Total consolidated revenue was KRW 63.67 trillion, a 20% increase from the previous year and a record for the second quarter. Operating profit increased 34% from the previous quarter to KRW 12.57 trillion as market conditions improved in the memory market, operations normalized at the Austin foundry fab, and as effective global supply chain management (SCM) helped maintain solid profitability for the finished product businesses.

The Semiconductor business saw a significant improvement in earnings as memory shipments exceeded previous guidance and price increases were higher than expected, while the Company strengthened its cost competitiveness. For the Display Panel Business, a one-off gain and an increase in overall prices boosted profits.

Earnings at the Mobile Communications Business declined from the previous quarter due to component supply shortages and COVID-19 related production disruptions. But the business posted solid profitability as the Company leveraged its global SCM capabilities, improved the cost structure and as contributions from tablets and wearables continued.

The Consumer Electronics Division posted strong results driven by increased sales of premium products as demand remained strong.

For the second half, market conditions are expected to be favorable for the component business and the Company will focus on enhancing product and technology leadership. In smartphones and consumer electronics, the Company aims to maintain solid profitability by strengthening the premium category leadership. However, risks of continued disruptions in component supply and uncertainties related to COVID-19 are likely to persist.

The Memory Business is expected to see continued demand growth for server and mobile products and the Company will accelerate migration to 15-nm DRAM and 6th-generation V-NAND as well as expand the application of extreme ultraviolet (EUV) lithography process in DRAM production. Demand for key System LSI products is expected to increase as new smartphones are introduced, while the Foundry Business will accelerate growth by expanding the Pyeongtaek S5 Line capacity and by adjusting pricing to enable future investment cycles.

For the Display Panel Business, the mobile panel segment is expected to improve as major customers launch new flagship models and the Company will focus on finalizing the mass production process for quantum-dot (QD) displays for shipment to begin within the year.

The Mobile Communications Business plans to achieve solid revenue and profit by boosting the competitiveness of the product lineup with the launch of new foldable models and the expansion of mass market 5G phones. The Company will also continue to increase sales of the Galaxy Ecosystem products. The Networks Business will drive revenue growth in key markets, including North America, and continue to explore new opportunities in Europe and other regions.

The Consumer Electronics Division will solidify leadership in the premium TV market and increase digital appliances revenue by bolstering global sales of the Bespoke product line.

The Company’s capital expenditures in the second quarter reached KRW 13.6 trillion, including KRW 12.5 trillion spent on semiconductors and KRW 0.6 trillion on displays. Total capital expenditures in the first half were KRW 23.3 trillion, including KRW 20.9 trillion for semiconductors and KRW 1.4 trillion for displays. Investment in the Memory Business was spent mainly on addressing future demand through capacity expansion and process migrations to advanced nodes. Investment in the Foundry Business focused on expansion for advanced processes such as 5-nm EUV lithography.

Semiconductor Earnings Rise; Strong Demand To Continue in 2H

The semiconductor business posted KRW 22.74 trillion in consolidated revenue and KRW 6.93 trillion in operating profit in the second quarter.

The Memory Business reported a significant increase in earnings from the previous quarter, led by strong demand for server and PC memory, as well as stronger-than-expected increases in average sales prices for both DRAM and NAND chips. Cost reduction from the ongoing adoption of latest manufacturing process also helped.

For DRAM, demand from datacenter companies was strong thanks to solid growth in Cloud service while continued trends for remote work and education lifted demand for PCs.

Demand for mobile memory, however, saw a limited impact in the short term due to recurring waves of COVID-19 outbreaks at locations of global smartphone production bases and tight supplies of key components.

The graphics market also grew in the second quarter on healthy demand for cryptocurrency and graphic cards for gaming PCs. Memory demand for game consoles also grew on new game launches, against the backdrop of rising need for home entertainment.

Samsung was able to respond promptly to the strong server and PC demand, reporting a higher bit growth than the previous guidance, thanks to a preemptive adjustment to the Company’s production mix.

As for NAND, demand was solid over sustained growth in content-per-box, particularly from major customers, even as tight supplies of components limited overall mobile phone production in the second quarter. Solid state drives (SSDs) reported growth due to increased investment in servers from datacenter companies and solid demand for laptops.

NAND shipments in the quarter also exceeded the previous bit growth guidance while the portion of 128-layer 6th-generation V-NAND continued to increase.

Looking to the second half of the year, the market is expected to see supply problems for components persist, as well as risks from the variant COVID-19 viruses and geopolitical tensions. However, the memory market’s fundamentals remain strong on the back of increasing 5G adoption and sustained demand for servers and PCs.

Memory demand will likely be buoyed by new smartphone model launches, with the wider 5G availability driving growth in content-per-box. Increasing adoption of the latest CPU, along with growing enterprise PC demand to support the new remote work dynamics, is expected to support memory demand for servers and PCs. At the same time, Samsung’s chip inventory level has fallen to a substantially low level due to the stronger shipment last quarter than the previous guidance.

Samsung will continue to manage production mix in a flexible manner and enhance capabilities to meet fluctuating market demand. The Company will further cement its leadership in cutting-edge chip technology and is set to begin mass production of 14-nm DRAM using the EUV-based process, based on the industry’s smallest design rule in the 14-nm class, in the second half. Samsung will also start mass production of consumer SSD adopting the double-stack based 176-layer 7th-generation V-NAND, using the finest etching technology, during the second half.

The System LSI Business saw its earnings improve in the second quarter with a solid demand for 100Mp image sensors from Chinese customers and as production normalized at the Austin fab. However, improvement was somewhat limited due to a decrease in flagship smartphone launches and SoC demand amid weak seasonality.

The Company also released an image sensor that applies 0.64μm ISOCELL, which is the smallest pixel size in the industry, and also the Company’s first product of the image sensor for automotive and expanded its business areas by releasing 3 types of PMICs for DDR5 DRAM modules.

In the second half of the year, especially third quarter, the overall earnings are expected to improve amid rising demand for SoC and OLED DDI as we enter strong seasonality for smartphones and TVs.

The Foundry Business saw its earnings improve thanks to early normalization of the Austin fab and maximized chip supply capabilities.

In the second half of this year, the Company expects to see a continued 5G penetration, work-from-home trend, and customers securing safety stock resulting in higher market growth than before.

To meet this rising demand, the Company will maximize its capabilities to supply chips via full-fledged operation of Pyeongtaek S5 Line, and target annual sales growth of well over 20% through pricing strategies to sustain future investment as well as customer and application diversification.

Display Earnings Improve on One-off Gain and ASP Rise

The Display Panel Business posted KRW 6.87 trillion in consolidated revenue and KRW 1.28 trillion in operating profit for the second quarter. Its earnings improved from the previous quarter despite weak seasonality for mobile products, primarily due to a one-time gain as well as an increase in overall ASP.

Mobile display saw its earnings grow as the continued adoption of OLED panels by customers helped its profit margin remain strong. Compared to a year earlier, both sales and operating profit increased substantially because of the wider adoption of OLED displays as well as the base effect. For large displays, while the conversion of manufacturing lines to QD displays affected revenues, profitability improved thanks to the increased ASP of panels for TVs and monitors.

Looking ahead to the second half, Samsung expects demand to recover for mobile displays as major customers are planning to launch new flagship models, including high-value products such as foldable phones. However, there are concerns that a supply crunch of certain components such as DDIs may affect shipments for some customers. Meanwhile, the Company forecasts the sales of IT devices and portable gaming products featuring OLED screens to grow in earnest.

Samsung will continue to strengthen its market leadership by introducing new technologies such as Under Panel Camera (UPC) and low-power consumption related ones. For large displays, the Company will focus on finalizing the mass production process for QD display to allow product shipments to start within the year.

Mobile Profitability Remains Solid in Q2; To Strengthen Leadership in Premium Segment in 2H

The IT & Mobile Communications Division posted KRW 22.67 trillion in consolidated revenue and KRW 3.24 trillion in operating profit for the second quarter.

Overall market demand decreased from the previous quarter due to the impact of weak seasonality and prolonging COVID-19. The Mobile Communications Business saw a revenue decrease compared to the previous quarter, influenced by a component supply shortage in the industry as well as production disruptions in its Vietnam factory. However, the Company secured solid double-digit operating profit margin by minimizing impact through rebalancing supply with its global SCM capabilities and improving cost structure. Device Ecosystem products such as tablets, wearables also contributed to the second quarter profit.

Looking ahead to the second half, mobile market is forecast to recover to the pre-COVID level on an annual basis as 5G adoption and contactless trend continue to thrive. However, uncertainties over component supply and COVID-19 will continue to persist. The Company will strive to achieve solid revenue and profits by enhancing the competitiveness of its smartphone lineup with the launch of new foldable models and expansion of mass-market 5G models. Also, it will further increase sales of the Galaxy Ecosystem products.

With successful launch of the new foldable smartphones with further enhanced user experience, the Company will solidify its leadership in the premium segment by mainstreaming the foldable category while continuing the sales momentum of Galaxy S series throughout the year.

As for the Networks Business, the Company improved performance compared to the previous quarter backed by growth of its North America business and 5G networks expansion in South Korea. The Company will strive to drive sales growth in North America and Japan while exploring new business opportunities in Europe and other markets.

Solid Earnings for Both TV and Appliances; To Continue Focus on Premium Product Sales

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 13.4 trillion in consolidated revenue and KRW 1.06 trillion in operating profit in the second quarter.

Overall market demand for TVs decreased from the previous quarter due to low seasonality, but was higher compared to a year earlier. Expanded sales of premium products including the newly launched Neo QLED, and a timely response, based on operational efficiency, to demand generated by global sporting events allowed the Company to post solid profits in the second quarter.

The Digital Appliances Business also posted steady results, buoyed by sustained pent-up demand in the quarter. The Company launched its Bespoke lineup in global markets in May, garnering positive initial feedback from the market. New lifestyle products including the Shoe Dresser and cordless Stick Vacuum Cleaner also led to expanded sales.

Looking ahead to the second half, COVID-19 related uncertainties continue to pose a risk for both TV and Digital Appliances businesses. However, the Company looks forward to improved demand for TVs compared to the first half of the year, due to stronger seasonality.

The Company will closely monitor rapidly changing market conditions, and swiftly respond to changes in demand with its advanced SCM capabilities. Expanded sales of premium products via peak-season promotions tailored by region, enhanced online and offline buying experiences, and improved operational efficiency are part of the plan to secure profitability.

Even as the COVID-19 pandemic continues around the world, reopening of key economies led to significant increase in consumer demand. Samsung Electronics was able to respond aggressively through flexible global supply chain management (SCM), reporting its highest-ever quarterly revenue.

Quarterly operating profit rose 52 percent from the previous quarter, thanks to a boost in demand for smartphones and consumer electronics as well as efficient cost management. Third-quarter operating profit was also 59 percent higher year-on-year on stronger sales of memory chips and consumer products.

The Memory Business posted solid earnings as healthy demand for mobile and PC products led to higher-than-expected shipments, outweighing the impact of lower memory chip prices. The System LSI Business also saw profit rising over demand for mobile phone components, while the Foundry Business benefitted from increased orders for high-performance computing (HPC) chips and other applications.

The Display Panel Business reported higher profit quarter-on-quarter led by growing mobile display sales on customers’ new product launches and improved supply-demand environment for large panels.

A near 50 percent jump in sales of smartphones including new flagship products, coupled with improved cost management, lifted earnings at the Mobile Communications Business from the previous quarter. The Consumer Electronics Division also witnessed a sharp growth in sales of premium TVs and appliances, supported by flexible management of supply chain and sales channels.

Looking ahead, Samsung Electronics expects profit to decline in the fourth quarter amid weakening memory chip demand from server customers and intensifying competition in mobile phones and consumer electronics.

Soft prices in server memory due to customers’ inventory adjustments will likely weigh down the Memory Business despite stable demand for mobile and laptop memory. The System LSI Business will begin supplying 5-nm 5G system-on-chips (SoCs) in earnest and the Foundry Business expects increased demand for HPC chips and mobile SoCs. In displays, mobile panel sales are set to rise significantly from the third quarter.

The Mobile Communications Business is likely to see smartphone sales decline and marketing costs increase due to competitive market environment. In Consumer Electronics, profitability is expected to weaken on growing competition and rising costs, despite solid demand.

For 2021, the Company expects a recovery in overall global demand but uncertainties will remain over the possibility of recurring epidemic waves of COVID-19.

Samsung aims to enhance its leadership in memory chips through expansion of next-generation process node, flexible production management to meet immediate demand and timely investment to address demand over the mid- to long-term.

The System LSI Business will focus on differentiated 5G SoCs and high-resolution sensors, while the Foundry Business seeks to accelerate growth by diversifying applications to HPC and securing new major customers.

As the Display Panel Business plans to launch new Quantum-Dot (QD) Displays in 2021, it will also focus on improving earnings by enhancing leadership in mobile displays.

The Mobile Communications Business plans to expand foldable and 5G model offerings globally, while the Networks Business will strengthen its global positioning on the back of growing commercial 5G services. The Consumer Electronics Division will strengthen its online and B2B presence and expand its premium product lineup.

The Company’s capital expenditures in the third quarter stood at KRW 8.4 trillion, including KRW 6.6 trillion spent on semiconductors and KRW 1.5 trillion on displays.

Robust Mobile Demand Drives Semiconductor Earnings; Foundry Reports Record Sales

The Semiconductor businesses posted KRW 18.8 trillion in consolidated revenue and KRW 5.54 trillion in operating profit in the third quarter.

Overall demand in the Memory Business was better than expected as demand for mobile applications began to recover, even as demand for servers was somewhat weaker than the first half.

For DRAM, mobile demand increased due to strong seasonality and higher sales of low- and mid-end smartphones, while it was also positively impacted by the expansion of 5G and inventory buildup from Huawei. Server demand was relatively soft due to inventory adjustment by major customers, while PC demand rose on stronger sales of laptops. In addition, graphic demand also increased with the production of new gaming consoles. The Company achieved a higher bit growth for DRAM in the quarter than its previous guidance.

For NAND, mobile demand was strong as major manufacturers launched new models along with orders from Huawei. For servers, demand declined due to inventory adjustment of major customers, while for client SSD, low- and mid-end laptop demand was robust and SSDs for new gaming consoles increased significantly. Overall NAND shipments rose across all applications, helping the Company surpass the market’s bit growth in the quarter.

Looking to the fourth quarter for DRAM, mobile demand is expected to increase with new smartphone launches, while server demand is expected to remain weak as inventory adjustments continue. For PC, low- to mid-end laptop demand is likely to remain solid, while for graphic, demand will continue to see growth with the launch of new GPUs and gaming consoles.

As for NAND, mobile demand is expected to rise on the back of improving consumer sentiment and demand from Chinese manufacturers. For server SSD, demand is likely to remain weak and prices are expected to decline as customers continue to adjust their inventory and manage their capex conservatively. However, demand for client SSD is expected to be robust as low- to mid-end laptop demand will remain solid.

For the outlook next year, while geopolitical issues and the possibility of a prolonged impact from COVID-19 remain, mobile demand is expected to show solid growth until the first half as 5G continues to expand to low- and mid-end models. For servers, it is highly likely that demand will turn around in the first half as inventory levels normalize and investments by customers recover.

The Company will continue to maintain product competitiveness by accelerating the conversion to 1z-nm DRAM and 6th-generation V-NAND, as well as developing next-generation products such as EUV-based 1a-nm DRAM and 7th-generation V-NAND.

Earnings for the System LSI Business improved on the back of a recovery in mobile components, including CIS and SoCs. Display-related products especially showed significant growth as demand for tablets and laptops increased.

In the fourth quarter, Samsung will focus on expanding the mobile SoC business as it begins to supply 5G 1-Chip SoCs, our first products to feature the 5-nm process technology. In 2021, as market demand for mobile components is expected to recover, the Company will focus on expanding shipments of 5G SoCs, high-resolution sensors and DDIs.

The Foundry Business achieved record quarterly revenue on the back of a recovery in mobile demand and increased demand for HPC chips. The Company has established a position for future growth by beginning the shipment of 5-nm mobile products and 2.5D packages.

In the fourth quarter, the business aims to achieve another record quarterly revenue by expanding mobile SoC and HPC chip shipments to major customers. In 2021, the Company expects growth in the Foundry Business to exceed the industry’s growth significantly. It plans to diversify applications to HPC, consumer and network products, and secure additional major customers.

Display Earnings Improve, Expects Higher Demand in Q4

The Display Panel Business posted KRW 7.32 trillion in consolidated revenue and KRW 0.47 trillion in operating profit for the third quarter. Its earnings improved driven by increasing sales of smartphone, TV and monitor panels, despite the impact of COVID-19.

Mobile display earnings rose as recovering demand from major customers for smartphone screens lifted utilization rate. Losses from large displays narrowed slightly QoQ on increasing panel prices and higher sales of ultra-large TV and high-performance monitor panels.

Looking ahead to the fourth quarter, the Company expects solid demand for mobile displays led by new smartphone launches. It will actively respond to customer demand and enhance product mix to increase sales and profit. For large displays, the Company will continue to address existing LCD customer demand and accelerate the transition to new QD Display technology.

While uncertainties will likely continue in 2021 due to COVID-19 and global trade conflicts, the Company expects a gradual recovery in the smartphone market driven by 5G services and will focus on enhancing its leadership in OLED panels.

Samsung will also accelerate innovation to deliver new form factors and expand adoptions by new applications. For large displays, the Company plans to launch QD Displays in due time and build the foundation of new premium panel business.

Strong Smartphone Sales Drive Mobile Profit; Competition to Intensify in Q4

The IT & Mobile Communications Division posted KRW 30.49 trillion in consolidated revenue and KRW 4.45 trillion in operating profit for the third quarter.

Overall market demand increased in the third quarter as stimulus measures helped many economies recover following lockdowns during the second quarter. The Company’s smartphone sales rose sharply from the previous quarter, with the launch of new flagship models such as the Galaxy Note20 and Galaxy Z Fold2, as well as stronger sales of mass-market models in key regions including India.

Efficient cost management through component standardization and reduction in marketing expenses led to a significant improvement in profitability. Sales increase in tablets and wearables including the Galaxy Tab S7, Galaxy Watch3 and Buds Live also contributed to the profit growth in the third quarter.

Looking ahead to the fourth quarter, the overall market demand is expected to increase QoQ due to strong year-end seasonality and continued recovery in the overall demand. However, smartphone sales are expected to decline QoQ due to subsiding effects from new flagship model launches. Higher marketing expenditure to respond to intensifying competition and year-end seasonality is also likely to weigh down profit.

In 2021, while mobile market demand is expected to increase YoY backed by continuous economic recovery and accelerating migration towards 5G networks, uncertainties persist over the COVID-19 pandemic. The Mobile Communications Business aims to expand its smartphone sales by strengthening lineup for foldable phones and mass-market 5G models.

For the Networks Business, the Company strengthened its foundation for 5G business by signing a large-scale supply contract with Verizon in the U.S. The Company will continue to expand its 5G coverage in South Korea and push to expand the business globally including North America and Japan.

Appliances, TV Earnings Improve on Increased Demand

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 14.09 trillion in consolidated quarterly revenue and KRW 1.56 trillion in operating profit.

Demand for TVs surged both QoQ and YoY as the “At-home” trend buoyed sales of high-resolution home cinema. The Company responded to the strong demand in time with online marketing and global SCM capabilities, increasing sales in QLED, super large screen TVs and Lifestyle TVs.

In the fourth quarter, uncertainties from COVID-19 will linger and rising costs during the year-end peak season remain a risk. The Company plans to continue to expand online sales and online-to-offline (O2O) special promotion to enhance premium lineup such as QLED and Lifestyle TVs.

For the outlook next year, the Company expects further changes to the TV market environment from the pandemic. It will continue to introduce premium models such as QLED, Micro LED for home, in order to lead the super large-screen TV segment.

The Digital Appliances Business saw growth in the third quarter from recovering sales of premium lineup including Bespoke refrigerator and Grande AI washer/dryer. Increased sales of dryers and Air Dressers (garment refreshers) also helped, as COVID-19 raised consumers’ interest in better hygiene.

As a recovery in developed markets is expected to lead demand in the fourth quarter, Samsung will focus on flexible seasonal promotions and strengthen logistics and online marketing to improve profitability.

In 2021, gradual recovery is expected in the digital appliance market. The Company will strengthen premium lineup such as Bespoke for sustainable growth, as well as expanding online and B2B business.

Samsung Electronics’ Third Quarter 2020 Capital Expenditures

In the third quarter, Samsung Electronics’ capital expenditure reached KRW 8.4 trillion, including KRW 6.6 trillion spent on semiconductors and KRW 1.5 trillion on displays. The cumulative total for the January-September period is KRW 25.5 trillion, with KRW 21.3 trillion allocated to semiconductors and KRW 3.1 trillion to displays.

The full-year capital expenditure is expected at approximately KRW 35.2 trillion, including KRW 28.9 trillion allocated to semiconductors and KRW 4.3 trillion to displays.

This year’s capital expenditures on the Memory Business will exceed last year’s total due to migrations to advanced process nodes and capacity expansion to address future demand. Annual investment in the Foundry Business is also expected to increase as the Company expands production capacity, including the 5-nm EUV facility. Capital expenditures by the Display Panel Business is also set to rise on investment in new Quantum-Dot (QD) Displays and improved processes for mobile panels.

Operating profit was lower by KRW 0.7 trillion quarter-on-quarter to KRW 6.45 trillion, affected by the same factors that weighed on revenue with a corresponding decrease in operating margin, even though memory earnings were higher. Compared with a year earlier, operating profit increased by KRW 0.2 trillion with an improved product mix in the mobile business and additional diversification of the Company’s customer base in mobile OLED.

In the quarter, foreign exchange movements had little impact on the overall operating profit as the positive effects from a stronger U.S. dollar and euro against the won – felt mainly in the component business – were offset by weakness in currencies in major emerging markets.

Earnings from the Memory Business improved as demand was solid mainly from servers and PCs, while demand from mobile remained steady. Profits from the logic chip business rose as supply of mobile components increased to major customers and the foundry business saw a profit decline due to lower demand for high-performance computing (HPC) from China.

In the Display Panel Business, mobile displays posted a decline in earnings amid weak seasonality and lower sales in China due to COVID-19 related shutdowns, while losses narrowed in the large panel business.

The Mobile Communications Business saw profits increase from the previous quarter and from a year earlier despite weakening sales toward the end of the first quarter. The profit improvement was a result of an improved product mix with the launch of flagship Galaxy S20 devices and efficient management of marketing expenses.

The Consumer Electronics Division posted lower earnings as weaker seasonality and impact from COVID-19 affected quarterly results. Compared to the previous year, profits from the TV business declined amid pricing pressure from intensifying competition, while home appliances saw an improvement on the back of strong sales of new premium products.

Looking ahead to the second quarter, the Company expects the memory business to remain solid, but overall earnings are likely to decline from the previous quarter because COVID-19 will significantly impact demand for several of its core products.

For the component business, memory demand is expected to remain robust for servers and PCs as more people work from home, but it is possible the mobile market may soften. Earnings from OLED screens are likely to be weaker due to a stagnant smartphone market.

Sales and profits of set products business, including smartphones and TVs, are expected to decline significantly as COVID-19 affects demand and leads to store and plant closures globally. To address this, the Company will leverage its global production flexibility and supply networks as well as strengthening its online sales capabilities.

In the second half, uncertainties driven by COVID-19 will persist as the duration and impact of the pandemic remain unknown. The Company plans to focus on optimizing resource allocation in the short term, while continuing to strengthen its technology leadership and develop innovative set products.

For the Memory Business, the Company plans to address market changes through flexible investments and product mix adjustments. For OLED, it will actively meet demand for new product releases and expand presence in new application areas such as foldable displays.

The Mobile Communications Business aims to strengthen its product lineup by introducing new premium models and expanding offerings of 5G models for the mass market. The Networks Business will focus on developing technologies and enhancing global competitiveness to reinforce the 5G business.

For the Consumer Electronics Division, under the risk of current economic uncertainties, the Company will closely monitor the market situation and will continue to focus on minimizing negative impacts by investing in efficient marketing and promotions tailored to each region and by optimizing its logistics.

In the first quarter, Samsung Electronics’ capital expenditure totaled KRW 7.3 trillion, including KRW 6.0 trillion spent on semiconductors and KRW 0.8 trillion on displays.

Semiconductor Earnings Improve Despite Weak Seasonality

The Semiconductor businesses posted KRW 17.64 trillion in consolidated revenue and KRW 3.99 trillion in operating profit in the first quarter.

The Memory Business saw solid demand in the period, despite weak seasonality and the effects of COVID-19, thanks to continued investments in 5G infrastructure and increased demand from cloud applications related to remote working and online education.

Specifically for DRAM, datacenter demand remained solid as usage of streaming services and online shopping rose. For mobile, decrease in set demand due to effects of COVID-19 and seasonality was offset by expanded adoption of high-density products by major customers. For PC, demand remained steady on the back of the increase in virtual meetings.

For NAND, mobile demand was relatively solid due to the expansion of products from major customers adopting high-density storage greater than 128GB. Demand for server SSD, mainly for datacenters, continued to grow alongside rising demand for high-volume content.

Looking to the second quarter, demand for DRAM is expected to remain firm across all applications due mainly to robust growth in server demand caused by the rapid rise in remote working, online education and streaming services. However, mobile demand may face high uncertainty. The Company will flexibly manage its product mix with a focus on growing server demand and strengthen cost competitiveness by expanding technology migration.

As for NAND, the market is seen as continuing to stabilize in the second quarter as the impacts from a decrease in smartphone set demand are offset by growing SSD demand from datacenters. The Company will focus on expanding demand for high-density server SSD of more than 2TB while continuing to extend migration to 5th-generation V-NAND.

For the second half, while mobile demand – most affected by COVID-19 – remains as one of the uncertainties, overall memory conditions are likely to be favorable due to server and PC demand for a faster and more reliable cloud service experience. However, a prolonged COVID-19 crisis poses risks of reduction in overall demand.

Despite the challenges, the Company expects the recent proliferation of cloud-based services to accelerate further in the mid- to long-term. This will result in continued demand growth for high-end, high-performance memory. With a flexible product mix and investment approach based on market changes, the Company will focus on accelerating transition to 1Z-nm DRAM and 6th-generation V-NAND.

Meanwhile, earnings for the System LSI Business increased on the back of rising demand for 5G mobile processors and ultra-high-resolution image sensors for flagship smartphones. In the second quarter, the Company expects demand to contract owing to fading effects of launches of flagship smartphones and weak consumer sentiment due to COVID-19. However, the Company will focus on minimizing impacts by maximizing the supply of high-pixel image sensors and expanding the 5G SoC market.

As for the second half, launches of 5G smartphones are expected to boost demand for 5G SoC while demand for premium image sensors is forecast to remain solid. In response to continued uncertainties due to COVID-19, the System LSI Business will closely monitor the market and respond flexibly while also seeking to expand opportunities through highly competitive new products.

The Foundry Business saw a slight decrease in earnings due to a decline in demand for HPC chips from Chinese customers. In the second quarter, the Company aims to expand EUV leadership, beginning with the start of mass production of 5nm products, while closely monitoring the uncertain market situation caused by COVID-19.

In the second half, to address current uncertainties, the Foundry Business will focus on diversifying applications beyond mobile to include areas such as consumer and computing applications. It will also continue investing in advanced processes for the future and will start mass-producing 5nm products this year and focus on the development of GAA 3nm process.

Display Earnings Decline on Lower Shipments; Demand Expected to Weaken in Q2

The Display Panel Business posted KRW 6.59 trillion in consolidated revenue and KRW 0.29 trillion in operating loss for the first quarter. It posted an operating loss due to sales decline of mobile displays.

Mobile display earnings saw a profit decline because of slower sales and lower fab utilization amid weak seasonality. For large displays, the operating loss narrowed, helped by short-term market factors including a smaller drop in ASP and favorable foreign exchange movements.

Looking ahead to the second quarter, the Company expects a further drop in mobile display earnings due to falling demand in the US and Europe, driven by the impact from COVID-19. The Company will strive to enhance profitability by offering more panels with distinctive design and performance.

For large displays, earnings are likely to remain weak owing to the market slowdown accelerated by the postponement of mega sporting events such as the Summer Olympic Games. The Company will focus on providing value-added products such as panels for ultra-large and 8K TVs as well as curved monitors.

In the second half, uncertainties are forecast to linger due to the effects of COVID-19. Under these circumstances, the Company will prepare for various scenarios by establishing a system to respond quickly to market changes including new mobile product launches. The Company is also strongly committed to keeping continued leadership in the OLED market by exploring new applications including displays for foldable phones and other IT devices.

For large displays, while it winds down the LCD business, the Company will continue to address demand from its customers and accelerate product development based on new technologies such as QD Displays.

Mobile Demand to Decline Sharply on COVID-19; Market Uncertainty to Remain High

The IT & Mobile Communications Division posted KRW 26 trillion in consolidated revenue and KRW 2.65 trillion in operating profit for the quarter.

Due to the impact of COVID-19, overall market demand fell significantly QoQ and the Company’s smartphone shipments also declined in the first quarter. However, the Company maintained sound profitability by improving the product mix, increasing the sales portion of 5G models and using marketing expenses efficiently during the period. In particular, the ASP of flagship smartphones increased compared to last year on the back of higher-than-expected share of Galaxy S20 Ultra sales as well as solid sales of the Galaxy Z Flip.

Looking ahead to the second quarter, demand is expected to drop sharply in most regions due to an economic downturn caused by COVID-19. The Company expects a decline in product sales and its overall business performance as the market shrinks and effects of store closures continue to have direct impacts. Amid the market uncertainty, the Company will focus on improving cost efficiency and strengthening its online and B2B channels. In case of any additional disruptions at production facilities, the Company will respond by flexibly utilizing its diversified manufacturing capabilities across the globe.

For the second half, amid uncertainties including the possibility of a prolonged pandemic, market competition is forecast to intensify as manufacturers strive to recover from the weakness in the first half. The Company will continue to offer differentiated products in the premium segment with the launch of new foldable and Note models. The Company also plans to enhance product competitiveness by expanding 5G adoption to mass-market smartphones and improve operational efficiency across all areas throughout R&D, production, supply, channel and marketing.

As for the Networks Business, earnings in the first quarter improved QoQ thanks to the expansion of 5G commercialization in South Korea and other markets. While the possibility of a delay or cutback in 5G investment in the second quarter exists due to the impact of COVID-19, the Company will solidify its core competencies and improve 5G business capabilities for the mid- to long-term.

Premium Appliances Support Sales in Q1; Second Quarter Market Conditions to Worsen

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 10.3 trillion in consolidated revenue and KRW 0.45 trillion in operating profit in the first quarter.

Demand for TVs declined both QoQ and YoY due to weak seasonality and lower global demand seen since March due to COVID-19. Digital appliances saw slight improvement from the previous year on the back of strong sales of new premium products including the Grande AI Washing Machine and Dryer.

In the second quarter, sales of TVs are expected to decline on weakened consumer demand prompted by the impact from COVID-19, cancelation of major global sporting events and the postponement of the Summer Olympic Games. As such, the Company will focus on risk management and identifying new sales opportunities in online demand.

For the second half, the TV and digital appliances divisions will address risk factors including the extension of global uncertainties and potential further economic downturn. Under these possibilities, the Company will strengthen our efforts in target marketing and expand its online product lineup and promotional offerings. Samsung will also strive to bolster cooperation with channels to optimize marketing strategies.

First quarter earnings were weighed down by the weakness in memory chips and displays, although the newly launched Galaxy S10 smartphone logged solid sales.

The Semiconductor Business saw a drop in memory chip prices as inventory adjustments continued at datacenter companies, while demand for high-density memory for mobile phones increased thanks to new flagship smartphones. Earnings improved at the System LSI and Foundry businesses over the sales of smartphone application processors (APs).

The Display Panel Business reported a quarterly loss due to decreased demand for flexible displays and increasing market supplies for large displays.

In the IT & Mobile Communications (IM) Division, despite solid sales of the Galaxy S10, profitability in the mobile business declined YoY as competition intensified in the low- to mid-range segment. In addition, amid softer demand in the overall smartphone market, revamping of the Company’s mass-market lineup led to a YOY decrease in sales volume.

Earnings from the Network Business increased, buoyed by the launch of 5G telecommunication service in Korea. Sales of premium TVs such as QLED TVs and ultra-large size models contributed to the YOY earnings growth in the Consumer Electronics (CE) Division.

Looking ahead to the second quarter, Samsung expects limited improvement in the memory chip market, as demand will likely begin to improve for major applications such as mobile products but price declines will likely continue.

Demand is seen increasing for APs and CMOS Image Sensors in the System LSI and Foundry businesses. For Displays, Samsung expects higher demand for rigid panels.

The IM Division is set to focus on flagship products such as the world’s first 5G smartphone and the enhanced mass-market lineup with innovative cameras and display features. The CE Division is likely to report growth in the second quarter on strong seasonal demand for air conditioners and sales of new premium TVs.

For the second half of 2019, the Company expects memory chip demand for high-density products to increase, but uncertainties in the external environment will persist. A further recovery is seen for the Display Business as demand for flexible screens is set to rise on new smartphone launches.

Growing competition in the mature TV and smartphone markets is expected to pose a challenge in the second half, and Samsung will focus on strengthening its leadership in the premium segment.

Over the mid- to long-term, the Company aims to strengthen competitiveness of key businesses by diversifying applications and delivering innovations in components and new device form factors. Samsung will also continue to expand its capabilities in automotive technology, leveraging HARMAN’s solutions, and in artificial intelligence.

In the first quarter, Samsung Electronics’ capital expenditure totaled KRW 4.5 trillion, including KRW 3.6 trillion spent on semiconductors and KRW 0.3 trillion on displays.

Semiconductor Sees 2H Demand Improvement Despite Uncertainties

The Semiconductor Business posted consolidated revenue of KRW 14.47 trillion and operating profit of KRW 4.12 trillion for the quarter.

Overall, the Memory Business saw demand for NAND and DRAM steadily weaken amid macroeconomic uncertainties, weak seasonality and inventory adjustments by datacenter firms. This weakness was partially offset by increased adoption of high-density memory products for mobile and launches of flagship smartphones.

In the second quarter, the overall memory market is likely to remain slow during weak seasonality, although the Company expects demand for some applications to gradually improve.

For NAND, demand for high-density server SSD such as All-Flash-Array is expected to increase, while launches of high-end smartphones with 256GB and higher storage will likely keep demand stable in the second quarter. For the second half, NAND demand is expected to grow across key applications as prices soften. Samsung will seek to actively generate new demand while responding to customer demand for high-density memory, and also strengthen cost competitiveness by expanding supply of 5th generation V-NAND.

For DRAM, server demand will likely improve among datacenter companies with lower inventory levels, starting from the end of the second quarter. PC demand is seen increasing, while high-density adoption in new smartphone models is set to help demand for mobile DRAM. The Company plans to actively address demand for differentiated high-end products, such as LPDDR4X for mobile devices, while also focusing on the transition to 1Y-nm in major applications.

As for the second half, DRAM demand is expected to rise thanks to seasonal effects despite lingering uncertainties. Also, demand for high-density products for server and mobile products is likely to be solid due to expanded adoption of new CPUs in servers and the trend toward high-density in mobile. Samsung plans to flexibly manage its capacity and strengthen competitiveness by ramping up production of 1Y-nm products.

For the System LSI Business, despite slowing demand for image sensors amid weak smartphone seasonality, earnings improved in the first quarter on the back of increased supply of APs and modems. The Company also successfully commercialized the world’s first 5G chipset solution.

In the second quarter, earnings for the business are expected to improve slightly as demand for image sensors and DDIs recovers and demand for 5G chipsets rises. In the second half, despite sluggish demand, smartphone makers are expected to continue to adopt high-spec components. Samsung plans to expand its lineup of image sensors and 5G chipset solutions to address demand for high-end mobile phones. It also plans to diversify product offerings with 3D/fingerprint-on-display sensors and chips for automotive and IoT applications.

For the Foundry Business, earnings were stagnant QoQ due to sluggish global foundry conditions and weak seasonality in the smartphone market. The Company began mass production of 5G and IoT mobile products by adopting the eMRAM process and secured new orders for computing chipsets through FinFET 8-nm process.

Looking ahead, Samsung aims to strengthen its competitiveness through tape-out of the EUV 6-nm process and by completing 5-nm process development. In the second half, based on its mass production of EUV 7-nm process, the Company will focus on developing the EUV 4-nm process and the next-generation architecture.

Display Sees Moderate Improvement In 2Q

The Display Panel Business reported KRW 6.12 trillion in consolidated revenue and KRW 0.56 trillion in operating loss in the first quarter. It posted an operating loss due to weaker profitability in both mobile and large displays.

Mobile displays suffered slower demand and intensifying competition with LTPS LCDs. Large displays also took a hit from a continued decline in LCD panel prices amid weak seasonality.

Looking ahead to the second quarter, Samsung expects limited improvement to earnings as demand for flexible displays is likely to remain weak. The Company will focus on improving earnings by boosting sales of rigid OLEDs and offering differentiated products featuring new technology such as Infinity Display and fingerprint-on-display.

For large displays, the Company forecasts growing demand for value-added products such as large-sized and high resolution TV panels in the second quarter, although concerns over supplies continue. It will focus on actively addressing demand for its core products, providing differentiated technology and improving cost structure.

In the second half, demand for flexible smartphone OLED panels is expected to rebound although pressure on LCD panel prices will persist. Under these circumstances, Samsung will actively respond to demand from major smartphone customers and broaden its OLED business scope with new applications.

As for large displays, despite uncertainties from capacity expansions in the LCD industry, the Company expects demand for the premium TV panels to continue to grow including UHD, 8K and ultra-large TVs. In response, it will strive to improve profitability by focusing on value-added products.

Mobile Supported by Strong Galaxy S10 Sales

The IT & Mobile Communications Division posted KRW 27.2 trillion in consolidated revenue and KRW 2.27 trillion in operating profit for the quarter.

Overall market demand for smartphones decreased QoQ as the industry moved into a seasonally weak period, but Samsung reported a QoQ rise in revenue thanks to solid sales of the Galaxy S10.

However, growth in smartphone shipments was limited as sales of previous models fell due to a lineup reorganization of mid- to low-end products. Increased expenses from adoption of high-end features, marketing and the lineup revamp pressured profitability. Earnings for the Networks Business also improved thanks to the commercial launch of 5G in South Korea.

Looking ahead to the second quarter, as weak seasonality continues, market demand for smartphones is expected to increase slightly QoQ. Samsung will strengthen its product lineup through innovations such as Galaxy S10 5G and Galaxy A80 and continued reorganization of its product offerings.

For the second half, despite intensified market competition, Samsung expects smartphone sales to increase led by new models in all segments from the Galaxy A series to the Galaxy Note amid strong seasonality. In the premium segment, the Company will strengthen its leadership through the new Galaxy Note as well as its innovative products such as 5G and foldable smartphones. Samsung also aims to secure profitability by improving cost efficiency.

For the Networks Business, Samsung will strive to maintain solid performance in the second quarter on commercialization of 5G as well as expansion of overseas LTE networks. In the second half, the Company will continue to expand LTE networks globally and supply 5G equipment for markets such as South Korea and the United States.

Consumer Electronics Eyes High-Value Products for Growth

The Consumer Electronics Division, which includes the Visual Display and Digital Appliances businesses, recorded KRW 10.04 trillion in consolidated revenue and KRW 0.54 trillion in operating profit for the first quarter of 2019.

Earnings for the Visual Display Business fell QoQ as the global TV market entered a slow season, but improved YoY thanks to the early adoption of new models. The expansion of premium product sales contributed, as Samsung solidified its global leading position in premium and ultra-large screen TVs.

Demand for TVs in the second quarter is projected to weaken slightly due to softening demand from emerging markets. Sales are also seen decreasing from a year earlier because of a lack of global sporting events this year. The Company will seek to improve results through further expanding the sales of high-value-added products such as QLED TVs and bringing forward the introduction of new models.

For the Digital Appliance Business, despite a slower global demand, growth in the domestic market has been robust with demand centering on new lifestyle home appliances such as garment refreshers and air purifiers. For the second quarter, the Company plans to improve its performance by bolstering sales of air conditioners, expected to be in peak demand thanks to the summer season.

Looking ahead to the second half of 2019, the TV market is projected to grow slightly YoY despite global economic challenges. Demand for appliances is also expected to rise compared with the first half as political tensions surrounding global trade ease.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2016~2019 1Q)

Note 1: Sales for each business include intersegment sales
Note 2: CE (Consumer Electronics), IM (IT & Mobile Communications), DS (Device Solutions), DP (Display Panel)
Note 3: Information on annual earnings is stated according to the business divisions as of 2019
Note 4: From Q1 2017, earnings from the Health & Medical Equipment Business (HME) are excluded from the CE Division

For 2018, Samsung reported KRW 243.77 trillion in revenue and KRW 58.89 trillion in operating profit. This marked a second straight year of setting record financial results, even as unfavorable business and macroeconomic factors led to slower performance in the final quarter. The year also saw many technology breakthroughs and innovations across its businesses, which solidified the foundation for future growth.

Fourth quarter earnings were affected by a drop in demand for memory chips used in data centers and smartphones. The System LSI and Foundry businesses also saw profits decline due to weak seasonality.

Overall earnings at the Display Panel Business decreased slightly due to growing competition between mobile display makers.

In the IT & Mobile Communications (IM) Division, smartphone shipments and prices fell in the fourth quarter in a stagnant but highly competitive market, despite strong seasonal demand. However, the Networks Business reported gains on the back of 5G equipment installations and expansion of LTE networks.

Quarterly earnings increased in the Consumer Electronics (CE) Division, led by strong sales of premium TVs, such as QLED TVs.

Looking ahead, Samsung expects demand in the Memory Business to remain weak in the first quarter due to seasonality and macroeconomic uncertainties as well as inventory adjustments by major customers. For OLED, profitability is likely to decline, weighed on by slow sales of premium smartphones and rising competition with LTPS LCD products. As for LCD, earnings are expected to decline as a result of large-scale capacity expansions in the industry.

Earnings in the IM Division are likely to improve in the first quarter, helped by the planned launch of the new flagship Galaxy smartphone and the introduction of commercial 5G telecom services in Korea. The CE Division will unveil new TV models and focus on premium home appliances, in order to prioritize profitability in a slower season.

For 2019, the Company expects overall annual earnings to decline due to weaker performance by the Memory Business. Demand for memory products and OLED panels is expected to pick up from the second half.

Under its commitment to achieving sustainable growth over the mid- and long-term, Samsung will focus on enhancing its existing leadership and developing new growth areas. The Company plans to boost R&D activities, expand external technology collaboration and actively invest in strengthening core capabilities.

In the component business, Samsung will continue to improve its technology lead and offer new solutions to meet increasing demand for automotive and AI chipsets. The Company also aims to bring new innovation to OLED screens for smartphones and develop new applications.

Samsung is offering new product innovations this year including foldable smartphones and MicroLED TVs. In AI, an enhanced Bixby will enable greater connectivity and build an AI-powered services platform to support more devices and applications. In 5G, Samsung is set to bolster its position in the market by providing solutions across network equipment, devices and chipsets.

In 2018, Samsung Electronics’ capital expenditure was KRW 29.4 trillion, with KRW 23.7 trillion allocated to semiconductors and KRW 2.9 trillion to displays. In the Memory Business, capex increased slightly YoY due to expansion at the Pyeongtaek campus. Capex in the Foundry Business, however, returned to levels seen in prior years as the 10nm line expansion was completed in 2017. Capex for flexible OLED panels was significantly lower than it was in the previous year.

Semiconductor Recovery Seen in Second Quarter

The Semiconductor businesses posted KRW 18.75 trillion in consolidated revenue and KRW 7.77 trillion in operating profit in the fourth quarter.

The Memory Business saw overall market demand for NAND and DRAM drop due to macroeconomic uncertainties and adjustments in inventory levels by customers including datacenter companies and smartphone makers. For NAND, overall demand was low, as major customers opted to hold back on orders in anticipation of further reduction in price.

Amid the lackluster sale of smartphones, a trend toward high-density in mobile persisted, and the All-Flash-Array portion increased in the fourth quarter. In the case of DRAM, server demand declined due to inventory adjustments by datacenter companies. For mobile, while mobile set demand reduced due to weak sales of new smartphones by major customers, growing orders of high-density products over 6GB content partly eased the negative trend.

Although DRAM earnings decreased QoQ due to the rapidly shrinking demand brought by the global economic volatility, Samsung worked to strengthen and maintain cost competitiveness by expanding its 1Xnm process migration and design-in of 1Ynm to secure its technological leadership.

Looking at the first quarter, the Memory Business will continue to face slow demand set off by weak seasonality and major customers staying the course with inventory adjustments. For NAND, even under the overall sluggish demand, growth in high-density, high-performance SSDs for datacenters and All-Flash-Array replacements implemented by the enterprise sector are projected to continue.

Meanwhile, demand for storage over 128GB for flagship and premium smartphones will remain solid, even though sales of mobile devices are anticipated to be soft. For DRAM, inventory adjustments primarily by server companies will squeeze demand, but Samsung will carry out 1Ynm process migration and boost shipments of innovative products such as high-density server products, High Bandwidth Memory (HBM) and GDDR6.

On a positive note, demand for memory is seen gradually recovering from the second quarter, as the high-density trend in major applications continues due to the seasonal effects in the second half of 2019. As NAND price is softened, the demand across all applications will increase while orders for high-density NAND chipsets edge up. In particular, server and smartphone companies in need of high-performance, high-density memory will be strong and Samsung will intensify cost competitiveness by expanding the supply of fourth-generation and beyond V-NAND.

DRAM demand will post gains in the second quarter, as customers wrap up inventory adjustments and the seasonal effect drives growth in the demand for set builds. As the trend toward high-performance cloud service continues along with the launch of a new CPU in the second quarter, demand growth for high-density server DRAM will be solid.

In mobile, the adoption of high-density mobile DRAM over 8GB will expand and memory content for mid- to low-segment models will increase. Samsung will closely monitor changes in the market demand, all the while continuing to invest flexibly and managing capacity. While focusing on 1Ynm product ramp-up, it will develop 1Znm product. Samsung will also strengthen its memory offerings with 16Gb based high-density server products, uMCP over 8GB and HBM, to meet its customers’ needs

As for System LSI Business in the fourth quarter, overall earnings declined due to slowing demand for image sensors, as the Chinese market entered a weak season. In the first quarter, Samsung will improve profitability by increasing the supply of APs, image sensors and DDIs for flagship smartphones. For 2019, the Company will commercialize the world’s first 5G modem chips and expand its image sensor offerings.

For the Foundry Business, earnings fell in the fourth quarter on weak seasonality and as the struggling crypto currency market put in less orders for mining chips. Foundry demand in the first quarter will remain stagnant due to the slow demand for mobile components and crypto currency mining chips.

The Company, while concentrating preparations for a full-scale production of the 7-nano EUV process in the second half, will complete the development of the 5-nano EUV process. Additionally, the Foundry Business will increase its customer base by over 40 percent from the previous year, as part of efforts to further stabilize the business structure.

Display to Improve Profitability with Differentiated Products

The Display Panel Business reported KRW 9.17 trillion in consolidated revenue and KRW 0.97 trillion in operating profit in the fourth quarter. Overall earnings decreased slightly QoQ as sales of mobile displays declined due to rising competition with LTPS LCD panels despite strong demand for flexible OLED panels. For large displays, earnings improved QoQ driven by increased sales in the premium segment such as high-resolution and ultra-large TV panels.

Looking to the first quarter of 2019, sales of mobile displays are likely to be affected by unfavorable market conditions like intensifying competition and sluggish smartphone demand. To maintain profitability, Samsung will actively respond to demand from major partners and expand its customer portfolio.

In large displays, the Company forecasts ASP pressure on LCD panels under weak seasonality and ongoing capacity expansions in the industry in the first quarter. Samsung will strive to improve profitability by focusing on reducing cost and improving production efficiency.

In 2019, Samsung expects demand for flexible OLED panels for smartphones to rebound from the second half. Against this backdrop, the Company will make efforts to expand the OLED market through innovative technologies for new applications and increase the portion of OLED panels for smartphones through differentiated features.

As for LCD in 2019, despite uncertainties from capacity expansions in the industry, the Company expects demand for the premium TV panels to continue to grow including UHD, 8K and ultra-large TVs. In response, Samsung will focus on enhancing profitability by delivering high-margin products.

Mobile Business Seeks Growth From New Flagship Smartphones

The IT & Mobile Communications Division (IM) posted KRW 23.32 trillion in consolidated revenue and KRW 1.51 trillion in operating profit for the fourth quarter of 2018.

In Q4, operating profit decreased QoQ due to a decline in both smartphone sales volume and revenue amid a sluggish smartphone market overall despite strong seasonal demand.

Looking ahead to the first quarter, demand for smartphones and tablet PCs is projected to decline due to the seasonal slowdown in the market. Samsung will unveil the Galaxy S10 next month at the Unpacked event in San Francisco and its new flagship model smartphones are expected to prop up sales and business performance in the coming months.

However, overall smartphone shipments are likely to remain at a similar level QoQ as shipments of the Company’s mass-market models have temporarily declined due to a lineup reorganization. This reorganization is being carried out to better promptly respond to rapid changing market trends and the needs of target customers.

For the whole of 2019, demand for smartphones is expected to maintain the same level seen in 2018 while market ASP is projected to rise due to a trend toward adopting high-end features such as large screens, higher memory capacity, and multi-cameras. The environment overall will remain challenging due to the sluggish growth of the global smartphone market and material cost burden.

Acknowledging the hurdles ahead, Samsung plans to boost smartphone sales and achieve solid business performance in 2019 by launching differentiated products and bolstering target marketing strategies.

This year, Samsung aims to lead trends in the market by launching foldable and 5G devices in efforts to ensure sustainable growth. By cooperating with business partners, Samsung will secure optimized content and expand into new markets. User retention will be increased by strengthening connectivity between devices. As part of this plan, Samsung will expand Bixby to various devices and connected services while improving its AI capabilities.

For the Networks Business, performance improved in sequential terms in the fourth quarter on the back of LTE network expansions by Samsung’s major overseas customers and as Samsung began to supply 5G network equipment to the United States and South Korea. This year, Samsung will expand its equipment supply for the first markets for 5G in South Korea and the United States, laying the foundation for global growth.

Consumer Electronics to Focus on Premium Products

The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses, recorded KRW 11.79 trillion in consolidated revenue and KRW 0.68 trillion in operating profit for the fourth quarter.

In the fourth quarter, the global TV market grew by double-digits QoQ thanks to the year-end peak season, but slower demand in emerging markets limited growth YoY.

Earnings for the Visual Display Business improved both QoQ and YoY thanks to increased sales of QLED and ultra-large-sized TVs backed by successful year-end promotions and product mix improvement. In particular, sales of QLED TVs nearly tripled YoY, with QLED 8K TV and super-large-screen TVs of 75 inches and above solidifying leadership in the premium TV market.

The TV market in the first quarter is forecast to slightly weaken under slow seasonal demand. Samsung will continue to strengthen its sales of QLED and super-large-screen TVs and release new QLED 8K TV to the global market in full scale.

The TV market in 2019 is projected to be similar to last year despite negative factors including a lack of global sports events and economic slowdowns in emerging markets. The Company will aim to secure profitability and growth by expanding the premium lineup including QLED 8K TVs, super-large-screen TVs, and MicroLED products.

For the Digital Appliance Business in the fourth quarter, the growth in demand has slowed due to the sluggish US housing market and higher prices driven by foreign exchange fluctuations. Under these circumstances, earnings saw slight improvement both QoQ and YoY through strong sales of premium products such as Family Hub refrigerators, large-capacity dryers and Cube air purifiers.

In the first quarter, Samsung will expand its sales of new home appliances including AirDresser (garment air refreshers) and dryers, while boosting B2B business through built-in home appliances and system air conditioners.

Looking ahead to 2019, the digital appliances market is expected to slightly grow in advanced markets. Samsung will aim to secure future growth by increasing sales of premium products and strengthening online and B2B businesses.

Note 1: Sales for each business include intersegment sales

Note 2: CE (Consumer Electronics), IM (IT & Mobile Communications), DS (Device Solutions), DP (Display Panel)

Note 3: Information on annual earnings is stated according to the business divisions as of 2018

Note 4: From Q1 2017, earnings from the Health & Medical Equipment Business (HME) are excluded from the CE Division

In the third quarter, operating profit reached a new quarterly high for the Company driven mainly by the continued strength of the Memory Business. Total revenue increased YoY and QoQ on the back of strong sales of memory products and OLED panels.

The Korean won remained weak against the U.S. dollar, resulting in a positive QoQ effect of approximately KRW 800 billion, experienced mainly in the components businesses. However the Korean won rose against major emerging currencies, which weighed slightly on the set businesses.

By business unit, the Semiconductor Business recorded higher earnings YoY and QoQ amid strong seasonal demand, particularly for server and mobile memory. While NAND and DRAM demand remained high, the Memory Business improved its earnings by concentrating on sales of premium products, improving yields, and ramping up production of high-density chips at its Pyeongtaek plant.

For the Display Panel Business, despite unfavorable supply-demand conditions in the LCD market, earnings improved on-year thanks to higher sales of flexible OLED panels to major customers. On a quarterly basis, earnings significantly grew due to increased utilization of flexible OLED panel capacity.

Amid intense market competition, the IT & Mobile Communications (IM) Division reported a drop in earnings despite solid sales of its flagship smartphones. Overall, its smartphone shipments remained flat due to a decrease in sales of mid- to low-end products. Profit was also down due to increased promotional costs and a negative currency impact.

For the Consumer Electronics (CE) Division, earnings improved both YoY and QoQ thanks to robust sales of premium TV products, such as QLED and ultra-large screen TVs of 75-inches and above.

Looking ahead to the fourth quarter, Samsung expects overall earnings across the company to decline as it enters a period of weak seasonality for the semiconductor market.

For the components businesses, earnings from memory chips are expected to decline on weaker seasonality, but remain strong for OLED panels thanks to continued high demand from major customers.

Among the set businesses, although shipments of smartphones are forecast to rise, increased marketing expenses during the year-end peak season will affect profitability. Meanwhile, the Networks Business will look to cement its position at the forefront of 5G technology as it begins supplying 5G equipment; shipping to customers in North America and Korea in the fourth quarter.

The CE Division will benefit from strong year-end seasonality in the fourth quarter. It expects earnings to rise on the back of higher consumer demand for QLED TVs and premium home appliances.

Looking further ahead to 2019, earnings are forecast to be weak for the first quarter due to seasonality, but then strengthen as business conditions, particularly in the memory market, improve.

Moreover, Samsung will continue to focus on strengthening its competitiveness in emerging technologies, such as 5G, AI and automotive electronics. By doing so, the Company aims to sustain mid- to long-term growth based on its technological leadership as markets for these new areas expand.

Semiconductor Continues Earnings Momentum

 The Semiconductor Business posted consolidated revenue of KRW 24.77 trillion and operating profit of KRW 13.65 trillion for the quarter.

The Memory Business achieved strong results as overall demand increased mainly for server and mobile.

For NAND, Samsung posted solid earnings by responding to continued robust demand for higher density products used in mobile and servers. For DRAM, demand for all applications increased QoQ amid peak seasonality while mobile demand was driven by new product launches and the trend toward higher densities for smartphones.

Looking at the fourth quarter outlook for NAND, price declines are forecast to continue amid increasing industry supply of 64-layer 3D NAND. In response, the Company will continue to enhance its product competitiveness and strengthen market leadership by focusing on the premium market for All-Flash-Array solutions and high-density UFS. Looking ahead to 2019, supply-demand conditions are expected to improve gradually as demand increases, mainly from the public cloud market, and mobile storage expands. Thus Samsung will actively respond to demand and focus on enhancing cost competitiveness through expansion of 5th-generation V-NAND.

As for the fourth quarter DRAM outlook, although prices may stabilize, overall memory demand is expected to remain solid. In response, Samsung will focus on achieving solid earnings by maximizing sales with a flexible product mix and by strengthening product competitiveness. Looking to 2019, while the memory market may slow down in the first quarter due to seasonal effects, supply and demand dynamics are forecast to stabilize from the second quarter thanks to an increase in overall demand, mainly from server and mobile. Samsung will solidify its technology leadership by expanding sales of differentiated products such as high-density server products, HBM2, and high-density MCP for mobile.

For the System LSI Business, overall earnings improved thanks to the growing demand for image sensors in China and for OLED DDIs used in flagship smartphones. In particular, the image sensor business achieved record-high quarterly results driven by greater adoption of multiple cameras and high-resolution sensors by smartphone makers.

Looking ahead, despite a likely rise in demand from products slated to launch next year, weak seasonality for mobile image sensors and DDIs is expected to dampen growth in the fourth quarter.

For 2019, Samsung expects solid earnings growth to continue, bolstered by rising demand for image sensors used in more sophisticated camera specifications. Additionally, Samsung plans to diversify its customer base in China and the U.S. by enhancing SoC competitiveness using 5G modem technology. The Company will also focus on diversifying its product line-up to include 3D sensors, fingerprint-on-display sensors, and chips used in automotive and IoT applications.

For the Foundry Business, earnings continued to grow QoQ thanks to increased demand for mobile APs and image sensors, despite a decline in demand for cryptocurrency mining chips. In particular, Samsung secured technological leadership in advanced processes by completing development and starting production of the EUV-based 7-nanometer process.

Looking to the fourth quarter, demand for mobile APs and image sensors is expected to decline amid weak seasonality for smartphone components.

In 2019, Samsung will focus on achieving solid results by ensuring a stable supply of major products—such as mobile APs and image sensors—and diversifying its customer bases in AI, automotive, and 8-inch areas. Additionally, the Company will strive to maintain its technology leadership through full-scale mass production of the 7-nanometer EUV process, and plans to expand its customer base by more than 30 percent.

Display Improves on Demand for Flexible OLED

The Display Panel segment posted KRW 10.09 trillion in consolidated revenue and KRW 1.10 trillion in operating profit for the third quarter. Total earnings for the Display Business increased QoQ due to increased shipments of both OLED and LCD panels.

For the OLED business, improved QoQ earnings were led by increased demand for flexible displays from major customers. For the LCD business, a slight improvement in earnings QoQ was driven by an increase in shipments of value-added products, such as panels for high-resolution and ultra-large screen TVs.

Looking ahead to the fourth quarter, Samsung expects solid demand to continue in the OLED business and will therefore focus on enhancing technical differentiations in flexible panels and improving productivity of rigid panels. The LCD business, however, is likely to face unfavorable supply and demand dynamics due to ongoing capacity expansions in the industry and weak seasonality. Thus, Samsung will strive to secure profitability by improving yield and increasing sales in high-end, value-added products.

In 2019, the OLED business will look to expand into new product categories by continuing to offer technologically differentiated products and to broaden the customer base with flexible panels. Samsung will also aim to further its leadership by enhancing the technical readiness of new applications for foldable, automotive and IT displays. Additionally, the OLED business will seek to reinforce partnerships with major smartphone manufacturers and improve cost competitiveness to ensure continued growth.

For the LCD business, due to uncertainties caused by capacity expansions in the industry, Samsung will focus on growth in value-added products such as Quantum Dot, 8K resolution and ultra-large screen TVs.

Mobile Profit Declines Despite Solid Flagship Sales

The IT & Mobile Communications Division posted KRW 24.91 trillion in consolidated revenue and KRW 2.22 trillion in operating profit for the quarter.

Although Samsung achieved solid sales of flagship models in the quarter, its total smartphone shipments remained flat due to decreased sales of mid- to low-end products. Overall profit for the division decreased on-quarter due to increased promotional costs and a negative currency impact. Earnings for the Networks Business also decreased on-quarter, following the concentration of LTE investments from major overseas carriers in the first half.

Looking to the fourth quarter, Samsung expects its smartphone shipments to rise during the year-end peak season, particularly for its enhanced mass product lineup including the new Galaxy A7 and A9. However, earnings are forecast to decrease due to increased marketing expenses. For the Networks Business, Samsung aims to supply 5G equipment to major advanced markets, i.e. the U.S. and Korea.

As for the outlook for 2019, smartphone market demand is expected to slightly grow mainly driven by premium segments. However, competition is likely to intensify across all segments as key features of premium models continue to expand to mid- to low-end models.

Samsung will strive to expand sales of premium smartphones through differentiated design and a diversified lineup. The Company will also solidify its market leadership by adopting cutting-edge technologies across its entire Galaxy lineup, including the Galaxy A series. Moreover, Samsung will strengthen its competitiveness in the mid- to long-term by leading innovation with the launch of foldable and 5G smartphones as well as enhancing its Bixby-based AI and IoT services.

The Networks Business will proactively respond to growth in the 5G market in 2019 by expanding its business to other markets, based on its experience of commercializing 5G in the U.S. and Korea.

Consumer Electronics Rises on QLED TV Sales

The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses posted KRW 10.18 trillion in consolidated revenue and KRW 0.56 trillion in operating profit for the third quarter.

Earnings for the Visual Display Business improved both YoY and QoQ thanks to increased sales of premium products such as UHD and ultra-large screen TVs. In particular, QLED TV sales tripled YoY thanks to favorable market feedback for picture quality and differentiated features such as Ambient Mode and One Invisible Connection.

Looking to the fourth quarter, the Company projects the TV market to grow slightly YoY. Samsung will aim to strengthen its leadership in the premium TV segment by preemptively capitalizing on year-end peak season demand through close partnerships with distributors and by extending sales of strategic products such as QLED and ultra-large screen TVs.

In 2019, overall TV market demand is expected to remain the same as this year. Samsung will seek to improve profitability by solidifying its leadership in the premium market with QLED and ultra-large screen TVs while expanding sales of QLED 8K TV and reinforcing its lineup of ultra-large TVs of 75-inches and above.

For the Digital Appliances Business, earnings decreased slightly YoY despite increased sales of premium products such as Chef Collection refrigerators and Flex-Wash washers, amid economic slowdowns in emerging markets.

In the fourth quarter, although market demand may decline due to the global trade issues and foreign exchange risks in emerging markets, Samsung will focus on strengthening regional peak-season promotions through partnerships with distributors and continue to increase sales of premium products such as large size dryers and Air Cube air purifiers.

Looking ahead to 2019, Samsung will focus on improving profitability by releasing innovative premium products, expanding online sales, and strengthening its B2B business with built-in appliances and system air conditioners.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2017~2018 3Q)

Note 1: Sales for each business include intersegment sales
Note 2: CE (Consumer Electronics), IM (IT & Mobile Communications), DS (Device Solutions), DP (Display Panel)
Note 3: Information on annual earnings is stated according to the business divisions as of 2018
Note 4: From Q1 2018, earnings from the Health & Medical Equipment Business (HME) are excluded from the CE Division

• Consolidated Sales: Approximately 65 trillion Korean won
• Consolidated Operating Profit: Approximately 17.5 trillion Korean won

The above estimates are based on K-IFRS. Please note that Korean disclosure regulations do not allow earnings estimates to be offered as a range. To comply with such regulations, the above figures represent the median of the estimate ranges provided below.

• Sales:  64 ~ 66 trillion Korean won
• Operating Profit: 17.4 ~ 17.6 trillion Korean won

※ 2018 2Q and 2017 3Q consolidated figures based on K-IFRS are as follows

Second quarter revenue fell due to softer sales of smartphones and display panels, despite robust demand for memory chips. The continued strength of the Company’s memory business contributed to the higher operating profit. Net profit was little changed from a year earlier due to higher income tax.

Both revenue and operating profit decreased from the previous quarter. The Korean won weakened against the US dollar but rose against the euro and several other key currencies, resulting in a negative impact of net KRW 400 billion on the quarterly operating profit compared with the previous quarter.

By business unit, the Semiconductor Business continued to deliver strong earnings, driven by demand for DRAM chips used in data centers and NAND flash memory for high-capacity storage, amid a softening of NAND prices. Samsung solidified its competitive positioning by focusing on value-added products, including 64GB and higher-density server DRAM based on the 1X nanometer technology and 128GB and higher for NAND mobile storage.

In the Display Business, the Company saw weak demand for flexible OLED panels in the second quarter while the shipment and price for LCD panels also fell.

Amid the stagnant high-end smartphone market, the IT & Mobile Communications Division reported a drop in earnings, both year-on-year and quarter-on-quarter, over slow sales of the Galaxy S9. The network business, however, achieved solid growth led by investments in LTE networks by key global customers.

Stronger sales of premium TVs such as the QLED models, helped by a major global soccer event, lifted profits from the Consumer Electronics Division, although the Digital Appliances Business saw earnings decline due to weak demand for air conditioners.

Looking ahead, Samsung expects sustained strength in the memory market and growing demand for flexible OLED panels to drive earnings higher in the second half.

The outlook for the memory chip business remains strong across all applications thanks to demand for server and PC memory as well as new mobile product launches. Samsung will proactively address demand for differentiated products such as high-density server memory and High Bandwidth Memory. The Company will also strengthen its technological leadership by increasing the portion of 10 nanometer-class products and expanding mass production of 5th generation V-NAND.

The System LSI and Foundry businesses are set to benefit from higher demand for mobile APs and image sensors. Flexible OLED shipments are expected to rise, even as competition is seen intensifying over rigid products.

The mobile market condition will likely remain challenging in the second half amid pricing competition and new product launches. The Company will respond through the early introduction of the Galaxy Note and competitive mid- and low-end models with new features. Earnings from the TV business will continue to improve as Samsung expands sales of new innovative premium models including QLED and 8K TVs.

Over the mid- and long-term, Samsung expects new opportunities in the component business from the ongoing transformation in the industry, led by the Internet of Things (IoT), artificial intelligence (AI) and 5G technologies. The set businesses will also benefit from the introduction of new form factors and innovative technologies to support growing demand for connected devices.

In the component business, Samsung will use its cutting-edge semiconductor technology to capitalize on new demand for chipsets used in automotive and AI applications. The Company will also leverage its strength in OLED panels to take advantage of wider applications in the IT and automotive industries.

The Company’s capital expenditure in the second quarter was KRW 8.0 trillion, including KRW 6.1 trillion for the Semiconductor Business and KRW 1.1 trillion for the Display Business. It brings the total spent in the first half of 2018 to KRW 16.6 trillion.

Semiconductor to see Continued Strong Demand in Second Half

The Semiconductor Business posted consolidated revenue of KRW 21.99 trillion and operating profit of KRW 11.61 trillion for the quarter. The memory business achieved strong results despite weak seasonality, as overall demand growth was solid, driven by servers for data centers.

For NAND, demand remained robust on the back of the continuing trend toward higher density for smartphones and the increase in demand for server SSD due to expansion of cloud infrastructure. Samsung posted solid earnings by responding to new mobile device launches and demand for higher density products. The Company also focused on value-added and high-density SSD for servers.

For DRAM, server demand stayed strong owing to the ongoing shift to higher density and expansion of data center infrastructure. PC demand remained robust, driven by increasing demand from large OEMs, while strong gaming demand helped the graphics segment. In the mobile market, despite concerns over a slowdown in smartphone growth, increase in memory content per device continued.

For the second half outlook for NAND, adoption of SSD is expected to expand into more sectors and all product segments are projected to use more high-density eStorage. For servers, demand for SSD for data centers is forecast to remain strong, while for enterprise, adoption of high-density server SSD over 8TB is expected to continue.

In mobile, demand for high-density storage for new smartphones and high-end models is likely to remain robust. Samsung will increase server SSD supply and respond to high-density eStorage demand based on 64-layer 3D NAND products and competitiveness of high-density solutions.

As for the second half DRAM outlook, strong demand from all applications is expected to continue. For servers, demand growth is forecast to persist due to expansion of data center demand from the US and Chinese markets, while high-performance cloud services are also projected to launch.

In mobile, in addition to new flagship smartphone launches, memory content is projected to increase in mid-range models as they begin to support high-specification mobile games, on-device AI and dual camera features. In addition, PC demand will be driven by back to school sales, while graphics demand will be led by the buildup for game consoles. Samsung will focus on strengthening product competitiveness via continuous expansion of 10 nanometer-class technology migration and expanding sales of high value-added products, such as high-density server DRAM, HBM2 and LPDDR4X.

In the mid- to long-term, the trend toward high-performance and higher density servers for data centers is expected to continue due to expansion of AI-related services based on machine learning and adoption of in-memory database. In mobile, demand growth is projected to continue, as the need for high-performance devices increases with the rise of high-density content. Samsung will closely monitor the market condition and the supply and demand conditions of each segment to maintain sustainable earnings in the mid- to long-term with the industry’s leading technology.

For the System LSI Business, overall earnings declined due to weaker demand for mobile application processors and DDIs, but demand for image sensors continued to increase on the back of higher adoption of dual cameras from Chinese smartphone manufacturers. In the third quarter, earnings are expected in increase QoQ on demand for image sensors and DDIs amid strong seasonality for smartphones.

In the second half, overall earnings are projected to improve compared with the first half, led by strong demand for OLED DDIs and high-pixel image sensors. In addition, Samsung plans to diversify its customer base for mobile APs from China and develop chips for use in automotive and IoT applications. Mid- to long-term, the Company will focus on developing chipsets for 5G, multiple cameras and display panels, seeking to achieve higher growth compared to that of the market.

For the Foundry Business, total earnings continued to grow QoQ due to strong demand for High Performance Computing (HPC) chipsets, mobile APs and image sensors. In addition, by securing orders for 8-inch specialty products, the Company has established a base for achieving stable earnings going forward. Earnings are expected to be solid in the second half on the back of higher demand for mobile APs and image sensors. Samsung will also strengthen process technology leadership by beginning 8-nanometer mass production and EUV-based 7-nanometer test production.

The Company expects revenue to exceed USD 10 billion in 2018, following sales of USD 9.8 billion in 2017, securing a strong second place in the foundry market.

Display to Rebound in Second Half Led by Flexible OLED

The Display Panel Business posted KRW 5.67 trillion in consolidated revenue and KRW 0.14 trillion in operating profit for the quarter.

For OLED, earnings decreased QoQ despite improved factory utilization for rigid products, as demand from major customers for flexible panels remained slow. Earnings from LCD also declined from the previous quarter as the shipment and average panel price continued the downward trend.

Looking ahead to the second half, OLED sales are expected to rebound on recovering demand for flexible displays. Samsung aims to increase market share by actively addressing customer demand while enhancing technological and price competitiveness. The Company will incorporate more value-added features into panels and reinforce its competencies in new applications such as foldable displays, seeking new growth drivers.

For LCD, Samsung expects demand to grow in the second half for premium TV panels that are used in high-resolution and ultra-large models, amid peak seasonality. Intensified competition and the industry’s capacity expansion will limit improvements in profits, but the Company will continue to focus on profit with differentiated high-end products such as Quantum Dot and 8K resolution TV panels.

Mobile Posts Sluggish Sales, Networks Grows on LTE Expansion

The IT & Mobile Communications Division posted KRW 24.0 trillion in consolidated revenue and KRW 2.67 trillion in operating profit for the quarter.

Amid the sluggish premium smartphone market and intensifying competition, Samsung’s smartphone shipments and revenue declined QoQ due to the slow sales of Galaxy S9 and S9+ as well as the phasing out of older low-end models.

The Company posted a drop in quarterly operating profit due to higher marketing expenses. Meanwhile, the Networks Business saw a healthy sales growth as major overseas carrier partners increased investments in LTE expansion.

Demand for smartphones and tablets is forecast to increase in the second half as the market enters a period of strong seasonality, but competition is seen intensifying as new smartphone models are released. In response, Samsung will seek to expand sales by introducing a new Galaxy Note earlier than usual, which offers exceptional performance for a reasonable price. Also, Samsung plans to strengthen price competitiveness and adopt advanced technology in the mass models.

Looking to the future, the Company will continue to reinforce product competitiveness based on hardware leadership, by adopting cutting-edge technology and new form factors and gaining leadership in 5G. Furthermore, based on the ever-evolving Bixby ecosystem which connects smartphones, TVs, refrigerators and other IoT devices, Samsung aims to offer personalized service to customers and create synergy with other services such as Samsung Pay.

As for the Networks Business, the Company will supply its major partners with 5G network solutions and continue to invest to become the global leader in next-generation network solutions.

Consumer Electronics to Maintain Premium Market Leadership

The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses, posted KRW 10.4 trillion in consolidated revenue and KRW 0.51 trillion in operating profit for the second quarter.

The overall TV market saw demand grow from a year ago as a major global soccer event lifted sales. Samsung reported a significant boost in earnings in the TV business due to strong sales of its premium products, including QLED and ultra-large screen TVs.

Following a successful restructuring of its product line-up, Samsung led expansion of the premium TV market, winning more than 50% market share in the ultra-large screen segment of 75-inches and above.

For the Digital Appliances Business, the overall market decreased YoY largely due to the instability in emerging markets, although developed markets posted a moderate growth. Samsung continued to expand sales of its premium products in the second quarter, including the Family Hub refrigerator and premium air purifier “CUBE”. However, earnings decreased slightly YoY, due to weak demand for air conditioners.

Looking to the second half, the TV market is projected to grow YoY, especially in developed economies. Samsung will work to further improve profitability by focusing on sales of premium TVs and maximizing shipments during the year-end peak season. The Company’s second half release of the industry’s first AI- based 8K QLED TV is expected to further solidify its position as a leader in the premium TV market.

As for the Digital Appliances Business, the Company will focus on profits by enhancing peak-season promotions in key regions including Black Friday, and expanding sales of premium products and built-in home appliances.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2016~2018 2Q)

Note 1: Sales for each business include intersegment sales

Note 2: CE (Consumer Electronics), IM (IT & Mobile Communications), DS (Device Solutions), DP (Display Panel)

Note 3: Information on annual earnings is stated according to the business divisions as of 2018.

Note 4: From Q1 2018, earnings from the Health & Medical Equipment Business (HME) are excluded from the CE Division

First quarter revenue was primarily led by Samsung’s Memory Business and increased sales of its flagship mobile products, including the Galaxy S9.

Total revenue grew approximately 20 percent YoY to KRW 60.6 trillion. Operating profit for the quarter was a record high, posting an increase of KRW 5.7 trillion YoY. Profitability improved significantly in the quarter thanks to the Semiconductor Business and the early global launch of the Galaxy S9. All in all, the operating margin in the first quarter was 25.8 percent, up 6.2 percentage points YoY.

By business unit, the Semiconductor Business’ significant earnings performance was driven by demand for memory chipsets for high value-added servers and graphics products. The System LSI and Foundry businesses also contributed to first quarter earnings, backed by strong demand for chips used for smartphones and crypto-currency mining.

For the Display Panel segment, which manufactures OLED and LCD screens, profits were affected by slow demand for flexible OLED panels and greater competition between rigid OLED and LTPS LCD. An imbalance between supply and demand in the LCD market, brought on by competitors’ increased production capacity, also weighed on earnings.

For the IT & Mobile Communications Division, the early launch of the Galaxy S9 and solid sales of the Galaxy S8 smartphones resulted in considerable growth in earnings.

As for the Consumer Electronics Division, earnings by the Visual Display Business slid YoY following an adjustment in its TV lineup where some mid-range to low-end products were removed. As for the Digital Appliances Business, rising raw material prices and other factors impacted profitability.

For the second quarter, Samsung expects the Memory Business to maintain its strong performance, but generating overall earnings growth across the company will be a challenge due to weakness in the Display Panel segment and a decline in profitability in the Mobile Business amid rising competition in the high-end segment.

Demand for server and mobile DRAM is expected to be robust and orders for high-density storage chips will grow as the price of NAND softens in the second quarter. For the System LSI and Foundry businesses, shipments of 10-nanometer APs and crypto-currency mining chips will expand but earnings will be impacted due to sluggish demand for smartphone components.

The Display Panel segment will seek profitability in OLED by cutting costs and improving yield, amid the weak demand for flexible products. As for LCD panels, oversupply is anticipated despite an expected boon in TV sales in time with an upcoming major global soccer event.

In the Mobile Business, profitability is expected to decline QoQ due to stagnant sales of flagship models amid weak demand and an increase in marketing expenses. Meanwhile, earnings for the Consumer Electronics Division are projected to improve due to increased shipments of new products such as QLED TVs and strong seasonal demand for air conditioners.

The overall business outlook for the second half regarding components is positive, as the company looks forward to strong demand for DRAM and increased sales of OLED panels.

For set products, Samsung aims to sustain profitability by strengthening its market leadership in the sales of premium products despite challenging global market conditions.

In the mid to long term, Samsung will strengthen its business capabilities by delivering differentiated technology in the component business and solidifying its leadership in cutting-edge technologies such as AI and 5G. The company believes opportunities will widen for the set business, as digital devices become increasingly connected.

Total capital expenditure in the first quarter was KRW 8.6 trillion including KRW 7.2 trillion for the Semiconductor Business and KRW 0.8 trillion for the Display Panel segment.

Samsung has not yet finalized its capex plan for 2018, but the company expects it to decline YoY. Capex rose substantially in 2017 due to efforts to respond to market growth and emerging technologies, which included expanding the production capacity for flexible OLED panels.

Semiconductor Posts Solid Earnings on Strong Memory Performance

The Semiconductor businesses posted KRW 11.55 trillion in operating profit on consolidated revenue of KRW 20.78 trillion for the quarter.

Overall, the Memory Business achieved strong earnings, despite weak seasonality, thanks to a continuation of favorable market conditions as well as strong server demand.

For NAND, demand remained stable due to an expansion of cloud infrastructure and the continuation of a trend toward higher density solution products. Samsung posted solid earnings by concentrating on sales of high-density mobile storage and value-added solutions, including SSDs over 2TB for datacenters and over 8TB for enterprise, backed by a stable ramp-up of 64-layer 3D NAND production at the company’s Pyeongtaek plant.

For DRAM, demand stayed strong thanks to growth in servers and graphics products. Server demand remained high due to continuous expansion of datacenter infrastructure. Mobile demand saw a stable increase thanks to content growth across all segments while PC demand saw moderate growth in line with seasonal patterns. In graphics, total demand increased thanks to strong demand for both graphics and crypto-currency mining cards.

Looking at the second quarter outlook for NAND, total demand is expected to increase. Datacenters will remain a key driver for SSD demand, and mobile demand is forecast to be strong as the high-density trend continues. Samsung will continue to increase high-density server SSD supply and drive more eStorage strategies. Looking further ahead to the second half, server and mobile demand is expected to be solid, as the trend of SSD replacing HDD accelerates and storage expansion across smartphone segments continues. The company will focus on continued migration to 64-layer while also strengthening product and cost competitiveness and ramping up next-generation products in a timely manner.

As for the second quarter DRAM outlook, strong server demand is anticipated due to datacenter expansion in the US and China. Mobile demand, driven by content growth, is expected to remain solid. Samsung will focus on expediting qualification of 1Ynm and expanding 1Xnm products, while maintaining a flexible product mix. For the second half, demand from all applications is set to increase. Robust server demand will continue while AI and machine learning will drive demand for high-performance High Bandwidth Memory (HBM). For graphics, strong demand for consoles and VGA cards for crypto-currency mining will continue. Solid mobile demand is expected as manufacturers consider high-performance and high-density memory for flagship devices. Samsung will focus on flexible supply and investment, and expanding value-added sales through high-density server DRAM and differentiated products such as HBM2 and LPDDR4X.

For the System LSI Business, mobile DDI earnings declined due to slow OLED panel demand, but overall earnings increased amid strong demand for mobile processors and image sensors. In the second quarter, demand for premium smartphone components is expected to slow, and Samsung will focus on the stable supply of mobile processors and image sensors for flagship models. Looking further ahead to the second half, demand for image sensors is expected to rise as manufacturers increasingly adopt dual cameras and 3-stack FRS sensors. The company will focus on sustaining growth in mobile processor sales and expanding its offerings from mobile to areas such as IoT, VR and automotive.

For the Foundry Business, despite weak seasonality, total earnings grew QoQ due to increased demand for High Performance Computing (HPC) chipsets. During the quarter, the company also broke ground on an EUV-line at its Hwaseong plant to address future demand for 7-nano and below products. In the second quarter, solid demand for high performance chipsets is expected. Samsung plans to expand HPC and 10-nano mobile products and promote FD-SOI and 8-inch processes. In 2018, despite slowing mobile demand, the company aims to diversify its customer and application bases and continue to offer derivative processes, including those for 8- and 11-nano chips. Through these efforts, the company expects to achieve over USD 10 billion in sales and maintain a strong second place in the foundry market in 2018.

Display to Improve Production Efficiency

The Display Panel business posted KRW 7.54 trillion in consolidated revenue and KRW 0.41 trillion in operating profit for the quarter.

For the OLED business, QoQ earnings declined due to a slowdown in demand and intensified competition between rigid OLED and LTPS LCD panels.

For the LCD business, despite a decrease in shipments under weak seasonality and a continued decline in LCD panel ASPs, earnings remained flat QoQ thanks to cost reductions and an expansion in the sales portion of value-added LCD products, boosted particularly by UHD and large-sized panels.

Looking ahead to the second quarter, amid forecasts for weak demand for OLED panels, Samsung will strive to secure profitability by reducing costs and improving production efficiency. For LCD, under unfavorable supply-demand conditions due to capacity expansions in the industry, the company will focus on developing value-added and differentiated products as well as reducing costs.

For the second half, OLED panels in the smartphone industry are expected to see a rebound in demand, especially as demand for flexible panels remains strong in the high-end segment. Under these circumstances, Samsung will strengthen cost competitiveness and diversify its customer base through new products and technologies in order to increase market share. The company will also aim to secure new growth engines by applying its competencies in new applications on top of smartphones.

For LCD in the second half, while the company foresees market uncertainties due to growing competition and capacity expansions, Samsung will continue to strengthen its strategic partnerships with major business partners and differentiate its value-added products, including large-sized and high resolution TV panels.

Mobile Earnings to Decrease in Q2 with Higher Marketing Costs

The IT & Mobile Communications Division posted KRW 28.45 trillion in consolidated revenue and KRW 3.77 trillion in operating profit for the quarter.

While overall market demand for smartphones and tablets declined during weak seasonality, Samsung’s smartphone shipments increased QoQ due to an early release of the Galaxy S9 and S9+ as well as solid sales of the Galaxy S8. As a result of increased sales, mainly driven by premium models, revenue and profit significantly increased both QoQ and YoY. Earnings for the Networks Business also improved due to LTE investments from major overseas partners and an expansion of new solutions for optimization of network operations.

Looking ahead to the second quarter, Samsung expects earnings to decrease QoQ due to a slowdown in sales of its flagship models and increased marketing expenses to address the situation. Samsung will aim to maintain sales momentum of the Galaxy S9 and S9+ by expanding the operation of experiential stores, strengthening the cooperation with partners, and reinforcing promotional programs such as trade-ins.

For the second half, Samsung will seek to strengthen sales in the premium market by launching a new flagship model and maintaining long-tail sales of the Galaxy S9, S9+, and flagship models from the previous year. In the mass segment, Samsung will introduce new models optimized for specific markets and strengthen both offline and online sales channels. Moreover, Samsung will continuously invest in expanding the Bixby 2.0 open ecosystem to provide a seamless multi-device experience for consumers.

For the Networks Business, the company expects increased earnings QoQ for the second quarter and will focus on continued growth by expanding its LTE business and leading the world’s first commercialization of 5G.

Consumer Electronics to Focus on Premium Products  

The Consumer Electronics Division posted KRW 9.74 trillion in consolidated revenue and KRW 0.28 trillion in operating profit for the quarter.

Overall, the TV market decreased QoQ due to slow seasonality following the year-end holiday, but grew YoY due to increased demand in emerging markets such as the CIS, the Middle East, and Latin America.

Although earnings were slightly down YoY, due to a restructuring of the sales mix with a defocus on the entry lineup, the company maintained its leading position in the premium TV market by continuing to achieve high market share in the USD 2,500 and above premium segment, thanks to expanded sales of flagship models, including QLED and ultra-large screen TVs.

Looking to the second quarter, TV market demand is projected to deliver YoY growth, driven mainly by demand momentum from the major global soccer event and growth in emerging markets. Samsung will aim to improve results by expanding sales of new models, particularly during the soccer competition. For 2018, the market is forecast to slightly grow. With the addition of the company’s launch of 8K and Micro LED TVs in the second half, Samsung will seek to solidify its premium leadership and focus on ensuring sustainable and profitable growth in the mid to long term.

For the Digital Appliances Business, the market saw moderate growth in the first quarter due to increased demand in both developed and emerging markets. Samsung’s sales improved YoY thanks to strong sales of premium products, including the FlexWash washing machine, Cube air purifier and system air conditioners. However, earnings decreased slightly YoY due to an increase in prices of raw materials and operating costs of the new factory in North America.

Looking to the second quarter, Samsung will aim to accelerate growth by expanding its premium lineup, including QuickDrive washing machine and POWERStick PRO vacuum cleaner, and by increasing air conditioner sales during the peak season. For 2018, the company will continue to focus on strengthening premium sales in advanced markets, reinforcing its B2B business for built-in appliances and system air conditioners, and expanding its online business.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2016~2018 1Q)

Note 1: Sales for each business include intersegment sales

Note 2: CE (Consumer Electronics), IM (IT & Mobile Communications), DS (Device Solutions), DP (Display Panel)

Note 3: Information on annual earnings is stated according to the business divisions as of 2018.

Note 4: Earnings from the Health & Medical Equipment Business (HME) are excluded from the CE Division in 1Q 2018.

The Board of Directors of Samsung Electronics today approved a 50:1 stock split as another step to enhance shareholder value.

The Company had received numerous requests for a stock split based on the view that a high share price was a hindrance to potential investors. The request increased in frequency as the price of our shares rose significantly during 2017.

The Board believes the stock split announced today will make investing in Samsung Electronics more accessible and provide dividends to a wider range of investors from 2018.

The split is also expected to add both liquidity and marketability to the Company’s stock, which may contribute to enhancing corporate value in the long term.

Our management and Board will work tirelessly to make the Company more competitive and profitable, and we remain committed to increasing shareholder value through enhancing shareholder returns.

Shareholder Return

Samsung Electronics has completed the 2017 share repurchase program that was announced in the fourth quarter 2016 earnings call. During the program’s four phases, it has invested approximately KRW 9.2 trillion to repurchase and cancel 3.3 million common shares and 826,000 preferred shares.

The Company in October 2017 announced an annual dividend of KRW 4.8 trillion won, which represented a 20-percent increase over dividends paid in 2016. However, based on the dividend-focused return strategy adopted for the 2018-2020 period, the Board decided to allocate all of the 50 percent of Free Cash Flow to the 2017 annual dividend. This brings 2017 annual dividend, announced today, to KRW 5.8 trillion won, which equates to a 46-percent YoY increase.

Today, the Board approved a year-end dividend of KRW 21,500 per common share and KRW 21,550 per preferred share.

With the approval of the year-end dividend at the upcoming meeting of shareholders, the Company will complete the three-year shareholder return program through 2017.

To bring greater clarity and predictability to its shareholder returns, the Company in October 2017 announced a three-year shareholder return policy for 2018-2020 that includes yearly dividends of KRW 9.6 trillion.