Hello everyone, and welcome to the Samsung Electronics 2026 third quarter financial results conference call. I will be your coordinator. All participants will be in a listen-only mode until we open the question- and- answer session following the presentation. As a reminder, this call is being recorded. I would now like to turn the conference over to the Investor Relations team. Please go ahead.
Welcome, everyone. I would like to thank our shareholders and analysts for joining us from all over the world for our third quarter 2026 earnings call. I am Daniel Oh, Head of Investor Relations, and it is a great pleasure to have you all with me today. Please be advised that all materials from today's call, including the presentation slides, will remain accessible on our IR website. Also, please be aware that today's remarks may contain forward-looking statements that could differ from actual results. For the full legal disclaimer, please refer to the presentation slide. For our agenda today, I will start with our third quarter financial performance and an update on CapEx, followed by our CFO, Soon-Cheol Park, who will discuss our outlook and shareholder returns. The Executive Officers from our different businesses will then share their respective results and outlook.
We will end the presentation with a Q&A session, and we anticipate the call will last about an hour. The Executive Officers with us today are EVP Soon-Cheol Park, our CFO, EVP Jaejune Kim from Memory, EVP Jason Shin for System LSI, EVP Sukchae Kang from Foundry, EVP Choi Suh with Samsung Display, VP Daniel Araujo representing MX, and VP Won-uk Kim for Visual Display. Now, let us begin with our financial results for the third quarter. Driven by record results in the Memory business, Samsung Electronics reached new highs in both revenue and operating profit for the fourth consecutive quarter, delivering total revenue of 195.3 trillion won and operating profit of 107.4 trillion won, both sequential increases of 14% and 20% respectively. As a result, we became the first global tech company to post a quarterly operating profit of over 100 trillion won.
Also, our operating margin improved to 55%, up from 52% in prior quarter. R&D expenses totaled 14.4 trillion won, as we continued to actively invest in future growth. Net profit rose 5% sequentially to 75.1 trillion won, and earnings per share reached new heights of 11,462 won for common shares and 11,492 won for preferred shares, both up 6% from the previous quarter. In the DS division, Memory set another quarterly record while expanding HBM4 sales and meeting strong server demand. System LSI faced headwinds from weak mobile demand, while Foundry continued its earnings recovery, supported by growing sales from advanced nodes. In the DX division, the MX business recorded year-on-year revenue growth driven by new models such as Galaxy Z Fold 8, even as higher component costs kept business conditions challenging.
On currency effects, weaker exchange rates for the USD, EUR, and major other currencies had a negative impact of around 10 trillion KRW on operating profit compared with the previous quarter, mainly in our component business. The executive officers with us today will discuss their results in more detail shortly. Moving on to capital expenditures. CapEx in the third quarter was 29 trillion KRW, an increase of 12.2 trillion KRW quarter-on-quarter and 19.8 trillion KRW year-on-year. Of this total, 27.2 trillion KRW was invested in the DS division, while 1.1 trillion KRW was invested in display business. Over the first nine months of this year, CapEx totaled 56.9 trillion KRW, up 24.7 trillion KRW year-on-year, of which 52.8 trillion KRW was allocated to DS division and 2.4 trillion KRW to the display business.
For the full year of 2026, we expect total CapEx to reach 84.4 trillion KRW or 31.7 trillion KRW increase from last year. Of this amount, CapEx is projected to rise by 29.3 trillion KRW to 76.8 trillion KRW for the DS division and by 1.1 trillion KRW to 3.9 trillion KRW for the display business. By business, in Memory, full year CapEx is expected to increase sequentially as we invest in new fabs and other infra-AI demand and ensure readiness for the mid to long term, consistent with our approach of aligning investment with customer demand. In the foundry business, we also expect annual CapEx to increase, focused mainly on our Taylor fab in the U.S., positioning us to meet the needs of fast-growing AI and HPC market, and respond to customer demands in a timely manner.
In the display business, full-year CapEx is expected to increase, reflecting upgrades to existing production lines. Now I will hand the call to our CFO, Soon-Cheol Park, who will discuss our outlook for the fourth quarter and 2027, as well as shareholder returns.
Thank you, Daniel. Good morning, and thank you for joining our third quarter 2026 earnings call. I am Soon-Cheol Park, CFO of Samsung Electronics. Despite the rapidly shifting global market conditions, Samsung once again delivered record quarterly results backed by our differentiated technologies and nimble response to market changes. We also reached a historic milestone, becoming the first-ever global tech company to exceed 100 trillion KRW in quarterly operating profit. This achievement demonstrates both the strength of our technologies and our ability to sustain growth. Our approach remained fully focused on developing next generation technologies and further advancing our leadership in the global market. Turning to the outlook for the fourth quarter and 2027. In the fourth quarter, we expect to continue delivering company-wide earnings growth, supported by strong performance in the DS division.
However, the DX division is expected to face ongoing pressure from macroeconomic uncertainty and rising component costs. Starting with the DS division, we expect robust semiconductor market demand to continue, driven by the rapid spread of agentic AI. In memory, we will solidify our market leadership by expanding sales of HBM4, high-performance DDR5, QLC SSDs, and server SSDs based on our industry-leading products and unmatched scale. In System LSI, we will advance our flagship SoCs and also shift our revenue mix toward higher resolution products by increasing sales of 200-megapixel image sensors. In foundry, we aim to accelerate earnings growth through the scaling of mass production at our advanced 2nm and 4nm nodes, while we continue to win new orders for 2nm products.
In the display business, while demand uncertainty is expected to persist due to rising memory prices and other factors, we will meet demand for premium products through our industry-leading mass production. In the DX division, our priority is overcoming profitability challenges by expanding premium product sales during the year-end peak season and improving operational efficiency. We will drive sales of our key products by offering distinct AI user experiences and a broad range of sales support programs, while improving our sales mix by targeting premium demand. In addition, by quickly adjusting our sales and channel operations in response to market trends and cost pressures, we will improve our cost structure and drive greater efficiency across the entire value chain. Next, let me turn to our outlook for 2027. In 2027, we expect the semiconductor market to remain strong, supported by historic AI investment and supply constraints.
Driven by strong growth momentum in the DS division, we are positioned to exceed our 2026 performance and achieve another year of record results. Meanwhile, the DX division is expected to face continued profitability from rising component cost and other business environment factors. In the DX division, memory demand will far exceed supply due to robust AI investment, while growth in foundry is expected to accelerate. In memory, as AI infrastructure investment continues to grow, we will lead the HBM market by expanding HBM4 sales, followed by mass producing HBM4E, while also driving sales of high-value products such as high-performance DDR5, high-capacity QLC, and eSSDs. With these efforts, we will bolster our market leadership through our superior technologies. In System LSI, we will secure new customers for custom SoCs and expand sensor applications beyond mobile devices.
In foundry, growth will be driven by the ramp of mass production at our Taylor fab in the U.S. and for 2nm AI and HPC products. In the display business, we will utilize our technologies to expand sales of premium products, including foldables, and solidify our market leadership by growing our IT OLED business based on our Gen 8.6 production line. In the DX division, innovations in AI product experiences and a stronger profitability structure will bolster the foundation for future growth. We will expand the agentic AI experiences across the spaces and the devices in everyday life, and the combination of our hardware innovation and enhanced performance will reinforce our leadership in the premium market. Moreover, we will diversify our revenue streams by growing high-margin businesses such as services and platforms, and rapidly improve our business fundamentals through AI-driven innovation and improved resource efficiency.
Next, let me address the shareholder returns. Today, the board of directors approved a third quarter cash dividend of 4,601 Korean won for both common and preferred shares, including the regular dividend of 376 Korean won per share. As announced in August, the total dividend for the third quarter will be 33 won, including the regular dividend, on our three-year shareholder return policy for 2024 to 2026, and it is scheduled to be paid in November. Next, I will update our shareholder return plan for the rest of 2026. Of the estimated 90 to 110 trillion won in total shareholder returns for 2026, and with 35 trillion won already planned or completed, including the 33 won cash dividend approved by the board today, we anticipate the remaining funds for shareholder returns to be 55- 75 trillion won.
In detail, for these remaining resources, our commitment is to return the amount to shareholders through cash dividends as well as a substantial share repurchase and cancellation program. We are also holding in-depth discussions on the next shareholder return policy, which will take effect in 2027, aiming to achieve both sustainable growth and enhanced shareholder value. In addition, we recognize the growing market interest in the price gap between common and preferred shares, and we are committed to actively considering and adjusting the proportion of preferred shares in our share repurchase and cancellation program based on market conditions with a view of ensuring equal respect to all other shareholders, optimizing capital allocation, and enhancing corporate value.
The new shareholder return policy, along with the final amount of shareholder returns and the specific execution plans for the remaining funds for 2026 will be finalized at the board meeting scheduled for late January 2027, with an announcement to follow. Thank you.
Thank you, CFO. Now I would like to invite our executive officers from different businesses to provide updates on their respective business units. We'll begin with Jaejune Kim, EVP of the Memory business.
Good morning. This is Jaejune Kim from Memory Global Sales and Marketing. In the memory market in the third quarter, the demand remained robust, driven by AI application. In particular, with the full-scale adoption of agentic AI, there has been an additional demand increase, mainly for products related to the AI infrastructure expansion, such as HBM, RDIMMs, and server SSDs for AI and conventional servers. Thus, in order to meet the increasing demand for AI, we significantly expanded the sales of HBM4, leveraging our industry-leading product competitiveness, and also actively addressed the growing demand for server SSDs. Regarding our shipment in the third quarter, DRAM increased by low to mid-single digit percentages compared to the previous quarter, and NAND increased by mid-single digit percentages. In the third quarter, market price rose across all applications, mainly driven by server applications with strong demand momentum.
Therefore, compared to the previous quarter, our DRAM ASP rose by 20% level, and our NAND ASP also increased by the high teens percentages. In the fourth quarter, while infrastructure investments within the AI industry continue to grow, memory demand is further expanding, particularly for the products linked to CPUs and GPUs, which will be newly launched. On top of that, on the NAND side, we have received additional QLC demand in a large volume, in conjunction with a surge in storage demand triggered by the expansion of cloud-based personal AI agent services. Despite our effort to increase production, demand growth continue to outpace this, and we plan to maintain our supply response focused on AI applications where demand momentum is strong. In particular, we plan to address market demand by additionally increasing the sales portion of HBM, server DRAM, and SSDs.
Therefore, in the fourth quarter, we expect QoQ bit growth to increase by mid to high teen percentage for DRAM, and mid-teens increase for NAND. Now let's move on to the outlook for 2027. In 2027, we expect some demand adjustment for mobile and PC applications. On the other hand, under the trend of expanding the AI ecosystem next year, we expect investment for AI server infrastructure to accelerate as major hyperscalers increase their data center investment and AI frontier customers build out their own data centers. In this situation, we aim to continue preemptively optimizing our product mix across both DRAM and NAND, considering the changes in demand by applications as well as the voice of customers.
First of all, for DRAM, while expanding sales of HBM4 based on our technology leadership, we plan to start mass production of HBM4E in the first half of next year and proceed to ramp up mass volume in the second half. Also, we will continue to lead the high-end product market by proactively responding to the server demand for high-speed DDR5 with 8,000 Mbps and above performance. For NAND, we will continue to strengthen our portfolio, focus on AI-related products such as PCIe Gen6 server SSDs, high-density QLC SSDs, and so on. Thank you.
Good morning. This is Jason Shin from the System LSI business. In the third quarter, overall demand in the mobile and the IT market declined as the impact of set price increases driven by the rising component prices persisted. However, we continued our quarterly revenue growth, driven by the adoption of our SoC in new models and expanded sales of 200-megapixel image sensors. In custom SoC, we established business partnership with new customers and achieved a tangible result by securing projects. Looking ahead, the slowdown in mobile demand is expected to continue through the fourth quarter and into next year. Smartphone market projected to decline and the trend toward fewer mid to low-end models expected to persist. Even in such challenging market conditions, we will focus on improving our business fundamentals and securing profitability by diversifying applications and expanding our customer base.
For SoC, we will focus on enhancing our performance competitiveness and driving stable sales of new flagship products while pursuing new customers for custom SoC. For image sensors, we will advance our high-resolution focus business portfolio by expanding the adoption of 200-megapixel sensors, and pursue mass production of new products for next year's major flagship projects, as well as expansion into non-mobile applications. Overall, we will continue to evolve toward higher value-added business by leveraging our competitiveness in mobile, and to explore new business opportunities to accelerate sustainable growth. Thank you.
Hello, everyone. This is Sukchae Kang from the Foundry business. In the third quarter, revenue increased quarter-on-quarter, driven by growth in 4nm HBM base die sales and maximized advanced node sales to global customers while earnings improved significantly. We also continued to secure 2nm orders centered on HPC customers, including large hyperscalers.
In the fourth quarter, we will begin mass production of new mobile products on our second generation 2nm process and ramp up full-scale 4nm MPU production for a major customer. Together with expanded memory sales and sales growth at key U.S. and Chinese customers, we expect double-digit revenue growth both quarter-on-quarter and year-on-year. Growth in high-value advanced node revenue and improved utilization across all nodes are expected to drive continued earnings improvements. From an order perspective, we expect our 2nm project orders to more than double in 2026 versus the prior year, further solidifying our foundation for mid to long-term growth. Looking ahead to 2027, backed by sustained AI demand, we expect revenue growth centered on our 4nm and 2nm advanced nodes.
In particular, 4nm revenue is projected to increase, driven by expanded AI HPC sales to major U.S. customers and solid memory demand. In addition, we will commence mass production of new products for major 2nm customers in the second half of the year. Together, these factors are expected to significantly improve advanced node utilization. Furthermore, as demand across all nodes below 8nm is projected to substantially exceed production capacity, we expect them to be running at over 100% utilization. To meet this explosive demand, we are pursuing continuous capacity expansion for our 8nm, 4nm, and 2nm nodes, and we plan to strengthen our global supply capability with the start of operations at our first fab in Taylor, Texas.
In advanced node, we will pursue yield stabilization for the 2nm node and the development of future process nodes in parallel while continuing to develop next generation base die optimized for AI memory. In mature nodes, we will enhance profitability by expanding high-value specialty areas such as silicon photonics and high-capacity silicon capacitors. Furthermore, we will strengthen our advanced packaging competitiveness, including the development of 3D stacking technology. Thank you.
Good morning. This is Choi Suh from Samsung Display. I will brief you on our results for the third quarter. For the mobile display business, revenue and profit increased quarter-on-quarter, driven by timely supply for major customers' new products. For the larger display business, earnings improved quarter-on-quarter, supported by high-end product and cost reduction. Now, I will share our outlook for the fourth quarter and 2027.
We anticipate year-end seasonal demand and new product launches. However, external factors such as exchange rate may affect earnings improvement. In the mobile business, we will expand our sales by actively responding to customer demand. In the larger display business, we will improve profitability through expanding gaming monitors. In 2027, while market demand is likely to be weak with ongoing uncertainties, we will strive to increase revenue by focusing on high- value-added products. For smartphones, as premium demand is projected to be relatively stable, we will expand our premium product mix, such as foldable. In IT, we plan to increase sales volume through the ramp-up of our 8.6G IT OLED line and strengthen product line-up continuously. For QD-OLED, we will strive to enhance profitability through ultra-large TV and gaming monitors.
We also aim to expand supply to handheld gaming and automotive markets, which will contribute to our performance next year. In addition, we will strengthen productivity and cost reduction to secure profitability despite the challenging environment. Thank you.
Hi, everyone. This is Daniel Araujo from the MX division. Let me share our Q3 results and future outlook. In Q3, continued memory price increases led to a quarter-on-quarter decline in smartphone market volume, mainly in the mid-to-entry segments, while market revenue grew, driven by higher ASP and greater mix of premium products. For the MX business, Q3 revenue reached 37.3 trillion won, and our combined operating loss across the MX and network businesses was 0.6 trillion won. New flagship launches drove revenue growth both quarter-on-quarter and year-on-year. In particular, the timely expansion of the Fold8 lineup, with form factors tailored to users' lifestyles, increased foldable sales volume and revenue year-on-year. Although profit declined year-on-year, it improved quarter-on-quarter, supported by higher ASPs from an improved flagship sales mix. Next, let me share our outlook for Q4.
Overall smartphone demand is expected to increase quarter-on-quarter due to seasonality, while mid-to-entry segments continue to decline and flagship competition intensifies. For the MX business, we expect Q4 revenue to decline quarter-on-quarter. We will drive sales centered on flagship products through a range of promotional activities for the year-end peak season, sustaining solid sales of the S26 series and foldables. For eco products, we will drive sales growth with new premium products during the peak season and bring a new form factor experience for the AI era with the launch of intelligent eyewear. While profit is expected to decline amid the challenging business environment, we will focus on mitigation through expanding flagship sales and improving operational efficiency. Next, let me share the market and business outlook for 2027.
In the smartphone market, higher prices to offset the impact of rising material costs are expected to cause unit volumes to decline, mainly in the mid-to-entry segments, while premium segment growth drives overall market value higher. Amid this uncertain environment, we aim to capture growing demand in the premium segment and maintain our smartphone leadership by focusing on three strategic priorities. First, we will improve our product mix centered on flagship models by delivering differentiated experiences tailored for each target customer segment. For the next generation S series, we will sharpen the distinct identity of each model based on the detailed analysis and understanding of segmented customer needs. For foldables, building on this year's timely lineup expansion, we will refine the user experience of each lineup in 2027. We will also advance user-centric Galaxy AI features to deliver richer agentic AI experiences that understand users' context and intent.
Second, we will enhance desirability and deliver tangible value through innovation in hardware and form factors. We will enhance everyday use through improvements in privacy display, battery, and AP performance while maintaining our leadership in thin and light foldables. We will continue to drive research in new experiences such as Glass, the Tri-Fold, and other innovative form factors. Third, we will respond swiftly to market changes and improve operational efficiencies to minimize profit declines. We will adapt our sales strategy with consideration for the cost environment, shift our mix towards high-capacity models, and streamline business processes to minimize disruptions to our earnings. With rising costs expected to keep business conditions challenging in 2027, we will strengthen our product competitiveness with a focus on customer experience and pursue efficiency initiatives across our operations to minimize the impact on profitability. Thank you.
Hello, everyone. I'm Won Kim, Head of Sales Strategy Group of Visual Display. Let me begin with the market condition and our results for the third quarter. In the third quarter, overall TV demand declined following the end of the major sporting event. Despite lower sales and ongoing memory supply constraints, we minimized the profit decline by expanding premium sales and improving cost efficiency. For the fourth quarter, TV demand is forecast to grow as we enter year-end peak season. We'll strengthen strategic partnership with the key channels and deploy differentiated marketing strategies to capture peak season demand. At the same time, we'll continue to expand premium sales to mitigate the impact of rising costs. Now, let me share our outlook for 2027.
Next year, while we expect overall TV demand to remain flat or decline slightly, we anticipate growth in the share of our focus on segments such as QD-OLED and large TV over 75 inch and above. Against this backdrop, we will focus on securing profitable growth engines by delivering unique experience beyond AI, as well as strengthening service and platform businesses. This is end of my speech. Thank you for your time and attention.
Thank you, all speakers. This brings our third quarter performance review to a close, and we will now proceed with a Q&A, which will be conducted in Korean. Our CFO, Soon-Cheol Park, will address any company-wide questions, while questions regarding business segments will be answered by respective business representatives. Operator?
We will now begin the Q&A session. If you have a question, press star and one on your phone. If you wish to withdraw your question, press star and two. The first question will be made by Dong Kim from KB Securities.
Yes, thank you. First of all, congratulations on record high performance. I have a question on your outlook for the memory market. For 2027, I think the dominant view is projecting that there will be a memory shortage next year. How about looking beyond 2027? What is your outlook for memory in 2028?
Yes, let me answer your question. In 2027, we saw competition accelerate surrounding the AI infra build-out, and also the spread of personal AI agents will also mean that memory will likely see a continued unprecedented rise in demand. On the supply side, however, new capacity additions are unlikely to boost bit production in the short term, and supply constraints are expected to continue, as we suggested during our Q2 conference call. Based on the views of various market research firms, tight supply conditions are expected to continue into 2028.
Thanks to strong performance in the industry in 2026, CapEx is expected to see a significant increase in 2027 across the broad market. However, due to various factors, it will likely be difficult for this higher CapEx to drive a bit production growth. First of all, much of the CapEx increase will be budgeted toward acquiring new space. Also, higher construction costs may be making the CapEx numbers look bigger than they actually are. Considering the long lead time from new fab construction to actual wafer production, the increase in CapEx in 2027 is unlikely to result in a meaningful boost to bit production in 2028. Similarly, for facility investments, higher equipment pricing due to supply constraints, plus upfront payments that are required to lock in supply, may be making CapEx appear bigger.
Longer order lead times on equipment may also make timely procurements more difficult, and this can constrain the capacity ramp-up plans of the memory suppliers. As HBM4E and HBM5 ramp and become more core products, their die sizes will be larger versus the previous generations, and there will be a significant increase in metal process layers. Amid the growing shift in bit production from conventional DRAM to HBM, I think this will act as a physical constraint on supply. It will be inevitable. On balance, with all things considered, we expect tight supply conditions to continue in 2028. However, various macro events can also impact market conditions. So we intend to make preemptive investments to secure clean rooms in advance, and then be flexible in terms of equipment installations as we closely observe and monitor demand changes in the market. This will remain our basic approach to supply.
Thank you very much. The next question, please.
The next question will be by Mr. Sunwoo Kim from Meritz Securities.
Yes, this is Sunwoo Kim from Meritz. I also have a question on memory as well. At your second quarter earnings call, I think you did provide a detailed status update on multi-year contracts. So I imagine there may have been many changes since then. To the extent possible, could you share some more details?
Yes. As we mentioned during our last earnings call, we seek to build a stable foundation for our business in the long term, and have executed multi-year supply contracts with certain customers, and are in negotiations with several others. In terms of the number of customers under multi-year contracts, we've already concluded contracts with 10 major accounts.
The number of other customers seeking more substantial long-term memory supply are increasing as well. At present, we are in talks with 10 other major accounts for multi-year contracts, and we are near the final phase for several of these clients. What is most noteworthy is that there's growing need among our clients for long-term stable supply. The scope of customers who are interested in multi-year contracts is increasing beyond hyperscalers or server OEMs and SoCs who are directly related to the growing AI services sector. It's now expanding into other diverse applications like mobile, automotive, and network. As a result, our target of increasing our multi-year contract mix to 60%-70% of our mid to long-term capacity is gaining greater visibility.
As we ramp up multi-year supply agreements further, they will help us significantly in establishing a more stable contract-backed business model over the long term. Let me update you a little bit on our existing multi-year rolling contracts. As explained before, our multi-year contracts are structured on a rolling basis, which means the contracts can be extended through annual negotiations after the initial contract term. We are close to finalizing discussions on additional contract extension periods with some of our customers that we have already signed contracts with. We are also seeing much stronger demand for additional extensions than we had initially expected. Also, we have been receiving requests for additional supply for periods that are already covered under existing contracts.
We are reviewing our production capacity over the mid to long term, but given the limitation of our current capacity, we are exploring diverse scenarios from different angles, including a potential shift in our product mix across applications to meet demand.
Thank you. Next question, please.
The next question will be by Junhui Li from Goldman Sachs.
Yes, thank you for the opportunity to ask a question. I have a question on Foundry, and SDC as well. Congratulations, by the way. For Foundry, please provide an update on your advanced nodes design wins from large customers. The market response has been quite strong for your new foldable smartphone products this year. Many are expecting an increase in foldable panel shipments next year. So what is your outlook on the SDC market and your business strategy?
Yes, let me take your Foundry question. To update you on our customer awards, same as in the second quarter, we have secured 2nm projects from large CSPs and AI HPC customers in Q3 as well, as we continue to expand our contract wins and our design win portfolio across advanced process nodes. Notably among advanced node projects, our 2nm awards have increased significantly. We expect the number of 2nm projects to grow by more than double year-on-year. In the future, we intend to strengthen our LTA-based strategic partnerships with major advanced node customers to build a more stable business portfolio. We will diversify across more applications as well. Demand for AI HPC products is strong and growing, and we expect HPC share to increase to more than 50% of our total sales mix. Thank you.
I will answer the question on display. The new foldables launched this year have received positive market feedback for their slim designs and improved durability, and our foldable panel sales have remained strong. In 2027, through continued tech innovation, including in screen creases and strength, we are preparing to bring foldable smartphones one step closer to mainstream adoption. However, concerns over higher device prices due to memory supply issues continue to pose a risk of weaker demand. Nevertheless, with the wider adoption of AI features, we expect demand for foldables, which offer both large screens and portability, to keep growing. Based on the technologies we have built since we began mass producing foldables in 2019, we will keep widening the technology gap with competitors. Also, through a stronger customer base and stable panel supply capabilities, we will continue to lead the growth of the foldable market. Thank you.
Next question, please.
The next question will be by Mr. Seicheol Lee from Citi Securities. Please go ahead.
Yes, this is Seicheol Lee from Citi. I understand that you are the first globally to achieve operating profit of KRW 100 trillion. Congratulations. I have a question for Mr. Jaejune Kim on HBM. Unlike last year, I think this year HBM4 sample feedback actually has been quite good, and I think we can look forward to strong sales coming for HBM going forward as well. Could you provide a status update on your HBM business? How are your negotiations for 2027 proceeding also for HBM?
Thanks to differentiated performance of our HBM4 sales increased by more than three-fold QoQ in the third quarter. Also HBM4 mix increased to 60% of total HBM sales. This is consistent with our HBM4 sales target, which we shared with you at our second quarter earnings call.
Thanks to these solid results in HBM4, we have actually achieved our goal of bringing HBM market share in line with our overall DRAM market share already in the third quarter. This is ahead of our original target, which was the second half of the year. For our next gen HBM4E, we were the first in the world to ship out samples early in May, and have been receiving positive initial feedback. As our competitive HBM offerings continue to receive high marks, our 2027 HBM supply volume is already sold out at an agreed target price that reflect our product competitiveness. Yet, we continue to receive requests from key customers for additional supply. We will continue to leverage our leading-edge technology and proven mass productivity to prepare and deliver products that meet our customer needs on a timely basis and strengthen our HBM market leadership.
Thank you very much. We will move on to the next question then.
The next question will be by Mr. Jay Kwon from JP Morgan Securities.
Yes, congratulations on a great performance. I have a question for memory and also MX. Recently, agentic AI like OpenAI's dots or Meta Muse or Gemini Spark, custom AI agents are expanding into personalized AI at full scale. What is your outlook on this type of development driving NAND demand, primarily for server SSDs? Also, we're seeing continued cost pressure weighing on key components, including memory. What have you been doing to boost profitability and what are some achieved outcomes? What is your market outlook for 2027 given the various challenges? If you could provide some details on your outlook, strategy, and also key initiatives.
Let me cover the NAND question first. Yes.
With the recent spread of agentic AI, we are seeing meaningful increase in demand for server SSDs. We believe agentic AI is impacting NAND's demand in two respects, mainly. First, as agentic AI becomes more widely adopted, key value cache requirements are also growing exponentially. As AI models increase in size, context windows are expanding, leading to more KV cache, which is already very well known. With the rise of agentic AI, key value cache is growing much faster than simpler conventional chatbot-based AI services during computing. Consequently, this explosive growth in KV cache is creating additional demand for high performance, high capacity TLC SSDs to handle increased KV cache volume. Also, with the introduction of cloud-based personal AI agent services, we have observed a new trend of physically allocating dedicated virtual machines to individual users in the cloud.
We're seeing a growing preference for QLC SSDs to reduce service latency and improve throughputs. As a result, as the number of personal AI agent service users increases, we expect a proportional increase in QLC SSD demand as well. We expect increased demand not only for TLC-based Gen6 SSDs, where we have established early leadership, but also for high-density QLC SSDs as well as our NAND portfolio becomes more diversified. This will likely bring greater stability to our business. We have been expanding sales not just for TLC-based high performance, high density PCIe Gen6 SSDs that improve KV cache utilization, but also high density QLC SSDs, which are required for personal AI agent services. Notably, our V10 TLC product based on bonding technology is now production ready as of the third quarter.
We're preparing for the commercial launch of our 256 terabyte product early next year, which is based on V9 2 terabit QLC featuring 32-layer stacking technology. In the era of agentic AI, we'll be able to address customer needs not only in HBM and server DRAMs, but also in storage, offering a very diverse range of solutions while strengthening our business competitiveness.
Let me address the question on MX. We've seen that the demand for AI server memory has surged, leading to a shortage of mobile memory since the fourth quarter of last year, and prices have continued into the third quarter and impacted our profitability.
Thanks to the successful launch of premium products like the Fold8 and Galaxy Watch Ultra2, along with our ongoing cost reduction efforts, we were able to improve our profitability compared to the previous quarter. Looking at the fourth quarter, we expect the business environment to remain challenging for the whole industry as memory prices remain high. To minimize that risk, we plan to focus on improving our product mix by prioritizing higher-end products while continuing our various cost reduction efforts. We expect these heightened raw material prices to persist into 2027. We also expect the trends we are seeing in 2026, where shipment volumes are declining, but market value is growing, to carry over into 2027. We're working to outperform a market that is contracting in unit terms.
In the second half of the year, the low-end market has shrunk and competition has intensified, making the overall business environment more difficult. Because of this, in 2027, we aim to drive both quantitative and qualitative growth by improving our profit structure, specifically focusing on our top-tier models. First, for our flagships, we will provide a truly differentiated experience to encourage repurchases from existing customers and attract users of our competitors, which will expand our premium installed base. As for the mid to low-end market, we are redefining the role of each product by price point. Also, by leveraging the stable supply of our entry models to strengthen partnerships with our carriers and distribution partners, we can create more opportunities to upsell customers to our mid and high-end devices. Thank you.
Thank you. We'll move on to the next question, please.
The next question will be by Mr. Simon Woo from Bank of America Securities. Please go ahead.
This is Dong-je Woo from BoA. I have a question on your foundry business. As you significantly increase your order wins, you may experience some shortage in capacity. Are you planning any additional capacity expansions for either Korea or the U.S. market? If you could elaborate, I would appreciate it.
Yes, thank you. Let me answer your question on foundry. Regarding our capacity expansion plans for advanced nodes, demand is growing faster than the pace of capacity expansion. As the 2nm AI HPC market, as well as customer demand grow very rapidly, we are looking to increase investments in new fabs in the U.S. and Korea, to provide a timely response.
We want to build out not only logic fabs, but also advanced packaging capacity as well on a timely basis to establish more of an integrated ecosystem from leading-edge process technology to ultra process scaling to packaging as well to enhance our ability to respond to market demand better in the era of AI. For the Taylor site, we have commenced clean room operations at Fab 1, started equipment installations, also wafer input for line setup is underway, and specialists have been sent from the head office, and the project is proceeding as planned. To meet future demand from global customers, we are evaluating further options to add capacity, including building additional fabs.
Thank you. We will move on to the next question.
The next question will be made by Dong Han from SK Securities. You may go ahead.
I am Han Dong from SK Securities. Thank you for the opportunity. I actually have two questions on a company-wide matter and System LSI. First, the recent decline in the dollar on exchange rate has been weighing on your earnings. Could you walk us through your FX hedging strategy and how you manage currency risk? Secondly, as growth in the mobile market slows and competition intensifies, major SoC players are restructuring their businesses. What strategies is the company considering to improve the fundamentals of its SoC business and secure a foundation for mid to long-term growth?
I will answer the question. With greater volatility in the U.S. dollar and other major currencies, the company is closely monitoring how exchange rate movements affect our earnings and financial position. Rather than using costly derivatives to artificially hedge, we focus on leveraging natural hedges across our global value chain to structurally minimize the impact of FX volatility. While fully hedging our annual dollar receivables with hundreds of trillions of KRW through derivatives such as FX forwards in Korea could disrupt the domestic FX market, and transaction fees alone could also create substantial opportunity costs. Therefore, we are matching the currencies of inflows and outflows and aligning the amounts of our assets and liabilities in each currency. Through these natural hedges, we are striving to minimize open FX positions.
For any remaining positions, we sell dollars early and take other steps to keep the FX exposure period as short as possible. Under this hedging strategy, we will continue to manage currency risk systematically and work to minimize uncertainty in our earnings from FX movements.
Thank you. Yes. I will answer the second question regarding System LSI. First of all, we are very well aware of the changing market conditions in mobile. Growth is slowing down, competition becoming more severe, and we are taking a multifaceted approach to improve our overall business as well as our product and customer portfolios. For mobile, on Exynos 2500, we have improved AI and gaming performance, working on new developments and production, all going according to schedule. We will continue to improve the competitiveness of our flagship SoC, which will allow us to increase our market share. We have entered into business partnerships with new customers for our custom SoCs, achieving new order wins.
We will leverage our strength as a total solution provider with full coverage from design and Foundry, memory and packaging, to drive new customer acquisitions and uncover business opportunities to strengthen our underlying foundation for future growth.
Okay, thank you very much for the answer. We will move on to the next question.
The next question will be by Mr. Sungkyu Kim from Daiwa Capital Markets.
Yes. Thank you for the opportunity to ask a question. I have one for Foundry and then another for MX. First, for Foundry, I have a question on the roadmap on your advanced nodes and your more mature processes, if you could give us a roadmap update. Given more intense competition, could you highlight what your technological differentiation may be? For MX, some of your competitors have been moving into the foldable phone market. The market is growing, but it is also fueling more intense competition. What is the likely impact from this change on your MX business? Again, what is your differentiation strategy to maintain foldable leadership?
Okay, we will answer the Foundry question first. A status update on advanced nodes. We are expanding our 2nm portfolio beyond its existing mobile focus toward HPC. Our next-gen 2nm processes will be centered around DTCO, which is design technology co-optimization for improved performance and power efficiency. Meanwhile, we are exploring options to maximize use of our existing infrastructure. We are in talks with multiple customers on our most advanced 1.4nm processes and are in close collaboration with several customers, with final plans for a test chip development with a customer.
For mature nodes, we are streamlining our portfolio by phasing out low margin and inactive nodes while identifying high-value opportunities with higher barriers to entry. By nodes, we are expanding our business with a focus on automotive applications for 5nm, supporting Tier 1 customers across a range of applications for 8nm, and focusing on memory interface solutions for 14nm, and CIS for 17nm. We are building a differentiated competitive advantage through strong synergies between our Foundry and memory businesses. By jointly developing an HBM4 base die based on the 4nm process, we together have achieved industry-leading HBM4 performance. Notably, we also achieved industry-leading base die yields in the Foundry industry, although we are still early in mass production. Building on our extensive expertise in memory electric technology, we are also accelerating development of silicon capacitor technology.
We expect to achieve industry-leading performance in the near future, already receiving volume requests from multiple major accounts. We aim to establish ourselves as a specialized Foundry provider, offering integrated services that combine advanced logic, memory, and advanced packaging. Thank you.
I'll take your question on foldables. It's inevitable that competition will heat up and the overall market landscape will shift as more players enter the foldable segment. But we actually see this as a chance to prove the value of the market we pioneered back in 2019, and to use this general market growth as a way to expand our own sales. With the Fold8 series that we recently launched, we expanded our lineup right when customers needed it, and as a result, we improved our product mix with a heavier weight on the Fold. It also allowed us to bring in a lot of younger users, as well as customers switching over from our competitors.
Moving forward, we're going to keep pushing our leadership in making foldables thinner and lighter, develop form factors that fit into people's actual lifestyles, and deliver a differentiated customer experience that people just can't get anywhere else. Also, by offering financing programs and other offerings to ease the purchase burden for our customers, we can expand the premium customer base around the S26 and Fold8. Thank you.
We'll take one more question due to time constraints.
The last question will be made by Lee Soo-rim from DS Securities. You may go ahead.
I'm Lee Soo-rim from DS Securities. Today I'd like to ask a question about Harman. Harman seems to be delivering relatively solid results recently. Could you explain what has driven the improvement and if you expect it to continue?
I'll answer that question. Despite tariff risks and rising memory prices, Harman continues to deliver results through synergies with Samsung Electronics, mainly in growth markets such as automotive and audio. In automotive, we are actively addressing growth areas such as telematics, which connects vehicles to external networks, automotive displays, and centralized controllers. In particular, starting this year, we've been ramping up telematics supplies to Volkswagen and other customers, helping support stable results. Also, amid increasingly fierce competition and a challenging business environment due to rising costs, we continue to enhance operational efficiency and pursue diverse measures to improve profitability.
In lifestyle, led by JBL, which marks its 80th anniversary this year, portable speaker sales remain strong. New product launches are also strengthening our lineup, supporting continued revenue growth across consumer audio. Harman is actively targeting the wireless earphone and headphone markets, which have strong growth potential. By leveraging Bowers & Wilkins, Denon, Marantz, and other globally recognized brands acquired last year, we are expanding our premium portfolio. Going forward, we will maintain a solid profitability-focused foundation while strengthening our brand portfolio and expanding our range of high-growth products. Also, through ongoing technological innovation, we will further solidify our standing as a leader in audio. Thank you.
That completes our conference call for this quarter. We wish you and your families good health. We sincerely appreciate everyone's participation today, and thank you.