter designs, top-tier performance, durability, and seamless integration with Galaxy AI. to provide real usefulness in people's everyday lives. So to provide some figures, the Z Fold 7 has a thickness of 8.9 millimeters when folded and only 4.2 millimeters when unfolded, which is half the thickness of our first-generation model. And its weight is only 215 grams, so the portability is comparable to bar-type smartphones. As I mentioned before, the 200 megapixel camera supports photography on par with the Ultra, and the durability has also improved thanks to enhancements in glass, frame, and hinge materials. With the Z Flip 7, we improved it to reflect customer demands in terms of design and portability. The new Infinity cover screen has the thinnest bezel among current smartphones, and it's actually 70% thinner compared to the previous model, which provides more aesthetic appeal as well as practical functionality. And we also optimized the new Android OS and One UI 8 for our foldable form factors together with Galaxy AI. So in actuality, initial results are showing positive growth in line with our expectations. We look to continue the strong momentum from pre-orders into the remainder of the second half and aim for double digit foldables growth compared to last year. Thank you.

Thank you for your answer. We'll move on to next question.

The next question will be by Mr. Sator Lee from Citi Securities. Please go ahead. Yes, this is Sator Lee from Citi Group. I have some questions about your memory business. So there is actually a great deal of market interest still in Samsung Electronics' HBM business. Could you elaborate more on second quarter HPM performance as well as future plans, including for HPM4? And then another big theme is hybrid copper bonding technology. So if you could provide a progress update on this future technology, please. Yes, I will take your question on our HPM business. In the second quarter, HPM, Bid shipments increased by 30% queue on queue. And the share of HBM3E from overall HBM sales volume has increased further to a high 80% level. So our goal is to normalize the HBM business. And so we plan to achieve a meaningful expansion in HBM3E sales in the second half versus the first half. We've been steadily securing demand customer by customer, by obtaining mass production approval. And we expect HBM3E as a share of total HBM revenue to exceed the high 90% range in the third quarter. We have obtained mass production approval for 1C nano mother dyes, and we have developed samples of HBM4 based on the 1C process, which have been shipped out to some of our major clients. Our HBM4 products offer optimized design with the base die fabricated using an advanced logic process, delivering twice the performance of earlier generation HBM3E with significant improvements in energy efficiency. As we anticipate HBM4 demand to enter into full scale, We intend to expand timing supply in alignment to the rising demand, and we continue to make necessary investments in 1C nanocapacity expansion. So next-generation stacking technology, hybrid copper bonding, has been drawing a lot of attention among customers, and we are in discussions with key clients on the technology in the context of volume production. Yes, thank you. We will move on to the next question, please. The next question will be by analyst Min-Sook Choi from Korea Investment Securities. Yes, thank you for the opportunity to ask a question on Foundry. So I would like to hear more about your future advanced process roadmap for Foundry. What would be the overall direction? It seems not just for Samsung, but competitors are also moving toward two-nano volume production. So what is your differentiation strategy in that case? Yes. We have been working to enhance the competitiveness of our advanced process technologies as we seek and obtain more supply orders from large-scale clients. In terms of our advanced node roadmap, development of two nanonodes is currently underway with the goal of achieving greater performance and maturity. And this is part of our long node strategy where we seek to deliver performance a advanced process node with high degree of execution. Every year, as new processes are developed, we face various challenges in terms of yield, maturity of performance, and timely acquisition of core IP. So, to resolve these difficulties, we wish to go beyond our existing single track roadmap to adopt a two-track development approach that distinguishes between leading technologies versus platform technologies. For a new process development, we will work out yield, maturity, et cetera, with a small number of lead customers and building on that as a base. Then the strategy would be to then open up and make the platform technology available to other global customers across diverse application and markets once we acquire core IP. We want to minimize process variation between generations. Focus on improving SI maturity while using design technology co-optimization for additional performance enhancements. And this will help solidify the foundation for future growth.

Thank you. We'll move on to the next question. The next question will be made by Becky Leung from Uanta Securities. Thank you for the opportunity. With the recent acquisition of BlackRoof, There is growing interest in your HVAC business. What's the HVAC market outlook and your strategy for the HVAC business, including the acquired company? VP Uttekhan will answer the following question on the DA business. Okay, let me give you my answer. The global HVAC market as of 2024 is valued at approximately $180 billion with global warming, AI data centers, and increasing demand for green products the market is forecast to keep growing. In line with this trend, we'll not only expand our current business, but also acquire and cooperate with leading global players to foster our HVAC business as a future growth engine. Currently, our business operates in Douglas' HVAC segment. However, through the joint venture established with Lenox last July, we are expanding our business in North America, the world's largest air conditioning market. With the recent acquisition of Flag Group, we'll broaden our business scope into the central HVAC segment while also enhancing our position as a pure HVAC player. Flag Group and Lenox's outstanding capabilities and smart things energy technology will be incorporated to lead the market trend in energy saving. And we'll also expand into specialized markets such as data centers, biotech, and commercial applications. Beyond our current Douglas business, we'll enter the central HVAC segment and secure maintenance packages for energy savings and operational cost optimization to build the foundation for a global top-tier HVAC business. Thank you. Thank you for your answer. We'll move on to the next question. Next question will be made by Handong Yi from SK Securities. You may proceed. I am Handong Yi from SK Securities and thank you for the opportunity. I have two questions. First, I'd like to ask about the MX business. What's your profitability outlook for the second half and what's the direction of your AI strategy? And next, I'd like to ask about system LSI. The Exynos has reinterred your recently launched flagship model, and what improvements make this reentry possible? And can you talk about whether it's likely to be adopted again in the 2026 flagship model?

So first, on the MX second half profitability outlook, given the uncertain external environment including potential increased tariff burdens due to changes in U.S. trade policies and currency fluctuations. Memory prices are expected to rebound beginning in Q3. Despite the challenging business conditions, we're aiming to increase smartphone revenue focused on our flagship models with the momentum of our new foldables, as well as maintaining the sales momentum of our S25 series. We're also aiming to expand sales of our ecosystem products like the Galaxy Tab S series and Galaxy Watch Ultra, driving growth especially in premium products. We'll also continue efforts in cost reduction, process optimization, and eliminating inefficiencies in order to secure robust profitability. For the AI strategy, we're focusing on enhancing the performance of Galaxy AI in order to improve the user experience and deliver more real-world value. We're at the forefront of a paradigm shift in smartphone interaction, which is a transition from app-centric to agent-centric and from touch-centric to multimodal interfaces. We're aiming for a more personalized and intuitive AI experience by evolving into an open platform that connects to various AI agents. and optimizes the interaction depending on the user need. So to get there, we are equipping our devices with optimal hardware components, such as the AP and memory, while also researching and developing software technologies that maximize the performance of on-device AI, improve the processing speed, make models more lightweight, while also being optimized to our systems. We have strategic collaborations to deeply integrate AI across the range of Galaxy devices as we continue to expand and develop the Galaxy AI ecosystem. Together with Google, we implemented the cross-app interface in the S25, which leverages the agent to let users take action across multiple apps with one single prompt, vastly simplifying complex tasks. And as another example, the Gemini Live feature enables real-time camera and screen sharing, a multimodal AI experience that understands and responds to what the user is viewing. We've optimized these features for the new Fold 7 and will continue to evolve our AI functionality and its usability for future devices as well. Thank you.

Yes, let me take your question on system LSI. So Exynos 2500 made a successful entry into a foldable model that was released in July, and it's improved AI performance and camera functions. We want to build on this success to expand into other new models. The next flagship, Exynos 2600, will be the first flagship chipset fabricated on the latest 2-nano gate-all-round process. We're working closely with the Foundry Division on development to secure the required yield and performance so that we can enter the flagship models of key customers in the first half of 2026. Exynos 2600 offers a significant improvement in NPU performance versus prior version with enhanced support for on-device AI functionality, which will allow users to leverage AI functions in a more comfortable setting. We plan on leveraging 2nano as our long node for the future. We're working closely with the founding division to enhance the process maturity with Exynos as a bridgehead for securing competitiveness of future products. Because of the time, we will accept one last question. It will be by Junhee Lee from Goldman Sachs. Please go ahead. Yes, thank you for the opportunity to ask one question on memory. What is your outlook for the memory market in the second half? There are some recent concerns about competition becoming even more intense in the HBM market. So what is your outlook for memory over the second half of the year? Okay, so let me answer your question about our outlook. For the server market, there's been a rapid rise in paid subscribers for AI services. So CSPs have been expanding their informed services as well, which is driving investments into underlying infrastructure. Supply conditions have been improving for GPUs and ASICs, which are critical for building out infrastructure. So we expect accelerated growth in demand from AI server applications in the second half. Moreover, we expect robust continued demand for conventional servers and storage for general computing, and it's required for pre-treating data in AI applications. For PC, we expect upside demand momentum from end-of-year promotions as well as other seasonal demand drivers, also the end of support for Windows 10. For mobile, we predict growing demand for high-performance, high-density products driven by... greater on-device AI trends aligned with new product launches by major customers. So boosted by the overall boost in demand across applications, market prices are expected to increase by a greater margin the second half for DRAM, while NAND is also expected to see an overall rally in pricing from the third quarter. However, the exact extent of price increases will vary by product, depending on supply-demand dynamics. We believe prices of products Legacy DRAM and Plenar NAND, where there's increasingly tight supply, may rise by a bigger extent in relative terms. So although legacy memory prices are expected to rise, we will continue to focus on advanced node migration for DRAM and NAND to secure competitiveness in the mid to longer term. We will expand sales of diverse offerings that we have been preparing in expectation of increased growth in AI over the mid to longer term. For DRAM, outside of HBM, we've also been expanding sales of high-density LPDDR5X for AI servers, also high-density DDR5 RDEM 128 gigabytes and above, 24 gigabit GDR7 as well, where we already hold a leading position. In the third quarter, we'll commence mass production and supply of SOCAM as well as reinforce our AI product portfolio. In the third quarter, DRAM bit shipments are expected to increase by a high single percentage, queue on queue. Fernand will speed up V8 migration across all applications, including servers, to strengthen cost competitiveness, while also increasing the share of server SSD sales for better margins. Server SSDs in particular, together with product leadership in Gen 5 TLC SSDs, we have seen We have obtained a series of customer approvals for high-density 64 and 128 terabyte QLC SSDs, which puts us on good track to boost AI server application sales in the second half. This is why we project NAND bit growth at around bit single percentage for Q3. Regarding intensifying competition for HBM, For HBM3E, supply has grown faster versus demand, so we anticipate supply-demand dynamics to change, which will likely impact market prices for the time being. And considering the upward price momentum for conventional DRAM, so far the second half, based on current signals and also near-term expectations, we believe the difference in margins between HBM3E and conventional DRAMs is expected to narrow sharply. So to optimize profitability in the short term, this may mean greater need for a more balanced product mix strategy. However, for us, given the strong mid- to long-term demand for HBM driven by AI, we intend to focus on addressing demand for HBM3E while strengthening tight cooperation with customers for commercialization of HBM4 as well. And as an extension, we will continue to develop products for the future including custom HBM, while continuing with necessary relevant investments as well. Thank you.

Thank you for your answer. I'd like to thank everybody who shared their valuable opinion, and we'll 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. Thank you very much.