In the first quarter, sales for the memory and display businesses increased, owing to high ASPs and strong sales of premium products. However, revenue from the mobile business decreased due to a decline in flagship product sales.

Profits were driven by the components businesses, namely the semiconductor division and the display panel segment.

The memory business posted significant earnings growth, both YoY and QoQ, led by favorable supply-demand conditions and sales growth of premium high-density enterprise SSDs. The System LSI business improved its earnings on the back of increased sales of application processors for flagship smartphones and greater demand for image sensors and display driver IC (DDI).

For the display panel business, LCD maintained solid earnings QoQ due to robust sales of large high-resolution panels under favorable ASP conditions. Overall OLED performance improved YoY, due to strong demand, and slightly improved QoQ as a result of increased sales of new flexible products.

For the IT & Mobile Communications (IM) Division, earnings declined QoQ due to price adjustment of the Galaxy S7. As for the Consumer Electronics (CE) Division, earnings for the TV business declined YoY due to higher panel prices.

Regarding the recently acquired Harman, its earnings were consolidated into Samsung’s first quarter results beginning March 11. As a result, its impact on the first quarter financials was minimal.

Looking ahead to the second quarter, the company expects to achieve growth on the back of continued robust memory performance together with improved earnings from the mobile business following the global rollout of the Galaxy S8 and S8+.

For the components businesses, semiconductor earnings growth is expected to continue. This will be driven by solid demand for high-density DRAM and SSDs in the server market, increased shipments of 10nm AP, and sustained strong demand for image sensors and DDI.

As for the display business, the company will focus on fulfilling strong demand for flexible OLED panels, and look to maintain profitability in LCD through enhanced cost reduction.

For the set businesses, operating profit is expected to improve in the mobile business following the global expansion of the Galaxy S8 and S8+. In the CE Division, earnings will likely improve with the launch of QLED TV and strong seasonal demand for air conditioners.

Moving on to the outlook for the full year ahead, the company expects overall earnings to grow YoY. This will be led mainly by the components businesses based on favorable supply-demand conditions for memory and greater shipments of OLED panels. The set businesses, meanwhile, will focus on maintaining profitability through expanded sales of flagship products.

For the memory business, amid strong demand for servers and mobile devices, the company will look to maintain profitability by enhancing cost competitiveness through sales of 1xnm DRAM and 64-layer V- NAND. Meanwhile, the possibility of an increase in the industry’s supply of 3D NAND in the second half of 2017 exists.

For OLED, revenue is expected to grow YoY due to an increase in the supply of flexible panels in the second half. However, in the mid- to low-end segment, the company anticipates possible competition from LTPS LCDs.

For the mobile business, market competition is expected to intensify in the second half. Against this backdrop, the company will strive to maintain profitability through robust sales of the Galaxy S8 and S8+ and the launch of a new flagship smartphone in the second half. Moreover, Samsung will also look to sustain profitability in the mid- to low-end segment by launching new products and streamlining the lineup.

For the TV business, Samsung will focus on increasing profitability by expanding its high-end lineup, including ultra-large size and UHD TVs. Additionally the home appliance business will continue to secure new sources of revenue by increasing investments in the B2B segment.

Looking at the mid- to long-term, the growth of IoT, AI and automotive businesses in the IT industry is expected to drive demand for components, particularly high-performance energy-efficient memory products, SoCs and sensors, as well as flexible OLED panels for new form factors.

Meanwhile new business opportunities are expected in the set business with developments in cloud, AI and connectivity solutions for smartphones and smart home products.

In response to these paradigm shifts, the company is aware of the need to strengthen its capabilities via strategic investments and M&As. However, uncertainties in the business environment may pose challenges.

Total capital expenditure (CAPEX) executed in the first quarter was KRW 9.8 trillion, including KRW 5.0 trillion for the semiconductor business and KRW 4.2 trillion for the display segment. Although the capex plan for 2017 has not been finalized, the overall annual capex is expected to increase significantly particularly for investments in V-NAND, System LSI and OLED.

Differentiated Chips & Stable Demand to Drive Profitability

The Semiconductor business posted KRW 6.31 trillion in operating profits on consolidated revenue of KRW 15.66 trillion for the quarter.

Samsung improved earnings in the first quarter in both DRAM and NAND by focusing on high-density and value-added products for datacenters, enterprise SSDs and flagship smartphones. Even amid slower demand due to weak seasonality compared with the previous quarter, the prices of memory products remained strong due to limited supply.

For NAND, Samsung continued to post solid growth in the quarter by actively meeting demand for high-density server SSD over 4TB and mobile products over 64GB and by expanding 48-layer V-NAND supply.

On the DRAM side, strong demand for datacenter DRAM and customers stocking up to preempt any market uncertainties in the second half have contributed to solid supply and demand and strong pricing. The company’s efforts to enhance profitability through cost competitiveness in expanding the 1xnm process also boosted gains in the first quarter.

Looking ahead to the second quarter, while overall demand is expected to be solid due mainly to demand for high-density server SSD, overall supply will remain tight due to constraints on the industry’s 3D NAND supply. However, Samsung will improve profitability and product competitiveness by expanding 48-layer V-NAND supply and mass producing 64-layer V-NAND.

In DRAM, with the expansion of new server platforms in the market, demand for high performance server DRAM over 64GB is forecast to increase. New mobile device launches and adoption of higher density DRAM in the second quarter will increase demand for mobile DRAM. Samsung will remain profitable with high performance, high value-added chipsets.

In the second half, overall supply and demand in the memory market will be stable amid peak seasonality and new mobile devices being released in the market. However, tight supply-demand conditions may change due to possible expansion of industry supply.

With regards to the System LSI business, Samsung improved its earnings in the first quarter on the back of strong sales of APs, DDIs and image sensors for flagship smartphones and 14nm APs for mid- to low-end smartphones. In the second quarter, the company expects to secure growth with solid market demand for 10nm APs, image sensors and DDIs.

For 2017, System LSI will diversify its 14nm product line-up for automotive, IoT and wearable industries and produce differentiated products with innovative technologies.

Display Panel Segment Maintains Solid Performance

The Display Panel segment posted KRW 7.29 trillion in consolidated revenue and KRW 1.30 trillion in operating profit for the quarter.

For OLED, earnings improved YoY due to higher utilization rates driven by strong demand while also gaining QoQ due to increased shipments of flexible displays and strong demand for rigid OLED panels.

For LCD, the company maintained solid earnings QoQ by increasing sales of large-size high-resolution panels under favorable supply and demand conditions. An expansion in the portion of value-added LCD products, particularly large-size UHD panels, helped strengthen profitability for the quarter.

Looking to the second quarter, the company plans to actively address the expected continuous rise in demand for OLED panels, including flexible displays. For LCD, demand for large-size and UHD panels is forecast to continue and the company will focus on securing profits through expansion of value-added products, including ultra large-size and curved panels, and by improving yields and reducing costs.

For 2017, although YoY revenue growth in the OLED business is forecast on the back of increased flexible panel shipments in the second half, growing competitiveness from LTPS LCD panels against OLED in the mid- to low-end segment will present challenges. For the LCD business, under expanding market conditions the company will continue to focus on strengthening profitability and competitiveness through value-added and differentiated products such as frameless and curved TVs.

Flagships Sales Expansion to Strengthen Mobile Leadership

The IM Division – comprising the Mobile Communications and Networks Businesses – posted KRW 23.50 trillion in consolidated revenue and KRW 2.07 trillion in operating profit for the quarter.

While smartphone and tablet market demand saw a slight decrease QoQ due to seasonal effects, smartphone shipments for the division slightly increased. This increase was largely due to the newly released Galaxy A 2017 series and solid sales in the mid- to low-end segment in emerging markets. However, overall profit for the division decreased due to price adjustments of Galaxy S7 and S7 edge.

Looking ahead to the second quarter, while market demand for smartphones and tablets is forecast to remain flat, the worldwide rollout of latest flagship models, Galaxy S8 and S8+, is expected to help the division increase revenue and profit QoQ, while smartphone shipments are expected to remain flat due to decreased sales of mid- to low-end smartphones. The Galaxy S8 and S8+, which were launched on April 21, show robust initial sales.

As for the year ahead, Samsung anticipates market demand in smartphones to slightly increase with solid replacement demand growth in the mid- to high-end segment. However, competition is expected to intensify with newly launched smartphones in the market. The company will aim to improve performance YoY by maximizing sales of the Galaxy S8 and S8+ and successfully launching a new flagship smartphone in the second half. In addition, the company will maintain profitability in the mid- to low-end segment.

For the Networks Business, the company will seek growth through the continued rollout of LTE services in new markets around the world, expanded business opportunities with next generation networks, including IoT and LTE-A Pro, and preparation for 5G broadband services.

Consumer Electronics to Focus on Premium Products

The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses, posted KRW 10.34 trillion in consolidated revenue and KRW 0.38 trillion in operating profit for the first quarter.

In the first quarter, the TV market is projected to decline QoQ due to weak seasonality as well as decreased demand in the European and Latin American markets. Although the company achieved sales growth and maintained its leading position in the premium market thanks to its high-end product line-ups including Quantum Dot TV and curved TV, profit declined YoY due to increased panel prices and currency fluctuations.

For the appliances business, sales improved YoY led by continued growth in the North American market and increased sales of innovative premium products such as Chef Collection refrigerators and Activewash washers. However, earnings remained flat YoY due to investments in the North American B2B market.

Looking to the second quarter, TV market demand is projected to show a slight decrease YoY due to sluggish demand mostly in Europe. Under these circumstances, Samsung will aim to secure profitability and solidify its market leadership by expanding its premium TV line-ups including UHD and curved TVs, as well as beginning sales of new premium products such as QLED TVs and The Frame.

As for the Digital Appliances Business, the company will strengthen its partnership with retailers and expand sales of seasonal products, including air conditioners, and focus on the launch of new products such as Family Hub 2.0 refrigerators and FlexWash washers in the second quarter.

For the TV market in 2017, demand is forecast to slightly increase due to recovery in emerging markets and strong UHD TV demand. While market competition is expected to intensify, Samsung will focus on sales of premium products to solidify its leadership in major markets.

As for Digital Appliances in 2017, Samsung will strengthen its B2B business by making full-scale advancement into the North American builders market, boosting online sales through key distribution channels, and expanding sales of premium products to achieve stronger performance.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2016~2017 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 2017.

Overall, the company reported full-year 2016 revenue of KRW 201.87 trillion and full-year 2016 operating profit of KRW 29.24 trillion.

Fourth quarter earnings were driven by the components businesses, mainly the Memory business and the Display Panel segment, which manufactures OLED and LCD screens. Robust sales of high-end, high-performance memory products and expanded process migration in V-NAND, plus strong shipments of OLED and large-size UHD panels contributed to profitability. The stronger US dollar against the Korean won also had a positive impact on operating profits.

The Mobile business registered gains YOY due to solid sales of flagship products such as Galaxy S7/ S7 edge and improved profitability of mid-to-low end models. The Consumer Electronics division posted an earnings decline, despite increased sales of premium TVs including SUHD and curved TVs. The Digital Appliances business also saw positive demand in the fourth quarter, but new investments in B2B resulted in a slip in earnings.

For 2016, Samsung achieved solid results despite the Note 7 discontinuation in the second half as a result of continuous efforts during past two to three years to strengthen its component business competitiveness by focusing on value-added products and widening the technology gap in the DRAM business as well as strategic investments in V-NAND and OLED. The company also made several key acquisitions and divestures which will enable the future growth.

In 2017, the components businesses expect solid demand for value-added semiconductor products and for flexible OLED and large-size LCD panels. The company will seek to improve profitability in DRAM and NAND amid continued growing demand for data center servers and mobile devices. System LSI will continue to diversify its customer base in order to increase earnings. For display panels, earnings from high-end flexible OLED are expected to increase YOY due to an expansion in supply, and Samsung expects to meet stronger competition in the LCD market with value-added products focusing on UHD and large-size TV panels.

For Mobile in 2017, the company will continue to innovate both in software and hardware across its entire line-up and prioritize consumer safety. Although the growth of the global smartphone market is expected to slow this year, new services such as artificial intelligence (AI) will be a differentiating factor. The mobile business will seek to strengthen its leadership in the premium market and boost competitiveness of mid-to-low end smartphones by adding innovative features available in high-end models.

For Consumer Electronics in 2017, the company will aim to strengthen its market leadership in the premium TV market with QLED TV and large-size UHD TV and enhance its brand in the B2B sector of the home appliances market.

Moving into the first quarter, overall earnings are expected to decline QOQ, as earnings in the set businesses are projected to decrease resulting from increased marketing expenses in the Mobile business and a sales decrease of TVs due to weak seasonal demand.

For the Memory business, the company aims to achieve solid earnings despite seasonal weakness of the first quarter with a focus on high-density and high-performance products. The ramp up of 10nm mobile AP production by System LSI is expected to maintain stable revenue. The Display Panel segment will seek to stay profitable by meeting demand for OLED panels and expanding shipments of value-added LCD panels.

Total capital expenditure (CAPEX) executed in 2016 was KRW 25.5 trillion, which is lower than the previous guideline of KRW 27 trillion. This was mainly due to the year-end investments carrying over to 2017. Investment in the display panel segment reached KRW 9.8 trillion, while the Semiconductor business was accountable for KRW 13.2 trillion in CAPEX, with an 8:2 split between the Memory and System LSI businesses.

The CAPEX plan for 2017 has not been finalized.

Looking at the mid- to long-term, based on paradigm shifts in the IT industry from the growth of IoT, AI and automotive businesses, new demand is expected to spur growth in the components business. Additionally, new designs and usages are expected to emerge in the set businesses.

In the Semiconductor business, the company expects to see huge growth in demand for high-density, high-performance memory for processing big data in the server market and chipsets for automotive and AI-related businesses.

In the OLED business, the demand for value-added flexible panel is projected to grow substantially from the innovations in smartphone form factors.

In the set business, the importance of cloud and AI solutions for mobile devices will expand rapidly, as well as connectivity solutions for smart homes.

Through these new developments, Samsung expects significant new business opportunities. However, the company remains mindful of uncertainties in the global business environment. These circumstances could potentially bring challenges to the execution of its mid- to long-term business strategies, such as M&A and investment decisions and developing new growth engines.

Semiconductor Posts Strong Growth

The Semiconductor business registered KRW 4.95 trillion in operating profits on consolidated revenue of KRW 14.86 trillion for the quarter.

The memory division achieved strong earnings growth in the fourth quarter by focusing on high profitability and a differentiated product mix.

For NAND, demand for mobile products such as high-density SSD remained solid while industry supply was restricted. The company posted significant QOQ growth by responding to demand for high-end enterprise SSD based on V-NAND.

For DRAM, supply and demand conditions remained favorable. The company achieved solid earnings by concentrating on a profit-focused product mix and addressing increased mobile demand, particularly for smartphones, high-end PCs and data center servers.

Looking to the memory outlook for 2017, stable demand from mobile and servers is expected to continue.

For NAND, earnings will be driven by higher demand for high-density SSD including NVMe over 256GB and increased adoption of high-density SSD in data centers and enterprise servers. Demand for mobile storage will grow as smartphones transition to larger storage. Although the industry’s 3D NAND supply will be a key variable, supply and demand is expected to remain favorable throughout the year. The company is also preparing for mass production at its Pyeongtaek site while enhancing its leadership through 64-layer process migration.

For DRAM, demand will remain solid throughout the year led by higher densities in data centers and smartphones. Samsung will focus on maximizing profitability through sales of high-density and low-power products, and by expanding 1Xnm process migration.

Looking at the first quarter, weak seasonality will impact demand although overall conditions will remain solid due to limited industry supply. For NAND, stable demand for value-added products such as high-density storage will continue and the company aims to strengthen profitability through 48-layer V-NAND and mass production of 64-layer V-NAND. For DRAM, adoption of higher densities will continue and Samsung plans to expand supply of the industry’s first mass-produced10-nm class products.

Regarding the System LSI business, increased sales of mid-to-low end mobile AP, image sensors, and DDI driven by the growth of China’s mobile market contributed to solid earnings results in the fourth quarter. The company also maintained its technological leadership with the mass production of industry’s first 10-nm process.

For 2017, System LSI will focus on securing growth through high utilization ratio by diversifying 14nm product line-ups and by responding to rising demand for image sensor and DDI products. It will also continue to strengthen technological competitiveness by securing stable supply of 10-nm products. In the first quarter, the company will ramp up mass-production of 10-nm products for flagship smartphones, and actively respond to demand for 14-nm products for mid-to-low end smartphones.

Display Continues Solid Performance

The Display Panel segment posted KRW 7.42 trillion in consolidated revenue and KRW 1.34 trillion in operating profit for the quarter, driven by increased shipments from OLED panels and improved earnings from large-sized LCD TV panels.

For OLED, the company achieved solid earnings in the fourth quarter by increasing sales through customer diversification and by continued cost reduction.

For LCD, earnings improved QOQ under stabilized ASPs led by favorable supply-demand conditions. Moreover, the company increased profitability through improved yield and cost reduction, and the expansion of value-added products, especially large-size UHD TV panels.

Looking ahead to 2017, the company will strive to improve earnings YOY by increasing shipments of flexible OLED through its technological leadership and expansion of capacity. For LCD, although competition will intensify, the market for premium TV panels is expected to grow. In response, the company will aim to strengthen profitability by improving the competitiveness of value-added products, focusing on UHDs and large-size panels, as well as expanding the portion of differentiated products such as frameless and curved TV panels.

For the first quarter, OLED demand is expected to rise as smartphone makers pursue product differentiation. Under these circumstances, the company will focus on actively addressing customer demand and enhancing its product mix. As for LCD, weak seasonality will dampen demand although migration toward UHD TV and larger screens is expected to continue amid favorable supply-demand conditions. In turn, the company will focus on cost reduction and yield improvement as well as expansion of value-added products such as ultra-large size, high resolution and curved panels.

Premium Products to Drive Mobile Growth

The IT & Mobile Communications (IM) Division posted KRW 23.61 trillion in consolidated revenue and KRW 2.50 trillion in operating profit for the quarter. The fourth quarter saw higher market demand for smartphones and tablets on year-end peak seasonality.

The Mobile business saw its earnings increase YOY on the back of continued robust sales of the flagship Galaxy S7 and S7 edge as well as improved profitability in the mid-to-low end segment.

Looking ahead to 2017, while slow growth in smartphone demand is forecast, new services such as AI are expected to be differentiating factors for the industry this year.

Samsung will look to reinforce its market leadership and drive growth in the premium smartphone segment with differentiated design and innovative features. The company also plans to enhance the competitiveness of its mid-to-low end models by introducing water and dust-proof features and fingerprint recognition.

In addition, the company will continue to strengthen its software and service competencies to provide new customer values by expanding the roll out of services such as Samsung Cloud and Samsung Pay, and by introducing AI-based services on premium smartphones.

This year, the company’s priority will be to ensure consumer safety and product quality by enhancing product assurance processes, implementing new preventive measures and augmenting a dedicated team of experts.

In the first quarter, although weak demand for smartphones and tablets is forecast due to seasonality, increased shipments of Samsung smartphones such as the mid-tier Galaxy A and J series is expected to contribute to QOQ sales growth, while profit will decrease slightly QOQ due to increased expenses including marketing.

As for the Networks Business, the continued roll out of 4G LTE services in global markets helped increase sales and enhance earnings in the fourth quarter. Samsung aims to maintain solid sales in the first quarter thanks to new 4G opportunities in emerging markets as well as LTE business expansion with existing customers.

In 2017, the company will continue to maintain the current sales momentum by expanding LTE business in emerging markets, and next generation IoT network business in advanced markets.

Consumer Electronics Posts Decline in Profit

The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses, posted KRW 13.64 trillion in consolidated revenue and KRW 0.32 trillion in operating profit for the fourth quarter.

In the fourth quarter, global TV market demand remained flat YOY due to weakness in emerging markets, despite the positive performance in developed markets. Under these circumstances, we were able to outperform the market growth rate and strengthen our market share in the premium segment led by promotional sales in the year-end peak season.

However, 4Q earnings decreased YOY due to increased panel price and currency fluctuations.

Looking to the TV market in 2017, demand is expected to slightly increase as emerging markets recover and replacement purchases increase. Also, the company foresees the demand in premium large-size UHD TV models will continue to grow. In spite of such forecasts, currency fluctuation in major markets may potentially dampen growth and competition is likely to intensify. In 2017, the company will expand its premium lineup including the newly introduced QLED TV. By providing innovative new products, Samsung will aim to secure profitability and solidify its market leadership.

In the first quarter, TV demand is expected to decline under weak seasonal demand. Under these circumstances, the company also forecasts a slight decline in sales as a result of panel price fluctuations.  Nevertheless, Samsung will focus on improving profitability by bringing new premium products to market earlier.

For the Digital Appliances business, in the fourth quarter, overall demand slightly decreased amid weakness in emerging markets despite growth in North America. The company achieved YOY sales growth by expanding sales of premium products, including Add Wash and the Chef Collection series, while new B2B investments had a negative impact on overall earnings.

In 2017, the company will focus on the premium market by introducing innovative products such as the Family Hub 2.0 refrigerator and Flex Wash & Flex Dry. Moreover, in the B2B market, Samsung will aim to enhance its brand value and competitiveness by expanding investments in product development, marketing, etc.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2014~2016)

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 2016.