Samsung Elect Ltd

Hello everyone, and welcome to the Samsung Electronics 2026 First 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.

Good morning, good afternoon, and good evening, everyone around the world. And thank you for joining Samsung Electronics first quarter 2026 earnings score. I'm Daniel Oh, head of Investor Relations. As a reference, all materials presented today, including the slide deck and this webcast, are available at samsung.com backslash global backslash IR. And they will be accessible for your convenience even after the call. Please note that certain aspects of today's discussion may contain forward-looking statements from which actual results may vary. Please refer to the associated slide for our full legal disclaimer. For our meeting agenda, today's core agenda, EVP Seungchul Park, our Head of Corporate Management Operations and Chief Financial Officer, will lead off the discussion with the company's first quarter 2026 financial results and outlook. I will then follow up to address capital expenditures and shareholder returns before handing over to our executives for their own business segment updates. We will then hold a Q&A session before completing the call today. The executives joining us today are as follows. EVP Central Park, our head of corporate management operations and financial officer. EVP Jae Joon Kim, head of the global sales and marketing office representing memory. EVP Jason Shin, head of the sales team for system NSI. EVP Seok Chae Kang, head of the sales and marketing office for Foundry. EVP Charles Hall, head of the corporate strategy team for Samsung Display Corporation. EVP Seong Jo, head of the strategic marketing office for mobile experience And finally, VP Wonwoo Kim, head of the sales strategy group for visual display. Now, I would like to invite our CFO, Seungchul Park, to present the first quarter financial performance and our outlook.

Good morning, and thank you to our investors from around the world for joining us today for our first quarter 2026 earnings call. I am Seungchul Park, CFO of Samsung Electronics. In the first quarter, we delivered our high-stable quarterly revenue and operating profit driven by continued AI technology innovations and our proactive market response. Amid the challenging macro environment, this performance reflects the strength of our technology leadership within core businesses and successful execution focused on our high-value-added product portfolio. Looking ahead, we will continue to strengthen our competitive edge through innovation and lead the global market. Let me now go into the details of our first quarter 2026 results. please be advised that the figures I am about to present have been rounded for clarity. Total revenue reached a new record high of $134.31, up by 43% from the record set one quarter ago. Operating profits also reached a new all-time high of 57 trillion won of 185% QOQ, and the operating margin expanded from 21% in the previous quarter to 43%. Net profit recorded 47 trillion won, 2.4 times that of the previous quarter. Earnings per share came in at 7,123 Korean won for common shares and 7,124 Korean won for preferred shares. In the DS division, revenue increased from the previous quarter driven by stronger sales of high-value-added AI products and higher ASPS, and the memory business posted its second straight quarterly earnings record. Operating profit rose sharply, led by the memory business, while system semiconductors delivered improved results thanks to expanded sales of flagship SOCs. In the DX division, revenue grew from the previous quarter, supported by the launch of new flagship smartphones. Despite higher cost pressures, we limited the profit decline through expanded sales of high-value added products across businesses, and improved resource efficiency. On the currency front, the appreciation of major currencies, including the U.S. dollar, had a positive impact of approximately 1.8 trillion won on operating profit quarter-on-quarter, mainly in component businesses. Additional details for each business will be provided shortly by the executives. Let me now turn to our outlook. In the second quarter, despite geopolitical headwinds such as Middle East tensions and rising oil prices, semiconductor demand is expected to remain strong supporting continued improvement in overall earnings. In the DS division, we expect memory price to stay on the current upward trend driven by ongoing expansion in AI infrastructure. In memory, we will continue to increase sales of HDM4 high-density EDR5 and ESSD to expand profitability. System LSI will look to offset earnings pressure through volume zone projects with a key customer. Foundry will drive earnings improvements through increased sales in advanced processes while continuing to secure orders for leading edge knowledge based on our two nanometer technology. In this play, amid demand on certainties, we target performance improvement by ensuring stable supply to key customers with our leading technology and mass production expertise. In the BX division, We expect profit to decline due to rising cost burdens. To mitigate the earnings impact, we enhanced the product mix with the self-extension of the S26 series and the launch of premium lineups, including micro RGB TVs and AI combo while improving our cost structure and driving efficiencies. To strengthen our core business, we'll expand our market share and presence while enhancing our need to long-term competitive position. At the same time, we aim to secure future growth drivers, including through M&A. In the second half of this year, we expect a mixed business environment with growth in semiconductor demand driven by AI extension on-hand and the rising costs for IT products on the other. Despite continued external uncertainties such as geopolitical risks, and global tariffs. Against this spectrum, we will remain agile in responding to market changes while maintaining a profitability-focused approach and expanding high-value-added products to deliver stable business performance. Thank you.

Thank you, Chef O'Farrill. Let me now walk you through our capital expenditures. CapEx in the first quarter totaled $11.2 trillion down $9.2 trillion quarter-on-quarter, of which $10.2 trillion was allocated to the S-division and $0.6 trillion was allocated to display business. Now, I will discuss the CapEx price business segment in more detail. The business In the memory business, CapEx declined quarter on quarter, reflecting the front-loaded nature of certain investments made last year, including the addition of new clean room space at the Pyeongtaek site. By strategically utilizing the Fab and clean room space secured through our forward-thinking investment, we anticipate a significant increase in equipment expenditures. as we progress with the deployment of its newly acquired capacity. This planned expansion is expected to contribute to a comprehensive increase in capex throughout the entire fiscal year, thereby reinforcing our commitment to sustainable growth and operational efficiency for the memory business. In the foundry business, capex declined from the previous quarter due to the base effect set by major infrastructure investments at the tail of that in the fourth quarter of 2025. However, investments to support the ramp-up of the tail of that are expected to increase steadily throughout the year, starting in the second quarter. In the display business, CapEx remained roughly flat sequentially, with investments focused on enhancing existing lines after completion of the Gen 8.6 line last year. Let me now turn to our full-year CapEx outlook. In 2026, we anticipate a substantial year-on-year increase in CapEx driven by sustained demand related to AI. We'll further expand preemptive R&D investments in next-generation processes and core technologies to solidify our technology leadership. Additionally, we will strengthen strategic production hubs and secure additional infrastructure to stay ahead of future demand. As a result, our investment decisions will remain flexible, carefully adjust to the rapidly evolving market conditions. Moving on to shareholder returns, the Board of Directors today approved a quarterly dividend of 372.1 per share for both common and preferable shares, Under our three-year shareholder return policy for 2024 to 2026, we are committed to ensuring an annual minimum payout of regular dividends totaling $9.8 trillion through quarterly dividends of $2.5 trillion. The distribution for the first quarter is scheduled for payment in May. Let me also address treasury shares. Following a board resolution in November 2024, the company announced a $10 trillion share repurchase program aimed to enhance shareholder value, which was completed by September 2025. Of this amount, the first trench worth $3 trillion was canceled in February 2025. Subsequently, during the first quarter of this year, the board convened to deliberate on the remaining shares and ultimately resolved to proceed with their full cancellation. This resolution was made in accordance with commitments communicated during the previous earnings call, thereby reinforcing the company's dedication to transparency. Notably, the Board decided to retain only the $1.6 trillion worth of shares specifically allocated for employee compensation. The cancellation of the remaining shares was completed earlier this month, marking a significant milestone in companies' ongoing efforts to enhance shareholder value. To put in a perspective, the cancellations in this round totaled 73.4 million common shares and 13.6 million prefer shares, representing 1.2% and 1.7% of total shares outstanding in each respective class. Based on the closing price on the date of the board resolution, the valuation of the canceled shares amounts to approximately $14.6 trillion. Now, let's turn to our executives for commentaries on their respective business units. We'll begin with Jaejoong Kim, EVP of Memory Business.

Good morning. This is Jaejoong Kim from Memory Global Sales and Marketing. In the memory market in the first quarter, robust demand focused on server application became increasingly visible with the hyperscaleless KPEX expansion to secure AI infrastructure and the initial demand for agentic AI. Under the strong demand from AI, while concentrating on expanding sales focused on server products, We started shipping industries first, mass-produced HBM-4 and SOCAM-2. In addition, after the on-time development of PCIe Gen 6 SSD in the first quarter, we are now undergoing customer qualification. Also, we already got positive feedback on our outstanding performance competitiveness. In the second quarter, we expect growth in the AI industry will drive demand for memory products following the previous quarter. Therefore, in order to maintain technology leadership in the rapidly growing AI market, we will provide the first samples of HM4E in the second quarter. In addition, from our product mix perspective, And within the limited supply capability, we will continue our supply operation focusing on AI products for both DRAM and LAN, while planning to proactively respond to the initial demand for the GPU and CPU that will be newly launched in the second half. In the second half, as Hyperscalers expand their AI services, and major LLM providers speed up the introduction of B2B services, the spread of agentic AI is likely to accelerate at a much faster pace than initially expected. Therefore, in addition to AI servers, the role of general servers tailored for various workloads also will be getting more important, and we expect that the demand for DRAM and SSD for conventional servers will increase more sharply than previously anticipated. On the other hand, for mobile and PC, we expect some impact on demand due to price increases in end products and changes in memory contents per box, which is driven by the price increase of key components. However, due to the server-oriented product mix execution in the industry, we expect that overall supply shortage situation will continue. Considering the additional increase in server demand for DRAM and LAN, we plan to actively accommodate the market changes through the flexible PMX operations. For D-Lab, we plan to expand HBM4 supply to multiple key customers and keep increasing the portion of AI-related products such as high-performance and high-density DDR5 and SOCAM2. For NAND, while focusing on addressing the rising demand for key value chain cache storage, we plan to lead the early PCIe Gen6 server SSD market with the outstanding product performance. Thank you.

Good morning. This is Jason Shin from the system LSI business. In the first quarter, despite weak demand in the smartphone market, our overall earnings improved quarter over quarter, driven by SOC sales. And the backup flagship product launches from major customers and favorable seasonality. In the second quarter, revenue is expected to be lower compared to the previous quarter due to seasonal factors. In response, we will continue to focus on sales of SoCs and image sensors for high to mid-range smartphones for our major customers. In the second half, amid persistent cost pressures stemming from rising component prices, overall consumer market demand is expected to soften. In the light of this external environment, we will continue to strengthen our market leadership based on our technological edge. In particular, we plan to increase sales by securing new design wins for our flagship SOC and reinforce our product lineup centered on the 200 megapixel sensor. Looking ahead, we will concentrate on expanding high-value products and securing new growth drivers. We will continue to strengthen our image sensor competitiveness based on our ultra-high resolution and fine pixel technologies and pursue growth opportunities in new business areas with a primary focus on custom SOC. Thank you.

Hello, everyone. This is Chae Kang from the Foundry Business. In the first quarter, Although our earnings declined quarter and quarter due to seasonally weak customer demand, aligning with the industry pattern of first half low, second half high, we achieved double digit year on year revenue growth, maintaining the momentum of our business improvement. From an order perspective, we continued to expand our customer base and deepen engagement across high performance computing applications, sustaining a solid order momentum throughout the quarter. Notably, we secured a strategic project from a leading optical communication module player marking a significant milestone in establishing the foundation of our silicon photonics business. In the second quarter, our advanced laws are expected to reach full utilization rate. We anticipate a sequential improvement in earnings supported by robust demand for leading-edge products including HBM4 baseline. The development of the 1.4 process is progressing as planned, ensuring the readiness for future technology. Additionally, we are actively engaging with major customers for the 2nano process. In the second half, we will start mass production of the second generation 2 nanometer process. Additionally, we will expand the application of the 4 nanometer process for memory products and APU products for AI applications. Through this initiative, we expect to achieve double-digit revenue growth and earnings improvement. Furthermore, we are actively pursuing structural transformation by diversifying our application portfolio beyond mobile into AIHPC, automotive and aerospace sectors. Thank you.

Good morning. This is Charles Seo from Samsung Display. I will now review all our results for the first quarter of 2026. For the mobile display business, our performance declined quarter on quarter due to seasonality and memory price pressure. For the large display business, we maintained stable sales thanks to strong demand in gaming monitors. Next, let me share the outlook for the second quarter and the second half. In the second quarter, the smartphone and IT market demand is likely to be weak, mainly due to memory supply and price. In response, we'll focus on high-end products where demand is expected to be relatively stable. For the large display business, we anticipate the demand increase supported by sports events and our major customers' new product launches. In the second half, Market environment is expected to be uncertain and difficult to predict. However, we aim to maintain profitability by focusing on premium product strategy. For smartphones, we will secure a stable demand of differentiated technologies such as low power consumption and privacy solution which are aligned with major customers' premium smartphones. For IT products, we will increase revenue through the ramp-up of brand new 8.6 generation IT OLED line. OQD OLED will continue to strengthen our positioning in the premium segment while expanding our monitor business into the consumer and enterprise market. Lastly, 2026 will be a challenging year due to geopolitical risk, unpredictable market condition, and memory supply issues. We strive to achieve revenue growth by strengthening our premium portfolio based on our technology leadership. Thank you.

Hi, this is Samcho from the MX Division. Let me share our first quarter results as well as the future outlook. The smartphone market declined quarter on quarter due to seasonality, with volume and revenue decreasing across premium and mass segments. For the MX business, Q1 revenue reached 37.5 trillion won, and we delivered a combined operating profit of 2.8 trillion across the MX and the network businesses. Despite numerous launch schedule adjustments and geopolitical uncertainties, we delivered Q2 growth in both revenue and operating profit. On a year-on-year basis as well, we achieved solid ASP and revenue growth driven by a higher contribution from ultramodels. While memory costs increase, we secure single digit profitability through proactive resource efficiency improvements. Next, let me share the outlook for Q2. Overall, smartphone demand is expected to decrease quarter on quarter due to seasonality. For the MS business, we expect Q2 revenue to decline quarter on quarter. We plan to sustain flagship-centric sales supported by continued momentum of the S26 series, along with the solid sales of the foldable and M-1 and FE models. Also, through the successful launch of the new A series models, we will drive growth across all segments. However, cost pressure on key components in Q2 are expected to intensify, while we will ensure stable supply through strategic partnership with suppliers, but decline in profitability appears inevitable. Next, let me share the outlook for second half. The smartphone market is expected to decline in shipments due to rising costs, while revenue are projected to grow, driven by expansion of super premium products. Tablets are expected to decline in volume and value due to cost pressures, and reduced promotions the north pc market is projected to see value growth driven by asp increase but shipments are expected to decline ms will maintain our strategy focused on expanding flagship sales through our leadership in advancing ai capabilities and form factor innovations for foldable devices we plan to strengthen our product development to stay ahead of evolving customer needs. For equal products, we'll drive premium sales with even more advanced Galaxy AI capabilities and health features and expand our TWS lineup. We also plan to deliver immersive multimodal AI experiences through diverse form factors such as AI glasses. 2026 will be a challenging year with ongoing geopolitical uncertainties and profitability impacted by rising cost pressures across the industry. Nevertheless, we'll maintain our focus on expanding flagship sales powered by AI leadership and pursue cost efficiency initiatives to minimize the impact on profitability. Thank you.

Hello, everyone. I'm Wonho Kim, head of sales strategy group of Visual Display. I'd like to briefly explain the market conditions and share our first culture result along with our look for the rest of the year. In the first culture, overall TV demand declined after year-end peak season, but demand for QLED, OLED, and 75-inch overall remained solid. We focused on premium products such as Neo-QLED, OLED, and large-size TV, thereby solidifying our market leadership. However, in terms of profit, despite showing improvement versus last quarter, declined year-on-year due to stagnant demand and rising low material costs. For the second quarter, while uncertainties in the external environment are likely to persist, TV demand is forecast to grow year-on-year, driven by major international sporting events. Against this background, we will capture related demand by deploying differentiated marketing strategies and maximize the launch effect of new models such as micro-RGB TVs to secure both sales and profitability. In the second half of 2026, following the sporting event, the market meets a downward trend compounded by macroeconomy and geopolitical risks. In response, we aim to reinforce sales leadership by expanding AI features to pioneer the AI TV market. On top of that, we drive growth momentum and elevate profitability by extending advertising services such as TV pros and performance-based advertisement while also strengthening OS competitiveness to further broaden our licensing business. This is the end of my speech. Thank you for your attention.

Thank you, all presenters. That brings our presentation on the first quarter performance of 2026 to a close. And we'll now start the Q&A session, which will be conducted in Korea. Our CFO Central Park will address company-wide questions, while questions regarding the business segments will be answered by the respective business representatives. Thank you for your attention.

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 your question, press star and 2. The first question will be made by from Citigroup.

Yes, good morning. This is from Citigroup. First, I'd like to congratulate you on record high quarterly performance. I have a question for semiconductor and then a company-wide question as well. The first question is about semiconductors for specifically memory. There's a lot of talk in the sector about multi-year contracts and LTEs, so are you also seeking this kind of multi-year contracting for your memory products? And the second question, I do understand you're in talks with the labor union on bonus payouts. So will the payout be reflected in first quarter provisions? If so, what would be the expected size? Thank you. Yes, let me take your first question regarding multiyear contracting for memory. First, due to our NDAs with customers, we are not able to go into too much detail on our multiyear contracts with customers, so I seek your kind understanding. That said, major customers are quite confident in future AI and AI-related demand, and they have been approaching us seeking supply volume commitments for the mid to longer term. Based on these requests, we have been pursuing multiyear supply agreements of course, within our available supply capacity and have already signed finalized contracts with some customers. Unlike existing supply contracts which are based on mutual trust, these multi-year contracts present a higher level of binding commitment. Compared to the past, in today's environment where investment size, timelines, and technical complexity have all increased significantly, Investment and capacity-related operational risks are much more challenging. We expect multi-year agreements to help enhance business stability and visibility for both us and our customers. We will manage the size of our investments flexibly depending on the mid- to long-term demand we see from our customers and react proactively to changing market conditions.

Let me address the question on provisions for 1Q. The incentive-related provision you mentioned is under discussion between labor and management. and as the specific amount payment conditions and amounts have not been finalized, it hasn't been reflected in this quarter's results. Depending on the outcome of the negotiations, the related costs may be recognized in the future, and once finalized, it will be appropriately reflected in the financials.

Thank you. We will move on to the next question, please. Yes, I'm from Bank of America. I would also like to congratulate you on delivering very strong performance despite the challenging environment. During the first quarter, I think your solid performance was in large part by the memory business. So if you could provide more color, more details on the memory performance. And the second question is company-wide. As the CFO mentioned just now, there does seem to be a lot of labor union issues. According to the media report, a general strike has been announced for May. So do you anticipate any disruptions to production or otherwise any negative impact on performance, any other management issue? Yes. So let me provide the answer to the first question on first quarter memory performance. The adoption of agentic AI drew further growth in relevant demands, mostly for HBM, server DRAM, and server SSD. That said, despite this rising demand, because of the industry-wide constraints in expanding capacity, the supply shortage has actually become more intense relative to robust demands. Under these circumstances, in line with growing AI demand trends, We focus on expanding sales for mostly server applications in the first quarter, resulting in server bit shipment growth in the low teens percentage queue on queue for DRAM and low 20% queue on queue for NAND as we post a record high quarterly sales in the server segment. So consequently, we met our bit growth guidance for DRAM while exceeding guidance for NAND with NAND bit growth increasing by a high single digit. percentage queue-on-queue. Amid a sharp rise in market pricing and the effect of our improved product portfolio following expanded server application sales, our blended ASP rose by low 90% range queue-on-queue for DRAM, high 80% queue-on-queue for NAND. So overall in the first quarter, thanks to strong market demand and the strength of our products, our memory business set another all-time high in quarterly performance following the previous quarter. We will continue to do our best to preemptively anticipate and identify market needs while developing products in a timely manner that meet customer requirements to deliver continued strong performance.

Let me address this question. The labor union on April 23rd held a rally at the Pantech site and has announced a general strike from May 21st to June 7th. While it is difficult to comment further at this stage, Even in the event of a strike, the company plans to respond through dedicated teams and response systems within the legal framework to minimize potential production disruptions. Also, separately from a response to the potential strike, the company is addressing labor management issues in accordance with laws and procedures and will continue to prioritize dialogue with the union to reach an amicable resolution. Thank you for the answer. We'll move on to the next question. The next question will be made by Kim Sanu from Merit Securities. You may go ahead. I'd like to ask about the shareholder return policy. This year marks the final year of the three-year shareholder return policy. Will the company execute the previously announced policy as committed? Also, could you share the direction of the next shareholder return policy? And lastly... Can you explain the details on the corporate value enhancement plan announced in March? Let me address your questions on shareholder returns. As previously committed to our shareholders, the company will faithfully execute its current shareholder return policy, which is one of our key management priorities aimed at enhancing shareholder value. Also, management and the board are currently gathering various views and engaging in deep discussions on the next shareholder return policy. Centered on the board, we will continue to carefully review and develop the optimal policy to enhance shareholder value and we'll share details once the direction is decided. Regarding our corporate value enhancement plan, The company plans to invest over 110 trillion won in facilities and R&D to strengthen our strategic production basis for future, including the Pyeongtaek site, the U.S. Taylor Fab, and the Yongin Semiconductor Cluster, as well as to advance R&D in next-generation technologies. Also, in terms of M&A, to drive continued future growth and enhance shareholder value, we will continue to reassess our business portfolio. also will proactively pursue inorganic growth strategies to ensure mid- to long-term growth. In addition to M&A, to identify new technologies and businesses, and to discover and collaborate with promising tech companies, we are pursuing a wide range of investments, including venture and equity. Through these efforts, the company aims to strengthen the competitiveness of its established businesses while also responding to rapidly evolving global tech trends. In HVAC, automotive electronics, medical technology, robotics, and other future growth drivers will continue investing to secure future technology leadership. We'll share updates as these initiatives progress. Thank you. We'll move on to the next question. The next question will be made by Nicholas Godoy from UBS. You may go ahead.

Good morning. Thanks for taking my questions. With the conflict in the Middle East, there are growing concerns about potential supply disruptions for raw materials that heavily depend on regions such as NAFTA and helium gas. In addition, important energy and oil remain crucial for electricity supply for you found in South Korea. Are there any company-wide issues related to these, and what measures is the company taking to address them? And secondly, with rising semiconductor costs and inflationary market headwinds expected in Q2, how does the company plan to secure profitability for MX specifically? Thank you.

Let me address the Middle East-related risks. Our semiconductor production lines are operating normally, and there have been no supply chain issues to date. While we source some processed gases from Israel and the Middle East, we have secured sufficient safety stock and are responding in line with local logistics conditions. Also, we have secured alternative logistic routes and diversified suppliers, including the U.S. and Japan, so the overall risk remains limited. Based on our past experience with export controls, natural disasters, trade disputes, and wars, we are managing supply-demand balance flexibly from a mid- to long-term perspective. Regarding power supply, we are closely monitoring utility cost trends amid rising oil prices. and through close coordination with the government, we will maintain a stable power supply system. However, oil price increases driven by the war are impacting global ocean and air freight costs, which is expanding the risk of higher shipping rates. In response, we are closely monitoring global inventory levels while optimizing supply chain operations to minimize cost burden from international transportation. Also, based on the mid-to-long-term partnerships with shipping and air freight providers, we're engaging in negotiations and utilizing alternative transportation options to mitigate the impact of high logistics costs. Also, in case the war is prolonged, we are developing driver scenarios, and through long-term contracts with logistics providers and fuel-linked freight rates, We plan to maintain cost competitiveness and supply capacity while strengthening our response capability to volatility. Thank you. I will take the next question. With the growing demand for AI server memory, memory supply shortages for mobile and upper trend in prices have persisted. In 1Q2026, memory prices surged weakening profitability year on year. Also in 2Q, prices are expected to rise further, adding to cost pressures. We will leverage our stable supply to expand sales of S26 and new A series. At the same time, across development, procurement, and sales, we'll enhance cost efficiency to mitigate the impact of rising memory prices on profitability. Thank you.

Thank you very much. We'll now move on to the next question, please. The next question will be by Mr. Kim Do Won from KB Securities. Please go ahead. Yes, I would like to congratulate you on your all-time high performance as well. I have a question for memory and then company-wide question. The memory sector is expected to see a continued up cycle, so what is your business outlook for the second quarter? Also, if you could provide bid growth guidance for Q2. Also, the second question, Humanoid robotics and physical AI are sectors expected to see high growth. So could you explain your strategy in addressing these growth markets? Yes. So let me address your question on the memory business outlook. We do expect AI-related demand to continue to drive growth momentum for memory for the time being. With the spread of agentic AI, token processing is increasing in volume. and technologies improving the efficiency of data processing are being introduced, and the AI ecosystem is growing even faster than ever. That said, although advancements in AI technology are a structural driver of increased memory demand, when you consider the lead time involved for new FAB expansions, supply growth is expected to remain constrained within the industry for the time being. We also have a very tight inventory, and available supply is far short of customer demand. In fact, our demand fulfillment rate is now at a record low. And unlike previous years, customers who are concerned about supply shortages are actually bringing forward their demand for 2027 already. So currently, just based on pre-booked demand alone, the supply demand gap is looking to widen further in 2027 versus this year. With available capacity under such constrained conditions, we plan to maintain our product mix focus on servers in the second quarter. And we're expecting DRAM big growth to increase by a single-digit percentage, Q on Q. While for NAND, considering limited available capacity from a reduced inventory level in the first quarter, big growth is expected to be constrained at the low single-digit level, Q on Q. Let me address our fiscal strategy.

Over the past year, under the leadership of Junho Oh, a leading robotics expert in Korea, we have made meaningful technological progress and established a foundation to catch up with global leaders. Also, we are internalizing key robotics components and building capabilities to develop customized parts optimized for our own robots. The robotics industry, driven by technological developments, such as physical AI, is becoming increasingly viable. Through the development of humanoid robots, the combination of advanced robotic technologies, we aim to innovate manufacturing productivity and daily experiences. With our manufacturing production basis, we plan to develop manufacturing robots, and then by leveraging the technologies we accumulate, we'll expand into home and retail applications. Also, to accelerate technology advancement and deployment, we'll focus on securing our own technological capabilities. And at the same time, we'll cooperate with competitive global partners as part of a two-track strategy. And where appropriate, we'll consider strategic investments or acquisitions. Thank you. We'll move on to the next question.

The next question will be by Mr. Kim Sung-gyu from Taiwan Securities. Please go ahead. Yes, good morning. Thank you for the opportunity to ask some questions and also congratulations on strong performance as well. I have a question on memory and display. So let me start with HBMs. In the first quarter of this year, you were the first in the industry to commence HBM4 mass production and shipment. I understand you've already been receiving quite good feedback in terms of performance. So how much sales growth do you expect for HBM4 this year? Also, could you provide a status update on not only HBM4, but the 4E business as well? For display, amid shortages in memory supply, also I think downward pricing pressure is likely to increase for displays. So what measures are in place to defend against those trends and also to maintain profitability? I guess let me address the HBM question first. First of all, As we explained at the last quarterly earnings call, we expect HPM sales to increase substantially by more than three-fold year-on-year in 2026. Leveraging our cutting-edge 1C nano processes, we have secured industry-leading product competitiveness. This has allowed us to play a leading role in raising the bar on performance requirements for HPM4. As customers adopt these enhanced specifications, Our outstanding performance has been translated into actual premium on pricing. The differentiated performance of our HBM4 has led to concentration of demand and our production ready capacity is fully booked and sold out. So after we became the world's first to commence commercial shipment of HBM4 in February, we are now proceeding with ramp up as scheduled with supply volume expected to scale meaningfully in the second half of the year. HBM4 sales are expected to exceed 50% of total HBM sales from the third quarter onwards and also account for roughly half on a four-year basis. Going forward, based on the competitiveness of our 1C nanotechnologies accumulated through HBM4 mass production, we've been accelerating development of next-gen HBM4E products with pin speed of 16 gigabits and bandwidth of 4.0 terabytes per second, with samples set to start shipping within the second quarter. We will continue to build on our leading technology to provide HVM products optimized to customer needs on a timely basis as we carry forward our market leadership. Thank you.

I'll take the display question. Rising memory prices driven by supply-demand imbalances have increased cost burdens for set manufacturers, which is expected to reduce overall set demand. Accordingly, display demand is likely to weaken and downside ASP pressure is expected to persist. We'll respond to such conditions by enhancing operational efficiency and strengthening competitiveness across our business. First, we'll drive extreme productivity improvements to strengthen cost competitiveness and accelerate the development of differentiated technologies on the business side, Our portfolio centered on premium products with relatively robust demand will be strengthened and also will expand our customer base. In particular, the performance of a new privacy protection technology introduced in smartphones this year, which is MPP, will be further enhanced and we will broaden its applications. We'll continually develop differentiated technologies to strengthen our leadership in high-end products, thereby securing stable profitability. Thank you. We'll move on to the next question.

The next question will be by Mr. E. Juni from Goldman Sachs. Yes, congratulations on a very good performance. I have a question on Foundry and VD. First for Foundry, I think there, oh, I would like to hear an update on new order wins for advanced two nano, four nano nodes and legacy processes. And for VD business, Amid reduced profitability, I do believe there have been growing concerns over performance. So what kind of countermeasures are you getting ready? So let's cover the foundry questions first. We have been diversifying our portfolio looking out to the mid to longer term across more end markets, and we've been working to expand project awards across diverse application areas, including AI, HPC, automotive, robotics, and aerospace as well. Amid recent increase in AI and data center demand, memory supply remains limited, and clearly we're seeing demand for turnkey solutions that cover both memory and foundry together. In line with these market dynamics, we are in active talks with multiple large-scale AI and HPC customers on two nanoprojects. Expect to secure more visible results in the near future for certain accounts. Our HBM-4 baseline, which is built on 4-nano processes, has been gaining recognition for differentiated and competitive performance, leading 4-nano demands. And we have been actively considering possible expansion of supply and response. We are also in discussions with many automotive or robotics customers in the U.S. and wider China on adoption of 2- or 4-nano processes, and leveraging our products delivered to major large accounts. They've been validating our technology and establishing stronger reliability. For data centers, we are seeing growing demand for high bandwidth and low power data transmission, which has led to a rapid rise in demand for silicon photonics. We are developing not only silicon photonics components, but also technology for the CPO, or co-packaged optics business, based on advanced processes and 3D packaging, and in parallel are engaged in discussions with several large-scale global accounts on commercialization projects. We will be starting mass production for a major optical communications module player starting at the second half.

Of this year, the TV market amid rising raw material costs and an uncertain external business environment is expected to face challenges in securing both revenue and profitability. The company will leverage differentiated product marketing strategies and proactive measures in its service business to further solidify its number one position. For this year, the TV market amid rising raw material costs and an uncertain external business environment is expected to face challenges in securing both revenue and profitability. The company will leverage differentiated product marketing strategies and proactive measures in its service business to further solidify its number one position in the global TV market. To this end, we'll reshape the micro RGB, OLED, and mini LED centered competition landscape with a successful introduction of new models while maximizing launch effects. The premium segment, in addition, compared to previous years, this year's World Cup will feature more participating teams on extended tournament period and a higher total number of matches, which is expected to drive TV demand in the second quarter. Accordingly, to capture this demand, we will use our differentiated marketing strategy to strengthen collaboration with key retail partners and expand strategic SKUs and promotions. Lastly, based on its leadership as the global number one TV brand, the company will proactively address market shift toward the service business as well as consumer trends. The TV Plus as well as Samsung Art Store will be further advanced so that we can secure differentiated competitiveness. Thank you.

Yes, we will move on to the next question, please. The next question will be, Hi, from Korea Investment Securities. Yes, this is from Korea Investment Securities. I have a question on memory and system one each. First, regarding memory, recently there's been a rapid rise in conventional DRAM prices, and some have been suggesting that focusing on conventional DRAM sales over HBM may be better in terms of margins. So what are your plans for product mix between HPM versus conventional DRAM? And regarding system LSI, can you provide an update on development of Exynos 2700? Do you believe that you will be able to increase market share on the next-gen model? And any plans to expand beyond mobile into AI applications? Yes, any comment on the question for DRAM sales mix? Recently, we have seen a rise in lower spec legacy member prices. And it is true that conventional DRAMs have higher margins versus HBMs. And we are aware of certain outside views that focusing our sales mix on conventional DRAMs may be more beneficial in terms of short-term performance versus HBM. So per industry practice for HBMs, We negotiate projected pricing in advance on an annual basis, considering the lead time required to prepare back-end capacity for HBM, whereas for conventional DRAM, the negotiations are done on a quarterly basis. As conventional DRAM pricing has continued to rise sharply every quarter, this has resulted in inversion of margins between HBM and conventional DRAM. However, given the constraints applied conditions for HBM, With a sustained widening of the supply-demand gap, the margin differential versus conventional DRAM is expected to be significantly reduced in 2027. With the spread of in-foreign services and also agentic AI, the importance of not only AI servers but conventional servers has also been growing in terms of AI infrastructure, which is indication of the close connection between HBM and conventional DRAM demand. If we were to focus our product portfolio on conventional DRAM looking to achieve a short-term performance only, this could potentially pose constraints on the build-out of the underlying AI infrastructure itself, which is why we believe a balance in supply between HBM and conventional DRAM is necessary in order to continue to generate AI-driven demand. So in conclusion, we intend to take various factors into consideration including mid- to long-term growth potential, long-term customer engagement, technology competitiveness to execute a balanced product mix. Yes, let me answer from the system LSI side. First, regarding Exynos, Exynos 2700 is under smooth development as planned, building on the flagship technological competitiveness of the predecessor 2600 model. and we expect to be able to expand market share further by offering enhanced AI performance. In terms of expansion into new business areas, AI market trends are shifting quickly from training to inference, with the market for specialized inference solutions and customized offerings growing. In response to these market changes, we are advancing our business so that we can offer customer-optimized solutions and architectures from data center to on-device applications, in order to shape differentiated competitiveness in the AI market. Thank you.

We'll move on to the next question. The next question will be made by Yeong-ho Ryu from NH Investment and Securities. I am Yeong-ho Ryu, and thank you for the opportunity. I'd like to ask about the MX and DA businesses. Rising component costs and an overall slowdown in smartphone demand are raising concerns over a market contraction. And under such unfavorable conditions, what are the company strategies to defend market share and secure sales growth momentum? And for the DA business, I have two questions. Recently, there have been multiple media reports on profitability-driven transformation in DA business. Can you share an update on the current initiatives? Additionally, the importance of the cooling solutions market is rising and you acquired flat groups last year. Could you elaborate on your business strategy? I'll take DMX question. In value terms, the 2026 market is expected to see slight growth year over year. while volume is projected to decline significantly. Despite a contracting market, the company aims to expand flagship sales to drive revenue growth and leverage its full price-to-year portfolio to outperform the market in both value and volume. Despite price increases for new model launches, we improved performance and key customer experiences, thereby enhancing perceived consumer value, with S26 sales already expanding year-on-year in value terms. Alongside the S26 series, leveraging foldables showing strong sales predecessor NFV models, we will drive revenue growth while promoting growth across all segments based on A57 and A37 launched in April. The impact of rising component costs will be mitigated through premium-focused sales and upselling. And through mobile AI leadership and a stable supply chain, we will pursue sales expansion. However, we expect to see a decline in profitability compared to the previous year. First, I will address the question regarding the structural improvement of the DA business, and then the question on cooling solutions will be answered by EVP Lee Sang-Jik, head of sales marketing team of the DA business. Amid intensifying global competition, tariffs, geopolitical risks, followed by shifts in external environments, the DA business is facing increasing profitability pressure. In response, we are taking a selective and focused approach across the business. We are concentrating resources on core businesses with competitive advantages to build a foundation for sustainable growth while reviewing diverse measures to diversify our profit structure. We'll share further details with our shareholders once these plans are developed. I'll proceed with the answer. The demand for generative AI and high performance computing is growing rapidly. Accordingly, global data centers are expected to continue expanding through 2030. And the data center cooling market is projected to grow from $4.7 billion in 2024 to $16.6 billion by 2030, growing at an average annual rate of around 24%. In response, the company successfully acquired Slack Group, a Germany HVAC specialist last year, thereby establishing a strategic foothold for entering the data center cooling market. Currently, the company is operating the business center of Flat Group in Europe and plans to expand into the largest global data center market in North America. Also, we plan to establish a Korean subsidiary and factory of Flat Group to enter the Korean market. We'll strive to secure leadership in the data center market by expanding our product portfolio and diversifying our geographical footprint. Thank you for the answer. We'll move on to the next question.

The next question will be by Mr. Chae Kwon from J.P. Morgan. Please go ahead. Yes, good morning. Thank you for the opportunity to ask a question on NAND. So amid expansion of AI infrastructure, it's mostly been DRAM and HVM drawing great interest, but recently NAND has been gaining attention as well. So your outlook on the NAND market for AI applications? So let me take the question on NAND for AI. So with proliferation of AI, this has led to higher data capacity and memory requirements to run large language models. And to respond to these trends with high-priced HPMs and DRAM structure only, this will increase the cost and capacity burden, prompting the need to broaden the scope of use cases for storage. Recently at GTC, NVIDIA proposed an architecture such as CMX that extends AI-informed data storage beyond HBM to NAND-based storage rather than relying solely on HBM. This will likely lead to rising demands for high-performance storage such as TLC-based PCIe Gen6 SSDs. Further, as storage use cases increase in AI systems in the future, there will likely be growing requirements to reduce data transfer latency resulting from performance differences between HVM, DRAM, and storage. For large-scale inference and data-intensive workloads in particular, requirements for high-performance, low-latency solutions are becoming more critical. We are production-ready for super high-performance NAND storage solutions, not only Gen 5 but Gen 6 as well. offering enhanced features. And for Gen 6, we have received positive feedback from major customers for early sample shipments. We will be focusing on AI server and data center segments, and we'll lock in preemptive lead in the early Gen 6 market in the second half of the year. Also, we're focused on capturing QLC demands, which has been growing consistently, while accelerating V9 migration within QLC as well. In March, we finished development of 2-terabit QLC, delivering differentiated performance and reliability features with plans to strengthen our market response by expanding our super high-capacity lineup, including the 256-terabyte server SSDs. So based on high-performance QLCs built on advanced nodes and the high capacity of QLC NANDs, We will work in close collaboration with our major customers to proactively address and respond promptly to AI-driven NAND demand. Thank you. Because of the limited time, we will accept just one final question. The final question will be by Mr. from Samsung Securities. Please go ahead. Yes, thank you for the opportunity to ask questions. I have a question on .

The TCL and Sony recently established a joint venture. How will it impact the TV industry and what's your response? And the next question is on Foundry. Driven by a recent increase in orders, there are growing expectations for increased investments. Could you provide an update on the expansion status of the U.S. Taylor Fab and whether the The company is considering the construction of new fabs, too. On the other hand, mature nodes seem to have relatively low utilization rates. Could you elaborate on your operational strategy? Amid intensifying competition due to market stagnation, the TV industry continues to see shifts in the competitive landscape. The establishment of a joint venture between TCL and Sony, combining their manufacturing capabilities and brand strengths, is a scenario that could have been expected based on past precedents. Across all segments, from premium to entry level, the company aims to strengthen its competitiveness to proactively reshape the competitive landscape and lead the market. Starting this year, we will introduce micro-RGB and other new form factor products to strengthen differentiated premium leadership. Also, in volume zone, where competition is intense, we will launch new mini-LED to expand our response capabilities to the market. or whether the company plans to further advance consumers' AI experiences and further complete a differentiated device experience with competitive services so consumers can be satisfied and make purchase decisions.

Yes, let me answer the question on Foundry. So for TaylorFast, As of last week, April 23rd, to be exact, we had a successful ceremony with the local community for Fab One commemorating the move-in of the equipment and lines. As scheduled, we plan to start operations in 2026 and commence mass production in 2027 and gradually expand to nano capacity. Fab Two is in the early review phase in parallel with discussions with global customers on potential awards. For mature process lines, we will focus capacity on high-value and specialty demand, which have higher entry barriers, while boldly closing out uncompetitive processes. That is the baseline strategy. More specifically, for CIS and DDI product family, where process migration is expected to continue, capacity will be transitioned to the advanced 17 nanonodes While for PMIC, DDI, CCIS, which are currently in mass production on 8-inch wafers, well, these lines are scheduled for a phased closeout. We will optimize our product portfolio, reflecting possibility, investment efficiency, to continue to improve our business fundamentals while focusing on developing new specialty products to expand our share of global customers. Thank you.

Thank you for the answer. I'd like to thank everybody who shared their valuable opinion that completes our conference call for this quarter. We wish all of you and those close to you stay strong and in good health. We thank everyone for your participation today, and we look forward to speaking with all of you soon. Thank you.