Samsung Elect Ltd

Hello everyone and welcome to the Samsung Electronics 2026 Second Quarter Financial Results Conference Call. I will be your coordinator. All participants will be in a listen-only mode until we open the question and answer session following the presentation. As a reminder, this call is being recorded. I would now like to turn the conference over to the Investor Relations Team. Please go ahead.

Welcome everyone and thank you so much for the taking time. Out of your busy schedules today to join our 2026 second quarter earnings call. We truly appreciate your continued interest in the company. I'm Daniel Oh, Head of Investor Relations at Samsung Electronics, and it is my pleasure to guide you through today's earnings call. For those joining us today, we kindly invite you to visit samsung.com backslash global backslash IR, where all materials from today's call, including the sliding deck, and webcast are available and will remain accessible after call concludes. First, I would like to briefly mention our important legal disclaimer before we begin the session, as is our standard practice. We kindly ask you to be aware that today's discussion may include forward-looking statements that could differ materially from the actual results. For your reference, our full disclaimer is provided on the associated slide. During today's call, EVP Soon-Cheol Park, our chief financial officer and head of corporate management operations, will review our second quarter 2026 financial results, share the returns, and business outlook. I will then follow up with updates on capital expenditures and our sustainability initiatives before handing the call to the business executive officers for details on their respective business performance and outlook. We'll then wrap up the call with a Q&A session. We expect today's conference call to last approximately one hour. The executive officers joining us today include EVP Soon-Cheol Park, our chief financial officer and head of corporate management operations, EVP Chae-Joon Kim, head of global sales and marketing office representing memory, EVP Jason Shin, head of the sales team for system LSI, EVP Seok-Jae Kang, Head of Sales and Marketing Office for Foundry EVP Charles Ho, Head of the Corporate Strategy Team for Samsung Display Corporation EVP Daniel Araujo, Head of Strategic Planning Group for Mobile Experience EVP Heon Lee, Head of Sales and Marketing Team for Visual Display Now I would like to turn the call over to our CFOs Soon-Cheol Park for his comments on our second quarter financial performance.

Thank you, Daniel. Good morning. And thank you, our shareholders, investors, and analysts for joining today's earnings call. I am Soon-Cheol Park, CFO of Samsung Electronics. Building on our record first quarter performance, we delivered new high in the second quarter for both revenue and operating profit driven by our continued technology leadership in AI and ability to navigate changing market conditions. We achieved these results despite the ongoing macro and geopolitical uncertainty demonstrating the differentiated technology we have built and many more across our core businesses. Looking ahead, we'll keep strengthening our future growth engines through sustained technology innovation, further expanding our leadership in the global market. Let me now review our financial results for the second quarter. Our total revenue reached 171.5 trillion won of 28% quarter-on-quarter, while operating profit increased 56% to 89.5 trillion won, and the operating margin improved to 52% of around 43% in the previous quarter. We also continued to actively Invest in future technology leadership with R&D expenses reaching a new quarterly high of $16.1 trillion or from $11.1 trillion in the previous quarter. On a quarter-on-quarter basis, net profit increased 52% to $71.6 trillion and earnings per share for both common and preferred shares increased by 52% to 10,849 Korean won, which is, I believe, among the highest level across global tech companies. The DS division added to last quarter's record performance at the shipment of both DRAM and NAND send me all-time highs driven by robust market demand and the strength of our products. System LSI faced a hand hinge from the mobile market. On the other hand, foundry gained from higher utilization rates and growing demand for all advanced nodes while continuing to expand orders from major customers for 2nHPC. The DX division achieved year-on-year revenue growth supported by strong sales of premium and AI products. However, operating profit declined as rising component cost lowered profitability. To minimize the decline in product profits, will strengthen our portfolio with more high-value-added products and continue to improve our cost structure, optimize our process, and enhance operational efficiency. On currency effects, the stronger U.S. dollar against the Korean won had a positive quarter-on-quarter impact of around 3.1 trillion won On operating profit, mainly in our component businesses. The executives with us today will share more detailed business updates shortly. Now, I would like to discuss shareholder returns. The board of directors today approved a second quarter dividend of 374 Korean won for Both common and preferred shares. Under our three-year shareholder return policy for 2024 to 2026, we have committed to an annual regular dividend of 9.8 trillion won distributed through quarterly payments of 2.45 trillion won. The second quarter dividend is scheduled to be paid in August. Our current shareholder return policy continues to be of great interest to our shareholders. Consistent with what we communicated in the previous earnings call, we remain fully committed to delivering on the program as promised and will provide further updates very soon. Let me now turn to our outlook for the second half of the year. We expect our growth momentum to continue building in the second half, supported by sustained strength in semiconductor demand. For the DF division, despite the launches of new finished products, Macron Certainties rising component and material cost pressures are likely to continue and the division will remain focused on defending profitability. The DX Division will strive to overcome profitability challenges by strengthening its businesses and fundamentals. We are targeting leadership In the Asian AI market by delivering hyper-personalized AI experiences with an open platform and self-expansion of premium products across our businesses. At the same time, we improve our business fundamentals through AI-driven innovation and better resource efficiency while building a foundation to respond to market changes. For the DS division, we anticipate the division will continue delivering growth driven by strong demand stemming from the rapid spread of agentic AI. In memory, we'll further strengthen our technology leadership and lead the market with expanded sales of high-performance products such as HBM4, including HBM4e, DDR5, SOCAM2, and ESSD. System LSI will grow its high-value-added business by advancing its new custom SOC business while broadening applications for sensors, and Power Isis. Foundry will improve earnings through increased orders for products from advanced nodes as well as those tied to high-growth AI and HPC. In the display business, sales volume may decline due to higher step prices arising from memory supply constraints. Yet, we aim to grow revenue through expanded sales of premium products and full-scale mass production as our Gen 8.6 slide. Finally, the DS division will continue to strengthen its core technology through both optimized capex and proactive R&D investments. The DX Division will also continue to bolster our new growth businesses including robotics, HVAC, automotive electronics, and medical technology to lay the groundwork for mid to long-term growth. Thank you.

Thank you, CFO Park. Let me now share an update on our capital expenditures. CAPEX for the second quarter was $16.8 trillion won, representing a sequential increase of $5.5 trillion won. Of this quarterly total, $15.4 trillion won was allocated to the S division, while $0.7 trillion won was invested in display business. By business segment, CAPEX for memory increased quarter on quarter, as we expanded investments in the new FAB in Pyeongtaek and other infrastructure projects on expectations of continued strength in AI demand. We also continue to invest in advanced R&D to extend our technology leadership. CapEx for the Foundry business also increased quarter one quarter as investments were expanded to support the Taylor FAB ramp-up In the United States, which remains on track. In the display business, capital expenditure increased sequentially due to ongoing supplementary investments in the Gen 8.6 line. Now briefly, I would like to highlight our key sustainability achievements. In June, we published our 2026 sustainability report, which contains a full account of our progress. On the environmental front, we continued to secure renewable energy by signing up several key PPAs for major global sites. Consequently, the company's renewable energy transition rate reached 32.5% in 2025, an increase of 1.1 percentage points from the previous year. We have also increased the proportion of recycled plastics in our products to 33.7%, representing a 2.7 percentage point increase year-on-year, thereby advancing our commitment to a circular economy. On the social front, we have achieved four consecutive years without any serious workplace accidents, a track record that reflects our steadfast commitment to workplace safety. For more details regarding our sustainability progress, Please refer to our 2026 Sustainability Report, which is available on our website. We remain committed to further enhancing these efforts moving forward. Now, I would like to invite our executive officers to provide updates on their respective business units. We will begin with Choi Jung-Kim, EVP of the Memory Business.

Good morning. This is Jae-Joon Kim from Memory Global Sales and Marketing. In the second quarter, demand was clearly strong in the memory market, primarily driven by AI applications. In particular, with the spread of agentic AI, additional supply requests based on AI-driven demand, mainly from major hyperscaler customers, continued for both DRAM and NAND. As the demand for AI remained robust, we expanded sales focused on server applications where demand momentum was strong under the given production capacity. As a result, our memory business in the second quarter achieved record high bit shipment for both DRAM and NAND, while the bit sales portion of server applications also reached an all-time high. Moreover, for HBM, We expanded the supply of HBM4 with differentiated performance and strengthened our technology competitiveness by shipping the industry-first HBM4E samples to major customers. Thus, in the second quarter, deal ambition increased by a low teens percentage compared to the previous quarter, exceeding our guidance. For NAND, business increased by low single-digit percentage in line with our guidance. In addition, our ASP in the second quarter rose by mid 40% for D-Lab and high 60% for NAND compared to the previous quarter. As a result, based on strong market demand and our product competitiveness, We have once again broken our record for the highest quarterly result following the previous quarter. For the second half of the year, while hyperscalers continue to expand infrastructure investments to establish early dominance in the AI market and the spread of agentic AI accelerates, we have witnessed robust demand not only for AI servers but also for general computing servers. Looking forward, we expect this trend will accelerate further. As for mobile and PC applications, although we are observing some demand moderation as customers increase their end product prices, the pace of additional demand for server DRAM, SSD, and HVM is far exceeding such moderation. Therefore, it seems evident The gap between supply and demand in the following year will become much wider. Despite our efforts to increase production, customers' demand is outgrowing our supply. Thus, we plan to preemptively optimize our product mix for both DLM and NET, considering the changes in demand by applications and the voice of customers. Regarding the third quarter big growth outlook, as inventory levels for both DRAM and NAND are significantly low, we expect QOQ big growth to be in the mid single digit for DRAM and high single digit for NAND. We plan to proactively address AI-related demand across all product segments and continue to read the market by leveraging our industry-leading technology, competitiveness, and Broadly diversified product lineups. Thank you.

Good morning. This is Jason Shin from System LSI Business. In the second quarter, overall demand softened due to flagship smartphone seasonality and weakness in the Chinese mobile market. However, we sustained our quarterly revenue by driving sales of SoC and image sensors in the high volume mobile segment, achieving a record high first half revenue. We also secured a next generation flagship SoC and continue to build momentum with new award from major customers across multiple categories, such as SoC, image sensor, and LSI product. In the second half, amid persistent cost pressures Stemming from rising component prices, overall consumer market demand is expecting to soften. Even in such adverse market conditions, we will strengthen the competitiveness of our core business and further expand into high-value segments. For SOC, we are securing next-generation flagship orders and drive unstable sales. and also developing more new business opportunities in custom SOC. For image sensor, we are strengthening our competitiveness in the 200MP sensor and expanding to other applications, various applications. For LSI, we will continue to reinforce our high-end DDI leadership and grow power IC business. Thank you.

Hello, everyone. This is Seok-Che Kang from the Foundry Business. In the second quarter, revenue increased, driven by growing demand for memory HBM-based dye products, as well as product demand centered on customers in the U.S. Earnings also showed significant improvement before incentive-related charges. From an order perspective, We continued to expand our order pipeline centered on major HPC customers including cloud service providers for our 2nano process. In the second half, we will commence mass production of new mobile-oriented products based on the second-generation 2nano process. while ramping up volume production of LPU products for major 4nano customers and scaling up sales of memory-based dye products. Combined with revenue growth across key customers in both the U.S. and China at all nodes, We expect to achieve double-digit or higher year-on-year revenue growth. Notably, the revenue contribution from advanced nodes is projected to exceed 50%, while the share of AI HPC applications is anticipated to expand significantly from The high teens percentage in 2025 to over 30% in 2026. Against this backdrop, we expect profitability improvement to gain full momentum through a strategic shift of our business towards high growth segments. Furthermore, We will continue to strengthen our mid- to long-term growth foundation by expanding orders for advanced node and AI HPC-oriented products. Thank you.

Good morning. This is Chal Seo from Samsung Display. I will now brief you on our results for the second quarter. For the mobile display business, Our performance improved quarter on quarter thanks to solid demand of high-end mobile products. For the large display business, both sales volume and revenue increased quarter on quarter driven by the growth of gaming monitor market. Next, I'll share our outlook for the second half. Market uncertainty is expected to continue in the second half due to tight memory supply and demand conditions.

However,

We aim to maintain profitability through a high-value-added product and operational efficiency supported by major customers' new product launches. In the smartphone market, we'll focus on the premium segment based on our competitive technology in low power consumption and diverse form factors. For IT, We plan to expand our revenue through the ramp-up of our new 8.6 generation IT OLED line, ensuring timely panel supply. OQD OLED products will increase sales by broadening our customer base in the gaming monitor market and strengthening our product line-ups. We'll also expand differentiated OLED products to the tablet, gaming, and automotive markets. In the second half, we'll continue to strengthen our cost competitiveness and accelerate the development of differentiated technologies to solidify our leadership in high-end market and strive to achieve stable performance. Thank you.

Hi, everyone. This is Daniel Raho from the MX Division. Let me share our Q2 results and future outlook. Due to memory shortages, the smartphone market volume declined year on year, primarily in the price-sensitive mass segment, while value increased, driven by higher ASP and an expanded share of premium products. For the MX business, Q2 revenue reached 32.3 trillion won, and our combined operating profits across the MX and network businesses turned to a loss of 0.7 trillion won. With solid flagship sales led by the S26 family, As well as strong A-series momentum, our smartphone sales volume increased quarter on quarter, with revenue also growing year on year. However, profit declined due to industry-wide factors, including rising component costs. In the second half of the year, annual smartphone shipments are expected to decline, as demand softens amid macroeconomic uncertainty and rising memory prices. Nevertheless, demand in the premium segment is projected to remain resilient, are supported by the expansion of AI-enabled features and innovation-informed factors. As a result, both full-year sales volume and ASP are expected to increase. While the current business environment is exceptionally challenging, we remain committed to strengthening AI leadership through personalized and intuitive experiences. With this, we are prioritizing two strategic pillars. First, we will drive overall market share growth through a flagship-first expansion strategy. Within our flagship lineup, we are increasing the sales mix of high-value added products, including our top tier Ultra model and the newly launched foldable Z8 series, which offers an optimized mobile experience built on seven years of innovation and form factors tailored to users' diverse lifestyles. We will maintain S26 momentum through sustained marketing and the launch of the new S26FE while expanding upselling in the mid to high end segments by bringing our core AI experiences to the A series. We aim to capture market opportunities resulting from component supply shortages and drive volume market share growth. Across the broader Galaxy ecosystem, we will focus on increasing the premium product mix while bringing a new form factor experience for the AI era with the launch of intelligent eyewear later this year. Second, we will continue driving end-to-end efficiency initiatives while staying agile in response to market shifts, including dynamically adjusting our sales mix and channel operations based on profitability. Thank you.

Hello, everyone. I'm Hon Lee, head of the global sales and marketing team of Visual Display. I'll briefly explain the market conditions and share our second quarter results along with the outlook for the second half. In the second quarter, overall TV demand demonstrated modest growth versus last year driven by a major global sporting event but declined versus previous quarter. Under these circumstances, we were able to increase both sales and profitability compared to last year mainly by preemptively capturing demand for the major sporting event and successfully launching our new product categories. However, profitability displayed a marginal drop quarter-on-quarter due to rising raw material costs such as memory. Now, let me go over the outlook for the second half of 2026. In the second half, TV market demand is expected to slow down following the end of the sporting event and macroeconomic and geopolitical uncertainties are likely to persist. Against this backdrop, we will expand sales of new categories by leveraging our product competitiveness and highlighting the differentiated experience. Building on this, we aim to strengthen strategic partnerships with key channel partners and capture peak season demand. Furthermore, we will pioneer the AITB market by delivering the differentiated viewing experience powered by Vision AI, and continue to advance our AI features to reinforce our sales leadership in the face of intensifying competition. At the same time, we will secure future growth engine and elevate profitability by expanding our advertising service business while also strengthening OS competitiveness to further broaden our licensing business. This is the end of my speech and thank you for your attention.

Thank you all speakers. That brings us to the conclusion of a second quarter performance review and now we'll proceed with a Q&A which will be conducted in Korean. Our CFO Soon-Cheol Park will address any company-wide questions while questions regarding the business segment will be answered by respective business representatives. Thank you for your attention.

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 Dong-won Kim from KB Securities. Please go ahead. I am Kim Dong-won from KB Securities. Thank you for the opportunity. and congratulations on your record high results. I have two questions. And first of all, as you are now halfway through the final year of your three-year shareholder return policy, could you update us on shareholder returns and your direction for the next policy? And the other one is on memory. The supply shortage in the memory market has continued, and do you expect the supply shortage to continue into next year? Also, if possible, could you share your mid- to long-term outlook for memory demand? I will answer the question on shareholder returns. As mentioned during the previous earnings call, we remain committed to implementing our current three-year shareholder return policy as promised. The board and management are actively discussing the specific implementation plan for the current shareholder return policy, including this year's special dividend. At the same time, they're also engaged in in-depth discussions on the next shareholder return policy. Regarding our current policy of returning 50% of free cash flow, we'd like to note that Customer prepayments under LTAs for our memory business as well as share repurchases for employee compensation may affect FCF. We will continue providing details going forward. For our next shareholder return policy, we are working to drive shareholder value while maintaining an optimal equilibrium between reinvesting for future growth and delivering long-term value to shareholders. We look forward to sharing the details with our shareholders soon.

Yes, let me answer your question on the supply-demand dynamics for memory. So amid the accelerated adoption of agentic AI, the amount of tokens being consumed has also grown exponentially. This is driving unprecedented rise in demand, not only for AI servers, but also for broader computing servers as well. As many AI frontier model developers struggle to secure sufficient cloud capacity from the hyperscalers, they are increasingly turning to the NEO cloud providers for additional service capacity. And as NEO cloud providers emerge as major buyers for server OEMs, the OEMs are continuing to seek significant supplies of memory to meet growth, growing demand. Nonetheless, as memory supply constraints limit expansion of AI infrastructure capacity at hyperscalers and at the new cloud providers, the AI frontier model developers are increasingly approaching us directly to secure their memory supply. These customers are sharing their mid- to long-term demand forecasting and requesting multi-year supply agreements to ensure access to sufficient capacity. So even as the proliferation of agentic AI is accelerating memory demand growth, available supply in the industry again remains significantly limited relative to the requirements. Moreover, despite industry-wide increases in capex, considering the lead time from new fab construction to actual wafer production, which exceeds three years, this means that any meaningful increase in supply capacity will take considerable time. So we believe it will be unlikely to see any significant increase in incremental supply through 2028. Based on the incoming requests that we have been seeing from the customers, unmet demand from this year is likely to carry over into the following year, contributing to tighter supply conditions going forward. The supply constraints are expected to become even more severe in 2027 than 2026. reinforcing our view that the supply shortage will persist through 2028. Beyond 2029, it is hard to say because of more limited visibility. However, with a surge in AI tokens expected to drive exponential demand over the middle long term, customers who want to secure substantial AI service infrastructure are increasingly approaching us for multi-year supply. These multi-year arrangements actually are aligned with our objective of hedging our mid- to long-term risk. And so we have been engaging in discussions with customers, prioritizing those who can guarantee committed future captive demand. Through this kind of approach, we expect to transition our business structure from one that was previously overexposed to supply-demand cycles to a more stable and predictable model. Multi-year supply agreements will provide greater visibility into mid- to longer-term demand, allowing us to execute on our investments with greater flexibility. Under these improved conditions, we'll continue our disciplined supply management approach, deploying clean room capacity first through preemptive investments and then equipment installations flexibly depending on changes in demand conditions. The next question will be by Mr. Gi-seo from HSBC Securities. Congratulations on the good performance. I had one question on the DRAM supply mix. I believe at the last earnings call, you explained that between HBM and conventional DRAM, you wanted to maintain a balanced product mix. So is that still valid today? Also, I heard Some good news about your HBM4 performance. So could you provide us an update, a little bit more detail on the status of your HBM business? Yes, let me take that question. So during our last call, we did explain that to support sustained AI-driven demand, independent of the profitability difference between HBM and conventional DRAM, We intended to maintain a balanced supply mix, and as an extension to that, we continue to maintain the same approach amid rapid growth in HBM demand. For HBM4, which is drawing a lot of market attention, customer qualifications for individual projects are being wound down smoothly, and we are seeing a rapid increase in demand in line with the ramp-up schedules of customer projects in the second half. Supported by the expansion of our 1C nanoprocess capacity and yield improvements, which are progressing as planned, we continue to expand our HBM supply capacity. Consequently, expect HBM4 sales to increase by more than three-fold two-on-two in the third quarter. Based on our outlook for the second half, HBM4 is expected to account for well over 60% of our total HBM revenue mix. So in the second half, we believe we will be able to achieve HBM market share Broadly in line with our overall DRAM market share, resulting in a more balanced business portfolio. Looking to next year, based on the HBM supply agreements that we have already signed with our customers for 2027, together with the technological leadership of our HBM4E product, which we were the first in the industry to sample, we believe we have established sufficient product competitiveness to commercialize with our major customers as planned. As said, alongside the spread of agentic AI, we're also seeing exponential growth in general purpose computing demands. We're closely monitoring the relative pace of demand growth for HBM and server DRAM while making an optimal product mix to support long-term AI demand momentum. Looking to next year, we expect industry supply to remain constrained and we'll manage our HBM and conventional DRAM business in a balanced manner, achieving HBM market share in line with conventional DRAM share. Thank you very much. We'll move on to the next question, please.

The next question will be made by Lee Se-chul from Citigroup. Please go ahead. I am Lee Se-chul from Citigroup. I have two questions regarding company-wide matters. First is about bonus accrual. I remember that the bonus accrual was not recognized in the first quarter. Could you comment on the amount of the second quarter bonus accrual and your plan going forward? And also, the second question is about the U.S. ADR. Following a competitive U.S. listing, there's been growing market interest in the possibility of a Samsung ADR. Also, there have been recent media reports that the company is in the early stages of reviewing a U.S. listing. Could you comment on the possibility of an ADR listing? First, I will answer the question on the bonus accrual. To provide reasonable compensation aligned with business performance and secure top talent, the company operates a performance-based incentive program. As negotiations were still underway and the incentive details were not yet finalized, no incentive accrual was recognized in the first quarter. In the second quarter, we recognize the cumulative accrual for the first half reflecting a special performance incentive equivalent to around 10.5% of cumulative first half operating profit. To help with understanding, it's important to note that there is a timing difference under accounting standards between recording a bonus accrual in the financial statements and recognizing the related expense in the income statements. A portion of the second quarter bonus accrual was included in the cost of work-in-progress inventory as manufacturing labor costs in accordance with accounting standards. Thus, the recognized expense amount in the 2Q income statement is lower than the total bonus accrual. The remaining capitalized amounts will be recognized as cost of sales when the related inventory is sold to customers. This is standard accounting treatment. Accordingly, the bonus accrual amount recorded in a given quarter will not necessarily match the recognized expense in that quarter's income statements. Beginning in 3Q, the expense will be recognized in line with sales of the related inventory. Thus, the second quarter earnings reflect this accounting-specific characteristic. Next, I will answer the question on the ADR. An ADR listing involves more than simply listing overseas. It requires careful consideration of fundraising needs, the effect of expanding the global investor base, and the additional disclosure and operational burden. In addition, an ADR is a structure where a limited portion of shares is traded in a separate market. So liquidity and supply-demand conditions in the overseas market may create a value gap between the ADR and the domestic underlying shares. We thus need to carefully review whether it would provide tangible benefits to all shareholders, including domestic shareholders who have long trusted and invested in the company. Since the company provides stable cash generation based on its diversified business portfolio, the need for an ADR as a means of raising new capital is not high. While recent media reports have suggested the possibility of a U.S. listing, we're not currently reviewing an ADR issuance. That said, From a mid-to-long-term shareholder value enhancement perspective, we view it as one of several possible options that could be open for consideration. Thank you.

Yes, thank you. I will now move on to the next question, please. Yes, the next question will be by Mr. Dong-I Han from SK Securities. Yes, this is Dong-Yi Han from SK Security. Thank you for the opportunity to ask two questions, one on Foundry and one on MX. First, could you provide an update on some order awards from major customers for advanced process nodes? And how do you intend to improve the profitability of the MX business and also monetization plans for your service offerings as well? Yes, let me cover the answer for Foundry as well. I'll update you on the advanced node customer order wins for the second quarter. We have secured two nano projects from major CSPs and AI HPC customers and have commenced the project design phase on those projects. We're also in talks with Broadcom and other major customers on diverse other projects as we continue to broaden our design win portfolio across advanced process nodes. Building on this order momentum, we expect our 2-nano project wins to increase by more than double year-over-year in 2026.

So for MX, right now the massive demand for AI servers is creating a shortage and driving up prices for mobile memory. We already saw this in Q2 as memory prices rose quarter-on-quarter, leading to pressure on our profitability, and we expect that cost burden to continue through the second half of the year. To manage this, we're focused on maintaining strong sales momentum of the S26 series while ensuring the successful launch of new premium products coming out in the second half, such as the new foldable series Tab S12 and Watch Ultra 2. We're also putting a lot of effort into upselling within the A series, specifically with the A57 and A37. And on top of that, we are tightening up how we allocate resources across areas like procurement, sales, and R&D to minimize the impact on earnings. We absolutely recognize the importance of expanding value creation beyond selling devices. So we're looking into various ways to generate revenue, leveraging our global installed base. But rather than just chasing short-term profits, we're focused on a premium value approach, providing meaningful value and real convenience. like hyper-personalized services tailored to each user's specific situation and context all without compromising the user experience. That said, we're taking a phased approach considering factors such as service maturity and how our global customers are responding. Thank you.

Yes, thank you. We'll move on to the next question please. The next question will be by Mr. Jae Kwon from JP Morgan. Please go ahead. Thank you for the opportunity to ask some questions. My name is Jae Hyun Kwon from JP. I'd like to ask one question on memory and then a company-wide question as well. First regarding memory, AI-related demand growth appears to be spreading beyond DRAM into NAND and also server SSD as well, drawing greater interest in the NAND market. If you could provide a business update on that and highlight some of your unique competitiveness. And then my next question has to do with Harman's acquisitions of ZF and Sound United. What are the expected benefits from those acquisitions and what will be the strategic or the strategy for leveraging those assets? So I will cover the first question on NANs. Up to now, market interest is more concentrated on DRAM rather than NAND. But with the recent spread of agentic AI, we are now seeing strong demand growth for server SSDs across a broad range of segments, such as general purpose computing servers or dedicated storage servers for KB cache. NAND is also transitioning toward a higher value added business centered around server SSDs. NAND, in fact, made a significant contribution to our solid memory business performance in the second quarter. We are also in talks with major customers on multi-year agreements to enhance the mid- to long-term visibility of our NAND business as well. We are also proactively addressing server SSD demand growth related to AI use cases. And this year, server SSD is expected to exceed 60% of our NAND sales mix. which is an increase of more than 20 percentage points year over year. And to meet growing demand for high-performance TLC-based storage, our PCLE Gen 6 SSDs have been receiving positive feedback already from major customers for differentiated performance. We expect to take a leading position in the early market for next-gen Gen6 AI platforms, translating our technology leadership and solutions into tangible business results. On the QLC front, after completing development of our V9 2TB QLC in March, we have since expanded our product lineup to include 256TB height capacity server SSDs.

We also expect QLC bit shipments in the second half to more than double versus the first half.

To prepare for the future, V10 BV NAND featuring bonding and a three-stack architecture is scheduled for mass production in August. By increasing the share of advanced nodes, we will improve bid productivity to better respond to growing customer demand while ensuring timely supply of V10-based solutions for applications requiring high in-out speed. We will continue to develop new products in a timely manner. to meet customer demand for new technology and further solidify our position in the NAND market for next-gen AI platforms.

As a member of Harman's board, let me address your question. To actively respond to rapidly evolving market trends and strengthen business competitiveness, Harman recently entered into two M&As. In the automotive business, by acquiring ZFs, AIDAS business, we move beyond digital cockpits and call audio products into the AIDAS business, providing smart camera sensors and high-performance controllers. This acquisition will not only broaden the customer base and create a new engine for stable growth, but also strengthen the digital cockpit business by adding AIDAS capabilities, positioning Harman to proactively address the tech trend toward integration around centralized controllers in future vehicles. Going forward, Harman will leverage synergies with Samsung to deliver enhanced in-vehicle IT and AI experiences and expand into autonomous driving to become a leading global player in auto electronics. Also in the lifestyle business, the acquisition of Sound United will optimize our brand portfolio and enhance the recognition of our premium audio brands, reinforcing our position as a global leader in audio. In addition, to respond to evolving technologies and customer needs in the audio market, we need to expand consumers' connectivity and sound experiences. To this end, we plan to strengthen our collaboration with Samsung in AI and connectivity. Thank you. Thank you for your answer. We'll move on to the next question.

The next question will be by Min-sook Choi from Korea Investment Securities. Please go ahead. Yes, good morning. This is Min-sook Choi. Thank you for the opportunity to ask some questions. For across the memory market overall, we're hearing lots of news about multi-year contracts. I believe at the last call, you also said that Samsung Electronics was also pursuing multi-year arrangements. So to the extent possible, could you provide us with a status update and some color on the terms? Yes, let me cover the question on memory multi-year contracts. So amid growing demand for AI service infrastructure in the mid to longer term, market expectations are rising that the memory supply shortage is likely to persist for an extended period. As a result, many customers are requesting multi-year supply agreements from us. These long-term arrangements are in fact aligned with our own interests of hedging against mid- to long-term future risk. And so accordingly, we are negotiating the contractual terms, giving priority to customers willing to accept mutually binding contractual conditions and who can provide assurance about committed demand. We continue to see strong demand for additional supply across both DRAM and NAND. With market prices on the rise, almost all major customers are interested in asking for long-term supply. So it's increasingly difficult to accommodate all of the requests given our available capacity. Initially, we intended to maintain flexibility in supply allocation and plan to allocate approximately 60% to 70% of our total capacity to long-term supply agreements while preserving sufficient capacity to support customers without multi-year contracts. However, given the growing number of customers seeking multi-year commitments, including those who already have existing agreements, the capacity allocation is increasingly becoming constrained. But we actually have been signing multi-year supply agreements based on a five-year term. And this is by contract, subject to annual negotiations where the parties can agree to add on a additional year. effectively operate on a rolling basis. We want to establish this type of rolling contract-based business structure for greater visibility. And we have already finalized agreements with the top five global data center customers, also in the final stages of talks with five additional major accounts to support their AI-related demand. That said, given that more customers are also seeking multi-year supply arrangements, We expect this number to increase. So once we finalize on the currently pending contracts as well, we believe that DRAM and NAND supply volumes under multi-year supply contracts will easily account for 60 to 70% of our plant capacity based on our current mid to long-term production plan. We will continue discussions with other customers also seeking additional supply and examine various options in conjunction with potential mid- to long-term capacity expansion scenarios. To enhance the binding nature of multi-year supply commitments, we have included substantial advance payments as a contractual requirement to be maintained over the multi-year contract period. We have already received a significant portion of these payments and the overall balance is expected to grow. So we've already received one-fourth of these payments. We cannot share more on the size of the advance payments due to our NDA commitment. Regarding our pricing model for multiyear agreements, our objective is to incorporate pricing structures that provide sufficient compensation for a certain level of future investment risk. We're applying differentiated pricing models depending on the customer segment and product categories and progressing on contract discussions through mutual alignment. For mainstream products, we have established minimum price floors at a level sufficient to mitigate against future investment risk arising from market price volatility. Through these multi-year supply agreements, we aim to establish a more stable and predictable business structure from a mid to longer term perspective by providing greater supply visibility to key customers that are playing a very critical role in building the AI ecosystem We will support the sustainable growth of the broader AI industry. Importantly, we continue to maintain a balanced customer portfolio without excessive over-reliance on any specific customers, and we apply the same principle to our multi-year supply agreements. Historically, the memory industry has experienced recurring cycles of up-turns and down-turns driven by demand fluctuations in consumer-oriented applications. However, by increasingly Increasing the share of longer-term backlog-driven business, we hope to significantly enhance the stability and visibility of our business. We'll continue to strengthen our leadership, expanding the portion of our business portfolio focused on AI applications. Yes, the next question will be by Mr. Sung-kyu Kim from Daiwa Security. Yes, this is Sung-kyu Kim from Daiwa. Thank you for the opportunity. Congratulations on good performance. I have a question for Foundry and also VDE. For Foundry, as growing customer commitments are expected to put pressure on your available capacity, could you provide an update on any plans for capacity expansions for your Taylor Fab or Pyeongtae? Also potential conversion of legacy lines to advance processes. And for VD, amid challenging business conditions, I understand there's been a change in the management, the leadership. So what is the mid to long-term plan of the new leadership? Yes, let me cover the question on foundry. Given that demand growth continues to outpace expansion of advanced node capacity, we are taking proactive steps to expand our advanced node capacity. For Taylor Fab One, Fab One is preparing to commence operations by 2026 as planned, with plans to gradually ramp up to nano capacity. And also to ensure timely capacity readiness in line with growing customer demand, Taylor Fab 2 will begin construction by the end of this year, targeting mass production by 2030. We're seeing an increase in customer inquiries for 1.4 nano as well. We're currently reviewing options to potentially secure additional fab capacity. Detailed plans will be developed in phases based on customer engagement, order development, and ongoing discussions. For mature process nodes, our strategy is to optimize our portfolio by shifting toward higher value, higher margin applications, strengthening our focus on specialty technologies that require differentiated capabilities. Specifically, we're expanding capacity in growth areas with increasing customer demand, such as 8nano, 17nano, CIS, and ENVM, while securing capacity for next-gen technologies such as ISC, and Silicon Photonics. Thank you.

Let me cover the question on VD. With the recent leadership change, we intend to strengthen our growth strategy by building on existing strengths while responding to the industry's shift toward AI and service-centric business models as well as evolving customer needs. The TV set market has remained stagnant, whereas the CTV advertising and services market continues to grow. From a niche long-term perspective, we are building on AI TVs that will lead the next era to proactively address the market shift towards services and changing consumer trends, while also preparing our device and platform strategy to expand our scale. By delivering optimal consumer experiences throughout our offerings, including content, we aim to expand our presence as a service platform company. Through this, we will strengthen both growth and profitability. First, with AI TVs, we will differentiate user data and context-based agent AI experience to strengthen our product and market competitiveness. By understanding and remembering users, We will provide context-aware media and lifestyle experiences and expand AI TV's role as everyday devices. At the same time, we will enable consumers to experience the value of agent AI in their daily lives. In addition, for TV+, we will diversify content and secure popular IP to strengthen our content competitiveness. We will improve usability to advance the content discovery experience and further enhance AI-powered hyper-personalized content recommendations to improve customer satisfaction. Thank you.

Yes, thank you. We'll move on to the next question, please. The next question is by Mr. Simon Woo from Bank of America Securities. Yes, good morning. This is Dongjae Woo from BOA. I also have two questions. First, on the foundry side, what is the current status of utilization rates and also yields? And it seems that margins overall are improving. So to what extent are margins expanding and when do you expect a turnaround to profit for foundry? Second question, regarding employee compensation packages and also shareholder returns. So you may be required to do a sizable share buyback, but if you had to do both at the same time, employee compensation and share buyback, do you believe that you can do that all at once? Would that be feasible in the management's view? Yes, let me answer your question on foundry. Regarding utilization, utilization rates have improved year over year across all nodes. Advanced nodes, 8nano and below, actually have reached full utilization levels as we maximize sales of high-growth products with strong underlying demand. On the yield side, building on the successful mass production of first-gen 2nano technology, we will be ramping up second-generation 2nano production in the second half. And through this and continuous process optimization, We expect to be able to stabilize yields and improve overall manufacturing productivity. From a profitability perspective, we expect improvements, significant improvements year on year, supported by higher utilization, improved yields, and the effective pricing adjustments. While it is difficult to predict exactly when we will turn around due to the nature of the foundry business, which is driven by custom orders, we believe the turnaround is possible in the near term.

I will cover the question on share buyback. The use of treasury shares requires consideration of the respective purposes of employee compensation and shareholder returns together with the relevant regulations and decision-making procedures. Any plan to hold or dispose of treasury shares for employee compensation must follow shareholder approval and other procedures under the revised commercial act. Likewise, any share buyback or cancellation for shareholder returns will be carried out in accordance with the relevant laws and board resolution. However, with respect to the timing of share buybacks, rather than one large-scale execution, we will determine the optimal method after considering both shareholder value and the effectiveness of employee compensation. We'll strive to develop a capital allocation strategy that strikes the right balance between the company's sustainable growth and maximizing shareholder returns. Thank you. Thank you for the answer. We'll move on to the next question.

The next question will be by Ms. Kyungha Lee from CGS International Securities. Yes, good morning. This is Kyungha Lee from CGSI Securities. Thank you for the opportunity. I would also like to ask two questions. First is on your SOC business. So I think we are seeing a structural transition in the market with limited growth in mobile demand and high entry barriers in custom silicon. So what is your strategic roadmap for the SOC business? And then the second question is for SDC displays. So I think there is growing interest. Your Gen 8.6 ITOLED line has started to ramp mass production. So I'd like to hear more about your strategy in terms of how to deliver competitive advantage and also in terms of margins. Yes, we will cover the first question on system LSI. So as on-device AI capabilities are increasingly becoming important differentiating factors in mobile, we are continuing to enhance AI performance while strengthening our competitiveness in next-gen SOC solutions. And we have secured contracts for next-gen flagship SOCs with both development and production progressing smoothly according to plan. With the expansion of AI, customers are increasingly demanding customized Semicon solutions tailored to their needs, leading to growing demand for custom SOCs or total solutions. Leveraging our comprehensive capabilities across design, foundry, memory, and packaging, We're actively pursuing global customer opportunities with our differentiated total solution offering.

I'll answer the question on display. As you mentioned, starting in July, we began mass production at our 8.6 Gen ITO lead line. Based on the mass production experience and process technologies we've built in mobile OLED, we have secured the performance and quality required by the market. We are striving to enhance profitability by continually improving yields. With the launch of the new 8.6 Gen line, we will further expand OLED adoption in the IT market and drive revenue growth. However, the increase in fixed costs during the initial ramp-up period of the new line is expected to have some short-term impact on our earnings. To address this, We will promote technology innovation including full oxide and maximize production efficiency based on the large substrate 8.6 Gen process to boost cost competitiveness. Through these efforts, we will ensure that the new 8.6 Gen IT OLED lines strengthen our market leadership and contribute to earnings improvement. We'll move on to the next question. The last question will be made by Ryu-Young Woo from NH Investment and Securities. You may go ahead. I'm Ryu-Young Woo from NH Investment and Securities. Thank you for the opportunity. I have two questions, one on MX and one on the company-wide matters. First, major competitors have recently been actively introducing their own AI strategies, making competition in mobile AI increasingly intense. Could you explain the company's AI strategy and how it plans to differentiate itself in this environment? And also, I'd like to ask about robotics. Samsung recently consolidated its robotics capabilities into a dedicated organization to advance its robotics business. Could you comment on the progress of the robotics business and your mid- to long-term growth strategy?

The first question is for MX. So on AI, we're going beyond simply adding AI features. We're redesigning our system architecture into what we call an AI OS, where AI becomes the core of how the system operates. This evolves Galaxy AI into the foundation that integrates the whole mobile intelligence experience. So by leveraging our strong partnership with Google, we're optimizing Galaxy AI to advance toward agentic AI, We need that the system can understand the user's context, automate tasks, and even make proactive suggestions. Specifically through deep analysis and understanding of the user experience, we're going to strengthen personalization based on our personal data engine. And it's not just about smartphones and wearables. We're going to leverage our massive ecosystem, including TVs and home appliances, to elevate the AI experience across a person's entire lifestyle. Also, the more that AI understands the user, the more critical security becomes. That's why under our Knox security framework, we're processing personal context information on device and keeping the data safely isolated with a technology called Knox Enhanced Encrypted Protect, which gives the user a transparent, controllable, and trust-based experience to securely manage their data. Thank you.

I'll answer the question on the robotics. We believe robotics, together with AI, will become a key area shaping future industries. Thus, from a mid- to long-term perspective, we've been strengthening our business competitiveness in this area. The establishment of the RX Business Office, reporting directly to the CEO, intends to bring together our company-wide robotics capabilities and integrate strategy establishments Thank you very much. We appointed EVP Dong-geun Lee, who previously led Boston Dynamics Robotics Strategy at Hyundai Motor Group, to head the robotics strategy team. We also recruited Professor Hyunjin Kim of the Lab for Autonomous Robotics Research in Aerospace Engineering at SNU and an expert in high-performance robotic hands, Professor Eui-kyum Kim of the Department of Mechanical Engineering at Aju University. Centering on B2B applications in manufacturing logistics, We aim to secure core technologies and data and develop highly intelligent, multi-purpose humanoid robots, thereby gradually expanding into the B2C market. To accelerate the strategy, we are exploring collaborations with promising global startups along with potential investments and M&As. In addition, in response to the expanding physical AI-based robotics market, we are leveraging our differentiated technology competitiveness across our semiconductor businesses to prepare next-gen semiconductor solutions covering high bandwidth Low-power memory, XPU for on-device AI image sensors, foundry for AI semiconductors, and advanced packaging capabilities. Building on our semiconductors, software, AI, and manufacturing capabilities, we aim to also build differentiated competitiveness in robotics and develop it into a future growth engine.

Thank you.

Thank you for the answer and also the questions. 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 sincerely appreciate everyone's participation today and your ongoing support for Samsung Electronics. We wish you all a wonderful day. Thank you.