JOHANNESBURG, South Africa – 16 August 2022 – When Samsung entered South Africa at the dawn of democracy; it placed a great focus on harnessing the power of technology and innovation to effect great positive change in the country. Inspired by the transformative power of economic investment that took South Korea from one of the poorest countries in the world to one of the most successful economies, Samsung South Africa has made incredible strides forward in its long-term vision for the country. This is  reflected in the company’s continued investment in the country coupled with its Level 1 – BBBEE Rating, which is aligned with Samsung’s dedication to remain an active contributor to the future of the South African economy and strong supporter of economic transformation.

With this long-term vision in mind, Samsung’s Global CEO, Jong-Hee Han, was in South Africa at the end of last week to access the company’s South Africa and Africa business operations. Although this was Mr. Han’s fifth visit to the country, it was the first one since he became Samsung’s global CEO. During Mr. Han’s visit, he also met  with  the Minister of Trade, Industry and Competition, Mr. Ebrahim Patel as well as the Minister of International Relations and Co-operation, Dr Naledi Pandor to discuss Samsung’s long-standing partnership and collaboration with the South African government as well as possible future opportunities for growth and further investment.

The company has embarked on many empowerment, entrepreneurial and skills-based projects in the ICT sector in which it operates in. Samsung’s aim is to build on the landmark multimillionaire Equity Equivalent Investment Programme (EEIP), which is already celebrating over three years of sustained success. Launched in May 2019 in partnership with the Department of Trade, Industry and Competition (DTIC) and sector support from the Department of Communications and Digital Technologies (DCDT), the programme is expected to have a measurable impact on job creation with a projected contribution of over a billion rands to the South African economy at large. Samsung’s 10-year plan aims to address key developmental aspects linked to the National Development Plan and the overall transformation of the economy.

Samsung’s EEIP programme is aligned to the DTIC’s Black Industrialisation programme through e-Waste recycling & beneficiation, which has seen an investment in two black, female-owned entities who now operate in the full value chain of e-Waste. It also has a strong focus on enterprise development and capacity building in ICT through scarce skills development. In addition, Samsung is developing 4IR skills in partnership with a number of institutions of higher learning in South Africa.

South African youth are gaining artisanal and electronics skills through the Samsung Engineering Academy programme as well as coding, software development, IOT and artificial intelligence skills through the Samsung Innovation Campus programme. Additionally, learners in grades 10 & 11 will be encouraged to solve social issues in their communities though Samsung’s Solve for Tomorrow STEM competition, which is being piloted in 51 schools across the country.

Mr. Han also discussed South Korea’s Busan World Expo 2030 bid  with both Ministers with the view of getting support locally for the bid. Importantly, World Expo’s are focused on creating a better future for all humankind and therefore fit perfectly into Samsung’s vision for the upliftment of humanity through technology and innovation. Samsung believes the World Expo being hosted in Busan during the 2030 edition would be the perfect platform to share its technological advancements and how it views technology as the main catalyst for an eco-friendly and green future in line with the United Nations’ Sustainable Development Goals Ultimately, as part of a global community, these ongoing collaborations are designed to make a difference to all people.

For 2019, Samsung reported 2.839 trillion in revenue and R342.19 billion in operating profit.

Fourth quarter profit dropped from a year earlier due to the continued fall in memory chip prices and weakness in display panels. Improving demand for memory used in servers and mobile products, as well as solid sales of flagship smartphones, helped ease the decline in overall earnings.

The Memory Business reported a year-on-year decline in profit as DRAM prices continued its downward trend despite rising shipments. However, earnings increased from the previous quarter, underpinned by increasing demand from data centers and other major applications as well as cost reduction. The logic chip business posted a YoY profit growth on demand for high-resolution image sensors and HPC (high performance computing) chips.

The Display Panel Business suffered weak demand for some premium mobile screens and saw widened losses from the large panel business.

Quarterly earnings improved significantly for the Mobile Business in annual terms, thanks to solid sales of flagship Galaxy smartphones and lineup changes to improve profitability for mass-market models. Profit fell from the previous quarter, however, due to the fading effect from a new flagship product launch.

The Consumer Electronics Business also reported a YoY increase in earnings, led by growing sales of premium products including QLED TVs and new appliance offerings.

In the first quarter of 2020, the Company expects weak sales from seasonality in memory chips, OLED and consumer electronics.

The seasonal effects will likely limit profits in the Memory Business while the outlook is also negative for the Display Panel Business due to slowing demand.

First quarter profit from the Mobile Business is seen steady quarter-on-quarter, as new flagship and foldable models will improve sales but incur additional marketing costs.

Looking ahead to 2020, Samsung expects improvements in overall business performance but also sees continued uncertainties in the global business environment.

Memory market conditions will likely improve gradually thanks to increasing demand from data center companies and 5G smartphone adoption. However, the actual pace of 5G expansion and its effects on DRAM content remain to be seen. The Company expects inventory to return to levels seen in previous years within the first half of this year and will focus on transitioning to the next-generation chip production; 1Z-nm DRAM process and 6th-generation V-NAND.

The System LSI Business will offer differentiated 5G System-on-Chip products and high-resolution sensors. The Foundry Business plans to expand production from the 5nm and 7nm EUV (extreme ultraviolet lithography) processes while working on developing next-generation 3nm GAA (gate-all-around) technology. In Displays, Samsung will prioritise on responding to growing adoption of OLED and folding screens.

The Mobile Business aims to improve profits by expanding sales of premium models, such as the enhanced 5G lineup and new foldable devices. The Network Business will focus on addressing the global 5G market as its Korean business is set to shrink following last year’s nationwide 5G adoption.

In the Consumer Electronics Division, the Company will seek to increase sales of QLED 8K TVs and launch new premium appliances such as Bespoke and new lifestyle models.

Samsung Electronics’ capital expenditure in 2019 totaled at R331.47 billion, including R278.48 billion spent on semiconductors and R27.10 billion on displays. In 2020, the Company will be flexible in capex execution to meet changing demand from markets, while continuing investment in infrastructure and mid- to long- term business opportunities.

Weakness Looms After Semiconductor Demand Rises in Fourth Quarter

The Semiconductor businesses posted R206.89 billion in consolidated revenue and R42.51 billion in operating profit in the fourth quarter. The Memory Business saw solid market demand in the fourth quarter, led by growing demand from server customers. Demand for major applications like those related to 5G network expansions also contributed to gains. On a quarterly basis, earnings improved on cost reduction from process migration and increased sales of differentiated products.

The Company also exceeded its shipment volume guidance for the fourth quarter on proactive responses to demand for all applications.

In the case of DRAM, server demand increased primarily centered on high-density products as datacenters, as well as customers in China boosted orders as a result of new CPU adoption. For mobile, the growing sophistication of mid-to-high end smartphones drove up content per handset in addition to positives linked to 5G network expansions. For PC, negative issues like a CPU shortage were offset by an increase in set-builds at OEM customers, keeping purchasing demand solid.

For NAND, demand was higher than expected thanks to new smartphone launches generating orders for high density models. Increased demand for SSD from server applications also helped performance.

In the first quarter of 2020, overall DRAM demand is seen softening on seasonal effects, although some purchases for mobile and server applications will remain relatively solid. The Company aims to reinforce its cost competitiveness by expanding node migration to 1Y-nm-scale products and utilising its flexible product mix to respond to demand for high density products.

Also in the January-March period, NAND prices are expected to keep rising mainly on server demand as the market stabilises. To boost profitability and competitiveness, the Company plans to accelerate the migration process to 6th generation V-NAND in the first half of 2020.

In 2020 on a whole, server demand for DRAM is seen solid on the back of increased investments by data centers. For mobile, the pace of 5G expansion and its effects should be monitored closely but the Company sees demand picking up around mass-market models as major manufacturers expand their 5G smartphone lineups. Construction of 5G networks in China will also drive demand for consumer products this year.

In the case of NAND, server SSD demand from data centers is expected to continue growing this year while the expansion of 5G networks may reinforce the high-density memory demand for mobile devices. The Company also expects new demand from applications such as gaming and automotive.

Meanwhile, earnings for the System LSI Business declined on-quarter as the peak season for mobile handsets faded. In the first quarter of 2020, the Company plans to maximise shipments of major components like APs, image sensors and DDIs adopted by Samsung’s major customers for new flagship smartphones.

In 2020, the System LSI Business plans to expand its 5G chip business by promoting one-chip solutions for mass-market devices. Demand for image sensors is seen rising in 2020 on intensifying competition for better camera specs.

Lastly, the Foundry business saw solid results in the fourth quarter on 5G chips and high-resolution image sensors. Earnings were also helped by demand for HPC chips from Chinese customers. This year, revenue growth is expected to climb and reach double-digits on mass production of 8nm computing chips and demand for 5G related chips.

In 2020, the Company plans on completing the product design for the 4nm process and a number of 5nm-based product designs in order to diversify its customer base and expand applications using Samsung products.

As Earnings Suffer, Display Business to Focus on Securing Profitability

The Display Panel Business posted R99.19 billion in consolidated revenue and R2.71 billion in operating profit for the fourth quarter. Overall display earnings decreased QoQ due to weak performance across the business.

Mobile display earnings saw profit decline because of a higher cost burden caused by lower fab utilisation amid weaker demand for some premium products. Large displays suffered a bigger loss from a continued decline in LCD panel prices.

Looking ahead to the first quarter of 2020, Samsung expects a further drop in mobile displays earnings due to weak demand from some customers. The Company will strive to enhance profitability by offering more panels with distinct designs, expanding its IT product customer base and strengthening price competitiveness.

Large displays are likely to stay in the red owing to stagnant sales amid weak seasonal effects.

In 2020, for the mobile display business, demand for OLED screens is forecast to grow with wider adoption of 5G smartphones despite intensified competition. The Company will make efforts to expand sales and boost utilisation with a broader customer base and stronger product competitiveness. Especially, Samsung will seek to actively address demand for new applications such as foldable devices and other IT products.

For large displays, weak earnings are likely to continue this year as panel oversupply persists and conversion efforts for next-generation QD-Display production incur costs. The Company will focus on securing profitability by expanding sales of value-added products such as ultra-large and 8K TV panels and premium monitor panels.

Mobile To Focus On New Flagship and Foldable Models

The IT & Mobile Communications Division (IM) posted R307.44 billion in consolidated revenue and R31.05 billion in operating profit for the fourth quarter of 2019.

While overall demand for smartphones and tablets increased QoQ as a result of year-end seasonality, revenue for the Mobile Business decreased QoQ as the effect from new flagship model launches faded. However, the profit drop was capped by effective use of marketing expenses for the holiday season and as the profitability of major smartphones including the Galaxy A series held steady.

Looking ahead to the first quarter, weak demand is seen for smartphones and tablets due to low seasonal demand. In these circumstances, Samsung expects smartphone revenue to rise on improved product mix with the launch of new flagship models and foldable smartphones. However, operating profits are expected to remain flat due to higher marketing expenses used to boost flagship smartphone sales.

For the whole of 2020, while demand for 5G smartphones is expected to increase, market competition is also forecast to intensify as manufacturers increasingly adopt high performance components including APs, memory and cameras. In response, the Company plans to differentiate its premium smartphones by expanding 5G adoption and introducing new designs for foldable products.

Furthermore, Samsung will expand its 5G product portfolio and strengthen product competitiveness of mass-market smartphones by quickly adopting innovative technology based on market needs. With these efforts, the Company aims to improve earnings YoY by expanding sales of premium smartphones and enhancing the competitiveness of its mid- to low-end lineup.

As for the Network Business, while total revenue in the fourth quarter decreased QoQ as 5G network adoption in South Korea was concentrated in the first half, 5G revenue increased in overseas markets, including the United States and Japan. For 2020, although 5G business in the domestic market is expected to decline YoY, Samsung will expand 5G network solutions in overseas markets by solidifying its core competencies and increasing cooperation with major business partners.

Premium TVs and Appliances Shine in Fourth Quarter; Risks Mixed Ahead

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded R156.61 billion in consolidated revenue and R9.981 billion in operating profit for the fourth quarter of 2019.

In the fourth quarter, earnings for the Visual Display Business improved both QoQ and YoY on the back of successful promotion efforts during the year-end peak season. Sales of QLED TVs and TVs with 75-inches-and-above screens were especially notable, showcasing an improved product mix for the Company.

In particular, QLED TV sales in the fourth quarter exceeded twice the amount sold in the same period a year ago.

However, the Company forecasts market demand in the first quarter to decline QoQ following the year-end peak season, and also YoY due to weaker demand in developed markets.

In 2020 on a whole, the global TV market faces geopolitical risks, but global TV demand is expected to climb thanks to sports events like the UEFA European Football Championship and the Summer Olympic Games.

For the Digital Appliance Business in the fourth quarter, earnings rose on increased demand in emerging markets including India. Revenue and profit both improved YoY as sales of premium products like the Bespoke refrigerator and large dryers grew.

Samsung plans to continue launching new lifestyle digital appliances and premium products to seek growth in the first quarter. For the whole year, the Company sees uncertainties from global economic sluggishness but will aim to offset risks through the expansion of its premium lineup and more B2B opportunities.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2017~2019) – (Table)

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

Third quarter profit fell sharply from a year earlier but improved from the previous quarter, as stronger smartphone sales and improved utilization in mobile OLED screens were weighed down by continued weakness in the memory chip market.

Both the U.S. dollar and euro strengthened against the Korean won, resulting in about KRW 0.4 trillion (R5.2 billion) in positive effects toward quarterly operating profit, mainly in the component business.

Earnings from the Memory Business slumped significantly year-on-year as memory chip prices continued its downward trend amid the industry-wide weakness since the end of 2018. The logic chip business saw demand rise for image sensors and display driver ICs (DDIs), but also suffered from price declines in mobile application processors (APs).

The Display Panel Business saw a profit from mobile displays increase YoY with solid sales of OLED screens, improved capacity utilization and reduced costs. However, losses continued in the large panel business due to ongoing capacity expansions in the broader industry.

In the Mobile Business, strong sales of the Galaxy Note 10 and A series boosted profit, along with improved margins for mass-market models. The business also expanded its 5G product offerings and launched the Galaxy Fold, demonstrating Samsung’s technology leadership. Meanwhile, the Network Business reported higher earnings YoY on growing commercialization of 5G service in Korea.

The Consumer Electronics Division posted a YoY decline in profit from the TV business amid pricing pressure from intensifying competition, despite growing shipment of premium models such as QLED and ultra-large size TVs. Earnings from home appliances rose on increased sales of premium products.

Looking ahead to the fourth quarter, the Company expects demand for components to turn sluggish in general amid weak seasonal effects, while marketing expenses are likely to increase to address year-end smartphone sales.

Memory chip demand is seen rising slightly quarter-on-quarter on the back of inventory building by customers in response to global macroeconomic uncertainties. Mobile displays will likely report weaker results in the fourth quarter, as demand falls short of initial expectations for certain premium smartphones and costs increase due to lower utilization in some production lines. Large panel prices are also likely to continue declining.

The Company expects fourth-quarter earnings in the Mobile Business to decrease QoQ as marketing costs are set to rise and shipments to decline slightly, with flagship model sales weakening from their post-launch peaks. The Consumer Electronics Division will likely log stronger earnings helped by year-end seasonal demand.

For 2020, Samsung expects growing sales in 5G products and foldable devices; the logic chip business is forecast to report accelerated growth as it expands mass production of next-generation extreme ultraviolet lithography (EUV) based products.

However, uncertainties linger over the memory chip market as demand is seen recovering but risks from global industry circumstances persist. As Samsung plans to manage investment and capacity operation flexibly depending on market conditions, DRAM inventory is expected to normalize in the first half of 2020. The Company also remains committed to investments to meet demand in the mid-to-long term.

The System LSI Business will introduce differentiated 5G System-on-Chip products and high-resolution sensors, while the Foundry Business will seek to diversify its client base and expand production from the 5nm and 7nm EUV processes.

In Displays, Samsung plans to leverage its leadership in mobile screens, offering power-efficient and slimmer products to capture demand from 5G and other premium products. It will also transform its large panel business to focus on quantum-dot (QD) displays, with the existing LCD business addressing value-added products such as ultra-large and 8K TVs as well as high-end monitors.

The Mobile Business aims to improve profitability through enhanced leadership in premium products such as 5G and foldable devices as well as the improved mass-model line-up. The Network Business will further its efforts to expand its 5G business globally including the United States and Japan.

In the Consumer Electronics Division, the Company will continue to lead the premium TV market by expanding the adoption of QLED 8K and ultra-large models and offer stronger line-ups of innovative home appliances such as Bespoke products.

Semiconductor Demand to Remain Solid Amid Uncertainties

The Semiconductor Business posted consolidated revenue of KRW 17.59 trillion (R228 billion) and operating profit of KRW 3.05 trillion (R39 billion) for the quarter.

For NAND, demand showed stronger growth than expected driven by new smartphone launches and the continued trend toward higher density memory, as well as increased adoption of solid-state drives for PCs and expansion of high-density storage for server customers.

For DRAM, demand from all applications has greatly increased due to strong seasonal effects as well as inventory restocking at customers responding to global macroeconomic factors such as tariff issues and semiconductor-material export regulations. For servers, demand rose mainly for high-capacity products, while for PCs, replacement demand for corporate systems also increased ahead of the end of support for Windows 7. For mobile, demand was driven by a higher portion of smartphones with storage over 8GB.

Looking ahead to the fourth quarter for NAND, demand for high-capacity storage is expected to remain robust and prices are expected to rebound across all applications. For SSD, data centres are expected to adopt high-density, high-performance products, while for mobile, the trend of higher density storage is expected to continue with the launch of new high-end models. The Company will focus on strengthening competitiveness in the premium market and enhance technology leadership and profitability by transitioning to 6th-generation V-NAND within this year.

For the fourth quarter outlook for DRAM, although there may be some impact from recent inventory restocking at customers, overall demand is likely to remain solid and to show some increase QoQ. For servers, demand from data centres will continue to be solid supported by high-density products, while for PCs, overall demand will be similar to that of the third quarter. For mobile, continuing trend to high-density products with the launch of new 5G smartphones is expected to help demand remain solid. The Company will focus on enhancing technological leadership by expanding high-capacity product sales for servers and actively responding to early demand for mobile LPDDR5.

Looking ahead to 2020, while challenging to provide a detailed forecast due to ongoing uncertainties involving macroeconomic issues, there are positive signs on the demand outlook from data centre customers, while the expansion of 5G smartphones is expected to continue to lead the higher density trends. However, demand for 2020 should be viewed with caution as uncertainties remain in the macroeconomic environment. As such, the Company plans to focus more on flexible investment and capacity operation depending on market conditions.

For the System LSI Business, earnings improved as demand increased for high-resolution image sensors and mobile APs/PMICs/OLED DDIs for flagship smartphones. The Company strengthened its technology leadership by being the first to commercialize 108-mega pixel sensors.

In the fourth quarter, while demand for high-resolution image sensors such as 64Mp and 108Mp products will continue to increase, earnings are likely to remain flat from the previous quarter due to weaker demand for mobile APs and DDIs. For 2020, the Company will expand its line-up of differentiated products such as 5G System-on-Chips produced on EUV 5/7nm process and high-resolution products such as 108Mp and above sensors.

For the Foundry Business, earnings increased from the previous quarter driven by demand for mobile APs based on the EUV 7nm process and high-resolution image sensors. In particular, the Company completed the tape-out of the EUV 5nm process and secured new orders for 5nm-based consumer products.

In the fourth quarter, the Company expects to generate solid earnings on mass production of EUV 7nm products, while setting up 4nm design infrastructures for future growth. For 2020, demand for mobile APs/modes/RFs and high-resolution image sensors is expected to increase significantly on the back of the growing 5G market. The Company will accelerate the diversification of its customer base by expanding orders for 5G/AI/Auto/IoT/Power and fingerprint recognition applications and strive to complete the development of the GAA 3-nano process.

Display Business Improves on Demand for Flexible OLED

The Display Panel Business posted KRW 9.26 trillion in consolidated revenue and KRW 1.17 trillion (R15 billion) in operating profit for the third quarter. Overall display earnings improved QoQ thanks to strong sales of small to mid-sized OLED panels despite a weak performance in the large display business.

Mobile display earnings increased amid favourable seasonal effects, led by higher demand from major customers and improved OLED utilization rates. Large displays took a hit from a continued decline in LCD panel prices.

Looking ahead to the fourth quarter, mobile display profitability is expected to decline due to a product mix change and a cost increase from lower utilization of some production lines. Samsung will strive to enhance profitability by improving production efficiency and expanding the adoption of cutting-edge technology.

Large displays are also likely to see weak profitability for the fourth quarter as it continues to face falling demand and dropping price. Samsung will seek to secure profitability with product diversification including monitors and PIDs.

In 2020, for the mobile display business, demand for OLED screens is seen to grow steadily with wider adoption of 5G smartphones despite intensified competition. The Company will continue to focus on expanding sales and boosting utilization with a broader customer base and stronger cost competitiveness. Additionally, Samsung will aim to actively address the demand for foldable display panels and minimize seasonal impacts with wider applications.

For large displays, Samsung will look to realign its business structure to focus on QD-Display. It will continue to secure profitability by expanding sales of value-added products such as ultra-large panels, 8K TVs and premium monitors.

Galaxy Note 10 Props Up Mobile Business Earnings; 5G Momentum Driver in 2020

The IT & Mobile Communications Business posted KRW 29.25 trillion in consolidated revenue and KRW 2.92 trillion (R37.9 billion) in operating profit for the September quarter.

Mobile earnings in the third quarter improved significantly QoQ on robust shipments of the flagship Galaxy Note 10, a better product mix and higher profitability in the mass-market segment. The Galaxy Note 10 in the third quarter exceeded its predecessor’s sales performance, presenting double-digit growth in volume. Cost reduction brought on by the completion of the A-series line-up transition also contributed to improved profitability.

Notably, in the third quarter, the Company firmed up its global technology leadership with the expansion of 5G smartphones, in addition to the launch of the Galaxy Fold featuring a new form factor.

For the Network Business, the Company continued expanding 5G coverage in South Korea and shipments for LTE expansion outside the country.

In the fourth quarter, while mobile demand is expected to decline YoY on seasonal effects and persistent global economic uncertainties, the Company’s mass-market smartphones, including the new A-series, are projected to maintain solid sales. However, Samsung expects profit to decrease due to dissipating new model effects of the Galaxy Note10 and increasing marketing costs under strong seasonality.

Looking ahead to 2020, consumer demand for 5G devices is expected to rise as 5G networks expand globally, while competition is likely to remain fierce. The Company plans to offer more 5G devices and foldable products to enhance its competitiveness and build a foundation for further growth. For the Network business in the fourth quarter and the coming year, the Company will remain an active player in expanding South Korea’s 5G coverage and foster growth in other global markets like the United States and Japan.

Premium TVs, Innovations Such as Bespoke Key Focus for Consumer Electronics

The Consumer Electronics Division, comprised of the Visual Display and Digital Appliances businesses, recorded KRW 10.93 trillion (R142 billion) in consolidated revenue and KRW 0.55 trillion (R7.1 billion) in operating profit for the third quarter of 2019.

Profits for TVs were down slightly in annual terms in the third quarter due to heightened price competition, but strong sales of premium TVs such as QLED and ultra-large models helped the division maintain revenue growth compared to a year ago.

In the fourth quarter, the Company forecasts TV demand will soften YoY on downside risks including global economic sluggishness and unfavourable foreign exchange rates stemming from trade protectionist practices. To mitigate the fallout from these risks, the Company plans to expand sales of QLED TVs and broaden the line-up of super-large screen products, cementing its leading position in the premium market. For 2020, TV demand will likely bounce back on global sports events like the Olympic Games in Tokyo while the Company plans to seek new business growth from 8K TVs and MicroLED TVs.

Digital appliances saw increased earnings in the third quarter from a year ago on new product releases like the customizable Bespoke refrigerator. Demand in developed markets in North America and Europe was stagnant but this was offset by sales in emerging market countries including India.

For the December quarter, the Company plans to boost sales of products such as dryers and Air Dressers (garment refreshers) while simultaneously launching year-end, peak season promotion events. In the year ahead, demand will grow centred around emerging market countries, while the Company is expected to expand its premium line-up with other Bespoke products and strengthen its B2B business.

※ Consolidated Sales and Operating Profit by Segment based on K-IFRS (2017~2019 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 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)}

“Samsung Electronics had an outstanding year in 2017 as we achieved record results despite an uncertain business environment,” Oh-Hyun Kwon, Chairman of the Board of Directors, said in his opening remarks. “In 2018, we are committed to delivering another successful year by taking on new challenges and building the foundation for mid- to long-term sustainable growth.”

Enhancing Shareholder Value

In 2017, the Company returned 9.2 trillion won to shareholders through share buybacks and cancellation and plans to pay out a total of 5.8 trillion won in annual dividends. In addition, the Company cancelled half of its treasury shares in 2017.

As announced earlier, the Company will focus on delivering shareholder value by increasing dividends for 2018 to 2020. The planned 50 to 1 stock split is expected to improve the accessibility and liquidity of the shares.

“We also established the Governance Committee, comprised entirely of independent directors, to address all matters that can have a material impact on shareholder value,” said Chairman Kwon.

Election of New Directors

The Company’s Board of Directors proposed the appointments of three new independent directors and four executive directors, following last year’s leadership changes.

Upon shareholders’ approval, President and former Chief Financial Officer Sang-Hoon Lee will be elected to the Board and take the role of Board Chairman, succeeding Chairman Kwon. This will mark the first time Samsung Electronics will separate the Chairman of the Board and the Chief Executive Officer roles.

“The separation will further empower the Board of Directors and enhance its independence,” said Chairman Kwon. “The Board will be able to evaluate the Company’s performance more objectively and have greater authority and efficiency as a decision-making body.”

The heads of the Company’s three divisions – Presidents Kinam Kim (Device Solutions), Hyunsuk Kim (Consumer Electronics) and Dongjin Koh (IT & Mobile Communications) – were also nominated to join the Board. Meanwhile, the Board’s Independent Director Recommendation Committee has nominated three new candidates for election, including Dr. Jeong Hun Kim, Dr. Sun Uk Kim and Dr. Byung Gook Park.

Following their elections, the number of the Company’s Board members will increase to eleven from nine.

“I believe this is the right time for a younger leadership to take the helm of the Company to better respond to a rapidly changing global IT industry,” said Chairman Kwon. “I sincerely hope that our shareholders will continue to show unwavering interest and support our new management team.”

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.