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.

Thank you, Chief, for Central Park. And to wrap up this portion of the call, I am pleased to report that Samsung Electronics has maintained its position as the world's fifth most valuable brand for the sixth consecutive year in the Interbrand's Best Global Brands Top 100 ranking. Our brand value was assessed at $90.5 billion, which was the highest among non-U.S. companies. The evaluation highlighted positives such as our AI capabilities across all business units, the application of AI home experiences across all products, focused investment in AI semiconductors, and a consumer-centric brand strategy. Now, the executives will provide more detailed information on their respective business units' third quarter performance, followed by their own business outlook. We'll start with Jaejun Kim, EVP of Memory Business.

Good morning. This is Jaejun Kim from Memory Global Sales and Marketing. In the memory market in the third quarter, demand remained strong and continued focusing on HBM, high-density DDR5, and server SSSDs as the needs for high-performance and high-density server products are growing with increasing investment in generative AI. As for mobile and PC, supply-demand dynamic remained tight. due to the impact of industry supply response focusing on servers. In this situation, along with increasing HBM3 e-sales, we proactively addressed the demand in overall application, including server, and our memory business in the third quarter recorded its strongest sales performance ever. Also, our performance improved significantly quarter on quarter, And the reduction in the inventory-related one-time charges that occurred in the previous quarter also somewhat contributed to the performance improvement. Now let's move on to the outlook for the fourth quarter. Although uncertainties from tariffs and macroeconomic trends exist, we expect data center companies to continuously expand their hardware investments because of the ongoing competition to secure AI infrastructure. Therefore, AI-related server demand keeps growing, and this demand significantly exceeds industry supply. For mobile and PC, we expect supply shortages to intensify further in conjunction with the industry's server-focused supply trend, increased contents per box driven only by AI, and seasonal demand effects. In the fourth quarter, we will maintain our active response to rising server demand. For DRAM, we plan to optimize overall profitability by managing our product mix, focusing on HBM3e and high-density server DDR5 products in response to the robust demand for AI and conventional servers. And also for NET, we will concentrate on expanding sales of high-density, high-performance server SSDs. Now, let's move on to the outlook for 2026. With a continued expansion of AI investments next year and the increase of memory-intensive computer servers prompted by the spread of AI agents, we expect to see simultaneous growth in AI and conventional server demand. Moreover, in mobile and PC segments, we expect the trends of growing contents per box to continue with the spread of on-device AI. Especially for NAND, we expect supply constraints to intensify as industry inventory levels roll down sharply, with the effect of SSD adoption as a replacement for near-line HDDs, which are in short supply. Accordingly, across overall applications, we are currently receiving memory demand for the year of 2026 and it's much stronger and faster than usual. It is expected that customers' demand for the next year will exceed our supply, even considering our investment and capacity expansion plans. In this situation, for DRAM, we plan to continue increasing the sales base for HBM. In particular, as for HBM4, from the initial stage of product developments, we have already secured speed above 11 Gbps. exceeding the customer's requirement. With our industry-leading performance, we will focus on offering HBM4 centering on the high-end segment. Also, for conventional DRAM, we plan to increase the portion of high-value-added products related to AI application, such as high-density DDR5, EpiDDR5X, and GDDR7. Also for NAND, we will increase the sales portion of server SSD and high-density QLC in line with strong demand for AI. And we plan to strengthen our portfolio, focusing on cutting-edge products by continuing the transition to V8 and V9. Thank you.

Good morning. This is Hyeongman Kwon from the system and site business. In the third quarter, the smartphone market showed signs of slowing growth following modest gains in the first half. Major smartphone OEMs, which had built up inventory in anticipation of potential U.S. triple risks, began destocking in the second half, leading to weaker overall demand. We launched the industry's first 200-megapixel image sensors featuring 0.5 micrometers, ultra-fine pixels, laying the foundation for expansion in the high-resolution segment. In SOC, efforts were focused on the stable supply of premium products to major customers' flagship lineups. However, overall demand declined versus the first half due to broad-basis inventory adjustments and seasonal impacts, resulting in flat quarterly earnings. In the fourth quarter, growth is expected to remain limited amid continued global economic uncertainties. With major OEMs maintaining a cautious inventory level, demand for recovery is likely to be gradual. Against this backdrop, we aim to expand Shimmer to two key customers' premium lineups and continue cost reduction initiatives to defend earnings. Looking ahead to 2026, overall smartphone demand in major markets such as China and the U.S. is expected to remain subdued, while the premium segment should continue to post solid growth during buy lineup expansion and specification upgrades by leading OEMs. We are accelerating processor stabilization and performance enhancement of our Exynos to secure adoption in key flagship models while continuing to expand its market share in image sensors through differentiated technologies such as 200 megapixel and nanoprism sensors. Thank you.

Hello, everyone. This is Sub-Che Kang from the Foundry Business. In the third quarter, while U.S. export controls on China impacted sales to certain clients, revenue was sustained at the previous quarter's level, driven by expanded sales to key customers in the U.S. and Asia. increased sales of memory products. Furthermore, profits saw significant improvement due to a reduction in one-off costs, better line utilization, and the realization of cost-saving efficiencies. We also began mass production of our first product using the first generation of two nano process while achieving a record high order backlog driven by large scale customer wings centered on advanced nodes. Looking ahead to the fourth quarter, the market is projected to see a slowdown in demand that had temporarily due to the U.S. government's tariff policies. However, strong demand in AI and HPC, along with the trend of semiconductor self-sufficiency in China, is expected to fuel continued growth. We aim to expand our sales by ramping up mass production of 2-nano products increasing shipments of HPC, automotive and memory products, and further improve earnings by enhancing FAP utilization. In advanced node development of the second generation to nano process is processing as planned, progressing as planned. We expect to extend orders for HPC and mobile applications based on our two and four nano processes. For mature nodes, we plan to broaden our customer base by diversifying into automotive and other applications through an expanded portfolio of specialty processes. For 2026. While the mobile market is projected to remain stagnant, we forecast continued robust demand for AI HPC applications. Notably, the full scale expansion of three nano and two nano process mass production is expected to drive growth in advanced nodes. However, global supply chain uncertainties stemming from intensifying US-China technology competition and the US government's semiconductor tariff policies are likely to persist, meaning demand volatility will also remain a factor. We plan to continuously increase the proportion of advanced nodes to address strong demand from AI HPC applications, thereby aiming for stable revenue growth. Specifically, we will pursue the mass production of second-generation 2-nano process products based on secured stability and focus on developing differentiated processes to strengthen our technological competitiveness. Additionally, we plan to expand demand for mobile and HPC through mass production of performance and power optimized for nano process and HPM4 base die. In addition, our new Tailor Fab in the U.S. currently under construction is scheduled to commence operations from 2026. Thank you.

Good morning. This is Joon Young Park from Samsung Display. In the third quarter, we delivered a sequential performance improvement in the mobile display business thanks to the robust demand for our customers' flagship smartphones and newly launched products. Furthermore, we also achieved sales growth supported by an increase in the IT OLED adoption rate. For the large display business, amid the rising demand for QD OLED gaming monitors, we recorded double-digit growth in monitor sales compared to the previous quarter, by actively meeting our customers' needs. Also, we introduced a new 27-inch QHD lineup laying the groundwork for an additional increase in demand for QD OLED monitors. Next, let me share the outlook for the fourth quarter. On the back of a favorable year-end seasonality, we expect the demand for premium products to stay solid. In response, we will expand our sales by actively addressing customer demand for smartphones and boosting sales in non-smartphone segments such as IT, automotive, and gaming. We aim to maximize the sales of QD OLED monitors with the expected full-scale launches of our new lineup. Furthermore, we will respond to our major customers' demand for TVs in the year-end peak season in a timely manner. Moving on to 2026, our outlook is quite conservative, considering the intensifying impact of tariffs and lingering macroeconomic uncertainties. However, order adoption is continuously rising in diverse applications thanks to its outstanding performance. Under these conditions, We plan to strengthen our product competitiveness for diverse segments, solidifying our market leadership. To start with, our new 8.6 generation IT OLED line, slated for mass production next year, will deliver competitive products, accelerating OLED penetration rate in the IT market. In addition, We will expand our technology lead in smartphones by enhancing the quality of foldables and introducing differentiated technologies for AI devices, such as low power consumption and high refresh rate. Finally, for larger displays, we will continue to enhance the differentiated performance for TVs, such as brightness, and solidify our position in the QD OLED monitor market by expanding lineups for both B2B and B2C and diversifying our customer base. Thank you.

Hi, everyone. This is Daniel Araujo from the MX Division. Let me share our results for Q3 as well as our future outlooks. The smartphone market rebounded in Q3 as macro uncertainties were somewhat alleviated due to progress in tariff negotiations among major countries. together with expectations of interest rate cuts. For the MX business, Q3 saw smartphone shipments of 61 million units, tablet shipments of 7 million units, and the smartphone ASP of $304. The launch of new flagship models contributed to growth in both sales and operating profit compared to Q2. Strong sales centered around the Fold 7 resulted in double-digit growth in both shipments and value for foldable devices compared to the previous year, while the S25 series also maintains solid sales momentum. The growth of flagship sales as a portion of total smartphone sales, along with improved sales of new tablet and wearable products, enabled us to sustain robust double-digit profitability. Next, let me share the outlook for Q4. The smartphone market is expected to grow compared to the previous quarter due to seasonal factors. However, competition is expected to intensify, especially in the premium segment. In the MX business, we expect a decrease in both smartphone shipments and ASP and Q4, as well as a decline in tablet shipments compared to the previous quarter. We aim to continue robust sales of AI smartphones, including our foldable devices, and the S25 series, and we'll also press forward with expanding Galaxy ecosystem product sales in conjunction with seasonal demand, focusing on premium new products. Although we anticipate intensified competition and price increases in key components such as memory, we will persist in our efforts to achieve year-on-year annual revenue growth and maintain profitability through flagship-focused sales and efficiency improvements across all processes. Next, I'll share our outlook for 2026. The smartphone market is projected to be roughly flat in both value and volume. Within the premium segment, the ultra-premium segment is expected to see significant growth, especially around foldable devices. The mass segment is also anticipated to grow, mainly focused on higher price points. For ecosystem products, While tablets are experiencing a slowdown in replacement demand, the notebook PC segment is expected to expand due to growth of AI PCs and Windows 10 replacement demand. Additionally, the watch and TWS markets are projected to grow as interest in health and sports rises together with the expansion of AI features. MX will continue strengthening our leadership in AI and four-factor innovation, maintaining our strategy focused on expanding flagship sales. At the same time, we plan to drive growth across all segments by expanding to new regions and channels, as well as upselling based on product competitiveness to solidify our leadership and volume. The S26 series will revolutionize the user experience with a user-centric, next-generation AI experience a second generation custom AP, and stronger performance, including new camera sensors. For foldable devices, we plan to continue form factor innovations to strengthen our product lineup and provide new experiences, aiming to expand our customer base. In ecosystem products, we aim to increase premium product sales with superior products and more advanced and intuitive Galaxy AI features. In particular, we will continue to enhance health AI experiences in our watches and further expand our TWS lineup in order to create new demand. Through these efforts, we will continue our business growth momentum even in the face of anticipated challenges next year.

Thank you.

Hello, everyone. I'm Mark Kim from the sales and marketing team of Visual Display. Let me brief you on the market condition and our results in the third quarter of 2025. In the third quarter, TV market demand increased quarter-on-quarter due to seasonality. However, it is expected to decrease slightly year-on-year as global TV market demand remains stagnant. For Samsung, we achieved solid sales growth in premium segments, including Neo QLED, OLED, and large-screen TVs. In response to intensifying competition in the entry-level market, We also diversified the QLED and 75 inches and above lineups to expand sales. Even so, our profitability decreased year-on-year due to stagnant TV market demand, declining sales, and increased cost driven by intensified competition. Now let me go over the outlook for the fourth quarter of 2025. In the fourth quarter, TV market demand is expected to increase slightly year-on-year. although competition is likely to intensify with the year-end peak season. For Samsung, through strategic collaboration with major channel partners, we will strengthen our sales program for premium and large-screen TVs to preemptively capture peak season demand and achieve a turnaround in the second half of the year. The TV market in 2026 is projected to grow slightly compared to this year. Also, the portion of strategic products such as QLED, OLED, and large-screen TVs above 75 inches, which are our core focus, is expected to expand further. For Samsung, we will strengthen premium leadership based on our innovative 2026 new lineup, including microRGB and OLED. In particular, with our new form factors, microRGB, we will secure the new category in advance and reinforce our technological edge. At the same time, we will continue enhancing the competitiveness of the volume segment to drive a turnaround in revenue. By continuously advancing our AI features, we will deliver differentiated customer experience and solidify our leadership in the AI TV market. Lastly, The service business will drive solid profitability and growth momentum by advancing TV plus content and advertisement. Thank you.

Thank you, Mark, and all the other executives. That concludes our presentation on the third quarter performance of 2025 and brings us to the Q&A session, which will be conducted in Korean. Questions regarding company-wide matters will be addressed by our CFO, Sun Chul Park, and questions for other business segments will be answered by business representatives.

We will now begin the Q&A session. If you have a question, press star and 1 on your phone. And if you wish to withdraw, press star and 2. The first question will be made by from Citigroup.

Yes. First, congratulations on strong performance. I think recently on the semiconductor and memory side, I have one question for memory and then for the overall company. In the case of memory, it does seem that you have achieved strong performance in the third quarter. Could you explain more about third quarter bid growth and also pricing dynamics? And also, what is your outlook on the memory business for the fourth quarter? My second question is regarding your share buyback program. I understand that Samsung Electronics share buybacks have recently been completed and finished. Could you provide further details on the current status? Yes, let me address third-quarter memory performance and fourth-quarter outlook. With the expansion of inference applications and wider adoption of agentic AI, AI-related CAPEX among data centers has been increasing even more significantly versus our initial expectations. And we continue to see strong demand in the memory market for both DRAN and NAND, driven by server applications. Also for mobile and PC applications, With the industry providing priority supply to address AI server demand, there are growing concerns of supply shortages, and we have seen a rise in market prices. So already strong AI-related demand is becoming even stronger, driving the overall memory market. And in the third quarter, we also have expanded sales primarily of AI-related products to capture that demand. For DRAM, we expanded sales of HBM and high-density DDR5 LPDDR5X and GDDR7 for servers, achieving bid growth in the mid-teens percentage. For NAND, our focus was on profitability, and we were able to proactively address demand for high-margining server SSDs, recording around 10 percentage bid growth. Consequently, third quarter bid shipments outperformed our guidance, both DRAM and NAND, with a further reduction in our inventory levels. In the third quarter, impacted by rising pricing trends across the broad memory market, also increase in HBM sales mix, DRAM ASP rose by mid-10% Q on Q and then by mid-single-digit percentage. Profitability-wise, as we explained, inventory valuation adjustments in the previous quarter were reduced, partially contributing to improved earnings performance. Also in the fourth quarter, with major CSPs expected to expand capex, solid AI-related demand will continue. Meanwhile, on the supply side, with inventory across the industry dropping to self-normal levels, supply is expected to be highly limited, and rising prices are expected to increase further for DRAN and NAND across all applications. Given these conditions, we intend to continue our profitability-focused operations. for DRAM while actively capturing HBM3E demand. We'll also increase the share of high margin products for server applications. Within servers, we'll focus on high value products such as high density DDR5, LPDDR5X to drive sales. That being said, as overall inventory levels come down, our bid shipment growth is likely to be limited to the low single digit percentage in the fourth quarter. In NAND, as we continue to transition to V8 and V9, we'll also look to expand sales of high-performance 16-terabyte and above TLC SSDs for AI inference servers. Meanwhile, we'll ramp up supply of ultra-high-density QLC SSD, which we collaborate on with large-scale data centers, starting from the fourth quarter onwards. However, as inventory has been declining at a faster pace, and amid continued migration of legacy lines to advanced nodes, bid production loss may be inevitable in the short term, so we expect fourth quarter bid shipments to come down to around 10% on a Q&Q basis. However, the share of server SSDs in our sales mix is expected to increase substantially.

I will provide an update regarding our treasury shares. In November 2024, we announced a phased share repurchase program worth $10 trillion, which was fully completed by September 29. This was ahead of our original target date and the revised target stated in the third share repurchase disclosure. By executing the share repurchase within a shorter time frame, we aim to actively enhance shareholder value. In addition to the annual dividend of 9.8 trillion won, the company also completed further share repurchase during the quarter, reinforcing our active approach to shareholder returns. Also, following the completion of the share repurchase, regarding the possibility of additional returns, the management and the board are fully aware of the market's increased interest. As a result, the company is continuously reviewing strategies to enhance long-term shareholder value. Additionally, excluding those reserved for employee compensation, we'll decide on the appropriate timing to cancel the remaining repurchase shares in the near future. Collectively, these actions reaffirm our commitment to creating long-term value for our shareholders. Thank you.

Yes, thank you very much. We will now move on to the next question, please. The next question will be by Mr. Kim Do Won from KB Security. Yes, congratulations on the highest performance in three years. I have one question for HBM. I think there's been a great deal of recent interest on whether Samsung Electronics passed the final publications from NVIDIA or not for HBM3e and generally on the status of your HBMs. So could you provide an overview of your HBM3e and HBM4 business and also your sales outlook for HBMs in 2026? Yes, let me take your question on HBMs. First of all, I must say that regarding our HBM qualifications, we are quite aware that the market is very interested, but due to our MD commitments with our client, I'm afraid we are not able to comment further. What I can share with you at this point is that we are seeing HBM demand grow at a faster pace than supply, and that we have been expanding HBM3E mass production and sales to all of our customers. As a result, in the third quarter, our HBM bit shipments increased by mid-80% queue on queue. And excluding some small tail end sales of legacy HBMs, our overall sales mix has now fully transitioned to HBM3E. For HBM4, as we explained at our earnings call late July, our development work is already finished and we have shipped samples to all customers and are ready to start mass production and delivery in line with customers' required project timeline. One thing to look at regarding HBM4 commercialization is that as competition intensifies among customers for GPU performance, this has prompted some of the customers to change their original plans, and they have been asking for HBM4 with even stronger performance. From the start-up phase of our development work on HBM4, We have made it a point to reflect these market needs in advance of the market, setting our performance targets above customer requirements in all our developments. Samples shipped to customers to date are fully capable of meeting 11 Gbps plus performance on low power consumption. Meanwhile, there is now fiercer demand for improved performance from AI applications. Because we expect a rise in demand for related HVM4, We will be proactive in executing on necessary investments to expand our 1C nano capacity. Lastly, let me address our sales forecast for HBM next year. While our 2026 HBM BIT production plan was set reflecting a significant YY increase, we have already secured significant customer demand for the planned volumes. However, as additional customer interest keeps coming in, we are internally reviewing possible capacity expansion. That said, the recent rise in conventional DRAM prices has resulted in a sharp improvement in profitability. So for any additional product mix, we will be considering the relative profitability of HBM versus conventional DRAM. Any additional capacity expansion will also be set at an adequate level as we continue to monitor evolving market conditions. Yes, the next question will be Mr. Jae Kwon from JPMorgan. Please go ahead. Yes, this is from JP Morgan. Thank you for the opportunity to ask some questions. My first is on memory. This is an extension of the prior question. Could you share your outlook on the memory market for 2026? And second, I understand that the company has recently announced an expanded stock compensation scheme for all employees and executives, so could you explain more about this in further detail? Yes, so the 2026 memory market outlook, let me take that. Next year, we expect the memory market to continue growth momentum, continuously driven by AI application demand. As DRAM requirements become more advanced for AI use cases, the high-performance HBM4 market is expected to emerge at full scale, while server DRAMs will continue to shift toward higher capacities. And as industry supply tilts toward HBM and server DRAMs, Mobile and PC applications will likely experience supply constraints. For legacy products like DDR4, LP, DDR4X, G, DDR6, as legacy processes accelerate transition to advanced cutting nodes across the industry, supply constraints have already been impacting prices, which rose sharply in the second half. This constrained supply condition is expected to continue next year as well. For NAND, similar to DRAM, Demand is likely to increase mostly around high-performance, high-density products for AI. Also, a supply shortage in near-line HDDs may solidify demand for substitute products, QLCS CDs, as inventory or industry inventory levels may bottom out faster than initially expected. So consequently, next year, amid overall bullish market conditions, even when assuming our capex and expansion and maximum production, customer demand will still exceed available supply and our available supply will remain far short of meeting customer demand. That said, for the second half of 2026, given various geopolitical insurgencies such as tariffs or expert controls on high-end AI chips, we are looking more cautiously at the possible impact to market conditions Even under such market uncertainties, we will continue to strengthen the competitiveness of our products in line with market demand, and we plan to expand the supply of AI-related products. Targeting the high-growth AI market, we'll focus on commercialization of HBM4 with differentiated performance, while expanding sales of high-density DDR5, SOCAM, GDR7, and server SSDs. With products like 10.7 Gbps LP DDR5X and UFS 5.0, we'll also actively address specialized demand for on-device AI to lead the market.

Next, I'll provide an update regarding employee stock compensation. As reported in the media on October 14, to support mid- to long-term value creation, we plan to use performance stock units, or PSUs, and we'll expand stock compensation in the OPI performance incentive to include all employees. The goal is to motivate our people to focus on long-term performance and foster mutual growth across the company through this foundation. Under the performance stock units, or the PSU program, the final number of shares granted will be determined by the stock's three-year performance, and the granting of shares will then be made in installments over three years. This is an advanced compensation method linked to the company's future performance designed to align employee rewards with the stock price and enhance shareholder value. Next, the OPI stock compensation program will be expanded from executives only to include all employees starting from the payout in January 2026. The program for executives which began in January 2025 to strengthen responsible management will be available company-wide. Of the 10 trillion won worth of treasury shares repurchased over the past year, excluding the portion allocated for employee stock compensation, 8.4 trillion won worth will be canceled at an appropriate time consistent with our previous disclosure. The $1.6 trillion worth of Treasury shares repurchased for employee stock compensation will be used for existing programs such as OPI, while additional shares for the newly announced PSU program will be purchased in the future. The specific acquisition period and volume will be determined in consultation with the Board and disclosed to shareholders accordingly. Linking employee compensation to the stock price enables employees to focus on enhancing the company's value and delivering long-term performance, while providing direct incentives to increase shareholder value so that we can remain committed to enhancing corporate value over the mid to long term. Thank you. We'll move on to the next question.

The next question will be by Mr. Handong from SK Securities. Please go ahead. Yes, this is Handong. I'm in charge of semiconductors at SK Securities. I have a question on foundry and another on smartphones. First, for foundry, it seems third quarter loss appears quite noticeably reduced versus the second quarter. What are the main reasons and drivers? Do you expect this improvement to continue into the fourth quarter? And for smartphones, in terms of profitability, amid a rise in memory and other component prices, do you think that you will be able to maintain current levels of profitability? Yes, let me answer your question on Foundry. So in the first half of this year, there was impact from U.S.-China sanctions on advanced AI chips. And we did see an increase in certain one-off costs, such as inventory write-downs from products that became unsellable due to sales restrictions. There was also impact from the sale of certain products produced at high cost during a period of low utilization in the second half of 2024 and also low utilization first half of 2025. However, in the third quarter, one-off costs from the second quarter declined and we saw utilization improve primarily around the advanced processes resulting in cost savings, which combined led to a significant reduction in third quarter loss. In the fourth quarter, we will be ramping up mass production of new products, applying first-generation two-nano processes, and we also expect an uptake in sales in high-demand HPC and auto products from main customers in the U.S. and China, as well as memory products overall. We will engage in ongoing activities to further improve utilization and for cost efficiency gains, and we expect this to present additional improvements to our earnings.

I'll take your question on MX. Memory prices have seen a significant rebound beginning in Q3, with a steeper rise expected in Q4, leading to increased material costs for MX. Given the rising cost pressures, we aim to leverage the strong sales momentum of the Fold 7 and Flip 7, as well as the continuing strong sales of the S25 series to drive revenue growth from high-margin flagship models. We will also drive sales of our newly launched Tab S11 and Watch 8 series to strengthen our premium market position in ecosystem products. At the same time, we're continuing efforts on process optimization such as using standardized components as well as sharing components across product lines while also pursuing efficiency improvements and cost reduction activities. Thank you.

Yes, thank you very much. Moving on to the next question, please. The next question will be by Mr. Nicolas Godoy from UBS. Please go ahead.

Thanks for taking my question. So earlier you explained that you expect the memory business to be fairly strong in 2026. So in light of that outlook, could you actually guide us on what Samsung memory CapEx will be looking like in 2026 compared to 2025 and maybe give a bit of clarity on the ARM versus NAND flash? Thank you.

Yes, let me address your question on memory capex. In 2026, we plan to maintain a proactive stance toward investments in memory. In fact, we are considering a significant year-on-year increase versus 2025. For several years now, we have been making steady investments in infrastructure to secure clean rooms for the future. Now building on that as a base, we are looking to execute facility investments at a scale required to address rising demand. For DRAM to address the rise in AI demand, we'll build on our 1B Nano and 1C Nano product portfolio and focus on capital investments to boost cutting edge bid production. Also to respond to mid to long-term future demand, we'll also carry out some construction investments as well. And DRAM share of total investments will likely increase versus this year. For NAND, after confirming market demand, we intend to gradually increase the share of advanced processes in terms of our future directionality. Yes, thank you. We'll move on to the next question. The next question will be by Mr. SK Kim from Daiwa Securities. Yes, thank you for the opportunity to ask some questions. I'm Sungkyu Kim from Daiwa. I have a question for Foundry and another for Samsung Display. So for Foundry, It seems that your investments in Foundry for this year were significantly cut. So could you explain the reasons why? What is your direction for investments next year? What will be your areas of focused investment? And second, for displays, other than smartphones, it seems that OLED penetration is increasing in these other non-smartphone applications as well. So what is Samsung Display's strategy in that regard? Yes. Let me address the foundry capex question. This year, we continue to invest for the future to secure competitiveness in our 2-nano and 1.4-nano advanced node processes. Capex for mass production, however, was actually reduced year on year as we focused mostly on conversion of existing lines and line enhancements and upgrades. We will maintain our basic position of flexible CAPEX linked to customer demand and customer acquisition. And we plan on finishing up construction on our new Taylor fab for ramp-up of production. And we will be making facility investments toward our goal of supplying advanced semiconductor products to diverse customers in the U.S. In parallel, we'll also be preparing for mass production of new processes, such as second-generation 3-nano and 17-nano CIS. So CapEx will likely increase to 2024 levels.

I'll give you an answer on the SDC. We have been extending our differentiated technologies, proven over many years in smartphones, to areas such as IT and OTO, leading the expansion of the O-Net ecosystem. Recently, across for us, including IT, automotive and watches, the adoption of OLED has been increasing, resulting in a growing contribution to the company's revenue. In particular, with the expansion of AI IT devices, market demand for low-power and high-resolution OLED is increasing, and the adoption of OLED in IT products is expected to continue growing. In response, at the new 8.6 generation IT line, we plan to produce competitive products in 2026 to mainstream the IT OLED while strengthening production and customer support capabilities to secure a mid to long-term growth trajectory. For automotive products, we'll leverage our competitive edge in rigid OLED to expand our business not only in premium but also in volume segment while applying UDC, new form factors and other differentiated technologies to gradually increase OLED market share. We will further strengthen our competitive advantages in existing businesses while expanding our new growth industries, including IT and automotive, to establish a stable and balanced business portfolio. Thank you. Thank you for the answer. I'll just take one more question due to time constraints. The next question will be made by Junie Lee from Goldman Sachs. you may go on. Thank you for the opportunity. I'd like to ask about the DX Division. Could you please provide any update on the status of the Exynos adoption as well as of AI usage patterns for smartphones? Also, the second question is centering on Chinese brands. As competition in the TV market continues to intensify, what impact will it have on your TV business and what are your strategies?

Sure. So we in MX have clear standards for the experiences that each of our products should provide to customers, and we thoroughly evaluate APs across many dimensions and select ones that meet our criteria. This year, the Exynos AP was adopted in several of our products, including the Foot7, and some A series models. For next year's S26, the evaluation for the AP is still underway, so we can't yet confirm on next year's flagship lineup. Regarding AI usage patterns, this year's flagship devices show strong AI adoption with usage rates of Galaxy AI features of 60% weekly and 80% monthly. Features like NowBrief, which provides personalized information, and PhotoAssist for AI photo editing has been well-received by users. And going forward, we plan to integrate more AI applications through our AI agent in order to streamline complex tasks and expand AI utilization across Galaxy devices. Thank you.

I'd like to give you an answer on the TV part. In the TV market, aggressive pricing by competitors has boosted demand for entry-level models within each segment, heightening competition. Amid this difficult environment, we'll leverage our differentiated TV competitiveness to restore market share and return to a growth trajectory. First, we plan to launch a new form factor, microRGB, to reinforce our technology leadership. At the same time, we'll expand OLED sales to drive premium growth and maximize synergies between microRGB and the premium segment. Second, in the volume segment, we'll expand the application of our TV's key strengths, AI features and lineups, while strengthening our real QLED marketing communication to counter competitive price focus strategies and shift the basis of competition toward consumer value. In September, we launched a conversational AI platform that provides natural interactions with Bixby to offer visually tailored information and recommendations called Vision AI Companion. In 2026, we plan to expand its availability across more lineup and countries to lead the AI TV market. Also, we will highlight the excellence and safety of our QLED TVs, which are the only products certified with real quantum dot display recognition. In addition, within the ultra-large TV segment, we'll expand our entry lineup, thereby strengthening our leadership in the 98-inch and above ultra-large TV market, which is showing a rapid growth even within the volume segment. Last, our service business, which continues to deliver strong profitability, will further be expanded as a new growth driver for our TV business. TV+, our fast service, will differentiate itself by securing exclusive and live content. And to drive growth in performance-based advertising revenue, we will also secure new advertisers. Thank you. Thank you for the answer. I would like to thank everybody who shared their valuable opinion. And that completes our conference call for this quarter. We wish all of you and those close to you to stay strong and in good health. We thank everyone for your participation today and we look forward to speaking with you. Thank you.