Good morning and good evening. Thank you all for joining this conference call. We will begin the conference out of fiscal year 2023 first quarter earnings results by Samsung Electronics. This conference will start with a presentation, followed by a divisional Q&A session. If you have a question, please press star one, that is star and one on your phone during the Q&A. For cancellation, please press star two, that is star and two on your phone. We shall commence the presentation on the fiscal year 2023 first quarter earnings results by Samsung Electronics.
Welcome, everyone. This is Ben Suh, Head of Investor Relations. Thank you for joining Samsung Electronics' first quarter 2023 earnings call. For additional details regarding our quarterly results, please refer to our earnings presentation, which has a new format and is available on our IR website at www.samsung.com/global/ir. Joining me on the call today are EVP Jaejune Kim, representing Memory, VP Hyeokman Kwon for System LSI, EVP Gibong Jeong for Foundry, EVP Casey Choi for Samsung Display Corp, which I will refer to as Display during today's call. VP Daniel Araujo for Mobile eXperience, VP KL Roh for Visual Display, VP Sangyoon Kim for Digital Appliances.
I want to remind you that some of the statements we will be making today are forward-looking, based on the environment as we currently see it, and are subject to certain risks and uncertainties that may cause our actual results to be materially different from those expressed in today's discussion. I will start with the results for the first quarter of 2023. The business environment in the first quarter continued to deteriorate, with overall consumer sentiment weakening due to rising concerns over an economic slowdown amid persistent global macro uncertainties and geopolitical issues. As a result, our consolidated revenue for the quarter declined by 9.5% sequentially to KRW 63.7 trillion.
Although revenue for the memory business and other component businesses declined considerably due to the repercussions of decreased demand, the DX division increased revenue on the back of strong sales of new flagship smartphone models. Our consolidated gross profit decreased by KRW 4.1 trillion sequentially to KRW 17.7 trillion, mainly due to the continued price decline and inventory valuation loss in memory. Gross margin also decreased by 3.2 percentage points to 27.8%. SG&A expenses declined by KRW 0.4 trillion quarter-on-quarter to KRW 17.1 trillion, primarily due to reduced advertising and promotional spending. However, as a percentage of sales, they increased by 1.9 percentage points to 26.8% due to the decline in sales.
R&D expenses exceeded last quarter's record amount and reached a new high as we continue to invest in the future. Operating profit in the DX division increased thanks to gains in the MX business. Operating profit declined significantly in our component businesses amid sluggish demand, causing our consolidated operating profit to fall KRW 3.7 trillion sequentially to KRW 0.6 trillion. Operating margin also fell 5.1 percentage points to 1%. For the following results and outlook sections, I will provide brief overviews for DS, Display, and DX, and include specific business unit results only for those that are not covered in separate speeches.
For the DS division in the first quarter, profits decreased considerably quarter-on-quarter due to an increased inventory valuation loss in memory, which newly included DRAM, a decline in utilization at Foundry, and continued overall impacts of weak demand and customer inventory adjustments. For Display, while the mobile panel business recorded a decline in earnings amid a market contraction, the large panel business slightly narrowed its losses. The DX division delivered improved results thanks to strong sales of premium S23 models and enhanced sales mix focusing on premium TVs and improved operational efficiency. The network business saw its revenue decrease due to weakness in major overseas markets, such as North America and Southwest Asia. The Digital Appliances business reported similar earnings sequentially amid still sluggish demand and continued cost burdens.
Regarding currency effects in the first quarter, the Korean won strengthened against the US dollar, euro, and most major emerging currencies. The relative weakness of the U.S. dollar had the effect of a company-wide quarter-on-quarter operating profit reduction of approximately KRW 0.7 trillion, centering on our component businesses, which are more sensitive to the U.S. dollar. Next, I would like to share our business outlooks. In the second quarter, under expectations of continued weakness in demand, DS will remain committed to boosting our technological competitiveness, including the 2 nm Gate-All-Around process, while meeting the demand for DDR5 and LPDDR5x and other high-end products. For display in the seasonally weak second quarter, the mobile panel business will focus on preparing for second half demand, and the large panel business is expected to increase its sales.
DX will maintain solid profitability by expanding sales of A Series smartphones and new TV models while fully preparing for strong seasonality of Digital Appliances and improving cost efficiencies. Network will keep solidifying its business foundation, particularly in North America and Korea, as it explores new business opportunities. Digital Appliances will focus on securing profitability by improving its sales structure and cost efficiency while continuing the global expansion of BESPOKE products as we enter a seasonal upcycle. The second half of 2023, there is a general expectation for market conditions to gradually recover amid projections for a rebound in global demand. DS will stay on top of the demand for high-capacity server and mobile products and continue to reinforce its leadership in differentiated technology, which includes preparing for next generation flagship mobile SoCs and increasing orders for our leading GAA processes.
Display's mobile panel business will maintain its unparalleled position in the high-end market based on its differentiated technology. The large panel business will push to expand its presence in the premium market and improve profitability. DX will further solidify its leadership in the premium segment, which includes foldables and Neo QLED. At the same time, it will increase its market share by cooperating with partners and enhance profitability by continuing to improve operational efficiency. Network will pursue revenue growth through its major overseas contracts by promptly addressing customer needs and winning new orders, all while reinforcing our technology leadership in 5G core chips and virtualized radio access networks. The Digital Appliances, we will boost our product competitiveness via SmartThings while pursuing growth by increasing sales of high-value products and further promoting package sales. Now moving on to capital expenditures.
CapEx in the first quarter was KRW 10.7 trillion, with KRW 9.8 trillion invested in the DS division and KRW 0.3 trillion in display. Memory CapEx concentrated on facilities in Pyeongtaek, which included complet`ing P3 infrastructure and P4 framework progress for mid to long-term supply, and also on equipment to prepare for advanced node demand. In addition, we continued our R&D and back-end investments to further bolster future competitiveness. Foundry investments continued to focus on Taylor, Texas and Pyeongtaek to address the demand for advanced nodes, while display investments focused on infrastructure and module production enhancements. I would like to address the shareholder returns. Today, the board of directors approved a quarterly dividend of KRW 361 per share for both common and preferred stocks.
Based on the annual dividend payout under the current dividend policy, which applies until the end of this year, the total quarterly payout is KRW 2.45 trillion, and it will be paid in May. I would like to share some of our key activities in sustainability management. By applying innovative technologies, we have continued our efforts to ensure that using our products and services contributes to a low carbon and sustainable future. As prime examples of our everyday sustainability, we increased the adoption of recycled materials in our products, especially in our latest Galaxy S23 phones. We have also enhanced the energy efficiency of the key components used in our large digital appliance models, which contributed to 75% of our new models in Korea achieving top energy efficiency ratings. We have further enabled energy savings through the AI energy mode in our SmartThings Energy service.
Finally, following a successful release in Europe last year, we introduced the microplastic reduction cycle in the Korean market. The BESPOKE Grande AI model, developed in collaboration with Patagonia, can reduce microplastic release by up to 60% compared to a regular cycle. On another front, we announced Samsung's global human rights principles, a policy based on international standards such as the UN Guiding Principles on Business and Human Rights in February. This announcement forms part of Samsung's ongoing efforts to respect and promote the labor and human rights of employees at Samsung Electronics and its partners in all aspects of our business. The principles comprehensively encompass all of Samsung's preexisting policies related to human rights, such as our child labor prohibition policy, anti-discrimination and harassment policy to name a few.
Meanwhile, Samsung Electronics ranked seventh in the 2023 digital inclusion benchmark as measured by the World Benchmark Alliance, a global alliance for sustainability management. We achieved the highest ranking among Asian companies, garnering this special recognition for our efforts to support open source, the standardization in the industry, and foster an ecosystem for tech start-ups. Last but not least, the Alliance for Water Stewardship awarded our Hwaseong campus with certified platinum status, the organization's highest certification level for water resource management. This is the first such recognition in Korea, and the award recognizes the outstanding water management systems at our semiconductor sites. We will continue our efforts to enhance sustainability in all aspects of our business. I will now turn the conference call over to the representatives from each business unit to present first quarter performances and outlooks for their respective business segments in more detail.
We will start with EVP Jaejune Kim of the Memory Business. Thank you.
Good morning. This is Jaejune Kim from Memory Global Sales and Marketing at Samsung Electronics. In the memory market over the first quarter, while the macroeconomic continued to slow down and customer purchasing sentiment was weakened, overall demand decreased as many customers continued inventory adjustment to improve their financial health. As a result, our performance fell significantly compared to the previous quarter. If you look at each product, in DRAM, while customer inventory is still at a high level for servers, the demand for servers was sluggish with inventory adjustments by customers, mainly hyperscalers, affected by shrinking IT spending of many enterprises under economic uncertainties.
For mobile and PC applications, although customer inventories of finished goods in distribution channel are relatively improved, the demand situation was sluggish, with purchasing delays and set build reductions as consumer sentiment has not recovered yet. Under this market environment, we preemptively responded to demand for high density mobile products, which was boosted by strong sales of new smartphones by major mobile customers. As for server applications, while customers continue to adjust their component inventories, we focus on capturing DDR5 server demand in line with the adoption of new CPUs. As a result, the price fell less than the market forecast, due to our focusing on selling high value-added ease of products, but because couldn't meet these previous guidance. Next, I will take or talk about this and then the market.
The slowdown in demand for server and storage applications has been more clearly observed compared to the other applications. As I previously mentioned for DRAM, our analysis revealed that the demand sluggishness is linked with a reduced enterprise IT spending. Actually, in addition to this, server SSD demand showed a further contraction due to customer inventory adjustment. For mobile and client SSD, the demand continued to remain sluggish as well because the sell out recovery was not visible as overall consumer sentiment has not recovered yet despite China's reopening.
In spite of this weak demand, we actively responded to the trends toward high density across overall applications, such as eStorage over 500 GB and above for our major mobile customers and client assets this over 1 TB and above for PC OEMs. As a result, our big growth exceeded each of the previous guidance. Moving on to the outlook for the second quarter. First of all, let me tell you about the market by applications. As major hyperscalers are conservatively investing in servers and customers are continuing to adjust inventories, demand recovery is expected to be continuously limited following the first quarter.
For mobile and PC, customer inventories for component and finished goods are expect to be healthy, but consumer sentiment trends seems to be important variables for set demand due to macroeconomic conditions. That includes China's reopening and the follow-up economic stimulus packages. On the other hand, the transition or trend to high density products, based on price elasticity is expected to continue. In DRAM case, in order to align with this market situation, we will timely respond to the increasing demand for DDR5 and high density modules, led by the launch of new CPUs for servers and increased demand for AI. We will also actively respond to LPDDR5X demand for mobile high-end products such as new form factor smartphones.
For NAND, based on our cost competitiveness, we plan to actively address demand for high density products across all applications while responding to customers' need for high density storages by creating the mobile QLC market and diversifying product portfolios. Moreover, as we announced in our preliminary first quarter result, we have already started rolling down our productions. Therefore, our inventory levels are expected to start to decline from the second quarter, and such reduction is expected to expand in the second half. Now let me tell you about our look for the second half of the year. Demand is expected to gradually recover in the second half of this year as customer inventory levels will have declined due to inventory adjustment that have been occurring since last year.
This demand recovery is expected to begin with consumer products such as mobile and PC for which inventory adjustments by customer began earlier than they did for commercial applications such as server and storage. First of all, for mobile and PC, with the finished good inventory level decreasing in comparison with the first half, set build demand is expected to improve with the launch of a new smartphone and PC promotion in the second half of the year. In addition, the trends toward high density, based on overall price elasticity, is expected to continue. Thus, we are expecting to see a demand pattern of weak in the first half and strong in the second half.
For server, the timing of demand recovery may be later than for PC and mobile, since customers' inventory adjustment started relatively late. The portion of DDR5 is expected to increase due to the expansion of new CPU adoption and contents per box will continue to grow as the transition to high core CPUs will accelerate. Demand will continue to recover in the second half of the year, but it is expected to grow mainly with the new memory products due to factors such as CPU platform conversion scheduled for the second half of the year and the customer inventory adjustment trend.
We are lowering its production mainly for legacy nodes production, products for which demand is expected to be relatively sluggish, while responding to the market with an increased portion of cutting-edge nodes and high value-added products. From a product standpoint, for DRAM, we plan to accelerate the conversion of cutting-edge node for DDR5 and LPDDR5X and actively respond to the strong market demand for HBM3, 8-high and 12-high. For NAND, we are going to strengthen supply operations focusing on products that consumer and customers need, by creating a mobile QLC market and extending the portion of cutting-edge nodes such as V7 and V8.
Under these trends, we'll maintain a similar level of CapEx compared to last year and continue to expand infrastructure and R&D portion of investment to secure mid to long-term competitiveness. Thank you.
Morning. This is Hyeokman Kwon from the System LSI business. In the first quarter, amid the op-peak season, the demand for SoC, sensor and DDI dropped sharply due to sluggish demand for the major applications such as mobile and TV, resulting in a sharp drop in sales. For mobile SoC, volume-z ones sales increased with the launch of a new volume-zone product. In order to expand the new application, we launched our UWB-based short-range wireless communications semiconductor product called U100. In addition, we have solidified our technological leadership by supplying various 200 million pixel image sensors to major global customers at home and abroad. In the second quarter, even though the overall demand slump continues, customers' inventory reductions are showing for the products such as sensors and PDVIs, and inventory accumulation is expected in preparation for the peak season in Q3.
As a result, earnings are expected to improve slightly Q/Q. To strengthen the GPU competitiveness of mobile resources, we will extend our switch partnership with AMD in the graphic IP field. We are in the final stage of commercializin g the NTN communication modem. For second half, system IC related customers' parts inventory is exhausted and starting with the vitalization of the Chinese domestic market, overall mobile demand is expected to recover. The market is expected to recover in the second half of the year, we will make sure that there is no problem with the supply of parts. We are planning to re-enter flagship segment to strengthen the product business competitiveness of mobile SoC business. We also expect to extend our business area. Customer is planning to commercialize a fingerprint authentication-based credit card with more enhanced security. Thank you.
Good morning and good evening. This is Gibong Jeong from the Foundry business unit. In the 1st quarter, demand has contracted due to the global economic downturn caused by macro uncertainties. Impacts included high inventory levels in major fabless companies and set makers. The ensuing drop in orders result in revenue decline. Meanwhile, we are mass producing the first generation 3- nm process using GAA, Gate-All-Around technology, leading semiconductor device technology currently in production, with yields remaining stable into and throughout the quarter. Based on our experience with the first generation, we are making solid progress in the development of the second generation process to secure even greater mass production capabilities. In addition, we focused on securing new orders from major customers who need high performance, low power characteristics in mobile and HPC applications, aiming for mass production in 2024.
Moreover, by completing the development of the advanced package with 12 stacks of HBM memories, we have secured the foundation to support server products for generative AI segment. In the second quarter, we expect revenue to improve quarter-on-quarter basis as set makers' inventories recover to normal levels and customer demand recovers. In the second half this year, the market is expected to recover around the HPC sector and the automotive sector, which requires advanced process technologies. We expect our revenue to rebound following our investment strategy, focusing on the advanced nodes. Based on the stable development of the second generation 3- nano GAA, we will expand our customer base through active communication with customers and strengthen our technical leadership by smoothly proceeding with the development of the next generation 2 nm technology.
We will lay the foundation for sustainable growth by evolving specialty and mature processes so that we can expand to various application, such as mobile, HPC, automotive, and IoT. Thank you.
Good morning. I'm Casey Choi from the Corporate Strategy team at Samsung Display. Even in the face of unfavorable market conditions, we continue to generate stable results in the high-end smartphone business based on our differentiated technology, performance, and IP superiority. I will now brief you on our results for the first quarter of 2023. For the mobile display business, even though market demand continued to contract due to persistent inflation and high interest rates, we fortified our market leadership thanks to the robust sales of flagship products with differentiated features and the expansion of foldable model. For the larger display business, we solidified our position in the premium market on the back of the full-fledged launch of new QD-OLED products by our major customers and a diversification of product size and other specifications. Let me share the outlook for the second quarter of 2023.
We expect results to contract year-on-year due to the global economic slowdown, excavating seasonal effects. We'll maintain our dominant position in the high-end market based on the stellar technology and the performance of our products. At the same time, building on our unrivaled product quality, we plan to maximize sales by delivering on our customers' needs in expanding the adoption of OLED panels in their mid-end lineups and by accommodating our mass production of new products in the second half. For the large display business, we expect to see a slow recovery in demand due to the economic slowdown and effects of the pandemic. Sales should grow as new products for 2023 roll out in earnest. Finally, I'll share our outlook for the display market and our strategy for the second half.
Concerns over market uncertainties and the economic downturn coexist with the hopes for the potential demand recovery based on anticipation of improving market condition in China, prompted by the potential stimulus program in second half. We'll maintain our leading market position by leveraging our differentiated technology in our customers' new offerings, and ramp up sales by enhancing the per-performance of foldable products in the relatively solid market for high-end smartphones. For large panels, demand is likely to be soft due to prolonged economic uncertainties. We'll further strengthen our presence in the premium market by offering a wide range of size and supplying rollouts in an increasing number of countries, and diversifying our customer base. Despite uncertainties surrounding future markets, we believe it's an optimal time to prepare for the future, and will invest in 8.6 generation OLED.
With this investment, starting this year, we'll strive to scale up the OLED market by steadfastly increasing the share of OLED panels in the laptop, tablet, and automotive markets, and eventually recreate the success we have achieved in the smartphone market. Thank you.
Hi, everyone. This is Daniel Araujo from the Mobile eXperience Division. I'd like to share our results for 2023 Q1, and outlook for Q2 and the second half. In the smartphone market, overall demand weakened, but the premium market grew in terms of both volume and value compared to one year ago. Despite the market contraction, our sales increased quarter on quarter, and our profitability recovered, reaching double digits. The S23 series, launched in Q1, achieved strong sales backed by improved product competitiveness. Overall sales growth was driven by the large S23 Ultra portion of sales and marketing that centered on models with high storage capacity.
Our efforts to enhance operational efficiencies throughout R&D, manufacturing, and logistics led to a major boost in operating profits from flagship devices, Series A, and tablets, which contributed to the strong first quarter performance. Next, let me share the Q2 outlook. For smartphones, we expect demand to recover in the low to mid-segment, and the overall market should increase slightly in volume, but decline in value compared to Q1. In the MX business, we will continue to generate steady sales of the S23 series, which has been well received by the market. Re-boost the marketing of foldables to continue sales of current models and drive awareness of the upcoming launches of new models in the second half.
As for the A Series, we will actively address recovering mass market demand by propelling the new A54 and A34 into global mega hit models by delivering a stronger premium experience through upgrades to key specs and the application of the Galaxy design identity. In Q2, we will drive sales expansion with flagship devices and mid to high A Series models, with contributions also expected from our ongoing efforts regarding efficient management of region-specific product lineups, our upselling strategy, and a variety of sell-out programs. Moreover, we aim to maintain double-digit profitability thanks to additional gains in operational efficiency. Next is the outlook for the second half of 2023. In the second half, we expect to see signs of a global economic recovery, including an easing of inflation.
The smartphone market is forecast to witness increases in both volume and value, especially in the premium market, alongside the recovery of purchasing power. We expect the tablet and wearable markets to stay mostly flat due to difficult compares following significant growth during the pandemic. The MX business will unveil new foldable models that offer even further differentiated and refined user experiences. Our close collaboration with partners is a strength, and we will use that strength to boost sales right from launch to further fortify our leadership in the global foldable smartphone market. For the S23 Series, we will continue sales in the second half by sustaining our marketing campaigns and actively responding to regional seasonality. With the A Series, we will expand our overall share of the smartphone market by collaborating closely with our partners and actively implementing sales programs tailored to our customers by region.
We will strengthen the product competitiveness of our tablets and wearables and highlight our premium ecosystem experience via a joint Unpacked event in order to continue to outpace the market. In sum, we aim to achieve annual revenue growth in 2023 and secure solid profitability by improving our product mix and enhancing operational efficiencies. Thank you.
Good morning. This is KL Roh from the sales and marketing team of Visual Display. First, I would like to review the market condition and our performance in the first quarter of 2023. TV market demand contracted both quarter-on-quarter and year-on-year as we exited end-the-year peak seasonality and felt continued effect of global economic downturn. For Samsung, we improved our profitability quarter-on-quarter and year-on-year by focusing on sales of differentiated high-value added products to enhance our leadership in the premium market, and by reducing overall cost. Now, let us look at the outlook for second quarter and second half of 2023. In the second quarter, we expect negative growth in the TV market to decelerate, while demand for premium products such as QLED and ultra large screen model is expected to keep growing.
Samsung will focus on improving profitability by expanding sales of strategic products with a differentiated launch of new model of 2023, while also strengthening each area of operation management. Regarding the TV market in second half, demand is expected to recover gradually with the arrival of peak seasonality. We expect competition to intensify with continued uncertainties in the external environment. We will actively capture peak season demand by strengthening our differentiated promotional activities, centering on strategic products such as Neo QLED, OLED, and also targeting consumer needs utilizing our differentiated lifestyle screens. In addition, we will secure new growth engine by continuously diversifying sales channels and continue to lead the TV market by expanding the 98 in super large screen and MICRO LED lineups. Thank you.
Thank you for the presentations. That sums up the first quarter results presentations. Before we move on to the Q&A session, I would like to share several data points in key business areas. Considering the continuing macro uncertainties, we will not be providing annual guidance at this time. Comparative figures are on a sequential basis for quarterly data. For DRAM, in the first quarter, our bit growth decreased by a % just into the double digits, and ASP declined by a percentage in the low to mid-teens. For the second quarter of this year, we expect market bit growth to increase by a low double-digit percentage, and our bit growth should be similar to the market. For NAND in the first quarter, our bit growth increased by a low single-digit percentage, while ASP fell by a percentage in the high teens.
For the second quarter, we expect market bit growth to be in the mid-single digit range, and our bit growth should be similar. For display in the first quarter, the small panel portion of revenue was a percentage in the high 90% range, and a small panel sales volume decreased by a percentage in the mid-20s. For MX in the January quarter, sales volumes of smartphones and tablets were approximately 60 million units and 7 million units respectively, and smartphone ASP was $325. In the second quarter, we expect to see declines in shipments of smartphones and tablets, as well as in smartphone ASP. For TVs in the first quarter, sales volume of TVs decreased by a percentage in the low to mid-teens, and for the current quarter, we expect it to contract by a percentage in the high single digits.
Now I will move on to the Q&A session. First, we will start taking questions from the conference call.
Now Q&A session will begin. Please press star one, that is star and one if you have any questions. Questions will be taken according to the order you have pressed, star and number one. For cancellation, please press star two, that is star and two on your phone. The first question will be presented by Sung-kyu Kim from Daiwa Capital Markets. Please go ahead with your question.
My first question is about the memory division. In the first quarter, your DS division recorded an overall loss, and it appears that the memory business is accounting for a large share of this loss. In that context, can you give us some more details behind the poor performance of the memory business this quarter, in the first quarter? Second question is about the Digital Appliances business. Still in the first quarter, the Digital Appliances business performance relatively is still disappointing. Can you explain the reason why the poor performance is continuing? Can you give us some outlook on your second quarter bottom line?
네, 어, 메모리부터 답변드리겠습니다. 어, 이번 일 분기에는, 어, 메모리 수요의 약세와 맞물려, 어, 가격이 추가적으로 하락해서, 어, 당사 실적이 큰 폭으로 감소하였습니다.
To answer the question about the memory business first quarter results. In the first quarter, as you mentioned, our results of the memory business decreased significantly, due to the demand weakness, memory demand weakness continuing and that also being coupled with additional fall in prices.
좀 더 구체적으로 설명드리자면, 어, 매크로 경기 불확실성이 증가되면서, 어, 기업들이, 어, 보수적, 어, 투자 운영과 함께 IT spending 축소가 발생하였고, 어, 이로 인해서 서버 스토리지는 중심으로 수요가 더욱 둔화되었습니다. 아, 또한, 어, 고객사들의 재무 건전화를 위한, 어, 재고 조정이 지속되어서, 어, 구매 수요가 위축되고, 어, 이로 인해 가격이 전분기 대비 추가적으로 하락하였습니다.
To give you a bit more detail, many companies are facing macroeconomic uncertainties have been operating conservative investment stands. This has resulted in a reduction in IT spending overall. We have seen a slowdown of demand, especially around servers and storage. Also, our customers have been continuing to adjust their inventory to improve their financial conditions. This has led to a decrease in purchasing demand, and this has driven to an additional price decline versus the previous quarter.
가격 변동은 이익 규모와 직결되는 항목이고, 이번 1분기 동안의 가격 하락으로 당사의 수익성 또한 직접적으로 영향을 받았습니다. 지난 분기에는 재고 평가손이 NAND 제품부터 반영되었지만, 최근 DRAM 제품에서도 가격 하락이 심화되며 재고 평가손 규모가 확대되었고, 실적에 추가적인 영향을 주었습니다.
Price changes are an item that has a direct impact on earnings. During the first quarter, the additional price decline had a direct impact on our profitability as well. Another factor in our first quarter results is the inventory valuation loss. Actually, in Q4, the inventory valuation loss started to kick in from the NAND, but with the additional price decline recently in DRAM, there was a larger inventory valuation loss recognized this quarter, and that had an additional impact on our performance.
이어서 가전 답변드리겠습니다. 1분기는 글로벌 가전 시장 수요 감소 및 인플레이션 등의 영향으로 전년 동기 대비 매출이 감소하였습니다. 2022년 물류 이슈 대응으로 집행한 물류 인프라 등의 고정성 비용이 증가하였고, 인건비, 유틸리티 비용 등이 글로벌 인플레이션 영향을 받으면서 전년비 증가되었습니다. 재료비는 전년비 개선은 되었으나 철판, resin, 발포 등의 원자재 시황 강세로 기대 대비 인하 폭이 크지 않았습니다.
Your second question was about the details behind the performance of the Digital Appliances business. During the first quarter, the revenue of the Digital Appliances business decreased on a year-on-year basis as we saw a decrease in global Digital Appliances market demand and also impact of inflation. Also, on the cost side, there was an increase of fixed cost nature, costs that were, for example, logistics infrastructure that had been executed in response to the supply chain issues we saw in 2022. Also, there was an impact of global inflation on our labor and utility expenses, so overall expenses increased also on a year-over-year basis.
On the material cost side, where while material costs did improve versus last year, the raw material markets of certain raw materials such as steel plates or resin or foaming agents, have actually been seeing strong demand. The amount of decrease, the degree of decrease in material cost has not been as large as we had expected.
2Q 손익과 관련해서 현재 전망 기준으로 매출은 전년 수준의 매출을 지속하면서 손익도 개선될 것으로 기대하고 있습니다. 시장 역성장, 인플레이션 지속 시 전망 대비 감소 리스크가 있으며, 원자재 시황 턴어라운드 시점이 예상보다 빠르게 와서 1Q 대비로는 재료비 인상 리스크도 있습니다.
Looking towards the second quarter, what we expect in terms of our bottom line is that we expect our revenue to be similar in second quarter to what we saw last year, and that our profitability, our bottom line would also improve in the second quarter. That said, we are still watching some downside factors. For example, there is still a risk of our performance being below what we expect if the market contracts or inflation continues. We think that there's a risk of possible increase of material cost versus the first quarter, given the fact that the raw material market turnaround came faster than expected.
예, 답변 감사합니다. 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 HSBC의 서주일 님입니다. The next question will be presented by Ricky Seo from HSBC. Please go ahead with your question.
예, 질문 기회 주셔서 감사합니다. 두 가지 질문인데요. 먼저, foundry 관련해서 아까 삼나노, second generation EUV side가 좀 올라오고 있는 것 같은데, 가령 그 offsite sharing이라든지 뭐 기술 정보 공유, 뭐 guardrail 항목 이런 것들이 좀 문제가 있을 것으로 보이는데 이에 대해서 우리...
I'll ask two questions. The first question is about the Foundry. During your presentation you mentioned about plans of the second-generation development of the 3-nano node. Can you give us a bit more detail of your plans of developing the cutting-edge nodes and also the roadmap for mass production? Can you give us an update on your customer order situation? Can you give us a bit more update on how new customers are being engaged? Our second question is regarding the U.S. CHIPS Act that was announced. I think there is growing concern in the market of this bringing also increased risk given the detailed requirements such as upside. Given this, can you share the company's plans on how the company plans to respond to the CHIPS Act?
I would like to answer your first question by starting with a description of the key features of our 3- nano anode. Samsung Foundry was the first in the world last year to adopt the GAA architecture through the MBC FET. MBC FET Stands for Multi-Bridge-Channel. We did this because of the tradition of Samsung Foundry of emphasizing customer satisfaction and technology leadership. You've also asked about the customer order updates and engagements. Developing the 2-nano with mass production targeted 2025. Our goal is to stay ahead of the competition and to maintain our technology leadership in 2025. Thank you. Your second question about the U.S. CHIPS Act actually covers several business units and therefore will be addressed by the IR team.
The CHIPS Act took effect with the signature of President Biden last August. Since then there was following announcements of detailed rules in February and also the detailed guide guardrail rules announced in March. They include several obligation clauses tied to the incentives offered under the CHIPS Act. You've asked about the market being concerned of these requirement back from the industry and also carry out negotiations with individual companies to iron out the details of such obligation clauses. We Samsung also plans to participate in such procedures. Also, the company currently is studying various possibilities and scenarios and will continue to work on minimizing the geopolitical risk on our business.
The next question will be presented by Nicolas Gaudois from UBS. Please go ahead with your question.
Good morning, thanks for taking my questions. The first one relates to memory. Could you provide more color and context on the memory production cuts you have announced earlier this month? How sizable is the production cuts that you ultimately plan to do and for which products? Secondly, it is well understood that this year your flagship smartphone models, including the Galaxy S23 are solely using Qualcomm system solutions. Should we expect the Exynos to come back in 2024, starting with the Galaxy S24? Also could you please elaborate more broadly on the overall Exynos strategy going forward? Thank you.
Exynos 관련한 질문입니다. 그 올해에 발표가 된 Samsung의 flagship smartphone인 S23은 Qualcomm solution만을 사용을 하는 것으로 잘 알려져 있습니다. 내년 2024년에는 Galaxy S24부터 Exynos가 다시 그 flagship에 재진입을 할 거로 예상을 하면 되려는지요? 또 이와 관련해서 전반적인 Exynos 전략에 대해서 말씀 부탁드립니다.
첫 번째 메모리 관련된 답변드리겠습니다. 저희는 단기적인 관점보다는 중장기 관점에서 고객이 원하는 제품에 대한 안정적인 공급력 확보를 기조로 미래 수요에 대응할 수 있는 수준의 가용 재고 확보 차원에서 생산을 운영하여 왔습니다.
First to answer your question about the memory production cut. As you know, in terms of operating our memory production, our focus has been on maintaining stable supply capabilities of the products that the customers want from a mid- to long-term perspective rather than a near-term perspective. We have been operating our production in order to secure sufficient inventory availability to respond to future demand.
The reason is, AI, machine learning, etc., the spread of data-driven computing and the growth of automotive application markets, etc., driven by, mid-to-long-term demand is expected to be solid, while, on the production side, due to the transition to new interface products, along with die size penalty, the difficulty of advanced processes and due to the increase in production lead time, bit growth constraints were expected.
The rationale behind our production approach has been because while on the demand side, mid to long-term demand is expected to be solid, given the growth of several markets such as automotive applications and also the expected growth of the data-driven computing such as AI or ML. On the production side, we do see, bit growth restrictions given the fact that there is a die size penalty, in as part of the switch towards the new interface products. Also, there is growing difficulty with the advanced nodes in terms of technology and also increased production lead times.
특정 제품은 앞으로의 고객 수요 변동에 대응 가능한 물량을 이미 충분히 확보했다고 판단했기에, 생산량 하향 조정을 결정하게 되었습니다.
That said, we were looking into our production by product lineup and determined that in certain products we have already secured sufficient volume to supply and meet customer demand changes, and therefore decided to lower production in these products.
따라서 이번 생산 조정은, 중장기 수요 대응에 충분한 물량을 보유한 legacy 제품 중심으로 이루어지고 있으며, 1분기부터 시작된 line optimization 등에 추가되므로, 감산 규모는 훨씬 더 의미 있게 진행되고 있습니다. 이에 따라 2분기부터 재고 수준은 감소하기 시작할 것으로 전망되고, 또한 하반기에도 시장 수요를 지속 모니터링하면서 생산을 탄력적으로 운영할 예정이기 때문에, 당사의 재고 수준 정상화는 가속화될 수 있을 거로 기대합니다.
Therefore the lowering of production that has been announced is being carried out mainly around the legacy products that we have already secured sufficient volume to meet mid to long-term demand. This comes on top of the line optimization that already started in Q1. We expect the size of the reduction to be far more meaningful. We expect our inventory levels to start to decrease from Q2. Also going forward in the second half, we will continue to monitor the market demand and operate our production flexibly. We expect our inventory normalization speed to accelerate in the second half.
다만 한 가지 말씀드리고 싶은 점은, 다수 외부기관이 전망하는 바와 같이 상반기 내 고객사들의 재고 조정이 진행됨에 따라서, 하반기에 수요가 점차 회복될 것으로 보고 있고, 이에 당사는, 수요 성장을 이끌 것으로 보이는, 선단 제품 생산은 조정 없이 유지해 나갈 예정입니다.
Now to be clear, many outside research firms are forecasting that as customers complete their inventory adjustments during the first half, demand will gradually start to recover from the second half. Based on such outlook, we will maintain our advanced node production without any adjustments, given that the advanced node products will be leading the demand growth.
당사는 앞으로도, 중장기 수요와, 당사의 공급력을 지속 점검하고, 이에 따라 사업 전략을 유연하게 조정해 나가도록 하겠습니다. 감사합니다.
Going forward, we will continue to flexibly adjust our business strategy, based on mid to long-term demand and also a continuous sensing of mid to long-term demand and also our supply ability.
두 번째 질문에 대해서 System LSI 답변드리겠습니다. MX사는 저희 System LSI의 주요 거래선으로 당사는 Galaxy 시리즈의 모든 segment에 적용 가능한 제품 라인업을 갖추고 사업 전개를 목표로 하고 있으며, flagship 재진입도 추진 중입니다.
Your second question was about the System LSI Exynos business. As you know, the MX business is a major customer of the System LSI, and our goal is to develop our business with a full lineup that can be applied in all of the Galaxy series segments. We are currently pursuing re-entry to the flagship segment. Now that said, growth rate of the mobile market as a whole is on a decreasing trend, and we do see the need for us to be prepared for that. While in the short term, while we focus on building the SoC competitiveness for mobile SoCs, at the same time, we are focusing on expanding our non-mobile business, including automotive SoC.
Also to enhance our ability to rapidly respond to the market changes from a mid- to long-term perspective, we are also continuing to focus our efforts on market research and business feasibility studies in order to develop new business areas.
The next question will be presented by Peter Lee from Citigroup. Please go ahead with your question.
My first question is about the memory business. You have announced plans of reducing your production, but also you've announced that you plan to maintain your CapEx to a similar scale as previous years. Can you give us a bit more detail behind why your CapEx would still remain similar even though your production would be reduced? Second question is about the MX division. Actually you have come in with better profit results than the market expected in first quarter. Can you give us a bit more detail behind that and also your plans of how to expand your profitability in the second quarter?
To answer your question, this year we plan to maintain investments similar to the previous year. The reason why we have decided to maintain CapEx at similar levels as previous years is because our key goal of the business is to maintain sustainable market leadership by strengthening our future competitiveness rather than operating based on a near-term strategy.
Based on that business goal, despite our decision to lower our production, we are going to maintain CapEx at levels similar to last year because we believe it is necessary for us to concentrate our investment capabilities preemptively from now in order to secure future competitiveness. The semiconductor business by nature requires consistent large scale fab investment. It takes quite a long time for the fab to go into mass production since the start of the investment itself.
Therefore, given the fact that mid to long-term demand is expected to be solid in the future, in order to have the supply ability, stable supply ability to capture that solid demand in the mid to long term, we need to make the infrastructure investments that have longer lead times ahead of that from a mid to long-term perspective. That's why we plan to continue our infrastructure investments for the Pyeongtaek phase 3 and 4 lines in order to secure the necessary essential clean rooms that will give us the ability to timely respond to the growth of the mid to long-term demand.
또한, R&D 투자 비중도 확대해 나갈 예정인데요. 최근 메모리 공정이 더욱 미세화되며 선단 공정으로 갈수록, 개발 난이도가 급격히 올라가고 있습니다. 이러한 상황에서 당사는 미래 공급의 중요한 축을 담당하게 될 선단 제품들의 적기 개발과 품질 강화를 위해서 연구개발 단계에서부터 선제적으로 투자를 강화하며, 중장기 공급 대응을 위한 경쟁력을 제고해 나갈 계획입니다.
Also in addition to that, we are planning to increase the share of R&D investments as the memory nodes become further scaling. As we approach the cutting edge nodes, the difficulty of development is increasing rapidly. Given the situation, we believe that we need to increase the investments preemptively from the R&D phase in order to strengthen our quality and also develop our cutting edge products timely. This will be another way to enhance our competitive edge in responding to mid to long term supply.
Uh, 이처럼 당사는 어, 단기 생산 계획은 하향 조정했지만, 어, 필수 클린룸 확보를 위한 인프라 투자를 어, 지속하고, 어, 기술 리더십 강화를 위한 R&D 투자 비중도 확대해 나가며, 어, 중장기 수요에 대한 준비를 철저히 해 나갈 것입니다. 어, 다만 어, 매크로 경기와 지정학적 이슈 등 어, 외부 요인에 따른 수요 외향성은 어, 당분간 상존할 것으로 예상되기 때문에, 어, 업황을 면밀히 확인하면서 어, 단기적으로 조정이 가능한 어, 설비투자는 어, 탄력적으로 실행할 계획입니다.
In sum, while we have lowered our production in the short term, we will continue to thoroughly prepare for mid to long term demand by continuing to make infrastructure investments to secure the necessary essential clean rooms. Also we will be increasing the share of R&D investment that will strengthen our technology leadership. Now that said, we do recognize that there will be some impact of geopolitical issues and the macro economy on demand for some time. Therefore, in terms of equipment investments, we will execute that flexibly by carefully watching the industry situation.
I'll take the question on MX. In Q1, year-on-year declines in market demand mainly concentrated in the mass market segment, were attributable to rising global interest rates and worsening economic indicators. Demand in the premium segment remained solid with slight growth. Our total smartphone shipments in Q1 decreased YoY, but grew quarter-on-quarter, and our revenue held up well compared to the market decline, thanks to a higher proportion of premium products and increased ASP, owing to flagship sales, especially the S23 series.
MX 질문에 대한 답변 드리겠습니다. Q1의 경우 모바일 시장 수요는 글로벌 금리 인상 또 경제 지표 악화로 인해서 매스 시장 중심으로 year-over-year 감소했지만, 프리미엄 수요는 소폭 성장하면서 견조함을 유지했습니다. 당사 Q1 스마트폰 전체 출하량은 year-over-year 감소했지만 quarter-over-quarter 성장했고, 또 S23 등 플래그십 중심의 판매를 추진함으로써 프리미엄 비중을 확대할 수 있었고, 또 ASP가 인상되면서 당사의 매출은 시장 감소분 대비 선방하였습니다.
The S23 series achieved higher sales in Q1 compared to its predecessor series, with favorable reviews from the market for the improved Nightography camera, gaming performance and sustainability factors, all boosted by our Share the Epic campaign. Within the S23 Series, the S23 Ultra portion of sales increased, and we continue to upsell by strengthening communication around our high storage models.
특히 S23 Series는 Share the Epic campaign에 따라서 향상이 된 Nightography camera, 게이밍 성능도 sustainability가 시장의 호평을 얻어서 일분기 매출이 전작 대비 판매 성장을 달성했습니다. 시리즈 내에서도 최상위인 Ultra 모델의 판매 비중이 확대되었고, 또 대용량 스토리지 모델 중심의 커뮤니케이션 강화를 통해서 업셀링을 추진했습니다.
Regarding profitability, we secured a double-digit operating profit margin through continued efforts on increasing operational efficiencies throughout the whole R&D, manufacturing and logistics processes. Tablets and wearables also contributed to the improved overall profitability in Q1, with continued solid sales and operation streamlining, even though no new product was launched. In Q2, we will continue to proactively address the premium and mass market segments with efficient product lineup operations in each geography and our upselling strategy, which together with continued optimization and efficiencies, we are aiming to maintain double-digit profitability.
더불어서 개발, 제조, 물류 프로세스 전반에 걸친 효율화 지속으로 두 자릿수 이익률을 확보하며 수익성을 개선했습니다. 태블릿이나 웨어러블도 신제품 미출시에도 불구하고 견조한 판매를 지속했고, 운영 효율화로 1분기 전체 수익성 개선에 기여했습니다. 2분기의 경우 역시 지역별 모델 운영을 효율화하고, 업셀링 전략을 통해서 프리미엄 및 매스 세그먼트 모두에 적극 대응하고, 지속적인 운영 효율화를 통해 두 자릿수 수익률 유지를 위한 노력을 하겠습니다.
네, 답변 감사합니다. 다음 질문 받겠습니다.
The next question will be presented by JJ Park from JP Morgan. Please go ahead with your question.
저도 질문이 2가지 있는데요. 메모리 쪽에 그 DDR5 수요 현황 관련해서 좀 공유를 부탁드리겠습니다. Sapphire Rapids 출시 이후에 수요가 좀 의미 있게 증가됐는지 궁금하고요. 두 번째는 DS Division에 아까 그 presentation 때 8.6 fab 투자 그 말씀하셨는데 이게 fab이 언제쯤 mass production이 되는지 궁금하고요. Capa가 어느 정도 되고 그다음에 기존에 있는 Q1 라인이랑 overlap이 될 것 같은데 요 8.6 fab에서 생산되는 제품이 IT랑 TV인지 아니면 IT만 하는지 믹스 좀 설명 부탁드리겠습니다?
I have two questions. The first question is about the DDR5 demand. Can you give us a bit more update on the DDR5 especially? Have you seen an uptick on demand since the release of Sapphire Rapids? Second question is about the OLED 8.6G line. You've mentioned the investment into this during your presentation. When would be mass production from this line, and how much capacity are you planning? I'm wondering whether there will be some overlap in terms of product coverage by this line and your existing lines for TV. This new 8.6G investment that you're planning, would it only be addressing IT applications or would it also cover TVs?
Regarding your question about DDR5 demand, there is a bit of uncertainty still around DDR5 demand, given that customers' plans of adopting the new CPU platform that supports DDR5 is still fluid. As of now, we are seeing low 20% grow, we are seeing growth of DDR5 demand. As of now, of the entire demand for DRAMs, that's for PCs as well as server DRAM, DDR5 share has come up to around low 20% as of 2Q, which is in line with original expectations. Now this switch to DDR5 does come with inherent bit production reduction because of the chip size penalty.
On the demand side, because it's a new product, there is still a low initial market inventory, and we expect there to be an increase, additional increase in demand in the second half. In line with this expected growth of DDR5 demand, we are planning to accelerate the node migration for DDR5 products to further enhance our product competitiveness.
Display 부분 답변드리겠습니다. 8.6G IT OLED line 투자에 대한 질문을 주셨는데요. 먼저 제가 배경, 투자 배경에 대한 설명을 간단히 드리고요. 질문하신 부분 일정하고, 저희 지금 현재 보유하고 있는 QD-OLED TV 라인과의, 그런 운영 방향에 대해서 좀 설명드리겠습니다. 먼저 배경 설명을 좀 드리면, OLED IT 제품의 경우에는, 고화질 화면이 필요한 작업하고 콘텐츠 소비 시간이 점점 늘어나고 있습니다. 이러한 수요에 대응하기 위해서, OLED를 채용해서 제품 차별화를 꾀하고자 하는 제휴사들이 점점 늘어나고 있고요. 특히, 스마트폰에서 이미 OLED 사용이 익숙해진, 사용자들이 IT 제품에서도 동등한, 수준을, 요구하는 경우가 점점 많아지고 있습니다.
어, 이래서, 어, 당사는, 어, 이러한 IT 제품 대응을 위해서 수년간, 어, 대형 기판 기술, 그리고 저원가 기술, 그리고 친환경 기술 그리고 Oxide 등, 어, 원가 경쟁력을 갖춘 대량 생산, 어, 기술을 개발해 왔고, 어, 최근 어느 정도 이러한 기술들이, 어, 저희가 목표로 한 목표에 성숙한 기술, 어, 수준에 도달했다라는 판단을 해서 투자를 결정하게 되었습니다.
Your second question was about the 8.6 G OLED investment. I would like to give you a bit more background to why we decided this investment before answering your questions about specific schedule, mass production schedules, or how this will work with our existing QD-OLED TV capacity. In the case of OLED for IT products, as people spend more time consuming content on IT products and also as they do more work that requires higher picture quality, there is a rapid demand growth. Even the OEMs are continuing to adopt OLEDs more on their IT products as a differentiating feature. Also, it's that users are demanding for similar picture quality as they are used to on their smartphone. They want to see the same picture quality on their IT products.
Given this expected demand growth, we have been developing for several years, production, mass production technology that has cost competitiveness. We have been working for several years on developing, for example, the large size substrate technology, low cost technology, eco-friendly technology and Oxide technology to do this. We have decided to make this investment believing that we have reached a certain level of mature technology. You've also asked about details of timeline.
Given that we are the first to try this technology first time in the world, rather than asserting fixed milestones in terms of future timeline, we are estimating considering the level of technology we have developed, that we will be able to operate this line on a full-fledged scale within two to three year timeline from investment. In terms of capacity, the product that we will be producing in terms of size is roughly around 2 x the size of a 6G glass. In terms of capacity, we are expecting that we'll be able to produce volume that would be corresponding to around 10 million notebooks or tablet PCs, laptops or tablet PC OLEDs a year.
We also are planning to make our production cost competitive on these 8.6G line versus our existing 6G production line. We have learned from our smartphone experience that such preemptive investments give us the advantage over competitors by allowing us to get the head start in terms of completing the core supply chain management and also gaining the knowhow of materials and development. In addition to the smartphones, by making this bold investment, we will focus on successfully expanding the OLED to other applications, including IT products.
The last question will be presented by Dong-Won Kim from KB Securities. Please go ahead with your question.
My first question is about the memory business. In terms of technology competitiveness, what kind of preparations are you making? Where are you focusing on in terms of technology competitiveness, and what are you preparing for the next generation memory technology? Second question is about the display business. Recently, Samsung announced an OEM MOU with a European auto OEM, there is growing interest into the displays automotive business. Can you give us some update and future outlook on your automotive display business?
To answer your question about our technology competitiveness, as you know, we have continued to strengthen our competitiveness around the cutting edge nodes. In the case of DRAM, the focus has been on preparing for the mass production of D1b products based on our EUV know-how.
That preparation for mass production is almost at the completion phase. We are planning this year to go to mass production within the year with the D1b based 32 Gb DDR5 product to lead the industry. On the NAND side, our schedule is to complete preparations for mass production for the eighth generation V8 node for not only 1 Tb, but also the 512 Gb within the second quarter. That will give us the condition. We will be prepared therefore to address not only the performance but also the value markets within second quarter.
On the solution side, we have prepared the full lineup for the enterprise as well as the data center server PCIe Gen 5, and we were the first in the industry to do so. Now regarding future markets, we're all continuing to make the necessary technological preparations to capture future markets. As you know, recently the generative AI has become the very hot topic in the IT industry. As a part of this, we are seeing an increased demand, especially around the high performance and high density DRAMs. Given this trend, in order to provide the best performance and highest density products on time and in line with the AI market needs and technology trends, we have already supplied the HBM2 and HBM2E products to customers.
We're currently delivering samples for the ultra low power HBM3, 8 layer and a 16 giga, that's 16 GB and the 12 layer 24 GB, and have already completed mass production. The HBM3 will be followed in the second half with the HBM3P product, which is the next generation that offers higher performance and density that the market is demanding. Now there's also the, with the generative AI server, there is a need for the high density TSV modules. Regarding the TSV modules, by using our high density products that uses the cutting-edge node technology, we are planning to strengthen our competitiveness of high density products for servers at 128 GB and above. Another area that we are looking at with quite a lot of interest is the CXL memory.
With the data processing volume expected to rapidly increase going forward, there is a growing need for CXL memory that has higher density and larger bandwidth as the industry starts to adopt this aggregated computing architectures. In fact, starting from this year, we are seeing an increasing sample inquiries from customers for CXL products and overall growing interest in the market. As market interest in CXL increase, we have already completed development of the 512 GB CXL DRAM last year, first in the industry. Also are currently preparing a lineup of CXL products based on CXL 2.0 across different densities. We're also currently developing an SSD based on CXL.
This is an example how, of how we continue to diversify our memory solutions in according to customer demand. We will continue to focus on enhancing our technology competitiveness to respond to future market opportunities. Your second question was about the automotive OLED, the display business. As you know, recently with the increase of electric vehicles, EVs, there is a rapidly increasing adoption of OLED panels on the vehicle itself. With the increased penetration of EVs, the vehicle itself is changing from a means of mobility to a smart space where the passengers can enjoy entertainment. The most recent vehicle designs are adopting end-to-end full size displays, and the display itself is becoming a more important part of the vehicle interior.
Regarding our plans of developing the automotive display business, we are planning to pursue that by leveraging the technology we have already secured by our smartphone display business. We're currently in active communication with key global automotive OEMs, including those in Europe, U.S., China, and Japan. We are planning to actively promote the technologies that we have already developed and have been proven in the smartphones on auto applications. For example, this will be whole displays or under panel cameras and other technologies that have been adopted in the foldable displays. The automotive industry, we believe, emphasizes stable supply given that an auto project is a very long-term business. In terms of such stable supply capabilities and sustainable business ability, we believe that we have an advantage compared to competitors.
For example, we have the largest OLED capacity in the world and have very stable financial strength. This is an advantage compared to competitors. By leveraging the advantages and strengths that we have that I've just described, we plan on securing a firm market leadership in automotive area by increasing the adoption of OLEDs in automobiles.
Finally, we will answer questions that were submitted online in advance. We have been accepting questions via our web page in advance of an earnings release as part of our efforts to strengthen communication with individual investors and enhance understanding of the company. We have received a wide variety of questions for this quarter. I believe the majority of the submitted questions were sufficiently answered during the Q&A session.
We will answer one more question on a topic that garnered a high level of interest from our shareholders, but was not addressed during the Q&A session. That question is the following: What are the major ways to strengthen competitiveness, such as raising the company's hardware specifications to cope with the mid to low price market? Please explain a major strategy such as price and marketing to boost demand. This will be answered by VP Daniel Araujo, representing the Mobile eXperience.
Sure. We're strengthening our product competitiveness in several ways that consumers will really be able to feel, including raising the hardware specifications of the A series and expanding our premium software experience and design. We're upgrading the AP in all models, which is core to the smartphone experience. We are also upgrading the camera and display by model, especially for the A54 5G, which has a big pixel camera sensor that's usually just deployed in our flagships, which enables a high quality and low-light camera experience. We're strengthening the Galaxy's core software experience, which is based on One UI 5.0, and the Galaxy design identity is being applied to all models of the 2023 A Series.
In Q2 in particular, we'll respond to the market contraction by focusing on the new A54 and A34, which can become mega hits with their improved product experience and an upselling strategy centered on high capacity storage. We'll also collaborate more closely with local mobile carriers to highlight the fast 5G connectivity of the A series for our customers, focused in areas where the 5G conversion rate is high, like Europe, Southeast Asia, Southwest Asia and Latin America. In terms of marketing, we're running our Awesome campaign to communicate in a fun and intuitive way to MZ consumers about core experiences like our large displays, high-end cameras, high-capacity batteries, waterproofing and dustproofing, security and OS upgrade support.
We'll continue to reduce the purchase burden on consumers while also boosting demand by setting competitive retail prices and operating purchase support programs like Samsung Trade-In and student offers tailored to each model and region, and considering exchange rate effects and the local situation.
I would like to thank everyone who shared their valuable opinion. We will be sure to refer to them in our decision-making process. That completes our conference call for this quarter. We wish you all, and those close to you, stay strong and in good health. Thank you.