The Mobile Business posted stronger shipments on new mass market models but was overall weighed down by slower sales of flagship models and increased marketing expenses. The Network Business posted solid results on the commercialisation of 5G service in South Korea. The Consumer Electronics Division was boosted by strong sales of new appliance products and improved profitability of refrigerators and washing machines, although profits from TVs fell slightly YoY due to intensifying competition. Looking ahead to the second half, Samsung expects persistent uncertainties in the memory business, although demand is seen growing further on strong seasonality and adoption of higher-density products. For system semiconductors, higher demand in mobile APs, image sensors and display driver ICs (DDIs) is also expected to be seen.

For displays, new smartphone product launches are set to help mobile display earnings but overall sluggish demand in the broad smartphone market may limit upside potential. As competition in the smartphone market is seen increasing in the second half, Samsung plans to enhance its product line-up and expand sales of new mass market models. The Network Business will prioritise building the foundation for its global 5G business expansion. The Consumer Electronics Division expects a seasonal boost in TV sales and will focus on premium models, while offering new appliances such as Bespoke refrigerators and AirDressers.

The Company is facing challenges from uncertainties not only in business areas but also from changes in the global macroeconomic environment. Samsung will, however, continue to invest in enhancing business capabilities and future technologies, including 5G, system semiconductors, artificial intelligence and automotive components, for longer-term growth. In the second quarter, Samsung Electronics’ capital expenditure stood at KRW 6.2 trillion (R74.3 billion), including KRW 5.2 trillion (R62.3 billion) spent on semiconductors and KRW O.5 trillion (R5.9 billion) on displays. Total capital expenditure in the first half was KRW 10.7 trillion (R128.0 billion) including KRW 8.8 trillion (R105.5 billion) for semiconductors and KRW O.8 trillion (R9.5 billion) for displays. The main portion of the Company’s 2019 capex is earmarked for building infrastructure to address demand beyond 2019, and a larger percentage of this year’s investment will be made in the second half.

Semiconductor Sees 2H Demand Recovery Amid External Uncertainties

The Semiconductor Business posted consolidated revenue of KRW 16.09 trillion (R193.05 billion) and operating profit of KRW 3.4 trillion (R40.7 billion) for the quarter. Despite weak market conditions, the Memory Business saw demand for NAND and DRAM increase as mobile and storage applications continued to adopt higher-density products and as datacentre customers resumed purchasing. In the second half, demand is expected to grow although the Company sees volatility in the overall industry due to increased external uncertainties.

For NAND, demand for high-density, high value-added datacentre and mobile storage is likely to continue to grow and the market is expected to gradually stabilise from the third quarter. In SSD, deployment of high-density, high-performance products for datacentres will expand, while demand for mobile applications is expected to increase with the release of high-end smartphones with storage of more than 128GB. The Company will focus on strengthening competitiveness in the premium market and plans to mass produce 6th generation V-NAND this year.

For DRAM, overall demand is expected to increase due to seasonal effects amid external uncertainties. Server demand is expected to increase gradually as customers adjust their inventory levels and resume purchasing, while PC demand is also likely to expand. Memory demand from mobile applications is expected to show a steady increase due to the launch of new models from major customers and the trend toward high-density products. The Company plans to actively address customer demand through a flexible product mix and maintain technical leadership with the ramping up of 1Y-nm products.

For the System LSI Business, earnings were solid as demand increased for multiple cameras and high-resolution, large-pixel image sensors. The Company also increased the supply of 5G chipset solutions and continued to develop a next-generation one-chip 5G System-on-Chip for future technology leadership. In the second half, demand for mobile AP, image sensor, and DDI products is expected to grow on stronger smartphone seasonality. Looking ahead, Samsung plans to increase the supply of high value-added products including 64MP image sensors and EUV 7-nm APs and also diversify product offerings by developing 3D/fingerprint-on-display sensors and chips for automotive and IoT applications.

For the Foundry Business, results were robust on the back of strong demand from a major customer’s 8/10-nm mobile AP and image sensor products. In addition, new orders from customers increased in the 10/14-nm process and applications diversified to include mobile, HPC, automotive and network products. In the second half, earnings growth is expected to continue due to the ongoing expansion of orders for AP, image sensors and DDI as well as increased demand for HPCs, including crypto currency mining chips. The Company plans to start mass production of EUV 6-nm process and aims to strengthen its competitiveness through tape-out of the EUV 5-nm process and by completing 4-nm process development.

Display Sees Further Improvement in 2H

The Display Panel Business reported KRW 7.62 trillion (R91.42 billion) in consolidated revenue and KRW 0.75 trillion (R8.99 billion) in operating profit for the quarter, returning to a profit from the previous three-month period thanks to a one-time gain and a gradual recovery in customer demand. Mobile display earnings increased, led by higher shipments of OLED panels featuring new technologies such as fingerprint-on-display and hole display. Large display sales also saw a slight improvement from the previous quarter on demand for premium panels and reduced costs.

Looking ahead to the second half, Samsung expects a further recovery in mobile displays from stronger sales and higher production, as major customers are planning to launch new products. Demand for OLED screens is seen to grow steadily as the smartphone industry increasingly adopts slimmer displays to accommodate 5G-enabling components. Samsung will continue to incorporate more value-added features into its panels and improve production efficiency, while closely monitoring and responding to global macroeconomic uncertainties and their potential negative impact on the market.

For large displays, despite growing demand for premium TV panels, continued capacity expansion in the overall LCD industry is likely to weigh on market conditions. Samsung will continue efforts to improve profitability by focusing on premium TV panels and expanding in other applications such as monitors and Public Information Display.

Mobile to Enhance Flagship Line-up and New Galaxy A series

The IT & Mobile Communications Division posted KRW 25.86 trillion (R310.27 billion) in consolidated revenue and KRW 1.56 trillion (R18.7 billion) in operating profit for the quarter. While the overall market saw demand for smartphones decline due to the negative macroeconomic environment and seasonal weakness, Samsung’s smartphone shipments increased QoQ led by strong sales of the new Galaxy A Series, including the Galaxy A50 and A70. However, sales of flagship models fell QoQ on weak sales momentum for the Galaxy S10 and stagnant demand for premium products.

Increased costs associated with growing competition in the mid- to low- end segment and inventory adjustments of older models resulted in a drop in profit for the Mobile Business. On the other hand, earnings for the Networks Business improved thanks to the expansion of commercial 5G service in South Korea and LTE networks in overseas markets. In the second half, the overall mobile market demand is expected to remain weak due to growing uncertainties over the global economy and trade. Samsung will continue to strengthen its flagship line-up and increase sales of new mass market models. The Company will promptly respond to the changing business environment, and step up efforts to secure profitability by enhancing efficiency across development, manufacturing and marketing operations.

In the third quarter, Samsung will focus on successful launches of new innovative products – the Galaxy Note 10 and Galaxy Fold. It will enhance the 5G smartphone line-up to take the lead in the new market and introduce more competitive A series models in the second half to extend the ongoing positive momentum in mass market smartphone sales. The Network Business will continue to solidify its position in the global 5G market, leveraging its leadership in the 5G service commercialisation in South Korea and the United States.

Consumer Electronics Boosted By Digital Appliances

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 11.07 trillion (R132.82 billion) in consolidated revenue and KRW 0.71 trillion (R8.51 billion) in operating profit for the second quarter of 2019. Earnings for the Visual Display business edged down both QoQ and YoY due to intensifying price competition in the market. However, Samsung’s product-mix improved in the second quarter via early launches of new models and the expansion of premium product sales such as QLED and super-large screen TVs.

Despite negatives such as unfavourable foreign exchange rates in some emerging markets and increasingly protective global trade practices, conditions in the TV market are expected to stay largely unchanged in the second half of 2019. Samsung plans to maximise end-year sales through close cooperation with retail partners and cementing the 8K leadership by positioning QLED 8K TVs as mainstream TVs. For the Digital Appliances business, profits grew significantly YoY thanks to improvements in the profitability of key appliances like refrigerators and washing machines. Strong summer demand of air conditioners including Samsung’s Wind-Free Air Conditioner also contributed to robust sales.

Through the rest of the year, Samsung will focus on marketing new lifestyle products for consumers, such as Bespoke refrigerators and AirDressers. The Company will also continue to strengthen the B2B business which includes built-in appliances and system air conditioners.

Consolidated Sales and Operating Profit by Segment based on K-IFRS (2017~2019 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 2019
Note 4: From Q1 2017, earnings from the Health & Medical Equipment Business (HME) are excluded from the CE Division

*Oanda Conversion Rate (R1 = 0.01200) as at 31 July 2019.

The Semiconductor business saw a drop in memory chip prices as inventory adjustments continued at datacentre 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 line-up 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’s capital expenditure totaled KRW 4.5 trillion (R55.4 million), including KRW 3.6 trillion (R44.3 million) spent on semiconductors and KRW 0.3 trillion (R3.6 million) on displays.

Semiconductor Sees 2H Demand Improvement Despite Uncertainties

The Semiconductor business posted consolidated revenue of KRW 14.47 trillion (R178.2 million) and operating profit of KRW 4.12 trillion (R50.75 million) for the quarter. Overall, the Memory business saw demand for NAND and DRAM steadily weaken amid macroeconomic uncertainties, weak seasonality and inventory adjustments by datacentre 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 datacentre 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 commercialised 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 line-up 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 (R75.4 million) in consolidated revenue and KRW 0.56 trillion (R689.7 million) 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 (R335 million) in consolidated revenue and KRW 2.27 trillion (R33.5 million) 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 line-up reorganisation of mid- to low-end products. Increased expenses from adoption of high-end features, marketing and the line-up 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 line-up through innovations such as Galaxy S10 5G and Galaxy A80 and continued reorganisation 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 commercialisation 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 (R128 million) in consolidated revenue and KRW 0.54 trillion (R665 million) 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

Source: Oanda Conversion Rate (R1 = KRW81.2) as at 2 May 2019.

For 2018, Samsung reported KRW 243.77 trillion (R3.156 trillion) in revenue and KRW 58.89 trillion (R762.63 billion) 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 centres 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 prioritise 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 are 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 (R380.73 billion), with KRW 23.7 trillion (R306.92 billion) allocated to semiconductors and KRW 2.9 trillion (R37.55 billion) 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 (100.62 billion) 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 commercialise 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 stabilise the business structure.

Display to Improve Profitability with Differentiated Products

The Display Panel Business reported KRW 9.17 trillion (R118.75 billion) in consolidated revenue and KRW 0.97 trillion (R1.256 billion) 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. In order 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 (R301.99 billion) in consolidated revenue and KRW 1.51 trillion (R19.55 billion) 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 reorganisation. This reorganisation 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 optimised 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 (R15.27 billion) in consolidated revenue and KRW 0.68 trillion (R88.60 billion) 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

*Oanda Conversion Rate (R1 = KRW77.2) as at 31 December 2018.

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 (R1 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 (R318 billion) and operating profit of KRW 13.65 trillion (R176 billion) 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 Internet of Things (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 (R129 billion) in consolidated revenue and KRW 1.10 trillion (R14 billion) 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 (R320 billion) in consolidated revenue and KRW 2.22 trillion (R28 billion) 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 (R131 billion) in consolidated revenue and KRW 0.56 trillion (R7 billion) 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 pre-emptively 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 line-up 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}

*Conversion rate (R1 = KRW77.7)

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 (R4.7 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 centres 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 nanometre 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 (YoY) and quarter-on-quarter (QoQ), 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 nanometre-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 trillion (R94 billion), including KRW 6.1 trillion (R71.7 billion) for the Semiconductor Business and KRW 1.1 trillion (R12 billion) for the Display Business. It brings the total spent in the first half of 2018 to KRW 16.6 trillion (R195.3 billion).

Semiconductor to see Continued Strong Demand in Second Half

The Semiconductor Business posted consolidated revenue of KRW 21.99 trillion (R94 billion) and operating profit of KRW 11.61 trillion (R136.6 billion) for the quarter. The memory business achieved strong results despite weak seasonality, as overall demand growth was solid, driven by servers for data centres.

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 centre 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 centres 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 centre 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 build-up for game consoles. Samsung will focus on strengthening product competitiveness via continuous expansion of 10 nanometre-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 centres 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 (R131.5 billion) in 2018, following sales of USD 9.8 billion (R128.8 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 (R66.7 billion) in consolidated revenue and KRW 140 billion (R1.6 billion) 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 (R31.4 billion) 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 to be 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 (R122.3 billion) in consolidated revenue and KRW 510 billion (R6 billion) 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.

*Conversion Rate

$1 = R13.14

KWN 1 = R0.01

Total revenue grew approximately 20 percent year-on-year (YoY) to KRW60.6 trillion (R695.5 billion). Operating profit for the quarter was a record high, posting an increase of KRW5.7 trillion (R65.4 billion). 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.

In 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 line-up 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 quarter-on-quarter (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 KRW8.6 trillion (R98.7 billion) including KRW7.2 trillion (R82.6 billion) for the Semiconductor Business and KRW800 billion (R9.1 billion) for the Display Panel segment.

Samsung has not yet finalised 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 KRW11.55 trillion (R132.5 billion) in operating profit on consolidated revenue of KRW20.78 trillion (R238.5 billion) for the quarter.

Overall, the Memory Business achieved strong earnings, despite weak seasonality, thanks to a continuation of favourable 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 $10 billion (R124.2 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 KRW7.54 trillion (R86.5 billion) in consolidated revenue and KRW410 billion (R4.7 billion) 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 unfavourable 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 KRW28.45 trillion (R326.5 billion) in consolidated revenue and KRW3.77 trillion (R43.2 billion) 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 KRW9.74 trillion (R111.8 billion) in consolidated revenue and KRW280 billion (R3.2 billion) 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 line-up, the company maintained its leading position in the premium TV market by continuing to achieve high market share in the $2,500 (R31,050) 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.}

^{*Conversion rate (R1 = KRW87.12)}

Fourth quarter earnings were driven by the components business, with the largest contribution coming from the Memory business that manufactures DRAM and NAND, as orders for high-performance memory products for servers and mobile storage were strong. However, weak seasonality impacted growth for the System LSI and Foundry businesses. The Display Panel business, which manufactures OLED and LCD screens, saw increased shipments of OLED panels for premium smartphones, but profitability for LCD panels decreased due to weak seasonality, which dampened sales and ASP.

For the IT & Mobile Communications Division (IM), earnings in the mobile business declined due to a hike in marketing costs under strong seasonality. Total smartphone shipments decreased due to the line-up optimization of low-end models, while shipments of flagship products, such as the Galaxy Note 8, increased from the previous quarter. In the network business, customers’ LTE investments concentrated in the first half, resulting in the weak earnings in the second half.

The Consumer Electronics Division, comprising of the TV and home appliances businesses, posted gains for the quarter. TV earnings increased quarter-on-quarter (QoQ) on increased sales of premium products including ultra large-size and QLED models. For home appliances, demand for high-end washing machines and ovens in North America and Europe was responsible for stronger revenue on a year-on-year (YoY) basis.

As indicated in Samsung’s preliminary earnings announcement in early January, operating profit was affected by the appreciation of the Korean won against the US dollar and other major currencies, with the impact amounting to approximately KRW 660 billion (R7.3 billion) QoQ. A one-off incentive paid to employees of the semiconductor division also affected earnings.

Looking ahead, the first quarter, despite being a traditionally slow season, is expected to show strong demand for memory products used in datacentres. Shipments of System LSI products are forecast to pick up, as orders for APs and image sensors for flagship devices are expected to improve.

The Display Panel business in the first three months of the year is likely to face challenges such as intensified competition from LTPS LCD vendors and seasonally weak LCD demand. In spite of this, Samsung will try to improve profitability by increasing the high-end LCD portion of screens and enhancing productivity of flexible OLED panels, among other measures.

In the first quarter, the company expects the mobile business to improve its earnings, led by an increase in sales of flagship products with the launch of Galaxy S9. Samsung’s TV business will be affected by weak seasonality, but is aiming to be profitable by expanding sales of premium products and pushing for the early release of new models. Meanwhile, the Digital Appliances Business will focus on achieving growth by increasing sales of premium products and strengthening marketing.

In 2018, demand for NAND is likely to remain strong and market conditions are forecast to be stable. Samsung will expand 64-layer V-NAND production mainly at its Pyeongtaek plant. As for DRAM, the company expects solid demand growth due to new datacentre builds and will increase product competitiveness by expanding 10nm-class process migration. As for Foundry, Samsung will lead the technological process leadership with a risk production of 7-nano.

For the Display Panel business in 2018, the company expects OLED to become a mainstream panel in the smartphone industry and will reinforce its competencies in new applications such as foldable, automotive and IT displays. In the case of LCD panels, it will focus on meeting the market’s needs for ultra large-size and high-resolution TVs and strengthening partnerships with strategic customers.

For Mobile in 2018, the company will pursue earnings growth by increasing premium products sales and maintaining profitability of mid-range to low-end products. The Networks Business plans to expand the supply of network solutions for 5G commercialization to major markets including Korea, the U.S. and Japan.

For the CE Division this year, sales of ultra large-size TVs will continue to grow as the global market gears up for major international sporting events, including the FIFA World Cup and Winter Olympics. The Digital Appliances Business is expected to improve earnings by expanding its B2B business and online sales.

Total capital expenditure (capex) executed in 2017 was KRW 43.4 trillion (R480 billion). Investment in the display panel segment reached KRW 13.5 trillion (R149 billion), while the Semiconductor business was accountable for KRW 27.3 trillion. The total was up significantly YoY because of investments in the Pyeongtaek plant and efforts to address demand for the foundry business and flexible OLED panels. Samsung’s capex plan for 2018 has yet to be finalized, but we expect the total amount to decrease on a YoY basis.

Looking at the mid to long term, Samsung expects the components business to see demand expand from new applications. For the set business, the company expects to enjoy increased opportunities mainly related to software, connected devices, and services based on AI/IoT platforms.

In semiconductors, as demand for high-density memory products for cloud servers and for chipsets required for automotive electronics and AI is expected to increase, Samsung will boost its technology competitiveness with cutting-edge processes and solutions with next-generation packaging.

The OLED panel business will strengthen its competitiveness in the premium segment with the release of foldable panels, and focus on expanding new applications in areas such as automotive electronics by capitalizing on its technology and cost competitiveness.

As for the Mobile business, Samsung will continue its efforts to differentiate its smartphones by adopting   cutting-edge technologies, such as foldable OLED displays. It will also drive forward new businesses related to AI/IoT by strengthening the ecosystem based on Bixby and building on Samsung’s 5G technology.

The CE Division will bolster its leadership in the TV market by applying new technologies, such as 8K and Micro LED. Samsung will also improve the connectivity and usability of home appliances by expanding the application of Bixby.

Semiconductor Maintains Strong Earnings

The Semiconductor businesses posted KRW 10.90 trillion (R120 billion) in operating profits on consolidated revenue of KRW 21.11 trillion (R233 billion) for the quarter.

The Memory Business achieved strong earnings amid favourable market conditions. For NAND, overall demand was strong due to strong seasonality for mobile, particularly high-density mobile products, as well as solid growth for server SSD. Samsung strengthened profitability and posted solid earnings by promptly responding to strong demand for higher-density and value-added memory products for newly launched mobile models and server SSD. For DRAM, demand for all applications increased QoQ amid peak seasonality. Server demand remained solid due to cloud expansion, new datacentres and higher-density trends. Mobile demand also remained strong thanks to increasing set numbers and content growth, mainly from new flagship model launches. The company posted improved earnings by meeting demand for differentiated products, such as high-density server DRAM over 64GB and low-power LPDDR4X, and by flexibly managing its product mix.

Looking at the first quarter outlook for NAND, server SSD demand from major cloud providers is expected to remain strong despite weak seasonality and the high-density trend from high-end smartphones is likely to continue. Therefore, overall demand is expected to remain steady QoQ. On the supply side, supply is forecast to be limited despite industry expansion of 64-layer products. Samsung will focus on accelerating 64-layer transition and strengthening product differentiation via its V-NAND-based solutions. For 2018, stable market conditions and strong demand are anticipated and the company will focus on mass production of V-NAND while strengthening technology leadership through a ramp-up of the next generation product after 64-layer.

As for the DRAM outlook in the first quarter, datacentre demand is expected to offset slow seasonality. Mobile demand is likely to decrease under the weak seasonal effect. However, the decline is likely to be less than it was in the previous year thanks to demand for high density at the high-end and content growth at the low-end. Samsung will focus on continuing its flexible product mix strategy and strengthening cost competitiveness through expansion of 1xnm process migration. For 2018, continued demand for servers is expected due to new datacentre builds and increasing memory usage. Mobile demand is also expected to grow due to increasing requirements for high performance games, on-device AI and hardware upgrades such as dual cameras. Samsung will look to enhance cost competitiveness through 10nm-class migration and expanding sales of high-density server DRAM.

For the System LSI Business, earnings slowed as sales of mobile processors and image sensors decreased under weak seasonality. In the first quarter, Samsung will seek to ramp-up production of mobile processors for premium phones and expand sales of high-valued-added 3-stack Fast Readout Sensors (FRS). In 2018, demand for image sensors is expected to grow as smartphone vendors increase adoption of dual camera and 3-stack FRS. The company aims to post solid earnings by increasing mobile processor sales and expanding offerings to IoT, VR and automotive applications.

For the Foundry Business, earnings decreased on weak seasonality. That said, sales in China increased as the company secured new customers. In the first quarter, earnings are expected to rise on the ramp-up of 2nd generation 10nm process products for this year’s flagship smartphones and growing demand for cryptocurrency mining chips. In 2018, Samsung will provide 8nm and 11nm processes to meet customers’ needs and start a risk production of 7-nano. In addition, we will increase its mass production capabilities at the new S3 and S4 lines for various products including mobile processors and image sensors.

Display Posts Quarterly Growth

The Display Panel business posted KRW 11.18 trillion (R123 billion) in consolidated revenue and KRW 1.41 trillion (R15 billion) in operating profit for the fourth quarter. Despite decreased revenue from LCD panels due to lower ASPs under weak seasonality, total earnings for the display business grew QoQ, driven by increased shipments of OLED panels for flagship smartphones.

In 2018, OLED is expected to become the mainstream panel in the smartphone market, specifically in the high-end segment. Samsung will make efforts to actively address customers’ demands and differentiate its technology over LTPS LCD, as well as seeking new growth engines.

As for LCD in 2018, while the company foresees market uncertainties due to intensified competition, Samsung will strive to solidify its position by offering differentiated products based on its technology leadership. Moreover, Samsung will reinforce its strategic partnerships and expand the sales of value-added products.

Looking to the first quarter, the OLED business is likely to be affected by declining demand due to weak seasonality and by intensifying competition with LTPS LCD in the smartphone market. To secure profitability, Samsung will focus on product line-ups for flagship smartphones and expand its customer portfolio. In addition, the company will improve the productivity of flexible OLED panel manufacturing.

For LCD in the first quarter, even though a decline in LCD demand is expected under weak seasonality, the company forecasts stable utilization thanks to rising demand for large-sized and high-resolution TVs led by major sporting events in the first half. Samsung will also focus on cost reduction and yield improvement as well as expansion of value-added products such as UHD, large-sized and Quantum Dot products to enhance its profitability in response to market conditions.

Mobile Sees Strong Flagship Sales

The IT & Mobile Communications Division posted KRW 25.47 trillion (R282 billion) in consolidated revenue and KRW 2.42 trillion (R26 billion) in operating profit for the fourth quarter.

While total smartphone shipments decreased compared to the last quarter, mainly in mass smartphones, sales of flagship models such as Galaxy Note 8 increased. Mobile business earnings decreased due to an increase in marketing cost amid strong seasonality.

Looking ahead to 2018, demand for smartphones is expected to rise thanks to growing replacement demand for premium smartphones. In order to expand the sales of premium smartphones, Samsung will strengthen product competitiveness by differentiating core features and services, such as the camera and Bixby and reinforce the sell-out programs and experiential stores. In addition, Samsung plans to continue optimizing its mid- to low-end line-up and enhancing productivity in order to achieve qualitative growth of the smartphone business.

In the first quarter, amid forecasts for weak demand for smartphones and tablets due to low seasonality, the company expects to increase its smartphone shipments backed by the newly launched Galaxy A8 and A8+ and upcoming release of the Galaxy flagship, which will launch next month. Both sales and operating profit are expected to grow QoQ due to the rise in ASP.

For the Networks Business, the second half of 2017 saw weak earnings following the completion of LTE investments from its major overseas partners in the first half. Samsung aims to strengthen its business foundation by supplying LTE base stations, mainly in North America, in the first quarter. For 2018, the company will focus on continuing to expand the supply of 5G-ready network solutions into major markets, including Korea, the U.S. and Japan.

Consumer Electronics to Focus on Premium Products

The Consumer Electronics Division, including the Visual Display and Digital Appliances businesses, posted KRW 12.72 trillion (R140 billion) in consolidated revenue and KRW 0.51 trillion (R5 billion) 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 holiday season, but the market declined YoY due to lower demand in North America, China and the Middle East. Under these circumstances, earnings slightly declined YoY due to the company scaling back on its mid-range to low-end product line-up and lower product prices from intensified competition. However, earnings improved QoQ thanks to solid sales of premium products during the year-end peak season.

As for the TV market in 2018, demand for ultra-large screen and premium TVs is expected to grow led by major sporting events. As the premium market continues to expand, the company will aim to strengthen its new line-up, including ultra-large screen QLED TVs as well as 8K TVs, and bolster marketing activities. Also, Samsung will provide new experiences and add value by applying Bixby and SmartThings to its TVs.

In the first quarter, TV demand is expected to decline both YoY and QoQ under weak seasonality. Nevertheless, Samsung will aim to strengthen its market leadership in the premium segment by expanding premium product sales and bringing new products to market earlier.

For the Digital Appliances Business in the fourth quarter, the market saw moderate YoY gains due to continued growth in North America and economic recoveries in Europe and CIS. The business’s revenue grew YoY thanks to strong sales of premium products, including the FlexWash washing machine and the Flex Duo with Dual Door oven, in advanced markets. However, an increase in material costs and B2B investments in North America weighed on profit.

Looking ahead, in 2018, Samsung will focus on new growth by strengthening its B2B business and expanding distribution channels including online ones. In the first quarter, the company will expand its premium line-up – with products such as the new Family Hub refrigerator and washing machines with QuickDrive technology – and reinforce global marketing activities.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2016~2017 4Q)

*KRW 1 = R0.01107

** Consolidated Sales and Operating Profit by Segment based on K-IFRS (2016~2017 4Q)

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.

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 year-on-year and quarter-on-quarter 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 quarter-on-quarter 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 is towards higher density chips and a continuation of favourable 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, quarter-on-quarter 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 quarter-on-quarter due to the higher sales of mid- to low-tier models.

Samsung’s TV business saw significant improvements in quarter-on-quarter 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 a 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 strive 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 QuickDrive^TM 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. Looking at 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 to seek 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 optimising 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 KRW9,96 trillion (R1 trillion) in operating profits on consolidated revenue of KRW19,91 trillion (R2,1 trillion) for the quarter.

The Memory Business achieved strong earnings for the quarter. This is due to strong demand from all applications amid solid supply and demand conditions. For NAND, while overall demand remained solid following 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 maximising 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 a strong continued demand for high-density mobile products and expansion of datacenters respectively. In response, the company will pursue a more profit-focused product mix. Looking ahead to 2018, the trend towards 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 content 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 by the Foundry Business, thanks to increased sales of 10-nano mobile products benefiting from stabilised 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 KRW8,28 trillion (R888 billion) in consolidated revenue and KRW97 billion (R1 billion) 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 quarter-on-quarter. However, quarter-on-quarter 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. Considering 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 KRW27,69 trillion (R2,99 trillion) in consolidated revenue and KRW3,29 trillion (R356,432 billion) 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 quarter-on-quarter 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 quarter-on-quarter 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 material costs. The company will strive to enhance leadership in the premium segment and to improve profitability through optimising 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 due to a decline in LTE-related investment from global clients. Looking to 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 KRW11,13 trillion (R1,2 trillion) in consolidated revenue and KRW44 billion (R47 billion) in operating profit for the third quarter.

Despite lower demands from advanced markets, significant improvements in quarter-on-quarter 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, year-on-year 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 year-on-year 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 QuickDrive^TM 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)

* Notice: Details about Samsung Electronics’ capital expenditure and shareholder returns will be made available when disclosures have been filed with the nation’s financial regulator before the 3Q earnings conference call.

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.

In the second quarter, the components businesses drove significant earnings growth, both year on year and quarter on quarter, 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 quarter on quarter.

The Memory Business posted significant earnings growth, both year on year and quarter on quarter, 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 quarter on quarter with the help of increased shipments of flexible displays for premium smartphones. LCD panels enhanced profitability quarter on quarter 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 quarter on quarter with the global rollout of the Galaxy S8 and S8+. However, the operating profit margin declined slightly year on year 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 year on year.

Regarding Harman’s earnings in the quarter, it registered solid results from operations with ZAR 25,3 billion (USD 1.9 billion) in sales and around ZAR 2,7 billion (USD 200 million) in operating profit. However, with costs associated with the acquisition, net operating profit was approximately ZAR 66.6 million (USD 5 million). Samsung expects such costs to continue to impact Harman’s results by an average of ZAR 1,3 billion (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 quarter on quarter 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 the 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 ZAR 149.9 billion (KRW 12.7 trillion), including ZAR 88,5 billion (KRW 7.5 trillion) for the semiconductor business and ZAR 53,1 billion (KRW 4.5 trillion) for the display segment. Although the capex plan for 2017 has not been finalised, 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 ZAR 94,8 billion (KRW 8.03 trillion) in operating profits on consolidated revenue of ZAR 207.6 billion (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 the 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 quarter on quarter 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 ZAR 91 billion (KRW 7.71) trillion in consolidated revenue and ZAR 20.2 billion (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 quarter on quarter on the back of increased shipments of premium flexible displays for flagship smartphones while the LCD business saw profitability enhanced quarter on quarter 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 to show 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 ZAR 354.3 billion (KRW 30.01 trillion) in consolidated revenue and ZAR 47.9 billion (KRW 4.06 trillion) in operating profit for the quarter.

Samsung’s earnings significantly increased quarter on quarter 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 quarter on quarter, 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 quarter on quarter 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 quarter on quarter 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 ZAR 128,9 billion (KRW 10.92 trillion) in consolidated revenue and ZAR 3,8 billion (KRW 0.32 trillion) in operating profit for the second quarter.

In the second quarter, overall TV market demand declined year on year, 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 year on year 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 year on year 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 year on year while panel prices are expected to stabilise. 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 maximise 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.

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About Samsung Electronics Co., Ltd.

Samsung inspires the world and shapes the future with transformative ideas and technologies. The company is redefining the worlds of TVs, smartphones, wearable devices, tablets, digital appliances, network systems, and memory, system LSI and LED solutions. For the latest news, please visit the Samsung Newsroom at http://news.samsung.com.

* Notice: Details about Samsung Electronics’ capital expenditure and shareholder returns will be made available when disclosures have been filed with the nation’s financial regulator before the 2Q earnings conference call.

※ 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.