Earnings Call: Q4 2019

Jan 30, 2020

Now we should commence the presentation on the fiscal year 2019 Q1 earnings results by Samsung Electronics. Good morning. This is Ben Se, the new Head of Investor Relations. I'm succeeding Robert Yi, who after 11 years of distinguished service as Head of IR, will remain with the company as a resident advisor. Thank you for joining our earnings call for the Q4 of 2019. 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 System LSI Marketing Team Mr. Han Seung Hoon, Senior Vice President of the Foundry Marketing Team Mr. Choi Won Young, Vice President of Samsung Display Mr. Lee Jong Min, Vice President of the IT and Mobile Business and Kim Won Lee, 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. Let me begin with our 4th quarter results. Today, revenue increased slightly year on year KRW59.9 trillion, backed by strong sales of premium set products despite weaker component sales caused by unfavorable conditions in the memory and large display markets. Gross profit fell KRW 3,900,000,000,000 year on year to KRW21.3 trillion due to a drop in memory chip prices with a corresponding decline in gross margin. SG and A expenses decreased slightly year on year in both absolute terms and as a percentage of sales, led by a reduction in marketing costs and other expenses. Operating profit came in at KRW7.2 trillion, a KRW3.6 trillion year on year decline with operating margin falling to 12%. Relative to the Korean won, weakness in the U. S. Dollar, euro and currencies of some major emerging markets negatively impacted our operating profit quarter on quarter by approximately KRW 300,000,000,000. I will now briefly review the performance of each business unit. In the memory business, higher server and mobile demand helped increase shipments, but earnings fell sharply year on year as DRAM prices remained on a downward trend that started at the end of 2018. Quarter on quarter, however, earnings improved as we focused on addressing increasing demand led by data centers, saw cost reductions from process migration and had some favorable expense items compared to the previous quarter. For System Semiconductors, profit increased year on year, boosted by rising demand for high resolution image sensors and high performance computing chips. In the Display business, mobile panel earnings decreased slightly year on year under weak demand for some premium product groups despite further diversification of our customer portfolio. The large panel business suffered another significant year on year reduction in earnings as persistent capacity expansions in the industry kept exacerbating the supply demand imbalance. For mobile business, earnings improved considerably year on year, thanks to solid sales of flagship devices and a revamp of the A Series lineup. Sequentially, profits were lower due to the fading of new product effects of a flagship model. However, the magnitude of the drop was reduced by more effective use of marketing expenses. In the CE division, earnings grew with expanding sales of premium TVs, including QLED and ultra large models as well as with rising sales of new lifestyle appliances and improved margins in refrigerators and other products. Next, I would like to share our business outlook. In the Q1 of 2020, earnings are forecasted to be weaker sequentially due to low seasonality for memory, display and CE businesses as well as an increase in some expense items compared to the previous quarter. In the component business, for memory, we expect earnings to decline quarter on quarter due to weak seasonality even though we are seeing firm demand for some server and mobile products. Demand for APs, image sensors, DDIs and other system semiconductor products are expected to rise as our major customers launch flagship smartphones. We expect mobile display earnings to be significantly lower than last quarter due to a decrease in utilization, resulting from seasonally slowing demand from major customers. The large display business is likely to continue to struggle as sales will probably remain stagnant on the weak seasonality. In the set business, mobile operating profit is expected to remain flat quarter on quarter as rising marketing costs to boost flagship sales offset the effects of an improved product mix with the release of new flagship and foldable models. CE earnings are forecast to decline quarter on quarter amid low seasonality. For the full year of 2020, we expect to see improvements in the company's overall performance. However, global uncertainties do remain. For the memory business, market conditions are forecast to improve gradually on the back of stronger data center demand and increasing adoption of 5 gs smartphones. However, the actual pace of 5 gs expansion and its effect on DRAM content requires further monitoring. As planned, we will work to normalize our inventory level within the first half of this year and focus on strengthening our technology leadership through migration to 1Z nanometer DRAM and 6th generation V NAND. System LSI will actively address demand for 5 gs SoCs and high resolution sensors with its differentiated products. The foundry business will continue to expand production of 5 and 7 nanometer EUV chips and work to diversify its customer base, while also enhancing technology competitiveness by developing 3 nanometer gate all around technology. In displays, smartphone makers are likely to increase adoption of OLED panels as the 5 gs phone market expands. We will continue to expand our leadership with differentiated technologies and designs and will also actively embrace demand from new applications such as foldable devices. For large displays, earnings will remain weak due to a persistent supply glut and added costs from reorganizing our business structure to focus on QD display. The mobile business will strive to improve earnings by expanding sales of premium models, including ones in our enhanced lineup of 5 gs devices as well as new foldable designs. At the same time, we will strengthen our mid range to low end lineup through continued innovation. For network, we expect our 5 gs business in the domestic market to shrink somewhat compared to last year. However, we will expand our 5 gs business overseas by enhancing our core competencies and investing in the infrastructure required for additional growth. For TVs, we will solidify our leadership in the premium market by expanding global sales of QLED 8 ks TVs and by showcasing products using innovative technology such as MicroLED. The home appliance business will strive to accelerate growth by boosting sales of premium products, which include new lifestyle appliances such as our bespoke product series. Now I will address capital expenditures. CapEx in 2019 was approximately KRW26.9 trillion with KRW22.6 trillion allocated to semiconductor and KRW2.2 trillion to display. For memory, while we made significant investments to expand DRAM capacity in 2018, our investments in 2019 decreased as our primary focus was on process migration. Foundry investment increased year on year as we expanded capacity of advanced process nodes, including that for 7 nanometer EUV. Expenditures on OLED declined compared to last year as investments in the A four line for mobile panels were completed in 2018. For this year, we will maintain a flexible approach to investing that allows us to respond to market conditions. From memory, we will keep investing in infrastructure to ensure mid- to long term readiness, but investments in equipment will be made flexibly based on a recovery of market conditions. Investments to enhance the mid to long term competitiveness of the system semiconductor, display and emerging businesses such as AI and 5 gs are intended to be executed as planned. Next, I would like to address shareholder return. First, the Board of Directors today approved a year end dividend of KRW354 for common stock and KRW 355 for preferred stock. As with the 3 prior quarters, KRW 2,400,000,000,000 or onefour of the annual total of KRW 9,600,000,000,000 will be paid out based on our current shareholder return policy. As for our shareholder return plan covering 2018 to 2020, our commitment to return 50% of free cash flow over the 3 year period to shareholders remains unchanged from when it was first announced in 2017. At this point, however, it remains a challenge to estimate the amount of return beyond committed dividends and execute its early distribution. The determination of this additional return is forthcoming. We are closely monitoring the projected free cash flow level and plan to provide details of our total return plan at an appropriate time within the year. Lastly, I would like to inform you that we have decided to adopt electronic voting. This was resolved by the Board of Directors earlier today and will allow our shareholders to more conveniently exercise their voting rights. We will start using electronic voting at our 51st AGM, which is scheduled for March. The adoption of e voting is part of our continued effort to strengthen the rights and interests of our shareholders. Before we move on to presentations from each business unit, I would like to share several data points in key business areas. For DRAM, in the Q4 of 2019, our bit growth was in the low single digit percentage range, while ASP saw a high single digit decline. For the Q1 of 2020, we expect a high single digit drop in the market's bit growth, and our result is likely to be similar. On a full year basis, market bit growth is forecast to increase in the mid teens, and once again, we expect to be in line with the market. For NAND in the 4th quarter, we recorded bit growth in the high single digits, while ASP in the quarter rose by mid single digit. For the Q1 of 2020, we expect our bit growth and the market to be similar, both declining by mid single digit. For the year, bit growth is likely to reach the upper mid-20s for both Samsung and the market. In the display panel business, our OLED portion of sales was in the mid-eighty percent range in the Q4 of 2019. For wireless, sales volume came in at 75,000,000 units for handsets and 7,000,000 units for tablets in the Q4 of 2019. The blended ASP of handsets and tablets was USD 2.16 and the smartphone portion of handset sales volume was in the low 90% range. In the Q1, we expect shipments of both handsets and tablets to decline quarter on quarter, but forecast that the blended ASP will rise compared to the Q4 with the smartphone portion staying similar in the low 90s. In the TV business, our 4th quarter shipment growth was in the mid-thirty percent range, but we expect to see a mid-twenty percent decline in the Q1. On a full year basis, we project our sales volume will grow in the high single digits. I will now turn the conference call over to the gentlemen from each business unit to present 4th quarter performances and outlooks for their corresponding business segment. Thank you. Good morning. This is Jinman Han from the memory marketing team. In the Q4, overall memory demand was solid, led by increasing demand from server customers with gains also coming from demand for major applications, including ones related to 5 gs network expansion. For DRAM, server demand increased mainly for high density products as purchasing from data centers and customers in China increased, thanks to the expanded adoption of a new CPU. For PC, despite some negatives, which include a CPU shortage, purchasing demand remained solid, thanks to an increase in set builds at OEM customers. For graphics, demand stayed solid, mainly for GDDR6 with the launch of a new GPU. In mobile, along with positives related to 5 gs network expansion, the high density trend in mid range and high end smartphones drove up content per box. Moreover, purchases prior to the Lunar New Year holiday alongside a shortened smartphone launching schedule by Chinese vendors helped keep demand solid. We focused on maximizing sales volume by leveraging our flexible product mix and we also enhanced profitability and strengthened our market leadership by expanding sales of differentiated products, such as GDDR6 and 16 gigabit base high density server products. For NAND, the launch of new smartphones contributed to higher than expected demand, which is centered on high density solution products. SSD demand also increased mainly from server applications. We exceeded our previous bid guidance by responding proactively to demand in all applications. We thus focused on solution products, such as 2 terabyte or higher high value, high density server SSDs for data centers and high density storage for newly launched smartphones. Next, I would like to talk about the Q1 of 2020. In the case of DRAM, demand for mobile and server applications is likely to be relatively solid, but overall demand will decrease compared to the previous quarter amid soft seasonality. For PC, set build demand is likely to be limited due to pre builds in the Q4 related to the termination of Windows 7 support and a CPU shortage. But there could be some possibilities of additional inventory building from customers, given forecast for DRAM undersupply later this year. For server and mobile DRAM, CapEx plans in stabilizing inventory levels at data centers and major mobile manufacturers' launch of new models alongside continued 5 gs expansion, will ease soft seasonality. Not only will we continue to strengthen our cost competitiveness by expanding node migration to 1y nanometer scale products, we will also actively respond to demand for LPDDR5 mobile DRAM and high density server products such as 64 Gigabyte Server DRAM, capitalizing on our flexible product mix, which aligns with changes in demand for all overall applications to minimize the effect of demand decrease. In the Q1 of 2020, we expect overall NAND prices to keep rising, thanks to strong demand, mainly from server amid a stabilizing market. For SSD, content per box for client SSD will keep increasing even amid weak seasonality and the adoption of high density and high performance products for data center SSD should expand. Mobile is also expected to see a continuation of the trend toward high density, thanks to launches of high end smartphones by major manufacturers. We will actively respond to expanding demand for applications such as newly launched PCIe based products for server and high density e storage for flagship smartphones. Moreover, our 5th generation V NAND is in the mass production stage for all applications, and we aim to bolster our profitability and technological competitiveness by accelerating migration to 6th generation V NAND in the first half of this year. Next, I will share our market outlook for 2020. For DRAM, server demand is likely to show solid growth in 2020, given increased investment by data centers. In particular, we expect demand growth to be driven by an increase in content per box via newly launched CPU as well as by seasonal effects in the second half. Although we believe growth in content per box will pick up momentum, centering on volumes of models as major manufacturers expand their 5 gs smartphone lineups, we should keep an eye on the pace of 5 gs expansion and its effects on DRAM demand. We expect demand to be solid from consumer products, especially ones driven by the construction of 5 gs networks in China. Graphic demand centering on GDDR6 will also increase on the back of rising content per box and the launch of new gaming consoles in the second half. For NAND, server demand centered on data centers is expected to continue rising and for PC, SSD penetration will increase in the mid range segment. Furthermore, alongside the expansion of 5 gs networks, the trend toward high density in mobile will continue, and we expect to see new demand from applications such as gaming and automotive. We plan to manage our investment and capacity flexibly according to changes in demand by application, and we will keep expanding sales of differentiated products such as LPDDR5 for 5 gs Mobile, HVM 2e and GDDR6 for AI and high end density storage. We will also focus on enhancing our technology and cost competitiveness by steadily ramping up production and achieving high quality output of our cutting edge 1z nanometer products and 6th generation Vnet. Thank you. Good morning. This is Tongho Shen from System LSI Business. In the Q1, System LSI earnings decreased quarter over quarter, which is a result of weaker seasonality of mobile industry. During the quarter, however, we secured growth engines through our commercialization of the world's first 108 megapixel image sensor and expansion of our global customer base for 5 gs 1 chip SoCs. In the Q1 of this year, we aim to improve our earnings by maximizing our shipments of major components such as APs, image sensors and DDIs that have been adopted by our major customers for their new flagship smartphones. In particular, demand for high resolution image sensors like our 64 megapixel product has centered on Chinese customers and is still rising. So we will strive to bolster revenue through efforts to increase capacity. In 2020, we expect the 5 gs market to grow considering the rapid rise in the number of subscribers following the launch of mid range 5 gs smartphones in China. Accordingly, we plan to expand our 5 gs chip business by promoting our competitive 1 chip solutions for massive market devices to multiple customers. For the image sensor business, smartphone makers are likely to continue to adopt high resolution sensors as competition to upgrade camera spec intensifies. Meanwhile, we focus that demand will rise for multiple cameras that can support differentiating edge functions, such as high multiple optical zoom and ultrawide angle 3 d and macro shooting. In order to address strong demand in these areas, we plan to extend our leadership in high resolution technology through the developments of finer pixels and to expand our multiple camera lineup, which includes our 3 d TOF products. Thank you. Good morning. This is Sean Han from the foundry business. In the Q4, the foundry business achieved solid results, backed by rising demand for 5 gs chips and high resolution image sensors from major mobile customers and rising demand for HPC chips from customers in China. This quarter, we have increased mass production of 6 and 7 nano EUV based mobile AP products. We also bolstered our technological leadership by extending the application of our 4 and 5 nano chips to network and by completing additional designs for 5 nano mobile AP products. In addition, we further expanded our customer base for mainstream processes by securing new orders for 8 nanochips, which posted an ideal balance between performance and price. In the Q1, we expect demand for APs and high resolution image sensors to increase as our major customers launch new flagship smartphones. Accordingly, we plan to focus on optimizing our fab operations to maximize the supply for our 5 gs related chips. In addition, we will continue our efforts to keep adding to our technology leadership by completing the 4 nano process development and initiating the design of the 3 nano GAA process. In 2020, we are scheduled to start mass production of A nanocomputing chips for large scale customers, and the demand for 5 gs related chips is forecast to keep rising. Based on these factors, we expect revenue growth to accelerate and reach double digits for the year. Moreover, we will complete the product design of this 4 nano process as well as a number of 5 nano based product designs, not only for the mobile, but also for HPC and consumer applications. By doing so, we aim to diversify our customer base and expand the number of applications using our products, laying the foundation for the future growth. Thank you. Good morning. This is Kwon Young Choi from the Planning Department of Samsung Display. In the Q4, display earnings decreased quarter on quarter, weighed on by weak profitability business wide. Specifically, earnings in the mobile business mobile display business slipped due to higher cost burden caused by lower utilization and the softer demand for some premium products. In large display business, our operating loss widened as the industry's ongoing supply glut caused both ASP and shipment to decline. Looking at the Q1 of 2020, mobile display earnings are likely to come in lower quarter on quarter due to a decrease in demand from some customers. Thus, we strive to enhance profitability by increasing shipments of our OLED panels for some smartphone with a differentiated designs and by broadening our customer portfolio. To include other IT applications, at the same time, we also work to strengthen our cost competitiveness. The largest display business facing weak seasonal effects and a stagnant sales is likely to stay in the red. So we'll bolster our efforts to secure profitability by responding proactively to demand related to newly launched TVs from major customers as well as by increasing shipments of monitor panels. Next, I would like to share our outlook for display market and our core strategy for 2020. In the mobile display industry, new entrants are adding to already intense competition. Despite this, we expect OLED markets to grow as smartphone markets, smartphone makers increasingly adopt OLED panels to address rising replacement demand, which is focusing on 5 gs smartphones. Hence, we seek to boost utilization and shipments by expanding our customer portfolio based on our differentiated technologies and outstanding designs and strong cost competitiveness. In particular, we aim to grow the overall OLED market and widen the gap with competitors by actively addressing the need of our customers in new areas such as affordable devices and other IT applications. Operating profit in the larger display business is likely to remain weak, given the industry's oversupply and cost related to our transition to 2 d display. Accordingly, we will focus on securing profitability by expanding our value added portion of products, which include ultra large and 8 ks ultra high resolution panels as well as by lifting sales of premium panels set for use in curved or gaming monitors. Thank you. Good morning. I'm JongMin Lee from the Mobile Communications Business. I would like to share our 4th quarter result and our outlook for the I'm division. In the Q4, overall demand for smartphones and tablets increased quarter on quarter as a result of year end seasonality. Revenue for the mobile business decreased quarter on quarter due to diminishing new model effects of flagship models, but profits fell only slightly as marketing cost during the holiday season were more efficiently managed. And key models, including A Series maintained their profitability. For the network business, although total revenue decreased per on quarter as 5 gs expansion in South Korea concentrated in the first half of twenty nineteen, Our 5 gs revenue increased in overseas markets, including the U. S. And Japan. Now let me address the outlook for the Q1 of this year. As Q1 is a seasonally weak period for mobile, market demand for both smartphones and tablets will probably decline quarter on quarter. For our mobile business, we expect our revenue to increase unlikely improvements in both our sales and product mix with new launches in our Galaxy S and foldable series. Profit, however, is likely to stay similar quarter on quarter due to the trend toward higher specs and the marketing cost to boost the sales of flagship models. At the Galaxy Unpacked event in San Francisco on February 11, we will unveil new and innovative Galaxy devices that will lead the next decade of mobile experiences. Over the past 10 years, we have continuously introduced meaningful innovations in our Galaxy devices and our new Galaxy models will embrace our philosophy on innovation and provide our customers with whole new experiences. Finally, let me move on to our outlook for this year. Accelerating commercialization of 5 gs is likely to increase demand for 5 gs smartphone. However, we expect competition to keep intensifying, especially within the trend of offering high specs in many companies, such as APs, memory and cameras. We plan to differentiate our premium smartphones by adding more 5 gs models and introducing new design for foldable products to set the trend in challenging markets and overcome the fierce competition. Moreover, we will expand our 5 gs portfolio across a wider range of price points and further enhance competitiveness of our mass market lineup by quickly adopting innovative technologies based on market needs. With this effort, we will strive to improve our result year on year by expecting sales of premium sales and smartphones and focusing on upselling in the low end to mid range markets. For the network business, although our domestic 5 gs business is expected to decline year on year, we will foster our overseas 5G business by enhancing our core competencies and laying the foundation for global expansion. Thank you. Good morning. I'm Kimonni Sanwu from Visual Display Business. First, I'd like to share the market condition and our performance in Q4 of 2019. The Q4 TV market demand showed double digit growth, thanks to the year end promotions, but decreased year on year because of reduced consumption from developed markets. Samsung achieved growth proposed quarter on quarter year on year with successful promotion during the peak season. We also had better performance than last year with an improved product mix and increase in sales of premium products like our QLED TVs and super large screen TVs. Sales for QLED TVs have doubled as QLED TVs provided the best picture quality and offered a wide range of models. The QLED TV has become the standard for consumers looking for premium televisions. Samsung, while maintaining a leading market share for big screens, continues to satisfy consumers' needs for large screens with a wide range of models for 75 inches and above. For the digital appliances, even through a long trade war between the U. S. And China and under other uncertain circumstances, the overall market demand increased with growth in emerging markets such as India. Samsung improved both revenue and profit by strengthening our marketing strategy for regional peak season promotions and expanding sales for premium products like the bespoke and large dryers. I will now share our market outlook for Q1 and the entire year 2020. The Q1 TV market is projected to decline from last quarter after the peak season and to decrease year on year due to lower consumption in developed markets. Under these circumstances, Samsung will create growth and generate profit by successfully launching new models and expanding sales of high value products that include super large screen TVs, live style TVs and the QLED 8 ks with improved picture, design and sound. Q1 Digital Appliances market is expected to grow with a fast urbanization of new cities in emerging markets. Samsung will successfully launch new products by working closely with our partners and continue to expand sales for new life and premium products. We will also secure future growth engines by reinforcing our B2B business and expanding online sales. The 2020 TV market may have risks with global economic uncertainties, but we expect sporting events like the European Cup and Olympic Summer Games to help create positive growth. Samsung will maintain leadership in the premium market with QADD 8 ks and super large screen televisions as well as lifestyle TVs such as the Frame, the Serif and the Sero. As we presented at CES, Samsung will pioneer the home entertainment market with a microLED product for the home under our vision for screen everywhere. As the market leader, we'll continue to innovate products that offer the best experience for consumers. For digital appliances, there may be uncertainties caused by the global economy. However, Samsung will expand the premium lineup with products like Bespoke and new live home appliances and will find more B2B opportunities for sustainable growth. Thank you. Thank you. This completes the management presentations, and I will now move on to the Q and A session. The first questions will be presented by Mr. Kim Dong won from KB Securities. Please go ahead, sir. I have 2 questions. One question for the display, second question for the consumer electronics. First of all, regarding the display business, as you know, the sales price for the LCD is continuing to drop. It is below the cash cost now. In that context, is the company considering accelerating the reduction of its LCD capacity? Second question is regarding your plans of launching a micro TV, micro LED TV for consumers for the household. Regarding that business plan, what do you think is the right inch size for the household application? When do you think you'll be able to launch that commercially, household micro LED TV? And if it is launched, what would be the price range for it? And how are you planning to reduce the cost? And also in that context, what would do what do you think the price range would be compared to other competing products? In the mid- to long term, we are continuing the conversion to a QD display focused business structure. That will be done in phases gradually, considering the market needs as well as the business competitiveness. We will start with a size of around 30 ks and gradually expand and move forward. We are also, at the same time, and continue to cooperate with the major customers so that we are able to launch the new products in a competitive manner. Meanwhile, while we make that transition, our remaining LCD capacity will be focused more on the high value, high end products such as the ultra large size, the ultra high picture quality LCD TV or curved and gaming monitors. And we will continue to leverage our differentiating technology to secure profitability in the LCD business. Regarding your second question of our household micro LED TVs, as we mentioned, as we announced in the CES this year, we're preparing a large range of different sizes for the household, including 75 inches 88 inches 93 inches and 110 inches We believe that this will create a new momentum in the home entertainment market. Regarding the timing of launch, we're currently working towards launching it in the second half of this year. Also given that MicroLED is a next generation technology, our focus is to continue to develop our technology and also improve the processes so that we're able to deliver a product that has a high level of completeness and at the same time provide us with a material cost advantage. You've also asked about the expected price range when it becomes commercially available. We're currently thinking that it probably will be at a higher price range than what is currently the price range for premium TVs in the market. But given that MicroLED is the product that can provide the best viewing experience to consumers. We think that even at that price range, there will be sufficient demand for micro LED TVs. The next questions will be presented by Mr. SK Kim from Daiwa Capital Markets. Please go ahead, sir. I have two questions for the Semiconductor business. So the first question is regarding your Q4 results. First of all, congratulations on the strong performance in the 4th quarter. Regarding the better than expected earnings, especially in terms of operating profit, even if we take into account that your NAND shipments increased quite significantly, still I think your operating profits improved more than expected. Can you give us any detail, more color into how the earnings, especially the profitability, improved so much? Were there any, for example, additional cost saving effects that you enjoyed in the 4th quarter? My second question regards the server DRAM demand outlook going forward. Server DRAM demand has improved, and there are people that are expecting this recovery to continue and to actually be strong. But there are also other factors to consider, for example, the fact that the new 10 nano based CPU has not been fully released. Also, some are saying that what we're seeing now in terms of the demand recovery is more driven by the restocking demand of OEMs. And once they reach their comfortable inventory levels, the demand would actually become weak again. What are your views? Do you think that this is the case? Or do you actually think that we've entered into a full demand upcycle? If it's so, then can you explain your reason for thinking that? To answer your first question about our results in the 4th quarter, as you mentioned, yes, in the 4th quarter, our NAND shipments did increase more than originally expected. And so our overall sales improved. That's one factor. But also, we were able to smoothly move on with our process migration on the 10 nano class DRAM as well as the 5th generation V NAND, and that actually gave us considerable cost saving effects. On top of that, there were also some one off positive factors. For example, with the 1x nano DRAM defect issue being resolved, we were able to reverse some of the provisioning that we had set aside. To answer your second question about the DRAM demand outlook, to answer your question starting from the conclusion, it is true that we're also seeing increasing demand from the data center customers for server DRAM. We think that it is there's too many factors that need to be considered to conclude that we have entered into a definite demand upcycle, and that's why we maintain a prudent position regarding future server DRAM outlook. Whether the current demand expansion trend will continue until the second half of this year, That is, I think, a question that needs further monitoring. Regarding the data center demand growth that we're seeing, we do see that some of it is coming from the OEMs restocking after completing their inventory adjustments. But also part of that demand growth that we're seeing is driven by the adoption of the Cascade CPU. So as we mentioned, in these two sources of demand growth, once the restocking demand goes down, which does restocking demand accounting for not a small portion of the demand growth we're seeing, there is a possibility, so we cannot fully rule out the possibility that this demand growth that we're seeing may slow down once the restocking is completed. You mentioned during your question, one of the factors to consider in terms of future demand outlook is the 10 nano base new CPU platform launch. Regarding that, I would like to add that actually the 8 channel supporting 14 nanobase CPU is being launched as scheduled. And so we think that a negative impact that could happen by a possible delay or a rollout of a 10 nano based new CPU platform would be limited if it does happen. The next questions will be presented by Mr. Peter Li from Citigroup. Please go ahead, sir. I also have two questions for the semiconductor side. First of all is, can you give us your outlook in terms of the memory supply and demand situation going forward? With the spot prices going up, there are some that are having more optimistic outlook for the memory supply and demand situation. In that context, can you share with us the company's view by product in terms of future demand and supply and also the inventory situation for each product? 2nd question is about the recent events that happened in the industry. For example, there was the power outage on one of your sites as well as a fire in another competing site. Has there been any impact due to these disruptions to the memory supply side or any other type of impact? Well, to answer your first question, as we said, we think that the rapid change in industry situation that we've been going through is basically a temporary situation that happens because of the big swing the data center industry demand went through recently. And because this is a temporary situation, the recent increase in the stock prices is also a part of that process of returning to normal levels or normalizing after this big swing that we saw. It's difficult to specifically forecast the magnitude of turnaround in the market situation. But because there is very solid demand overall for DRAM, we think that we will be able to enjoy a stable market environment going forward. The NAND side, the NAND side, we're seeing continuous demand that's elastic to the prices. Also considering the fact that the overall profit margins of the suppliers are lower than that on the DRAM side, we think that the supply situation on the DRAM market excuse me, the NAND market would actually be more friendly or favorable versus the DRAM market. However, given the fact that there are various factors that could impact the future market supply and demand situation, our position is that we need to continue to sense the market and respond flexibly. You've also asked about the inventory Regarding inventory, as we mentioned before, we're expecting that the DRAM inventory would normalize during the first half of this year. And in the case of NAND, we think that this current normal level in terms of inventory will continue. Your second question was about some of the production disruptions in the industry. Outage. We have recovered to normal operation. Currently, our operation is going forward without any issues. And so in terms of any impact to memory supply due to this power outage, we could say that there was no impact. The next questions will be presented by Mr. J. J. Park from JPMorgan. Please go ahead, sir. I have two questions. The first question is for the memory side regarding memory investment. How much of investment CapEx are you planning this year for DRAM as well as NAND, respectively? Also during the presentation, you mentioned that basic direction is to manage the investments and capacity flexibly. But if we assume, hypothetically, that the market demand increases more than what's expected. How fast can you actually increase and bring your capacity online? 2nd question is for the mobile side. I have several questions on the mobile side. First of all, you went through a campaign, you've went through an effort to revamp and streamline your lowtomidend product lineup since last year. How much progress has that made? Second question is about you've also been using ODM production and announced plans of expanding ODM. How much of an expansion have you achieved? And how much do you plan to increase ODM production going forward? 3rd question on mobile is about the Indian market, which is becoming a very fierce competitive market. What are your plans on responding to India? Regarding your first question about DRAM and NAND capacity capital investment plans, we're actually still in the process of reviewing our investment plans for this year. And because they're not decided, it's difficult for us to provide you any, for example, specific guidance by product. But as you know, our basic position regarding investments is that we will continue to manage and operate our investment as well as capacity in order to strengthen our sustainable profit base. Regarding our investments going forward, the base that we are operating in is that the demand we're expecting, as we mentioned during the presentation, is around mid-ten percent growth for DRAM and mid-twenty mid-twenty mid-twenty mid-twenty percent growth for NAND. Basically, our default is to meet the demand growth through process migration as well as using our inventory. Now to answer the hypothetical question that you posed about, for example, this year demand going far over what's expected overall, then we would have the option, for example, to respond to market demand flexibly using Phase 2 of Pyeongtaek or Phase 2 of Xi'an, these new fabs. So that would be an option in that situation that you've proposed. But in addition to that, in the mid- to long term demand, we've all will continue, for example, the infrastructure investments, for example, in clean rooms, while we continue to respond flexibly to changes in the demand this year. To answer your question, 1st of all, regarding the smartphone, the mid to the mass segment smartphone lineup, the streamlining of that, which we started from the first half of last year, we think that we have been able to wrap up that to a certain degree. And that has actually helped us improve the profitability of the mid- to low range smartphones during the second half of last year. Regarding the ODM, we are continuing to use ODM for the low end models on a limited basis. Regarding our ODM approach this year, we will probably maintain the same operating tone and approach this year as well. And we will also, at the same time, continue to cooperate with our ODM suppliers in order to implement the high quality standards that meet the customers' trust and expectations when for our company and also continue to monitor the market feedback and product competitiveness to decide our future direction. As you mentioned, yes, the Indian smartphone market competition is becoming more fierce. We are planning to respond actively to the changing market environment by launching new models that reflect the needs of the Indian consumers, also obtaining the price competitiveness that suits the market situation and also further strengthening our collaboration with the local service as well as the distribution. Especially, in order to respond to the increasing share of the online distribution channel, last year, we newly introduced the M Series. And this has actually resulted in achievements, for example, in increasing the share of online sales versus the previous year. We will build on this momentum to continue to make our products more competitive and also improve our sales competitiveness through the online channel. The next questions will be presented by Mr. To Hyun do from NH Investment and Securities. Please go ahead, sir. I have two questions. First question is for the memory. I think in the market, there's a lot of expectations for a positive impact from the 5 gs rollout on smartphone memory in that but then there are other views that say that the OEM, the customer's inventory is already built up to a certain level and that could actually weigh on the market demand going forward. So we would like to hear what the company believes would be the potential impact of this 5 gs rollout to mobile memory demand going forward. Second question is to the system LSI side, which also ties with the 5 gs adoption and rollout. As 5 gs rollout picks up its pace, I think there are greater interest in your SoC as well as modem chip businesses. Can you give us a bit more view or color on your plans and approach for your SoC as well as modem chip businesses? Especially, can you share with us some of your experiences that you have been gaining by supplying to a new customer recently? To answer your first question about the impact of 5 gs smartphones on the memory demand, we are looking to various demand forecasts that's provided by outside research firms, and there is a wide divergence. Some are saying that the 5 gs smartphone would be around the mid-one 100,000,000 units. Others on the higher end forecast, it would reach 300,000,000 units. I think overall, in terms of majority, most of them are saying that it would be around at least 200,000,000 plus. And so as we mentioned during the last conference call, I think there is still a wide divergence in the future forecast of the 5 gs and the smartphone market. But given the fact that major handset makers, OEMs are launching 5 gs smartphone offerings and also that many carriers are now bringing in handsets will be much larger in terms of piece of growth than we saw last year. Now if we take a mid- to long term approach of the impact of 5 gs smartphone sales on memory demand, if we take a mid- to long term approach, then at one point, the 5 gs smartphones would actually take position in the volume zone within the overall smartphone market. This would mean that there will actually be more applications that leverage the 5 gs smartphone capabilities. So applications that are optimized and require the high specifications of a 5 gs handset would then become more widespread in the market. That would actually then be a momentum for demanding higher memory content on the handset, which will actually then drive the solid demand for memory. But that will be the mid- to long term view. If we just look at this year, there is, as you mentioned, the risk of increasing inventory at some customers. And also for the time being, actually, these high spec cameras and the fact that it supports 5 gs itself could be the key differentiating point of a 5 gs smartphone versus other phones. And therefore, if we consider that and on top of that, the base effect against 20 19 when there was already a significant increase in memory content on the handset level, this year alone, the increase of memory content by 5 gs may be limited. And so what we need to carefully watch going forward is how down the price range, price segments of 5 gs smartphones spread out and also the impact on memory content due to this spread. To answer your second question about the system LSIR system, the SoC business, we have been making several moves to enhance the competitiveness of our SoC offering. For example, we have received license from AMD to further strengthen the competitiveness of our GPU and also or GPU. And also, we have been able to secure a 1 chip technology faster than competitors based on our excellent 5 gs modem technology competitiveness. And so what we are pursuing is also to use the track record that we have of mass producing for Chinese customers to use that to expand our supply to global customers. Regarding plans of diversifying, increasing our customer base, currently, we're receiving positive feedback from the Chinese customer, Vivo. We're currently engaged in discussions of a follow-up model adoption. And based on that experience and track record, we are currently working on adding major global customers going forward. The next questions will be presented by Mr. Yoo Jong Woo from Korea Investment and Securities. Please go ahead, sir. Yes. I have several questions for the VMOBI, the I'm business. First of all, is a set of questions about your 5 gs strategy. First of all, can you give us your guidance on the quantity, the volume of 5 gs smartphones that for you this year? Also, what are your plans in terms of the 5 gs product lineup this year? And how are you planning to differentiate in terms of service? Second question is, as the 5 gs product offering spreads down to the mid- to low end segments, I would assume that the BOM cost, the BOM cost will become more of an issue. So how are you planning to secure profitability of 5 gs handsets even at the mid to low end, the mass segment? 2nd, the other question about 5 gs is the network side of the 5 gs business. We're being told that the U. S. Carriers will start investing in their 5 gs networks this year. When do you think will be the timing in terms of the U. S. Carrier 5 gs investments? And how does the company plan to respond to that demand? Also, do you have any views regarding the investments 5 gs network investments in Europe or Japan? The third question regards the recent change of the Head of the Mobile division. We're being told that his background is more on the smartphone development side. And can you give us a bit more color in terms of your new product lineup and launch plans this year, including the foldable as well as other new products given the new person at the head of the mobile division? To answer your question regarding our 5 gs strategy, first of all, as you mentioned, we also expect that the 5 gs demand growth will become full scale this year as 5 gs service is rolled out not only in Korea and the U. S, but also China and Japan and other major countries. In line with this market environment, we are planning to introduce a 5 gs lineup on the mass A series as well in addition to the high end level, and this will drive up global sales. Also, in order to differentiate our experience, we will be leveraging not only our experience of optimizing the 5 gs product, but also offer differentiating experiences in terms of high quality content, game, AR and also communication and computing experiences so that the consumers are able to appreciate 5 gs much more. With the adoption of 5 gs, higher spec components are required. And also, there could be additional cost burden depending on the market situation of these major parts. But we will respond by securing as much profitability as possible by focusing on upselling based on the higher product competitiveness that we'll be offering and also continue to enhance the operational efficiency in all areas, including manufacturing, R and D and marketing. Regarding your question about 5 gs network investments, as you know, Verizon started the 5 gs commercial service in the U. S. Last April, that's 2,009 April. But the other carriers have also continued to announce their 5 gs installation with cities. And that's why, as you mentioned, we expect this year, the 5 gs market in the U. S. To expand. We will focus on increasing our 5 gs footprint in the U. S. As that infrastructure market unfolds. Regarding Japan, we're expecting that the 5 gs commercial service will probably start before the Tokyo Olympics. And last October, we were selected as the 5 gs supplier to KDDI, our existing carrier. And in the case of the in the case of Europe, we are continuously monitoring for opportunities of participating in the European 5 gs market. And your question regarding the new leader of the mobile division. As you know, the new head actually has been personally leading the development of the Galaxy series for quite a long time, and he has been going through an empowerment process also for a long period. Given the fact that he already has rich experience in working with the carriers and also quite a lot of leadership experience, we look very much forward for to enhance our global competitiveness under his leadership. The next questions will be presented by Mr. Nicolas Guadoua from UBS. Please go ahead, sir. Mr. Nicolas Guadoua, please go ahead with your questions. Yes. Hi, good morning. Thanks for taking my question. First question relates to Sammis. According to a market analysis, the use of EUV lithography for 1a nanometer DRAM could not only help cost per bit, but also potentially performance. Could you elaborate or single patterning lithography using EUV could actually lead to performance benefits for DRAM devices. Is this also meaningful enough for you to potentially pull in and by how much in terms of timeframe your timeline for 1a nanometer? And then the second question relates to mobile. You'll be launching next month your first foldable display clamshell smartphone. How do you intend to position it versus the Galaxy S series, notably in terms of price points? And what are your volume expectations within your total volume expectations for Samsung Mobile foldable products in 2020? Thank you. Regarding your first question about EUV and the 10 nano DRAM, as we've mentioned, we have continuously been testing EUV on our 10 nano class DRAM. And we will be deciding how much to adopt EUV, and we will be deciding how much to adopt EUV depending on the economics that we gain. As you know, because we have already EUV experience on the foundry side in mass production, in terms of the memory industry, we have the benefit of having built up step by step quite a lot of know how working with EUV. And that's why we believe that we will be offering the most competitive EUV based process technology in the memory industry. As you mentioned, the advantage of using EUV is that we can actually very aggressively push towards the advanced nodes in terms of migration that will enable us to develop products with low power and higher performance. And also, we will be able to enjoy cost savings continuously by reducing the number of multi patterning steps. Of course, it would depend on the economics of EUV as well as the number of EUV layers that we will be using. But our basic direction regarding EUV and memory is that we will continue to use it at a wider scale to as a source of gaining cost competitiveness. To answer your question about the foldable, as you know, since we launched the Galaxy Fold last September, the market has shown quite a high level of satisfaction regarding the innovation and the level of completeness that we've been able to deliver. Also, we are quite aware that the market has quite high expectations for a launch of various different foldable form factors, a possible lowering of prices and increasing of supply. Currently, we are focusing on launching the new foldable model of a new form factor and also focusing on further enhancing the level of completeness of the product in terms of the display, the design and also the UX. As we know, the foldable phone has actually opened a new category of a super premium product that's differentiated from the existing smartphone offerings. And we believe that going forward, the foldable phone will become a main category in the overall mobile market. That's why we will continue to focus and introduce new products that meet the customers' needs together with innovating technology. It's difficult at this point of the year to share with you a specific volume sales expectation. But we are also, at the same time, is preparing the new product, also increasing our capacity for production of foldable products, and we hope to supply our foldable products to more customers this year. We will take one last question before ending the Q and A session. The final question will be presented by Ms. Claire Kyung Min Kim from Hana Financial Investment. Please go ahead, ma'am. Yes, I have two questions. The first question is to the foundry business. It seems that with the adoption of the EUV at the foundry process, your competition against competitor TSMC is becoming more fierce. In that context, can you share with us what differentiates Samsung's foundry in terms of, for example, the road map for the advanced nodes versus the competitors? The second question is about the DRAM capacity plans. Previously, you had announced plans of converting some of your DRAM capacity to image sensor capacity. But given the recent turnaround in the DRAM demand, we I'm just wondering whether you have any plans of, for example, changing that capacity operation plan? And as a separate question from that, can you share with us your Pyeongtaek Phase II plans? When do you think that will be in operation? And what kinds of scale or capacity are you planning for PENG Tech Phase II? Regarding your first question about the foundry and EUV, as you know, we were the first in the industry to mass produce using EUV on the 7 nano from 2019. This year, our focus will be to expand our mass production on the EUV5 nano so that we are supplying to a wider range of customers and applications. And also this year, our goal is to complete our 4 nano design process so that we maintain our leadership in these cutting edge nodes. Another key point in our road map is the GAA gate all around technology, which will be the next generation architecture to follow the FinFET going forward. So our focus is to continue to develop the core and key technologies for the GAA so that we are able to achieve the world's first GAA at 3 nano and also to focus on design the infrastructure that could maximize the benefits of GAA in terms of performance and power. Now if I understand your question correctly, I think you're asking whether we have any plans of our capacity operation given the fact that the DRAM demand has been recently rebounding. And I guess your question is under the assumption, hypothetically, if demand actually grows beyond what's forecasted, whether we have any plans of changing. First of all, what we see in the market is that there is definitely clear increase in demand from applications such as data centers, graphic and consumers. Also on the mobile side, which does account for the largest share in the memory market, there are some positive upside factors such as the possible rollout of the 5 gs smartphones and positive impact to demand from there, but also there are some uncertainties that coexist. For example, some uncertainties would be the fact that some of the customers appear to have built up their inventory during the second half of last year and if they start to consume their inventory first, that could actually lead to a possible adjustment of demand. Also, as you know, the macro environment, geopolitical issues still remain quite out there even though some of them are seeming to relatively ease. I think it's too early to completely rule out the possibility of a negative impact from these macro uncertainties. And so given all of that outlook on demand and the possibility of change and also considering the need to achieve the efficiency of the overall semiconductor line operation, our plan of converting some of our capacity to image sensors will be maintained as originally planned. Regarding the second part of your question about PyongChuk Phase 2, we are planning to continue to actually approach that flexibly depending on market demand changes rather than fixing down specific numbers that we will have to stand by.