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 unfavourable 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 unfavourable 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 favourable 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

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 capitalise 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 utilisation 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 personalised 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 maximising 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

Samsung Electronics today announced financial results for the third quarter ended September 30, 2017. Samsung’s revenue for the quarter was KRW 62.05 trillion, an increase of KRW 14.23 trillion YoY, while operating profit for the quarter posted a record KRW 14.53 trillion, an increase of KRW 9.33 trillion YoY.

In the third quarter, strong demand for high-performance memory chipsets for servers and flagship mobile devices was a contributing factor to the company’s overall robust performance. The Semiconductor Business registered significant earnings growth both YoY and QoQ, and the System LSI added to the earnings rally through increased sales of DDIs and image sensors. The display panel segment posted an earnings decline despite the expanded sales of flexible OLED panels for premium smartphones. The Mobile Business saw strong shipments thanks to the launch of Galaxy Note 8 and solid sales of the new Galaxy J series, but its earnings declined QoQ due to the higher sales proportion of mass-market smartphones.

The Memory Business achieved strong earnings results for the quarter on the back of high seasonal demand for all memory applications, the trend toward higher density chips and a continuation of favorable supply and demand conditions and prices. For NAND, the launch of flagship smartphones and the expansion of cloud infrastructure drove strong demand. For DRAM, demand for applications used in servers, mobile devices, PCs and game consoles also remained solid.

For the OLED business, an increase in shipments of flexible displays for customers’ new flagship smartphone launches drove an increase in sales. However, QoQ earnings declined due to an increase in start-up costs of the new OLED production line and increased competition within rigid OLED products. For the LCD business, third quarter earnings declined, as an imbalance in supply and demand led to a decrease in the ASP of LCD panels. Further, capacity expansion in the LCD industry continues to impact prices.

The Mobile Business saw smartphone shipments increase on the back of the global roll-out of the newly launched flagship, Galaxy Note 8, and solid performance of the new Galaxy J series. However, overall revenue and earnings decreased QoQ due to the higher sales of mid- to- low tier models.

Samsung’s TV business saw significant improvements in QoQ earnings driven by increased sales of premium products including QLED TVs. However, due to the higher cost of LCD TV panels and weakening demand of the TV market, YoY earnings were modestly lower.

Looking ahead to the fourth quarter, the company anticipates tight supply and demand conditions to continue for the Memory Business due to strong demand for servers and mobile devices. For the Display Panel segment, increased shipments of flexible OLED products and the release of new rigid OLED panels will improve earnings. However, the LCD segment will be met by weak seasonality, coupled with expanded panel supply. For the Mobile Business, the company will try to maintain solid earnings by increasing flagship sales through the global roll out of the Galaxy Note 8. Meanwhile, the Digital Appliances Business expects to continue revenue growth by ramping up sales of new products including washing machines with QuickDriveTM technology and POWERstick PRO vacuum cleaners. The TV business will focus on increasing sales of premium products including QLED and ultra-large screen TVs.

Moving on to business prospects for 2018, the company expects earnings to grow primarily from the component businesses, as conditions in the memory market are likely to remain favorable and the company expects increased sales of flexible OLED panels. For the Memory Business, demand for high-density, high-performance NAND will increase, as the need for larger data capacity in servers and mobile devices grows.

The company expects positive growth in the DRAM market, due to the development of technologies in big data, artificial intelligence and machine learning, in which faster processing and analysis of data are critical. The technological advancement of mobile devices with dual camera, 3D sensors and on-device AI will spur DRAM growth. As for next year’s outlook for the System LSI and Foundry Businesses, Samsung will continue to drive favorable earnings growth by increasing the supply of 10-nano products and image sensors, and will also focus on strengthening the competitiveness in the sub 7-nano process through investment in the EUV-related infrastructure.

In the display segment, Samsung will continue seeking growth by addressing market demand for flexible OLED display panels with differentiated technology, as OLED is set to become a mainstream feature in smartphones. Although global competition in the LCD panel business is expected to intensify in 2018, Samsung will strive to ensure its profitability by solidifying partnerships with key customers and enhancing the lineup of ultra-large size, high resolution, quantum dot and frameless panels.

As for the Mobile Business, Samsung will strengthen its leadership in the high-end market with flagship smartphones and improve profitability through optimizing product lineups. Moreover, the company will strive to secure business growth opportunities through new technologies such as 5G and by strengthening the services and software competencies.

For the consumer electronics business, Samsung will continue to focus on expanding premium product sales and enhancing its B2B businesses.

Semiconductors Deliver Strong Performance

The Semiconductor businesses posted KRW 9.96 trillion in operating profits on consolidated revenue of KRW 19.91 trillion for the quarter.

The Memory Business achieved strong earnings for the quarter due to strong demand from all applications amid solid supply and demand conditions. For NAND, while overall demand remained solid due to the launch of flagship smartphones and the expansion of cloud infrastructure, Samsung actively responded to demand from value-added and high density markets such as datacenter NVMe SSD. For DRAM, the expansion of cloud services and the trend for higher density drove strong demand. The company focused on maximizing profit by satisfying demand for differentiated products such as server DRAM over 64GB and low-power mobile DRAM.

Looking at the fourth quarter prospects for NAND, tight supply conditions are expected to remain for mobile and SSD applications, due to continued strong demand for high-density mobile products and expansion of datacenters, respectively. In response, the company will pursue a more profit-focused product mix. Looking further ahead to 2018, the trend toward high-performance, high-density mobile NAND is forecast to continue while server SSD adoption is expected to accelerate as big data needs rise. In response, Samsung will focus on expanding V-NAND supply while developing and ramping-up 5th generation V-NAND.

As for the fourth quarter DRAM outlook, high seasonal demand for mobile and PC is expected while datacenter expansion continues. Against this backdrop, the company will concentrate on cost competitiveness by expanding 1xnm process migration. Looking to 2018, high demand from datacenter infrastructure expansion is forecast to continue while demand for contents growth in mobile products will rise on the wide-spread adoption of dual camera, 3D sensors and on-device AI offerings. In response, the company will focus on ramping-up 10nm-class products and expanding sales of differentiated products such as HBM, high bandwidth LPDDR4X.

Turning to the System LSI Business, solid earnings were achieved through increased sales of mobile processors for mid- to low-end smartphones and image sensors for smartphones, while flagship phone launches lifted sales of OLED DDIs. Looking ahead, weak seasonality for processors and image sensors is expected to dampen growth in the fourth quarter. For 2018, the company will focus on sustaining growth of mobile processor and OLED DDI sales and increasing sales of image sensors amid greater adoption of dual camera features on smartphones. Further, Samsung will aim to expand its offerings to IoT, VR and automotive applications.

As for the Foundry Business, favorable results were achieved thanks to increased sales of 10-nano mobile products benefiting from stabilized yields and strong seasonality. Increased demand for differentiated products such as 32-nano mobile DDIs and 65-nano image sensors also contributed to earnings. Looking to the fourth quarter, although growth is likely to be limited, the company expects to diversify the 10-nano node from mobile to cryptocurrency mining applications, while diversifying the customer base for new 8-nano offerings. For 2018, Samsung will increase supply of 10-nano products and image sensors through mass production in line S3 and transformation of memory line 11 to foundry, respectively, and strengthening sub 7-nano process competitiveness by investing in EUV-related infrastructures.

Display to Improve on Flexible OLEDs

The Display Panel segment posted a KRW 8.28 trillion in consolidated revenue and KRW 0.97 trillion in operating profit for the third quarter. Revenues increased due to strong sales of flexible panels. However, total earnings declined driven by increased costs for starting-up new OLED production and decreased ASP for LCD panels.

For the OLED business, an increase in shipments of flexible displays for customers’ new flagship launches drove an increase in sales QoQ. However, QoQ earnings declined due to increased competition within rigid OLED products and startup costs of the new OLED production line.

For the LCD business, third quarter earnings declined, due to a decrease in the ASP of LCD panels. Further, capacity expansion in the LCD industry continues to impact prices.

Looking ahead to the fourth quarter, Samsung expects sales in the OLED business to grow based on increased shipments of flexible and rigid products. However, in the LCD business, Samsung continues to expect some supply-demand imbalance due to increased industry capacity as well as decreased seasonal demand. In response, Samsung will seek to ensure profitability through cost reduction and yield improvement, in addition to expanding the portion of high-end, value-add products such as ultra-large size, high resolution and quantum dot panels.

For 2018, Samsung expects OLED products to become mainstream in the smartphone industry, especially as flexible panels increase within high-end devices. The company plans to focus on achieving continuous growth through customers’ demand for flexible displays and through differentiated high-end products. In the LCD business, intensified competition among panel makers as well as capacity expansion within the industry is expected to be balanced with a growing market for premium TV panels, such as UHD and ultra-large sized. In light of these market conditions, Samsung will continue to improve profitability through reinforcing strategic partnerships with major customers, as well as expanding the value-added product lineup.

Mobile Maintains Solid Smartphone Performance

The IT & Mobile Communications Division posted KRW 27.69 trillion in consolidated revenue and KRW 3.29 trillion in operating profit for the quarter.

Samsung’s smartphone shipment increased on the back of the global roll-out of the newly launched flagship Galaxy Note 8 and solid performance of the new Galaxy J 2017. However, overall revenue and earnings decreased QoQ due to the higher sales portion of mid-to-low tier models.

Looking ahead to the fourth quarter, both smartphone and tablet demands are forecast to increase during the year-end peak season.

Although competition is expected to intensify in the premium segment, the company plans to focus on maintaining solid sales and profit QoQ through increased shipment of flagship models thereby enhancing the product mix.

As for the outlook for 2018, smartphone market growth is expected to recover; however, the difficult business environment is likely to continue due to intensifying competition and higher materials costs.

The company will strive to enhance leadership in the premium segment and to improve profitability through optimizing product lineups. Moreover, the company will aim to secure business growth opportunities through new technologies such as 5G and by strengthening services and software competencies.

Meanwhile, the Networks Business saw decreased sales and profit in Q3 QoQ due to a decline in LTE-related investment from global clients. Looking into the fourth quarter and beyond, the company expects to expand the supply of next generation 5G network solutions in the major advanced markets.

Consumer Electronics to Focus on Premium Products

The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses, posted KRW 11.13 trillion in consolidated revenue and KRW 0.44 trillion in operating profit for the third quarter.

Despite lower demands from advanced markets, significant improvements in QoQ earnings for Samsung’s Visual Display Business were led by increased sales of premium QLED TVs. However, due to higher cost of LCD TV panels and weakening demand of the TV market, YoY earnings were modestly lower.

In the fourth quarter, Samsung will focus on profitability, by increasing the dominance in the premium QLED and ultra-large TV lineups, as well as reinforcing B2B growth including digital signage and Cinema LED businesses.

Looking ahead to 2018, major sports events, including the World Cup and Winter Olympics, are expected to drive demand for UHD and ultra-large screen TVs. Samsung will reinforce its market leadership in the premium market and further improve profitability by increasing the QLED and ultra-large TV lineups.

In Digital Appliances, investment costs in B2B business resulted in a decrease of YoY earnings, despite a modest increase in overall market demand and strong sales of air conditioners and washing machines in Korea.

New products like washing machines with QuickDriveTM technology and POWERstick vacuum cleaners are expected to drive revenue growth in the fourth quarter.

In 2018, Digital Appliances business looks to improve earnings by increasing shipments of premium products as well as expanding the B2B businesses and increasing online channel sales.

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

Samsung Electronics today announced financial results for the second quarter ended June 30, 2017. Samsung’s revenue for the quarter was KRW 61.00 trillion, an increase of KRW 10.06 trillion YoY, while operating profit for the quarter posted a record KRW 14.07 trillion, an increase of KRW 5.92 trillion YoY.

In the second quarter, the components businesses drove significant earnings growth, both YoY and QoQ, thanks primarily to strong memory demand for high-density DRAMs and SSDs for servers. System LSI contributed to earnings through increased sales of AP and CIS products while the Display Panel Business expanded sales of flexible OLED panels for premium smartphones and high-value LCDs under stable prices. Profits from the Mobile Business, driven by robust sales for the Galaxy S8 and S8+, also increased significantly QoQ.

The Memory Business posted significant earnings growth, both YoY and QoQ, amid tight supply-demand conditions while strong ASPs coupled with increased demand from the server market also contributed to profits. The System LSI Business increased sales of mobile processors and image sensors.

For the Display Panel business, OLED earnings improved QoQ with the help of increased shipments of flexible displays for premium smartphones. LCD panels enhanced profitability QoQ due mainly to increased sales of high-end, large-size UHD panels, amid stable ASP conditions.

The Mobile Business saw a significant increase in earnings QoQ with the global rollout of the Galaxy S8 and S8+. However the operating profit margin declined slightly YoY due to strong component prices. Earnings for the TV business declined due to increased panel prices and slow demand from Europe and China. For the home appliances business, continued B2B investment led to a decline in earnings YoY.

Regarding Harman’s earnings in the quarter, it registered solid results from operations with USD 1.9 billion in sales and around USD 200 million in operating profit. However, with costs associated with the acquisition, net operating profit was approximately USD 5 million. Samsung expects such costs to continue to impact Harman’s results by an average of USD 100 million each quarter for the next few quarters.

Looking ahead to the third quarter, the company expects favorable semiconductor conditions to continue, although overall earnings may slightly decline QoQ as earnings weaken for the Display Panel and Mobile businesses. For the Display Panel Business, an increase is expected in initial start-up costs for the new OLED production line, and intensifying price competition is forecast from LTPS LCD in the mid- to low-end rigid OLED segment. For the Mobile Business, earnings are forecast to decline due to increased marketing costs related to the launch of a new Note device, with reduced profit contributions from the Galaxy S8 and S8+.

Moving on to the outlook for second half, the company expects earnings to grow primarily from the component businesses, as conditions in the memory market are likely to remain favorable and the company expects increased sales of flexible OLED panels. However, ASP pressures on LCD panels and on rigid OLED panels, prompted by the industry’s increase in LCD supply, may remain a concern.
For the Memory Business, solid demand for servers and mobile devices will continue due to the expansion of new server platforms, cloud services and new smartphones to market in the second half. By expanding the supply of 1Xnm DRAM and 64-layer V-NAND, Samsung will further enhance product competitiveness.

The System LSI and Foundry businesses are also expected to post positive results, while the display segment anticipates an increase in revenue from the expanded supply of flexible OLED panels.

The Mobile Business will aim to sustain the strong sales momentum of premium smartphones through the release of a new Galaxy Note smartphone and continued sales of the Galaxy S8 and S8+. It will also continue to improve the lineup efficiency in the mid- to low-end segment to maintain profitability.

For the TV business, Samsung will focus on improving profitability by expanding its high-end offerings, including ultra-large size and UHD TVs. Additionally, the company expects to solidify its leadership in the premium segment with products such as The Frame and QLED TVs. Meanwhile, the Digital Appliances Business will seek to improve profits in the B2B segment.

Looking at the mid- to long-term, the company will strongly focus on enhancing the competitiveness of the company’s core businesses. To this end, Samsung will reinforce its technological leadership in the semiconductor and OLED industries and will focus on strengthening its design and manufacturing capabilities to transform the System LSI and Foundry businesses as future growth engines.

To respond to a paradigm shift in the IT industry, the company is set to develop new growth engines by making strategic investments and securing advanced technologies through M&As. Challenges lie ahead, however, due to volatilities in the global business environment.

Total capital expenditure (CAPEX) executed in the second quarter was KRW 12.7 trillion, including KRW 7.5 trillion for the semiconductor business and KRW 4.5 trillion for the display segment. Although the capex plan for 2017 has not been finalized, the annual capex is expected to be significantly higher than the previous year.

The Memory Business plans to expand the Pyeongtaek fab to respond to increasing demand for V-NAND. The business also expects to spend capex on converting a part of existing planar capacity to V-NAND. Despite the increase in 2017 capex for the Memory Business, the memory supply outlook of Samsung for this year remains unchanged. The Foundry Business is increasing 10nm capacity to address demand for cutting-edge process technology. In addition, it expects to allocate sizable capex for converting part of line 11 from DRAM to image sensor production in the second half. Further, Samsung is continuously investing in flexible OLED capacity to respond to increasing demand from customers.

Semiconductor Maintains Strong Performance

The Semiconductor businesses posted KRW 8.03 trillion in operating profits on consolidated revenue of KRW 17.58 trillion for the quarter.

The Memory Business achieved solid earnings growth in the quarter thanks to continued strong demand for high-density server DRAM and SDD, despite weaker seasonal demand for mobile. Limited supply conditions also remained in the industry, which allowed for favorable supply-demand conditions and prices. For NAND, earnings were driven by expanded sales of value-added products, such as mobile products over 64GB, datacenter NVMe SSD and enterprise SSD. For DRAM, demand for differentiated products, such as high-density server products and HBM, contributed to earnings growth.
Looking at the second half outlook for NAND, Samsung expects strong industry demand from flagship smartphone launches and expansion of new datacenters, while restricted supply conditions will also remain. The company will focus on ramping up production of 64-layer V-NAND at its Pyeongtaek fab, and will seek to improve profitability by expanding sales of differentiated products such as V-NAND-based server SSDs.

As for the DRAM outlook, demand for high-density products over 64GB is expected to remain solid due to expansion of new server platforms and continued demand for datacenter servers. Mobile demand will also remain solid thanks to high-end smartphone launches. The company plans to actively respond to increasing demand by expanding 1Xnm migration, while also enhancing profitability through sales of high value-added products, such as mobile DRAM over 4GB and server DRAM over 64GB.

Turning to the System LSI Business, earnings improved QoQ due mainly to increased sales of processors for flagship smartphones and steady sales of 14nm processors for mid- to low-end smartphones. Sales of image sensors also contributed to earnings. Looking ahead, continued growth is expected thanks to stable supply of 10nm mobile processors and increased supply of OLED DDIs for flagship smartphones. Growing market adoption of dual camera solutions will also boost image sensor shipments. In the mid-to-long term, System LSI will seek to diversify its customer base and product portfolio with offerings for various applications, including IoT, automotive and VR.

As for the Foundry Business, which became independent from System LSI in the second quarter, favorable results were achieved thanks to mass production of 10nm processors for flagship smartphones and increased sales of 14nm mobile processors. Looking ahead, Samsung plans to actively respond to demand for 10nm mobile processors by expanding capacity and improving production efficiency. It will also look to maintain technology leadership by completing development of the 8nm process and preparing advanced infrastructures including EUV.

Display Panel Continues Solid Earnings

The Display Panel segment posted KRW 7.71 trillion in consolidated revenue and KRW 1.71 trillion in operating profit for the quarter driven by increased sales of premium OLED displays and high-end, large-size LCD panels.

For the OLED business, earnings improved QoQ on the back of increased shipments of premium flexible displays for flagship smartphones while the LCD business saw profitability enhanced QoQ due mainly to increased sales of high-end, large-size UHD panels amid stable ASP conditions.
Looking ahead to the second half for the OLED business, although the company forecasts increased sales of premium flexible displays, the initial costs of the new OLED production line during the third quarter is expected to weigh on profit. Growing competition from LTPS LCDs will also pose a challenge for the mid- to low-end rigid OLED segment. Samsung plans to maintain profitability by actively addressing customer demand for new products through stable ramp up of the new OLED production line.

As for the LCD business in the second half, while the company forecasts continued growth in the premium, large-size, high-resolution UHD TV panel segment, increased panel inventory of set makers amid capacity expansion in the LCD industry is expected. Samsung will focus on enhancing profitability through improved cost competitiveness and by expanding its portfolio of high-end products including ultra-large size, high-resolution, frameless and curved panels.

Mobile Division Posts Significant Increase

The IT & Mobile Communications (IM) Division posted KRW 30.01 trillion in consolidated revenue and KRW 4.06 trillion in operating profit for the quarter.

Samsung’s earnings significantly increased QoQ driven by the strong sales of the Galaxy S8 and S8+ smartphones. The Galaxy S8 and S8+ have outsold the Galaxy S7 series in almost all regions, thanks to the new Infinity Display design and enhanced features including water and dust proofing and iris recognition. The overall product mix also improved as the sales proportion of the Galaxy S8+ accounted for over 50 percent of the total Galaxy S8 series.

However, despite the strong sales performance of premium smartphones, Samsung’s total smartphone shipments remained at a similar level QoQ, due to decreased sales of mid- to low-end products.
In the second half, demand for smartphones and tablets is forecast to increase as the market enters a period of strong seasonality. However, competition is expected to intensify as new smartphone models are released by competitors. In response, Samsung will launch a new Galaxy Note with enhanced performance and features, to maintain the strong sales momentum of its premium smartphones, together with the Galaxy S8 and S8+.

For the mid- to low-end segment, Samsung will actively respond to demand from emerging markets and maintain profitability with enhanced products such as the Galaxy J series 2017 editions which are equipped with elegant metal designs, high-definition selfie cameras and specialized services such as Samsung Pay.

Looking into the third quarter, revenue and profit are expected to decline QoQ due to increased marketing expenses associated with the launch of the new Galaxy Note and the reduced launching effect of the Galaxy S8 and S8+.

Putting customer safety first and foremost, the company will continue to reinforce product competitiveness based on technological leadership and also strengthen its differentiated services across all of its products. In particular, the company will foster differentiated services by creating an open ecosystem that promotes full connectivity between key services such as Samsung Pay, Samsung Cloud, Bixby, and other third-party services, while enhancing connected services among its various product categories.

As for the Networks Business, solid revenue and profit were maintained QoQ due to increased LTE investment by major global partners in the second quarter. The company will focus on next generation network business such as IoT while continuing to expand LTE-A into major advanced markets.

Consumer Electronics Focuses on Premium Products

The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses, posted KRW 10.92 trillion in consolidated revenue and KRW 0.32 trillion in operating profit for the second quarter.

In the second quarter, overall TV market demand declined YoY, owing to heightened demand in 2016 due to major global sporting events, as well as a slowdown in the Chinese market. Although the company maintained its leading position in the premium market by increasing sales of UHD and ultra large-size TVs, profit declined YoY due to increased panel prices.

For the appliances market, overall demand showed a moderate increase due to growth in the North American market, strong demand for air conditioners in the Korean market and economic recovery in emerging markets such as Southwest Asia and CIS. Samsung maintained revenue growth thanks to increased sales of premium products such as the Wind-Free air conditioner. However, profit decreased YoY due to increased raw material costs and investments in the B2B market.

Looking to the second half, TV market demand is projected to show slight growth YoY while panel prices are expected to stabilize. Samsung will secure profitability by expanding the sales portion of premium products including UHD and ultra large screen TVs. Led by The Frame and QLED TVs, the company will solidify its premium leadership in the market. To maximize QLED TV sales, Samsung will strengthen marketing investment and implement sales promotions tailored to local markets.

As for the Digital Appliances Business, the company will strengthen its partnerships with distributors and seek to improve profitability through increased sales of premium products, including Family Hub refrigerators and FlexWash washers. In addition, Samsung will strengthen its B2B business with built-in home appliances and system air conditioners.

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