Samsung Elect Ltd

Hello everyone and welcome to the Samsung Electronics 2025 Third 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.

Welcome everyone and thank you for joining us from around the globe. I am Daniel Oh, Head of Investor Relations at Samsung Electronics. It's my pleasure to be with you on our earnings call today to discuss our third quarter result. Before we begin, I would like to address some important housekeeping and legal matters. As a reminder, you can follow today's broadcast and slide presentation on our IR website at www.samsung.com backslash global backslash IR. Thank you. Additionally, this call is being recorded and it will be accessible on the same platform for those who wish to review it at a later time. We kindly ask for your attention and cooperation as we move forward as this session is designed to provide you with comprehensive insights into our financial performance and strategic outlook. I would like to remind everyone that this conference call may include forward-looking statements which are based on our current expectations regarding future events. These statements are not intended to serve as guarantees of future performance. Our actual results could differ materially from these statements 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 in our efforts to provide transparent and accurate information. With that in mind, I would like to outline today's format. I will begin the discussion with our third quarter financial performance, followed by EVP Soonchul Park, our head of corporate management office and CFO, who will share our business outlook, capital expenditures, and updates on shareholder returns. We will then turn the call over to our executives who will take this opportunity to discuss their respective business areas 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 Choi Joon Kim representing memory, VP Hyukman Kwon for System LSI, EVP Seok Chae Kang for Foundry who has joined us for the first time, EVP Joon Young Park for Samsung Display Corporation, VP Daniel Araujo for the mobile experience, and finally, VP Mark Kim representing Visual Display for this quarter. Now let's begin with our consolidated financial performance for the third quarter of 2025. Our total revenue reached 86.1 trillion won, up by 15.4% quarter-on-quarter. In the DS division, sales increased by 19% sequentially, with the memory business setting a new all-time high for quarterly sales. driven by strong growth of HPM3e and server SSDs. In the DX division, revenue was up 11% quarter-on-quarter thanks to launch effects of new foldable phones and solid flagship sales. SG&A expenses came in at $21.3 trillion and SDNA expenses as a percentage of sales declined by 3.1 percentage points sequentially to 24.8%. As of the end of the third quarter, year-to-date R&D expenses climbed to a record high of 26.9 trillion won, reflecting our commitment to innovation and long-term growth. Operating profit totaled 12.2 trillion won, representing a sequential increase of 7.5 trillion won and operating margin increased by 7.9 percentage points quarter-on-quarter to 14.1%, led by the S division with increased memory sales, improved boundary line utilization, and significantly reduced one-time inventory value adjustments compared to the previous quarter. Meanwhile, In the DX division, an increase in sales of high-value added products, such as Ford 7, contributed to the growth. Regarding currency effects, the Korean won relative strength against the U.S. dollar weighted on our component business, as a significant portion of its transactions are in U.S. dollar. However, the negatives were largely offset by positives in the DX division, resulting in a minimal overall impact on the company's operating profit. More detailed third quarter results of each business will be presented by executives shortly. Before that, I would like to pass the conference call over to our CFO, Soonchul Park, who will discuss the outlook for the fourth quarter and 2026.

Thank you, Daniel. And good morning, everyone. I am Soonchul Park. CFO of Samsung Electronics. It's a pleasure to join you once again on our earnings call. Fourth tip, our management is fully aware of the concerns the market and the shareholders had concerning our performance through the previous quarter. However, thanks to the collective dedication of our employees in overcoming challenges, Our third quarter result showed a clear rebound and meaningfully met market and shareholder expectations. Looking ahead, we will continue strengthening our business overall and we remain committed to delivering strong performances to meet expectations. Before we move on, I would like to express my sincere gratitude to our shareholders for your patience and confidence in Samsung Electronics, especially during such a challenging environment. Now, let's begin with the outlook for the fourth quarter of this year. We anticipate a mixed market environment in the fourth quarter, characterized by ongoing global trade and geopolitical risks on one hand, and on the other, the potential for growth driven by the rapid advancement of the AI industry. In light of this outlook, the DS division will focus on enhancing its performance by increasing sales of high-value-added memory products tailored for AI. In the DX Division, ongoing challenges such as heightened competition and tariffs may impact our projections for additional earnings growth. Nonetheless, we persist in our efforts to expand sales, placing a strong emphasis on advanced AI products. Next, I would like to share our outlook for the coming year. In the first half of 2026, we expect the semiconductor market to remain strong, driven by ongoing AI investment momentum. However, due to the uncertainties such as tariffs, for the second half, we will provide a more detailed outlook during our earnings call for the second quarter of 2026. To navigate this uncertain environment, we utilized our strong technologies and diverse product portfolio to mitigate risks and maximize opportunities, resulting in continuous sustainable growth. In the DS division, the memory business will make tiny investments and maintain each operational focus on profitability to actively respond to demand for high-value-added AI products. At the same time, we'll promote the expansion of sales for cutting-edge products such as HBM and high-capacity DDR5 and ESSD. For system LSI, we plan to increase sales of premium SOCs and image sensors. The Foundry business will work to strengthen its advanced processes and ensure timely ramp-up for the U.S. tele-fab. In this play, we'll further reinforce our leading market position with our competitive products from the new 8.6 generation IT OLED line and by advancing our differentiated technologies and product excellence to meet the demands of AI devices. The DX Division will strengthen its efforts to launch AI products equipped with the most innovative technologies through open collaborations with leading global partners in respective business segments. Through these initiatives, we'll expand sales of premium products and enhance profitability, driving overall growth and reinforcing our leadership across the board. In the MX business, the launch of the X26 and other flagship products will provide our customers with enhanced performance and a more intuitive and elevated AI experience. Moreover, we will continue to lead compact innovations with the recently released Galaxy xr and the upcoming launch of trifold and leverage our differentiated galaxy ecosystem to grow cells led by premium devices in the vd business will drive sales growth by enhancing our premium leadership through the innovative new new lineup including micro RGB and OLED, and will deliver unique customer experience with continually improving AI features. In the DA business, we'll accelerate sales by strengthening the product lineups overall and improving differentiated connectivity between our products. Turning to capex, in the third quarter of 2025, capex decreased by 1.9 trillion won compared to the previous quarter and by 3.3 trillion won compared to the same quarter last year, coming in at 9.2 trillion won. This included 7.8 trillion won invested in the DS division and 0.8 trillion won in display. For the first three quarter of this year, total capex was 32.3 trillion won down 3.6 trillion won year on year. Of this amount, the DS division accounted for 28.5 trillion won, while the display business represented 2.1 trillion won. For the full year of 2025, CAPEX is projected to decline by 6.3 trillion won year over year, reaching a total of 47.4 trillion won. Within this total, the DS division is expected to account for 40.9 trillion won in capex, down 5.4 trillion won, while the capex for the display business is anticipated to be 3.3 trillion won down 1.6 trillion won. In memory, we expect overall capex to remain relatively flat year over year, although infrastructure investments are projected to decline. On the other hand, equipment investments Particularly, those related to advanced node transitions are anticipated to increase as we focus on expanding sales of high-valuated products. In Foundry, we are continuing to invest in advanced nodes, including 1.4 nanometer technology. However, we foresee a decline in total investment with operations focused on improving and transitioning our current mass production line. In the display business, our capex has mainly concentrated on reinforcing and upgrading existing production facilities. As major investment, in the 8.6 generation line are nearing completion. We expect overall spending to decrease compared to the last year. In 2026, we'll flexibly respond to the growing demand for AI by increasing investments strategically as needed. Moving on to shareholder returns, the Board of Directors today approved a quarterly dividend of 370 Korean won per share for both common and preferred stock. Under our shareholder return policy for 2024 to 2026, we are committing to an annual payout of regular dividends totaling 9.8 trillion won. The distribution for the third quarter amounting to 2.45 trillion won is scheduled for the payment in late November. Thank you.