Earnings Call: Q3 2020

Oct 29, 2020

Now we shall commence the presentation on the fiscal year 2020 3rd quarter earnings results by Samsung Electronics. Good morning. This is Ben He from Investor Relations. Thank you for joining our earnings call for the Q3 of 20 20. With me representing each of the business units are Mr. Han Jin Man, Senior Vice President of the Memory Marketing Team Mr. Shin Dong Ho, Senior Vice President of the System and SI Marketing Team Mr. Han Seung Hoon, Senior Vice President of the Foundry Marketing team Mr. Choi Kwon Young, Vice President of Samsung Display Mr. Lee Jong Min, Vice President of the IT and Mobile Business and Mr. Kim Won Hee, Vice President of the Visual Display Business. In addition, Mr. Kang Tae Gyu from Investor Relations is present on this call as well. I would like 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 all such statements are subject to certain risks and uncertainties that may cause our actual results to be materially different from those expressed in today's discussion. Before we begin and with great sadness, I would like to take a moment to reflect on our Chairman, Connie Lee, who passed away on October 25 with his family at his side. Chairman Lee was a true visionary who drove the historic transformation of Samsung from a relatively small electronics company into the global IT leader that we are today. In particular, his new management initiative in 1993 was a driving force behind his vision of delivering the best technology to help advance global society. All of us at Samsung will cherish his memory and everlasting legacy. With that, I would like to discuss the results for the Q3. Today is our 3rd earnings call after the COVID-nineteen pandemic started. And unfortunately, its effects are still being felt heavily around the globe. As we continue to keep our employees' health as our top priority, the company's management and employees are also focused on overcoming challenges to ensure that we meet our customers' needs even under difficult to predict market conditions. This readiness has helped us achieve our highest ever quarterly revenue and our performance to exceed market expectations. Total revenue in the quarter was KRW67 trillion, a 26.4% quarter on quarter increase. Demand for consumer products was much stronger than expected and timely responses utilizing our global supply chain management capabilities were the key factor for the significant increase in sales. A recovery in component demand in the mobile segment also contributed to the gain. On a year on year basis, total revenue grew 8% on the back of sales performances of multiple key products. Gross profit increased KRW5.9 trillion sequentially to KRW27 trillion, led by the mobile business and CE division, and gross margin grew slightly to 40.3%. Both gross profit and gross margin also improved substantially year on year. SG and A expenses increased as a significant rise in sales resulted in higher marketing and other expenses. As a percentage of sales, however, they declined 2.5 percentage points to 21.9 percent due to efficient cost execution. Operating profit totaled KRW 12,400,000,000,000, up KRW 4,200,000,000,000 quarter on quarter due to the dramatic revenue increase as well as thorough cost management efforts. Operating margin improved considerably to 18.4%. On a year on year basis, both operating profit and operating margin increased sharply, backed by an improved environment for the memory business and strong sales of consumer products. I will now briefly review the results for each business unit. The memory business performed well despite a decline in ASP with shipments exceeding prior guidance, thanks to solid mobile and PC demand and a continuation of cost improvements. System Semiconductor earnings grew as demand improved for major mobile components for system LSI, and orders increased from foundry customers for HPC and other products. In Display, earnings improved sequentially with growing sales of mobile panels for customers' newly launched products and an improved supply and demand environment for large panels. On a year on year basis, however, profits declined due to a later than usual launch of new smartphone models by a major customer. In the mobile business, earnings grew considerably quarter on quarter as a nearly 50% increase in smartphone sales, which included flagship models, resulted in a significant economy of scale advantage on top of profitability gains from efficient cost management. The CE division also improved its earnings markedly both quarter on quarter year on year as sales of premium TVs and digital appliances increased sharply. We were able to respond effectively to this surge in demand using our leading global supply chain management capabilities. Regarding currency effects, a weak U. S. Dollar and strong euro against the Korean won was positive for the I'm and CE divisions, but negative for the component business, resulting in a net neutral position. Next, I would like to share our business outlook. In the Q4, we expect overall profitability to decline due to intensifying competition in the mobile business and CA vision, alongside a continuation of soft demand from server customers. For memory, despite an increase in node process migration and solid demand for mobile and notebook PCs, we expect profitability to decline due to weak pricing in the server segment as customers continue to adjust inventory. And there will also be initial cost increases associated with the ramp up of our new lines. In System Semiconductor, System LSI will start mass shipment of 5 nanometer 5 gs SoCs, while for Foundry, HPC and Mobile SoC customer orders are expected to increase. For Display, mobile panel earnings should improve as we expect to see a significant quarter on quarter increase in sales. The large panel business will continue QD display preparations as planned as it also fully addresses LCD demand. We expect mobile profitability to decline due to a decrease in smartphone sales, coupled with an increase in marketing costs in the upcoming seasonally competitive quarter. In CE, we anticipate seeing solid demand backed by strong year end seasonality. However, profitability is likely to decrease due to increased competition and costs. Now let's move on to our outlook for 2021. Global demand is forecast to increase year on year, but uncertainties are unlikely to ease given the possibility of additional waves of the pandemic. The component business will focus on strengthening market leadership through next generation node processes and timely investments. We believe there may be some risks regarding mobile inventory adjustment as a result of overlapping component demand from multiple customers that started at the end of the Q3. We will continue to monitor this carefully. For the memory business, we will enhance market leadership by expanding node migrations and by flexibly adjusting our product mix. For investments, we will continue to adhere to our strategy to be ready to meet mid- to long term demand, while maintaining flexibility regarding near term demand. System LSI will actively address the growing demand for 5 gs SoCs and high resolution sensors by offering differentiated products. And foundry will accelerate growth by expanding into new applications within HPC and other areas as well as by attracting additional large customers. For Display, the mobile panel business will work to improve earnings by leveraging our differentiated technologies and cost competitiveness. The large panel business will focus on successfully launching 2 d display. For the mobile and C products, we will strive to improve profitability by further strengthening premium lineups and operational efficiency. On top of the above, the mobile business will expand its foldable and 5 gs smartphone offerings an effort to increase sales and enhance profitability. The network business will strengthen its global business foundation by continuing to expand 5 gs commercialization and explore new business opportunities. CE will strive to sustain growth by expanding its premium lineup strengthening its online and B2B businesses. Now I will address capital expenditures. 3rd quarter CapEx was KRW 8,400,000,000,000 with KRW 6,600,000,000,000 allocated to semiconductor and KRW 1,500,000,000,000 to display. The cumulative total for this year as of the end of the third quarter is KRW 25,500,000,000,000, with KRW 21,300,000,000,000 allocated to semiconductor and KRW 3,100,000,000,000 to display. We expect full year CapEx to reach approximately KRW 35.2 trillion with KRW 28.9 trillion allocated to semiconductor and KRW 4.3 trillion to display. As a reminder, the full year numbers are projections and the actual figures may differ depending on factors such as market conditions and the timing of equipment deliveries. For the memory business, CapEx should exceed last year's total due to investments in node migrations and capacity expansions to expand address future demand. Foundry CapEx will increase year on year as we expand capacity, including for 5 nanometer EUV. Display investments will also increase, mainly for 2 d display capacity and new technological processes for mobile panels. Next, I would like to address the 3rd quarter dividend. The Board of Directors today approved a quarterly dividend of KRW354 for both common and preferred stock. The total payout is the same as it was in the 1st and second quarters, which is KRW 2.4 trillion or 1 fourth of the planned annual total of KRW 9.6 trillion. In closing, let me share some updates in our sustainability management. Samsung Electronics believes water management is the first step in environmental manufacturer's management activities. For more than 10 years, we have committed to water management by focusing on the 3 R's reduce, reuse and recycle, and by including water reduction as a performance indicator. On September 22, Samsung Electronics was recognized for such endeavors, achieving another first in the semiconductor industry. Our Huazan campus earned a water footprint certification from Carbon Trust, a U. K.-based entity that recognizes eco friendly organizations or products. The certification is given to an organization based on a comprehensive evaluation of water use and management over a 3 year period. Next, I will address our activities over the past year regarding Cobalt for development, an initiative to improve the living and working environment for communities involved with the artisanal cobalt mines in the Democratic Republic of Congo. Cobalt is a key component in the production of batteries for electronic devices and electric vehicles, And we are working to minimize the negative impacts that artisanal mining in Congo has on society and the environment, including human rights violations and environmental issues. After launching in September 2019 as a joint project between Samsung Electronics, the German Society For International Corporation, Samsung SDI, BMW and BASF, Cobalt for Development has reached out to and helped more than 1800 people in the communities by providing new learning facilities and a wide range of educational programs. We will continue to support the initiative to improve access to education on human rights, the environment and safety for the miners. On a separate note, Interbrand announced their best global brand list on October 20, and our estimated brand value reached a new high of $62,300,000,000 We are in the top five for the first time after having ascended to the 6th spot in 2017. Interbrand cited our rapid response to COVID-nineteen as well as our sustainability management activities as some of the factors that played a critical role in the growth of the Samsung brand. We will continue our efforts in sustainability management, and we'll be sure to keep you updated. I will now turn the call over to the gentlemen from each business unit to present 3rd quarter performances and outlooks for their corresponding business segments. Thank you. Good morning. This is Han Jin man from the memory marketing team. In the Q3, server demand weakened somewhat relative to the strength it showed in the first half, but overall demand was higher than expected as mobile demand started to recover, mainly in the low to mid priced segments. For DRAM, demand for mobile increased as strong seasonability, seasonality and improved consumer confidence helped drive an increase in sales that centered on lowtomidprice smartphones, while effects of 5 gs expansion in Huawei's urgent orders also contributed to the rise. For server, demand was weak, mainly from OEMs, while major customers utilized their inventories. So overall, demand was relatively solid, backed by Huawei's inventory buildup. For PC, along with strong demand for laptops such as Chromebooks, demand increased led by set sales ahead of seasonal events like Black Friday. Graphic demand increased as on top of strong seasonal effects, demand from gaming expanded due to increased game access due to the stay at home trend and accelerated production of new game consoles. We expanded sales to mobile applications by preemptively converting our product mix, and we actively responded to PC demand mainly for laptops linked with an ongoing expansion of the number of people working from home and learning online. As a result, we exceeded our previous bit growth guidance. Next, I will talk about the NAND. For mobile, as was the case for DRAM, demand was strong, bolstered by launches of new models by major manufacturers, the recovery of consumer confidence in Huawei's urgent orders. For server, demand declined due to inventory adjustment at major customers related to their increased purchasing in the first half. For client SSD, demand was strong for low to mid priced laptops as more people work and study from home. While demand for SSDs for new game consoles also increased significantly. Our bit growth exceeded that of the market due to increased shipments for overall applications, thanks to our active responses to strong mobile demand, which includes demand from the inventory buildup at Huawei and that related to expanded sales of SSDs for new game consoles. Next, let's talk about the outlook for the Q4. For DRAM, mobile bill demand is likely to see another quarter of growth, mainly led by Chinese manufacturers due to the release of new smartphones and the recovery of domestic demand in China. While for server, we expect demand to remain weak as customers continue to adjust inventory. For PC, we expect to see solid demand for low to mid priced laptops such as Chromebooks, but desktop demand will probably stay soft due to conservative IT investment from enterprises. For graphic, we expect demand for graphics cards to appear with the release of new higher performance GPUs, while demand for new game consoles should stay solid. In the face of continued uncertainties, we will actively address rising demand from major mobile customers by optimizing our product mix. And we will continue to strengthen our cost competitiveness through a stable production ramp up and timing sales of 1,000,000 nanometer DRAM. For NAND, in the 4th quarter, along with signals of an economic recovery such as improving economic indicators, we expect demand from mobile to increase, mainly led by Chinese mobile manufacturers. For server SSD, we expect demand to remain soft due to ongoing inventory adjustment at customers and effects of conservative CapEx in major customers caused by prolonged COVID-nineteen, which should result in a slight decline in prices. For client SSD, we believe demand will be robust, backed by continuing demand for lowtomidprice laptops, while content per box should increase. We will actively respond to increasing demand in the client SSD and mobile markets and continue to expand 6th generation V NAND conversion to enhance technology leadership and cost competitiveness. Now let's move to the outlook for 2021. First of all, I would like to ask you to understand that it is difficult to provide a detailed forecast given the current number of uncertainties, which include possibilities of a prolonged pandemic as well as numerous geopolitical issues. However, I can provide our general outlook. For mobile, build demand, which has increased thus far in this Q4, is likely to stay solid throughout the first half of next year as more low end to mid range smartphones adopt 5 gs technology. On the other hand, for server, we believe demand, which has been weighed on by inventory adjustments at customers in the second half, is highly likely to turn around in the first half of next year, influenced by impacts of a newly released CPU and the recovery of previously shrinking investment on top of healthy inventory levels. In this volatile market for overall applications, we believe that it is very important to quickly detect changes and respond accordingly. Therefore, while concentrating on flexibility in our product mix to increase responsiveness to changes in demand, we will keep adding to competitiveness by accelerating conversion to 1 gig nanometer DRAM and 6th generation VNet. In addition, we will continue to develop next generation products such as EUV based 1aNano DRAM and 7th generation VNet to strengthen competitiveness for a post pandemic era in newly growing markets such as AI and edge computing. Thank you. Good morning. This is Tom Hoshin from the System LSI Business. In the Q3, our earnings improved due to a recovery in demand for mobile components such as image sensors and SoCs. Following increased production by global manufacturers and improved smartphone consumption sentiment, which had both been suppressed by effects of COVID-nineteen. In particular, the performance of display driver issues improved significantly as the demand for tablet and laptops increased due to growing momentum of contact free environments such as telecommuting and remote education. In image sensors, we strengthened leadership in ultra small and high resolution pixels by establishing our line of various products based on 0.7 micrometer pixels. In the 4th quarter, we expect the demand for associates and other mobile related components to increase as major smartphone manufacturers attempt to expand market share and add new 5 gs smartphone to their lineups. Yield, under these conditions, focus on expanding the mobile SoC business by starting the supply of 5 gs integrated SoCs built on advanced 5 nanometer EUV process. In 2021, although external uncertainties such as the duration of COVID-nineteen outbreak will remain factors, We expect the market to recover due to increased demand following aggressive expansion status of major smartphone manufacturers. We will expand shipment centered on our 5 gs integrated SoCs, high resolution image sensors and display products amid solid demand. In addition, we will increase our market share by diversifying applications for security products and by strengthening technology, such as high frame rate for mobile TDIs. By doing so, we plan to achieve double digit sales growth next year. Thank you. Good morning. This is Sean Han from the foundry business. In the Q3, we achieved a new high for quarterly sales on backup, improved consumer sentiment, a recovery of demand from mobile on resumption of production at manufacturers and an increased demand for HPC chips from major customers. In addition, we have certified a foot forward for growth by providing the competitiveness of our advanced process technology with the start of shipments of 5 nano mobile products and mass production of 2.5D packages. In the Q4, we aim to set an even higher level for quarterly sales by expanding shipments of mobile SoCs and HPC chips to major customers, and we will continue our effort to widen our leap in advanced processes by completing the design of 2nd generation of 5 Moreover, we will continue to strengthen the 5 foundry ecosystem, both at home and abroad to optimize the results of our cooperation with our partners, utilizing events such as yesterday's SAFE Forum, we call it Safe Forum 2020. In 2021, we will continue to diversify applications, not only in mobile, but also in HPC, consumer products and network. And we will try to add more stability to our business structure by attracting additional large customers. In addition, we expect demand to stay strong for our entire process portfolio and we will do our best to ensure a stable supply of our products by expanding capacity and improving efficiency. Through this, we expect our growth rate to significantly exceed that of the market. Thank you. Good morning. This is Kwon Young Choi from playing team of Samsung Display. In the Q3, despite the effects of the pandemic, earnings in the display business improved, driven by increased sales for smartphones, TVs and monitors. To be more specific, the mobile display presents record earnings growth by increasing utilization and expanding sales of OLED panels. We respond to new products released at major customers amid a gradual pickup of previously stagnant smartphone demand. In the Logic Display business, the losses narrowed quarter on quarter, supported by brisk demand and an increase in ASP under strong seasonality, led by sales of ultra large TVs and high performance monitor panels as people spend more time at home. Next, let me share the outlook of the Q4. For mobile display, we expect full fledged sales of our main customers' new products to keep demand at a solid level. In response, we will improve our sales and profitability by fully meeting customer demand and by enhancing our product mix. The large display business will continue to service customer demand and at the same time accelerate the tradition of business structure based on new technologies. Finally, I will share our outlook for the display market and our core strategies for 2021. For the mobile display business, we expect uncertainties regarding a demand recovery to linger given the chances of additional waves of COVID-nineteen and risks associated with the U. S.-China trade dispute. However, we expect to see a gradual recovery of smartphone market driven by the expansion of 5 gs networks. We'll ensure our OLED panels emerge as the mainstream display in the mobile display mobile product market by expanding our differentiated design and new technologies, which offer lower power consumption, high refresh rates alongside our efforts to reinforce cost competitiveness. Moreover, we strengthened our market presence by spurring innovation in form factor with technology such as foldable, slideable and rollable displays and by adding new application areas such as notebooks and tablets. For the large display business, we will develop our differentiated QD display technology according to schedule and establish a strong foundation for 2 d display in the premium segment. Thank you. Good morning. I'm JongMin Lee from the Mobile Communications Business. I will now share our Q3 results and outlook for the I'm division. In the Q3, the market showed a gradual recovery led by positives such as economic stimulus packages. With demand rising quarter on quarter from levels caused by lockdowns in major regions. For the mobile business, our smartphone sales increased sharply quarter on quarter, thanks to launch of our flagship models, the Galaxy Note 20 and Z42 and the demand recovery for mass market models in many regions, including India. Alongside the increase in sales, profitability improved dramatically quarter on quarter as a result of improvement to our cost structure, including component standardization and efficient execution of marketing expense. In addition, rising sales of tablets and wearables also contributed to profit growth in the 3rd quarter. We launched new Galaxy devices such as premium Tab S7, Watch3 and Buzz Live along with Note 20 in August. In September, we unveiled G4 2, featuring refined hardware technology and user experiences as well as S20 FE, which is packed with features tailor made for our fans. We will continue to expand our Galaxy ecosystem based on competitive products that fully reflect the needs of our customers. For the network business, domestic and overseas projects were delayed due to COVID-nineteen impact. However, we strengthened our foundation for growth in the 5 gs business by signing a large scale contract with Verizon to supply of network equipment. Now let me move on to the outlook for the 4th quarter. We expect market demand to increase quarter on quarter amid strong year end seasonality as the market continues to recover. For the mobile business, it seems inevitable that smartphone sales will decline and our product mix will somewhat weaken compared to the previous quarter. Given seasonal factors such as subsiding new model effects of our flagships. Furthermore, we expect our profit to decrease due to an increase in the marketing cost as we face intensifying market competition and year end peak seasonality. For the network business, we will continue to expand the 5 gs coverage in Korea and also push for innovation in global 5 gs market, including North America and Japan. Last, let me share our outlook for next year. Mobile market demand is effective to increase amid gradual economic recoveries and full scale migration towards 5 gs. However, it will take some time to recover to pre COVID levels and uncertainties related to COVID-nineteen will remain. For the mobile business, we will expand smartphone sales by strengthening our 5 gs lineup for the mass market. We will further differentiate our flagship lineup by reinforcing the comparativeness of our foldable phones to have popularized them in the market. At the same time, we will continue our efforts to bolster profitability by enhancing both our product mix and operational efficiency. For the network business, we will actively attract new orders for our global 5 gs business and continue our timely response to 5 gs commercialization in both the domestic and overseas market. Thank you. Good morning, everyone. I'm Kim Hoon Lee from Sales and Marketing, Visual Display Division. First, I'd like to review the market conditions and our performance in Q3 of 2020. The TV market in Q3 grew both year on year and quarter on quarter with a significant release of pent up demand for the bench market. The TV replacement demand was boosted as consumers spend more time at home. We responded promptly to the growth in demand with our global SEM capabilities and capture the pent up demand by strengthening cooperation with major channel channel We proactively targeted consumers' needs for great picture quality in home cinema and the rising popularity of smart TVs with increased use of at home services such as OTT. As a result, we expanded sales of new models and premium products such as QLED and super large screen TVs. With growing consumers' needs and desires to customize the home environment and interior, we also increased sales of our lifestyle TVs, which are designed to fit various styles and consumer tastes. These efforts led to our strong performance in Q3, and recovered sales declines in the first half of the year. For digital appliances, the market demand in advanced markets recovered after a temporary drop helped in part by expansionary policies of governments. Revenue in Q3 grew considerably as we preemptively address pent up demand, resulting in increased sales of our premium products, including bespoke refrigerators and Grande AI washer and dryers. Rising sales of dryers and air dressers also contributed to the strong results amid growing awareness of how home appliances can lead to better hygiene. Now let us look at our outlook for 4th Q4 and 2021. The tea market in Q4 is projected to grow year on year in the traditional peak season. However, the risks of COVID-nineteen and corresponding social and economic changes may continue to increase uncertainty. We believe Q4 will be very different from before as social distancing policies are likely to affect offline consumption and peak sales season events will be spread over a longer period of time than before. Amid all these changes, we expect to see much fiercer competition. Also, entering year end peak sales season after the flood of pent up demand, the industry may face many challenges, including the risk of rising costs. Under these circumstances, we will work closely with our channel partners to overcome these challenges and secure profitability. We will continue to improve our online sales infrastructure to prepare for changes to offline consumption and expand sales of premium products, including QLED and lifestyle TVs with online and O2O special promotions. We will also continue to lead to super large screen TV market by focusing on customers' needs for bigger TVs and encouraging size upgrades through effective marketing campaigns. For the digital appliances, we will run seasonal promotions flexibly based on demand, which is recovering mainly in advanced markets. We will also work to secure profitability by strengthening online marketing and optimizing operations with efficient logistics. The TV market in 2021 may see dynamic changes as a result of COVID-nineteen. With our experiences from this year, we will implement a sales strategy to respond swiftly to any changes in the market and continue to expand sales of newly launched lifestyle TVs such as the Terrace and the Premier. In addition, we will continue to innovate cutting edge technologies with a new level of QLED TVs as well as microLED products for home and lead the super large screen TV market as the industry leader. For Digital Appliances in 2021, it is expected that the market will recover gradually in advanced countries. We will continue to work in sustaining growth by improving our premium lineup like Bespoke products and strengthening our online and B2B businesses through efficient marketing strategies that are tailored to the conditions for each region. Thank you. Thank you. That sums up the Q3 results presentations. Before we move on to the Q and A session, I would like to share with you several data points in key business areas. For DRAM in the 3rd quarter, our bit growth increased in the mid single digit percentage range and ASP declined in the upper single digit percentage range. For the Q4, we expect netbit gross to be in the lower single digit percentage range and our bit gross to be above the market level. For the full year, we expect market bit growth and our growth to be similar at around 20%. For NAND, in the Q3, our bit growth grew to the high teens percentage range, while ASP declined by about 10%. In the Q4, market growth is expected to decline by a slow single digit percentage, but we expect to outperform the market. For the full year, market bit growth is forecast to be in the high 20% range, and our bit growth is expected to be slightly below that level. For the display panel business in the 3rd quarter, the OLED portion of sales was in the low 80 percentage range, and sales volume increased in the high teen percentage range. In the mobile business, in the 3rd quarter, sales volume totaled 88,000,000 units for handsets and 9,000,000 units for tablets. The blended ASP, including tablets, was USD 2.29 and the smartphone portion of handset sales volume was in the low 90% range. In the Q4, we expect quarter on quarter shipments to decline for handsets, but increase slightly for tablets. And we expect blended ASP to decline compared to the Q3. The smartphone portion of handset sales should remain in the low 90s. In the TV business, sales volume in the 3rd quarter increased in the low 70% range. We expect shipments in the 4th quarter to rise in the low single digit percentage range. On a full year basis, we project shipments growth will be in this low teen percentage range. With that, I will now move on to the Q and A session. The first question will be presented by Peter Li from ZT Group. Please go ahead with your question. I have two questions. First question is about the shareholder return policy. I noticed that in today's conference call, you did not mention if there is any additional financial resources that will be used for the shareholder return for the 2018 to 2020 period or the shareholder return policy for the following period after 2021? Can you share with us any plans or details regarding that? 2nd question is about the EUV technology. I think Samsung is a bit special and differentiated in that it uses EUV in both the DRAM and the foundry business. Is there any synergy effect in terms of technology or engineering that you think that you're enjoying because you're using EUV in both of these areas? It may be difficult to quantify, but can you at least describe on a qualitative basis if there are any synergies that you are experiencing? To answer your first question about our shareholder return policy, first of all, regarding the first part of that question, which was whether there is and the size of any additional financial resources that will be used for the current shareholder return policy or program, we thought that it was more appropriate to not mention that because we only have uncertain or undetermined numbers currently of any additional financial resources. And we thought it was more appropriate to mention that once the numbers have been finalized. And that's why we are planning to share with you and to execute the additional financial resources after we close the 2020 results. And we will share that with you during the earnings conference call in late January next year. Regarding our shareholder return policy for year 2021 and after that, we are currently looking into various alternatives and plan. But given the high amount of macro uncertainty, we would like to take some more time in considering that. And we will announce our plans together in the earnings conference call in late January next year. Many have been watching us closely as we have been adopting the EUV as a leader. And as we have mentioned, leveraging the experience of applying EUV successfully in the D1X node, we are currently applying the D1 UV in the D1Z process partially and currently in the process of sampling with a key customer. I think our experience of already applying EUV on the foundry side has definitely given us the advantage of being able to reach a higher level of technology and engineering perfectness in terms of applying EUV to DRAM. Also, it's given us an edge in terms of securing and bringing in the infrastructure. EUV is much more than just purchasing the equipment and using it to produce the product. Based on experience, it is critical in terms of EUV to have a strong ecosystem for all of the related technology areas such as mask, cleaning, inspection and material and to build the know how and to internalize that know how. And that is why we currently are we are currently operating EUV dedicated organization in order to maximize the synergies in terms of the technology side of the technology. Knowing the importance of having a strong EUV ecosystem, we are currently focusing on creating a differentiated EUV ecosystem by focusing on adding additional intellectual property and also building up our know how in terms of software, hardware and the process technology. And that is why we are planning to apply EUV at full scale from D1A. And also, this will give us the cost competitiveness and will give us the power to overcome the challenges of the cutting edge nodes. The next question will be presented by Nicolas Godowa from UBS. Please go ahead with your question. Hi. Good morning. Thanks for taking my questions. First question is on smartphones. Looking into 2021, how should we think about foldable product strategy and expect volumes? And will the product category reach a point of maturity, which actually would be sufficient so that you would actually consider fully merging foldables into your high end smartphone product segmentation and possibly replacing the note in particular? And second question is regarding DRAM. It seems that some of these smartphone customers have engaged into long term agreements for 2021. How are hyperscale customers reacting to this so far as they may need to secure capacity for several DRAM as they get into 2021 as well? Could that lead altogether to a more positive momentum then for DRAM pricing in 2021 in your view? Thank you. To answer your first question about our foldable phones, as you know, the foldable phones has been receiving very strong responses from both the market and actual users by providing a totally new mobile experience through an innovative form factor, differentiated design and also the multitasking through a larger screen. Foldable phones as a category, we're expecting to record high growth in the future, especially the Z Flip and the Z Fold 2 actually recorded very solid sales trends despite the overall difficulties in the relatively weak demand for premium segments amid COVID-nineteen. So even though as of yet foldables do account for a relatively small portion of our overall smartphone sales, we are planning to continue to increase our foldable portfolio and to widen the price ranges that we offer foldable options by leveraging the flexible technology that we have already built over several years. And therefore, we are expecting foldable phone sales to increase for several years going forward. Regarding our flagship portfolio plans, we continuously optimize our flagship portfolio depending on the technology development as well as customer needs. And foldables, in this case, will also be operated by considering various factors. The next question will be presented by Dong Won Kim from KB Securities. Please go ahead with your question. Before we answer those questions, I think we did not answer the second question by Mr. Nicolas Godowa. So we will answer that question first before moving on to the additional questions. The second question by Mr. Nicolas Godoa was about the DRAM and the movements that we're seeing from different application customers as well as next year pricing implications. Before answering that question, I think a way of answering that question would be to just recap what we saw in the DRAM market in Q3. Looking back at Q3, I think the key highlight was the comeback, the strong comeback of the mobile demand. Mobile's demand was weak during the first half of this year. But in the Q3, we saw a strong comeback, especially around the mass mobile or smartphone segments. This is explained mainly, first of all, due to the improvement in consumer sentiment, especially in the Chinese area and also due to the launch of new products by our key smartphone customers. And on top of that, there was also the urgency urgent orders that were placed by Huawei during the Q3. On the other hand, during Q3, server demand turned around to a weaker direction. Server demand has been very strong in the first half, but a part of that demand was to inventory. And as customers work through their inventory, their actual memory purchases during Q3 decreased. But also closer to the end of Q3, Huawei came to the market with its orders. And overall, this reduced the amount of demand decrease that happened for servers in 3rd quarter. Now about demand forecast going forward. First of all, mobile, it customers will continue to expand their build demand. What we're seeing right now is that especially the Chinese customers mobile customers are placing orders and that with new smartphones being launched by the larger OEMs, the demand for mobile in 4th quarter will remain solid. Looking towards first half of next year, there would actually be a growth momentum being supported by the 5 gs rollout. And so even for first half of next year, we expect that mobile demand will stay stable. In the case of servers, it's difficult for us to mention exactly where our customers' inventories currently stand. But according to what we're observing, it seems that the inventory adjustment will probably continue until the Q4. Looking towards first half of next year, we think that because as a result of the inventory adjustments, inventory levels would reach comfortable levels. And also some of the investments, which this year remained a bit conservative, would be resuming next year. So we think that on top of that, if we think consider the adoption of the new 8 channel server CPU, which would drive up content, we think that server demand would probably rebound in turnaround during first half of next year. And then to the new set of two questions. There were 2 questions. The first question was about the NAND prices and how the company plans to respond to that. NAND prices are continuing to decline. And even though there is the visibility of data center, we demanded demand and supply is restricted unlike the DRAM side, where there is visibility of DRAM demand and supply is rather limited. In the NAND side, it seems that this oversupply will probably continue. So in that context, can you give us your outlook on the NAND situation next year in terms of the supply and the demand side? And about your strategies or whether you will continue to respond actively to the NAND market despite the price decline? The second question was about the LCD business. The company has announced that it would exiting from the LCD business, but the LCD market has recently been rebounding. So is there a possibility that the company may extend its LCD business, keep it for longer? And would that have any impact on its plans of launching a QD display business? To answer your question about NAND, as we have already mentioned, it's very difficult to give you detailed outlook because of all of the uncertainties right now. But if we can share with you what we see in terms of NAND market by application next year, we do think that at least until the first half of next year, mobile demand, which is continuing to show signs of recovery as well as PC related NAND demand, which is being driven by increase of attach ratios as well as content, would remain solid. On top of that, on the server side, once the customers go through their inventory adjustments, we do think that server demand will start to show signs of recovery. However, in the NAND market, there will also be a continuous increase on the supply side, and that is why we think that it remains to be seen how the supply and demand situation will unfold. You've asked about our NAND business strategy. And our strategy is that we will actively respond to customer demand in the NAND market, which shows high price elasticity, and this strategy has not changed. In order to implement that strategy, we will continue to make the preemptive infrastructure investments to secure the supply capability so that we would be able to actively respond to fundamental demand increases. For example, that could be driven by an economic recovery in the future as well as build out of server infrastructure globally. Also at the same time, we will be expanding our 6th generation V NAND migration in order to further enhance our cost competitiveness. Also in terms of our future products, we are currently developing our 7th generation V NAND according to schedule. This will be the 1st V NAND that uses a double step technology. Also, we would be leveraging cell etching technology that we have already been developing to the top level in the industry using our existing single step. And so the 7th generation V NAND will be giving us a further cost competitiveness, and we plan to go into mass production of the 7th generation V NAND next year. Your second question was about the QD display business and the LCD business and our business strategies to these. As you know, we have we are in the process of changing our display business structure from LCD to QD display in order to strengthen our business competitiveness in the large display area. Currently, for the QD display business, we are bringing in the equipment and doing the setup as originally scheduled. Our top priority is to successfully launch the QD display product and to make it adopted in the market successfully. We're currently talking with customers. And we are keenly focused on launching the QD display successfully so that it becomes the new standard in the premium segment. That said, you've also asked about our plans, whether our plans for the LCD panel business has changed. As you mentioned, recently, there's been a very short term rebound or pickup of both LCD the large LCD panel demand and ASP, which is driven by the pent up demand of the COVID pandemic, we're also getting some inquiries from some customers about whether we can extend in the near term the panel supply. And so given this customer inquiry, we are currently considering studying the possibility of extending our LCD panel supply short term by using the capacity of the lines that are not being converted to QD display, but we have not reached any decision as of yet. Regardless of what we would do with the LCD panel supply, there will be no impact to our overall business transition to the QD display. And whether we will extend the LCD panel supply will be decided by placing the company's interest as the top priority. The next question will be presented by Kyungmin Kim from Hana Financial Investment. Please go ahead with your question. I have a question regarding Huawei. We've heard that you've applied for a license with the U. S. Department of Commerce about doing business with Huawei. Can you give us an update on what you've heard back from the U. S. Government? And also, without Huawei, do you think that other customers would be able to fill its space starting from the 4th quarter? First of all, what we applied for the U. S. Department of Commerce was an export license. We have not yet heard back, and so we cannot share with you the developments that followed our application. Now regarding what we're seeing in terms of our DRAM and NAND business for the mobile side, since the announcement against Huawei, we're there has been a demand recovery, especially around the mass tier, there has been a demand recovery, especially around the mass tier mobile side. And so we think that even in the Q4, mobile demand will remain solid for both DRAM and NAND. Looking towards next year, we do think that mobile demand will remain solid given the fact that or being driven by the recovery in the mobile handset demand and sales as well as the rollout of 5 gs to the mass tier segment of the smartphones. But then that being said, there is the uncertainties of whether the license will be issued as well as the market situation changing depending on that timing. And so we will continuously monitor and check the impact to the market and our demands. The next question will be presented by Hyun Woo Do from NH Securities. Please go ahead with your question. I have two questions. First question is about the memory CapEx. It seems that with memory demand being a bit weak, you have been postponing new CapEx investments into DRAM. When do you think you will be resuming new investments in capacity? And also, can you share with us the amount or the size of new capacity investments you're planning for next year? 2nd question is for the CE side. According to our numbers, it seems that your TV side recorded double digit margins in the Q3, which is much better than what the market has expected. Do you think that this is mainly explained as a one off of the pent up demand kicking in, in Q3? Or do you think that actually there's additional upside for your profitability given that Q4 is the peak season for TVs? To answer your first question about semiconductor related investments, we are currently in the process of going through various simulations of what would be the optimal investment for not only next year, but from a mid- to long term perspective. And so even our investment plans for next year is currently still slightly being revised. So because our next year investment plan is still being subjected to change, the exact investment size has not been finalized. But we start from the point that we're expecting in the mid- to long term memory demand will be fundamentally strong. And so we need we will be executing our infrastructure investments preemptively so that we will be ready to respond to changes in demand by application in a timely manner. And so for next year, we are expecting our memory investments to increase versus 2020. And also because the actual investments into the equipment will be adjusted accordingly depending on what we see in the market, even if our total investment amount increases next year, we think that the possibility of, for example, an oversupply being created is very limited. Regarding your second question about our TV business, yes, as you mentioned, Q3 is usually a slow season for the TV market. But unlike previous years, this Q3, we had the unusual demand due to the pent up demand created by COVID-nineteen. We were able to successfully capture that opportunity by predicting this pent up demand ahead of time and cooperating preemptively with the distribution channel and also leveraging our global supply chain management capabilities to increase sales, especially around the premium segment, which explains the strong performance in the 3rd quarter. However, looking towards the Q4, which is a traditional peak season for the TV market, we do think that despite this seasonality, there may be various challenges in terms of business. One is the uncertainty that's still looming due to COVID-nineteen as well as probably the expected increase in market competition. For example, I think there's still a possibility that with the increase of COVID-nineteen cases in key markets such as U. S. And Europe, some of these countries may go back into lockdown. This may lead to economic contraction globally in a long term basis. On the other hand, because this is the peak season, other companies will be entering the market, so there will be more competition in sales. On top of that, because of the strong demand, there are some cost increase factors and risks in the TV market. Despite these challenges, in the Q4, we will be focusing on defending our strong performance by continuing our collaboration with the channels and also strengthening our non face to face infrastructure so that we are able to further improve our product mix around the premium products such as QLED, ultra large sized TVs as well as lifestyle TV and also by continuing to optimize our operation. The next question will be presented by Jo Mo Yoo from Korea Investments and Securities. Please go ahead with your question. I have two questions. The first question is about the NAND business. You may have heard, but a competitor recently announced that it will be acquiring the NAND business from Intel. Do you think that there will be any impact to the industry because of this deal? And would there be any changes to your NAND strategy? Second question is about the mobile business. Some research is saying that next year, the global 5 gs smartphone shipments would be about KRW 500,000,000 close to KRW 600,000,000, which means that 5 gs smartphones will become the mainstream. I do wonder what will be the difference from the users' perspective for using a smart 5 gs smartphone versus, for example, LTE phone. From the company's perspective, what do you think is the key difference that users would experience? And also, can you give us some key features of the 5 gs smartphone market you're expecting to see next year? To answer your first question about the NAND, it's difficult for us to give specific answers regarding matters of other suppliers. I think a way of me answering that question is to describe in detail our NAND strategy. Based on our experience, NAND is a very price elastic, price sensitive product. And so in order to actively respond and capture the opportunities in the NAND market despite various challenges, a company needs to have, as a precondition, the cost competitiveness and also the stable supply capacity. And so our NAND strategy is to continue stable supply of NAND products that meet the customers' requirement based on our cost competitiveness that comes from our differentiated technology, including the CTF technology. Also, we our strategy is to continue to strengthen our relationship with our existing customers and also to maintain our market leadership by launching new growth area products in a timely manner. To answer your question about the 5 gs, first of all, in terms of the user experience, 5 gs allows the users to experience and enjoy ultra high quality services that were difficult to implement in a 4 gs environment because 5 gs has faster speed and also ultra low latency. For example, users with users of 5 gs smartphones are able to enjoy cloud gaming. Basically, this is playing a PC game on a smartphone. And they can also enjoy, on a real time basis, video streaming of very high picture quality. In terms of market for 5 gs next year, as you mentioned, we also think that the 5 gs smartphone shipment next year will go above KRW 500,000,000. I think a key change would be the rollout of the 5 gs option to beyond the high end segment so that next year, there will be 5 gs handsets available even at the entry level. So our approach for 5 gs next year is to expand our 5 gs offering from premium down to entry level by leveraging the 5 gs optimized capabilities we have developed up till now. Also, we will be operating a 5 gs lineup that addresses different regional needs so that we offer a wider range of choice to our customers. In addition to the expanded 5 gs product portfolio, we will be providing various 5 gs specialized services through strategic partnerships with the global top tier companies in order to provide a differentiated customer experience and to drive greater sales. We'll be taking questions from 2 more participants. The next question will be presented by SK Kim from Daiwa Capital Markets. Please go ahead with your question. I have questions. First question is about the DDR5, which is expected that the switch to DDR5 is expected to start from next year. Can you share with us Samsung product strategy regarding DDR5, especially around servers? Can you give us an update on your activities for DDR5 on the server side? Especially can you give us some details about the connections with the new CPU or, for example, a node migration? Second question is about the network equipment business. Since Samsung announced the order from Verizon in September for the 5 gs equipment, I think the market is starting to have high expectations about Samsung's 5 gs equipment business in the future. Can you give us some details about what you're expecting in your 5 gs equipment business next year around not only the U. S. But other key overseas markets? To answer your question about DDR5, DDR5 is the next generation DRAM solution that enables a faster and more stable server environment. We are currently preparing a major DDR5 marketing campaign in collaboration with major industry leaders such as Intel to build excitement and energize the demand in the pipeline. So our DDR5 product strategy is, number 1, to focus on developing and mass producing the products on schedule in time and also to focus on collaboration with other partners so that the excellence of our DDR5 product is widely known in the market, which will help us build competitiveness. To answer your second question about the 5 gs equipment business, the recent large order from Verizon has given us the position to further expand our market share in the North American market and also to develop additional business opportunities. And so we will build on this momentum to expand our 5 gs business in other key overseas markets such as India, Japan and Europe. And so while we expand our global 5 gs equipment business, we will be focusing on providing differentiated technology and products versus other vendors. For example, we have our massive MIMO radio or radio and baseband, which are key pieces of 5 gs infrastructure. We also have a very differentiated software based solution. So this will be one of the advantages that we will be leveraging to increase our supply. At the same time, we will be continuing to invest in our 5 gs equipment and infrastructure R and D and also strengthen the cooperation with partners that have global technology leadership so that we are able to further increase our technology differentiation and a stable supply system. The last question will be presented by Ricky Sa from HSBC. Please go ahead with your question. I have two questions. The first question is about the foundry. Can you elaborate on your foundry market outlook for next year? Also, this year, your foundry business won significant orders from major large customers, and we're assuming that your foundry business would be increasing in market share this year. Do you think that this trend of increase of your foundry business market share will continue next year? Also, we're hearing a lot of news about 8 inches shortages. Would this be able to have a positive or meaningful impact on foundry margins next year if this leads to higher utilization of the foundry next year? 2nd question is about the mobile business side. It seems that about 15% to 20% of your production is ODM production. Do you have any plans of increasing the smartphone ODM production ODM production next year? And if so, how high in the product segment, for example, would it come up? Because right now, it's probably the low end handsets that are being produced through OEM. If ODM share does increase next year, how high up the product segment do you plan to expand ODM? To answer your first question about next year foundry market outlook, we do think that next year, the foundry market itself will be growing at around high single digit levels, mainly driven by the further penetration of 5 gs and also the growth of HPC applications. However, because the possibility that inventory adjustments may continue under the first half of next year, we think that the amount of growth or the degree of growth next year would be probably less than what we saw this year. Regarding whether we're expecting our market share to continue to increase, we are currently continuously receiving demands from our customers for higher performance and also the advanced node processes. And so looking at our current situation, we do expect to have a meaningful increase in our market share by outgrowing the market next year. Regarding your second question about the mobile and the ODM production, we do have ODM manufacturing for on a limited basis for certain models. The purpose of this is to better respond to customer needs and to respond to the rapidly changing market environment. And also, ODM does enable us to efficiently operate our internal resources at a product lineup. It is difficult though to share with you the detailed share of ODM or whether we are planning to expand that because this is an area that was continuously changed depending on market environment and also our internal situation. And so our basic approach to ODM is that we will continue to operate ODM in a flexible manner by analyzing and comprehensively considering on one part the actual feedback that comes from ODM users and also the market competitiveness. That being said, we will minimize impact to our supply