Earnings Call: Q3 2019

Oct 31, 2019

Now we shall commence the presentation on the fiscal year 2019 3rd quarter earnings results by Samsung Electronics. Good morning. This is Robert Yi from Investor Relations. Thank you for joining our earnings call this morning. With me representing each of the business units are Mr. Cheon Sei Won, Executive VP of Memory Marketing Mr. Ho Gok, Senior VP of System LSI Marketing Lee Sang Hyun, VP of Foundry Marketing Shaekwon Young is VP of Samsung Display Yi Jong Min, VP of IT and Mobile Business and Kim Won Hee, Vice President of Visual Display Business. Also, we have Mr. Ben Seo and Mr. Kang Tae Gyu, both from Investor Relations. I would like to remind you that some of the statements we'll 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 going over the results, I would like to address the 3rd quarter dividend. The Board of Directors today approved a 3rd quarter dividend of KRW354 per share to be paid in November for both common and preferred stocks. The total amount of payout is the same as it was in the first and the second quarter, which is KRW 2,400,000,000,000 or onefour of the planned annual total of KRW 9,600,000,000,000. Let's move on to our results. Total revenue in the 3rd quarter decreased about 5% year on year to KRW 62,000,000,000,000,000, despite strong sales of said products, including smartphones, as conditions for the memory business remained weak. Q on q basis, the total revenue increased about 10%, mostly due to the mobile and OLED business. Gross profit fell sharply year on year to KRW 22,000,000,000,000 with a corresponding decrease in gross margin, mainly due to soft conditions in the memory market. SG and A expenses were up year on year in both absolute terms and as a percent of sales, primarily due to increased R and D expenses for the development of advanced semiconductor technologies as well as strengthening our competitiveness in areas such as 5 gs and foldable technologies. Operating profit in the 3rd quarter was KRW7.8 trillion and operating margin came in at 12.5%, both down significantly year on year due to relative weakness in the memory business, but up quarter on quarter from robust smartphone sales and increased OLED utilization. A strong U. S. Dollar and euro against the Korean won in the 3rd quarter positively affected operating profit quarter over quarter by approximately KRW0.4 trillion mainly in the component business. I'll now briefly review the performance of each business unit. In the memory business, earnings fell sharply year on year as prices continue to decline amid an industry wide weakness that has persisted since the end of 2018. However, we did see higher than expected demand in this quarter due to customer inventory buildup. For System Semiconductors, demand increased year on year for mainstream products such as image sensors and display driver ICs, but earnings came in lower due to large price decline for mobile application processors as a result of intensified competition. In the display business, mobile panel profit improved year on year due to cost reductions from increased utilization and productivity. However, the large panel businesses loss increased quarter on quarter as ongoing capacity expansions in the industry continue to weigh on profitability. For the I'm division, mobile earnings grew due to strong sales performance by Galaxy Note 10 and A Series as well as higher profitability in the mass market segment. In addition, we extended our technology leadership with the expansion of our 5 gs lineup and the launch of Galaxy Fold. In the network business, earnings improved year on year, boosted by the rapid commercialization of 5 gs in Korea. For the CE division, profits in the TV business dipped slightly year on year amid aggressive pricing competition despite growing unit sales of premium models such as QLED and ultra large TVs. For Home Appliances, earnings edged up year on year with a robust domestic sales coupled with improved profitability for refrigerators and washing machines. Next, I would like to share our business outlook. For the Q4, in the component business, despite weak seasonality, memory demand is expected to increase slightly quarter on quarter as customers build up inventory in response to global uncertainties. In Systems Semiconductor, 7 nano EUV products will be mass produced in earnest. However, earnings are likely to feel greater effects from weak seasonality. For Display Business, mobile display earnings are expected to weaken due to lower than expected demand for certain premium products and rising cost from lower utilization of rigid lines. In the Large Display business, we forecast that earnings will further decline as ASPs continue to fall amidst weak seasonality. In the set business, we expect mobile earnings to decrease quarter on quarter due to an increase in marketing expenses and a small decline in shipments as a result of dissipating new product effects of flagship models. The network business we'll work to expand is 5 gs business in overseas markets based on our success of 5 gs commercialization in Korea. Consumer Electronics earnings are expected to improve as there is a seasonality seasonally strong year end demand in 4th quarter. Looking out to 2020, for the Memory business, while demand is expected to recover, global macroeconomic issues pose a risk of continued uncertainty in the industry. To address increased CIS demand, we reviewed overall optimization of our semiconductor capacity and plan to increase CIS capacity starting in first quarter 2020. Due to such optimization efforts, we expect year end inventory to normalize in first half of twenty twenty. We will continue to manage our capital expenditure plan flexibly in response to changing market conditions, while remaining committed to investing in mid- to long term readiness. In non memory semiconductors, for system LSI, we will introduce differentiated products to the 5 gs SoC and high resolution sensor markets. And in Foundry, we will expand mass production of 5 and 7 nano EUV chips, while also diversifying our client portfolio. In the display business, amid a likely increase in competition in mobile display, we will work to increase our year on year utilization by enhancing price competitiveness and leveraging OLED's advantages in power consumption, thickness and designed to solidify our lead position in 5 gs and other premium devices. For large displays, we will continue to reorganize our business structure around QD displays. In the LCD business, we remain focused on differentiated products such as ultra large TV, 8 ks models and value added monitors. In the I'm business, the mobile business will keep expanding the leadership in the premium segment by expanding our 5 gs and foldable product offerings. At the same time, we will pursue improved profitability through enhancement of our mass market lineup. The network business will strive to expand its 5 gs business overseas, including in the U. S. And Japan and continue to address additional 5 gs expansion in Korea. In the CE division, we will continue to lead the premium TV market by expanding adoption of QLED 8 ks and ultra large models. Home Appliances will see continued growth through the expanded launch of innovative products such as our bespoke refrigerators. Now I'll address the capital expenditures. The capital expenditure for 20 19 is expected to be similar to that of the last year, reaching approximately KRW 29,000,000,000,000, with KRW 23,000,000,000,000 allocated to semiconductors and KRW 2,900,000,000,000 to display. 3rd quarter CapEx was KRW 6,100,000,000,000. The cumulative total for this year as of the end of the third quarter was KRW 16,800,000,000,000, with KRW 14,000,000,000,000 to semi and KRW 1,300,000,000,000 to display. The majority of the remaining 4Q capital expenditure is earmarked for building memory infrastructure to address mid to long term demand. Furthermore, we will invest to expand 7 nano EUV capacity to strengthen the our foundry business and we'll also push forward with our investment plan for QD Display. As we previously announced to secure future growth, we are fully committed to invest in the strengthening our competitiveness in the existing business and to secure position to securely position the company Before we move on to presentation from each business units, I'd like to share several data points. For the Q3 this year, DRAM, our bit growth came in low 30% while ASP declined high teens. For next quarter, Q4, we expect the market DRAM demand growth to be low single digit and we expect our bit growth to be in line with the market. This will bring the 2019 annual DRAM demand growth at about mid teens, and I believe that outbid growth will be higher than that. For NAND 3rd quarter, our bit growth came in at high teens, while ASP declined mid single digit. And for the Q4, we also expect to see NAND market demand growth to be low single digit and we will be in line with the market. And for 2019, for the total year, we will bring the NAND market demand to be high 30%, and we will be higher than that. The for our display panel business, the OLED mix within the sales was about mid-eighty percent in the 3rd quarter. And for our wireless, our handset sales in the Q3 was 85,000,000 units. Tablet came in about 5,000,000. The blended ASP for our handsets were about $230 mid $2.30 and the mix of the smartphone within the total handset was low 90%. In Q4, we expect the shipment of our handset sales to decline quarter on quarter, while tablet, we do expect to see some increase. The blended ASP is more likely to decline quarter on quarter, while the mix of the smartphone within total handset will be capped at low 90%. And for our TV business, our sales in the Q3 shipment of volume in Q3 came in about mid teens. And in Q4, we expect to see high 30%. This will make up the decline in first half so that the annual increase of total shipment of TB will be high single digit increase. Now I'll turn the call over to gentlemen from each business units, starting from the memory. Good morning. This is Seowon Jeon from the memory marketing team. In the 3rd quarter, demand in the memory market grew considerably with strong seasonality and inventory restocking at some customers after inventory adjustments at data centers. On end, customers becoming increasingly aware of price bottom led to better than expected demand growth backed not only by launches of new smartphones and a continuing trend toward high density, but also by increasing SSD adoption in PCs and expanded high density storage from server customers as price elasticity kicked in. We actively responded to increased demand for high density e storage related to the release of new smartphones and for high value added high density SSD of over 2 terabytes from data centers, enabling us to achieve results above our previous guidance. For DRAM, demand from all applications has greatly increased, thanks to strong seasonal effect as well as from inventory restarting at customers in preparation for global macro issues such as tariffs and semiconductor material export regulations. As inventory levels normalized, mainly at data centers, server demand increased mostly for high density products due to effect of the expanding adoption of a new CPU. For PC, alongside the rising demand from an increase in set build, mainly from large OEM due to seasonal effect, replacement demand from enterprise PCO also increased because of the termination of Win 7 service. For mobile, the launch of new models in the second half led to a quarter on quarter increase in shipment and demand is thanks to an increased increasing portion of smartphones featuring at least 8 gigabyte DRAM. By actively addressing overall growth in demand from major applications and rising demand for inventory from customers, our sales far exceed our previous expectations. Now I will talk about the Q1 of 2019. In the Q4, for NAND, we believe price elasticity will result in solid demand for high density strategy, and we expect the prices to rebound across all applications amid to stabilize industry. For SSD, the adoption of high density, high performance SSD in data centers is expected to expand and attach ratio for client SSDs is also likely to increase steadily. For mobile, the high density trend is likely to continue considering launches of new high as mobile by major manufacturers. We will actively address rising demand across all applications, including demand for new products based on PCIe in the server market and demand for high density e storage for flagship smartphones, while we also remain focused on strengthening competitiveness in the premium market. In addition, we currently mass produce 5th generation V NAND for all applications, and we will enhance our technological competitiveness and strengthen profitability by transitioning toward the 6th generation Finland within the year. For DRAM, although there may be some impact from recent inventory restructuring at customers, overall demand is likely to remain solid and is likely to show some increase quarter on quarter. For server, we expect the demand from data centers to remain solid, while that for 16 gigabit based high density products will keep rising mainly from OEMs with increased adoption of the new CPU. For PC, set demand is likely to be limited following prepurchase in Q3 caused by the U. S. China tariff issue, but overall demand seems to stay mostly flat quarter on quarter, thanks to remaining demand for the holiday season and continuing prebuild enabled by a delay in the U. S.-China tariff issue. For mobile, we expect to see solid demand, thanks to year end orders from major customers and prepurchase effect for 2020 2020 New Year alongside a continuing high density trend with the release of new 5 gs smartphones. We will continue to strengthen our cost competitiveness by expanding migration to the 1Y nano level while also focusing on extending our technological leadership by increasing sales of high capacity server product and actively are responding to early demand for mobile LPDDR5. Total memory market in 2020. It is still challenging to offer a detailed forecast as various global macro issue keep clouding the outlook, but here's what we are seeing at this point. Data centers are suggesting they have a quite positive outlook for demand in 2020, and the high density trend in the mobile market is also likely to stay strong considering the spread of IoT smartphones. Even so, we think a more prudent approach toward demand is necessary considering risk of stagnant set treatment on the global macro uncertainties and effects following rising inventory demand from some customers, which occur in the second half of twenty nineteen. Therefore, we plan to increasing our focus on investing and managing capacity flexibly based on market conditions. Furthermore, we will concentrate on stably ramping up production and achieving high quality output of 1 gs nano and 6th generation V NAND products. And we will continue to do our best to enhance our technology leadership by spending sales of differentiated products such as high density server, mobile solutions and HBM2e? Thank you. Before we move on to the the non memory section, I just want to make one correction. I've been told that I said that our 3rd quarter NAND bit growth was high teens. Actually, it was low teens. I apologize and we'll continue with the System LSI. Good morning. This is Ben Ho from the System LSI Business. In the Q3 of this year, System LSI earnings improved quarter over quarter, thanks to rising demand for high resolution image sensors in China and mobile APs, PMICs, OLED DDIs for flagship smartphones amid high seasonality. In particular, we strengthened our technology leadership in the high resolution image sensor market by being the 1st to commercialize 108 megapixel sensors. In addition, we have laid the foundation to accelerate the growth in the 5 gs market through close cooperation with major customers in China and Korea, targeting expanded adoption of our differentiated 5 gs solutions for smartphone models to be launched in 2020. In the Q4, demand for high resolution image sensors such as 64 megapixels and 108 megapixels products should continue to increase, but earnings are likely to remain flat quarter on quarter due to a relative decline in demand for mobile APs and DDIs on the leading 3rd quarter peak seasonality. This quarter, we expect our 5 gs business to keep growing as our 5 gs-one chip solutions will be applied to new high end smartphone models produced by Chinese and Korean clients. In particular, Samsung 5 gs-one chip products, based on their price competitiveness, low power consumption and reduced chip size compared to existing 2 chip solutions are expected to help popularize 5 gs in lowtomidpriced smartphones. In 2020, 5 devices are forecasted to take an expanding share of the mobile market, and the demand for our differentiated image sensor products should also grow significantly. In line with the market demand for increasingly high spec smartphones, we will expand our lineup of differentiated products, which include 5 d SoCs produced at EUV 5 7 nanometers, high pixel products of 108 megapixels and above and 3 d and F4 d sensors. We will also expand our mid to long term business scope by diversifying our product offering by developing automotive and IoT used chips. Thank you. Good morning. This is Sung Hyun, Ryan Lee from Foundry Business. In the Q3, earnings increased quarter over quarter, thanks to increased demand for EUV 7 nanometer mobile APs, high resolution image sensors and HPC chips. In addition, shipments of computing and 5 gs network chips to U. S. Customers also contributed to our favorable results. In particular, we strengthened our advanced node technology leadership by completing the table for the 5 nanometer process and securing new orders for 5 nanometer based consumer products. As for the 10, 14, 28 nanometer mainstream processes, we expanded orders to mobile network and consumer applications, and we also diversified customers and applications in specialty 8 inches processes by securing orders for automotive PMICs and power discrete chips. In the Q4, we expect to generate solid earnings backed by mass production of 7 nanometer products, including EUV 6 nanometer project. In addition, we expect to secure new orders in HPC, AI and network applications. Moreover, we will continue our efforts to achieve stable results by completing designs for additional 5 nano products, and we will solidify our foundation for growth by setting up 4 nano design infrastructures. In 2020, we project that demand for mobile APs, modems, RFs and high pixel image sensors will grow significantly amid an expanding 5 gs market. We expect to begin mass production of new computing network products next year as a result of winning additional orders from larger scale clients this year. Also, we will accelerate the diversification of our customer base by expanding orders for 5 gs, AI, auto, IoT, power and continue gaining momentum in these areas. We will continue to widen our customer and product portfolios in EUV processes through mass production in 5 nanometer and the tape out of 4 nanometer. Furthermore, we will continue to innovate to achieve rapid growth in the mid to long term by striving to complete the development of the GAA 3 nanometer process. Thank you. Good morning. I'm Koon Young Choi from the business planning department of Samsung Display. First of all, as we announced earlier this month, we'll invest KRW 13,000,000,000,000 in next generation technology, QD Display, to strengthen our business competitiveness in the fiercely competitive large display market. Amid a combination of global economic slowdown and rising uncertainties, we'll do our utmost to commercialize QD display in a timely manner. And now let me turn to our Q3 results. Overall display earnings improved quarter on quarter, thanks to increased sales of small to medium sized OLED panels, despite weakness in the large display business. To add some detail, mobile display earnings improved sequentially as it entered high season on higher OA utilization rates and increased panel shipments, thanks to newly released products from major customers. Meanwhile, earnings in the large display panel business remained weak amid stagnant demand and declining prices with the latter. As a result, it was oversupply caused by 10.5 gs capacity expansion at competitors. Looking ahead to the Q4, earnings in the mobile display business are expected to be similar year on year, but profitability may weak quarter on quarter under intensified competition due to a sales mix change as well as a cost increase caused by lower utilization of fuel lines. In response, we work to shore up margin by lifting production efficiency and by expanding adoption of our differentiated technologies. With the large display sector under low seasonality, our sustained drop in ASP and demand for TV panels has heightened concerns over profitability. Accordingly, we strive to secure profitability by focusing more on supplying payments for items such as monitor and public display among others. Now let me brief you on our outlook and core strategies for 20 20. For the mobile business mobile display business, we expect orders for OLED panels to expand as users increasingly look to replace their current smartphone with a 5 gs model. However, we also expect competition to intensify as industry capacity keeps expanding. To address this, we will continue to focus on boosting utilization and shipments by strengthening cost competitiveness and leveraging our differentiated technologies and designs to broaden our customer base. In addition, we'll focus on minimizing seasonal impacts by striving to add more end applications like tablet, Note PC and Automotive and actively addressing the needs of our foldable display customers. Regarding the larger display business, we are reorganizing business structure to center on QD display And we'll emphasize profitability by increasing the sales portion of value added products such as ultra large and high resolution panels, including those for 8 ks TVs. And also by expanding shipments of premium panels for use in monitors like curved and gaming ones. Thank you. Good morning. I'm Jong Min Lee from the Mobile Communications Business. I'd like to share our Q3 results and our outlook for the I'm division. In the Q3 for the mobile business, market demand for smartphones increased quarter on quarter as we entered a period of relatively strong seasonality. Our smartphone shipment and revenue grew, thanks to solid sales of the Galaxy Note 10 and A Series. The Galaxy Note 10 has been very well received by the market since its August release, being highly praised for its sophisticated design and next level technology. As a result, the sales of Note 10 in the quarter exceeded its previous model by over double digit, while recording a stronger product mix as well. Our profit also increased significantly as the A3's lineup transition, which we had pushed in the first half, started paying off through cost reduction of inventory adjustments of order models. We strive to not only improve our business performance, but also strengthen our technological leadership with the launch of Galaxy Fold and more 5 gs smartphones. For the network business, we kept widening 5 gs coverage in South Korea and supplying equipment for LTE expansion in overseas market. Let's move to the outlook of the 4th quarter. Although the mobile seasonality, demand is expected to keep trending down year on year due to persistent uncertainties in the global macro environment. For our mobile business, we expect our mass market smartphones, including new A3 models, to maintain their solid sales performance. However, the overall sales mix is likely to weaken because of fading new model effects of the Note 10. We also expect our profit to decrease quarter on quarter as marketing cost will increase under strong seasonality. For the network business, we plan to leverage our leadership in commercializing 5 gs to keep solidifying the foundation of our global 5 gs business. Finally, let me share the outlook for 2020. For the mobile market, demand for 5 gs smartphone is expected to increase as commercialization of 5 gs accelerates. However, already fierce competition is likely to keep rising, especially within the trend of offering high end specs. Based on our experience with launching 5 gs smartphones, we will actively respond to the needs of the market and our customers by widening our 5 gs gs lineup. Furthermore, we will increase sales by enhancing comparativeness throughout our entire lineup from flagship to mass market models. And as a foundation of growth with foldable products that have witnessed their potential in the market this year. Alongside our efforts to expand sales of premium smartphones, we will enhance the mix of mass market smartphones by focusing on mid end to high end models within the segment. From our low end models, we will keep optimizing operations to improve profitability. For the network business, we will remain active in the nationwide expansion of 5 gs coverage and foster growth of our 5 gs business overseas, including in the U. S. And Japan. Thank you. Good morning. I'm Kimon Yisangmu from Visual Display Sales and Marketing. Let me start with current market conditions and our results for the Q3. The overall TV market stayed similar year on year due to weakened consumption in the market. For Samsung, the TV profits were slightly down year on year related to rising price competition in the market. However, profitability was solid, and we generated year on year revenue growth by increasing sales of strategic products such as QLED and super large screen TVs. In particular, QLED TVs with a superb picture quality and wide range of models are leading the premium market with significant sales growth, improving the product mix and securing profitability. In addition, in the 75 inches and above, we've been able to maintain our strong advantage in the market share while leading growth by meeting consumer needs for larger screens. For the digital appliances market in the 3rd quarter, developed markets have been stagnant, but global demand has increased, thanks to growth in emerging markets like India. For Samsung, we are continuing to focus on boosting sales of premium products, and the growth has been solid in developed of premium products and the growth has been solid in developed markets, backed by rising sales of new and innovative products like Bespoke. In the emerging markets, we achieved double digit sales growth and improved our earnings on a year on year basis. Now I will share market prospects for the Q4 2020. The TV market in the Q4 is projected to slightly weaken due to negatives such as slow global economy and unfavorable exchange rates resulting from an increase in trade protection. To minimize effects of such negatives and maximize growth and profitability, we will actively address year end peak season demand through close collaboration with our partners. In particular, we will extend our leadership in the premium market while creating growth and generating profit by expanding QLED TV sales, which is positioned as a premium standard and offering strong lineup of super large screen TVs. For the Digital Appliance business, we will strengthen peak season promotions by cooperating with key partners and continue to expand sales of new life products such as dryers and hairdressers. In addition, Samsung will continue to promote qualitative growth by increasing sales of premium products and further reinforcing our B2B business. For 2020, the TV market is projected to grow year on year, thanks to global sporting events like a major European soccer competition and the Olympic Summer Games despite risk factors such as economic instability in emerging markets. Samsung will continue to expand sales of strategic products such as QLED and super large screen TVs while securing a new growth engine and solidifying leadership with 8 ks TVs, which are pioneering the ultra high picture quality market. With micro LEDs, which have no bezel, no limits in size, resolution or shape and with lifestyle TVs, which add value to life of each consumer. For the Digital Appliance business, despite economic uncertainties, market demand is expected to grow in emerging markets, and Samsung will strengthen its premium lineup such as bespoke and promote continuous growth by expanding sales of new live products and reinforcing our B2B business. Thank you. Thank you. This completes our part of the management's presentations, and we'll move on to Q and A. The first questions will be presented by Mr. SK from Daiwa Capital Markets. Please go ahead, sir. Yes, I have two questions. The first question is for the memory side. Your DRAM, it's a question about your expectations for next year DRAM demand. Your 3rd quarter DRAM shipment was actually higher than the guidance that you had provided, which mainly seems to be driven by the Chinese mobile demand. Do you think that this increase in Chinese mobile is mainly explained by stronger end demand? Or is it some of the customers just trying to build up inventory in case of their supply chain issues? And what do you think will be the impact of this in the Q4? 2nd question is about the Fold, the Galaxy Fold that was launched. Can you give us some details of what the market response was from your perspective? And your plans next year of the foldable phone factor, for example, do you have any additional plans of launching phones next year? Some more details would be appreciated. To answer your first question, in the Q3, for memory, there was a positive seasonality. And so overall, we saw an increase of demand in all applications. But especially, the demand was large in the mobile major customers because they were launching new products. And also in the case of data centers, the data centers started to resume purchases after they went through their inventory adjustments. But it is also true that the both demand as well as shipments was higher than what we had expected by a large amount. And it is true that Chinese mobile customers and also some OEM customers were buying and had demand for inventory due to concerns of potential customs duty issues due to the trade dispute and concerns about future DRAM supply stability. Looking forward to the Q4, we believe that with the effects of new smartphones, the high density new smartphones being launched will be positive. And also in the case of servers, with the new platform being rolled out wider, there will be solid demand even in the Q4. Also, we think that it is likely that this demand of customers for inventory buildup would continue for the time being because of the continuing uncertainties in the external environment. We are carefully monitoring the impact that this would have on future markets and are carefully monitoring any changes in demand and will focus on maintaining stable profitability through flexible operations of our investments in supply. To answer your question about the foldable, as you know, the Galaxy Fold, which was the 1st foldable phone launched this year, quickly sold out the preorder and the 1st release quantities and received very positive reviews from both the press and end users. And we were able to once again confirm the potential of the foldable market. And we are planning to leverage the experience of having commercialized the Galaxy Fold to continue to introduce new products into the foldable lineup to maintain our leadership. In terms of our foldable approach, we are focused not only in introducing new products, but also focusing on optimizing the app of various areas, such as multimedia and games and to engage in active collaboration to identify new content optimized for the foldable form factor to maximize a differentiated experience that users can gain from the fold. Also, we recently disclosed a compact foldable form factor that's a flip type at the Samsung Developer Conference, And we will continue to focus on developing new form factors in the foldable category to expand our ecosystem and also provide a new and creative mobile experience. The next questions will be presented by Mr. Nicholas Guadouard from UBS. Please go ahead, sir. Yes, good morning. Thanks for taking my questions. The first one is drilling down a little bit on server DRAM. As you said, we saw some upside in procurement in Q3, which we believe came from a couple of large cloud customers. Do you expect this trend to continue into the next 2 to 3 quarters? Or do you actually expect customers to somewhat pause until Intel Ice Lake 10 nanometer server processes refresh finally kick in? Conversely, if Ice Lake was to be delayed beyond the current target that Intel has of an H220 ramp, how would that in your view affect the server Dior market in 2020 versus your current forecast? And secondly, now that you've made public your overall plans to move to QD displays over the next few years, Would you, in that process, convert the whole of your Gen 8.5 capacity for LCD to QD display over time? And in which time frame? What will be the associated CapEx spending? And do you expect QD Display to gain both technology and cost advantage over incumbent white OLED technology and why? Thank you. To answer your first question about the server DRAM, as you mentioned, the server DRAM demand was quite solid as we expected, and this is mainly explained by how data center customers have resumed their purchasing after finishing their inventory adjustments. And also, there was a positive impact from the adoption of Cascade. Even though we can't mention or offer comments about the other companies' plans of their new product launches. If the premise of your question is the potential concern of a lake ice lake delay, delaying also the increase of number of channels, which may potentially have a negative impact on server DRAM demand, then actually, we would like to point out that it seems Cooper Lake, the 14 nano Cooper Lake is going to be launched, it seems, on schedule. That also supports 8 channels. And therefore, we think that even if Ice Lake is delayed, the impact negative on demand due to the number of channels will be limited. Looking towards next year's server DRAM, the customers that we have been talking to have been presenting positive outlook for their 2020 demand, and they're talking in quite a detailed level about the full year quantity. And so these are giving a positive outlook on server demand for next year. However, there are continuing external environmental concerns lingering, and therefore, we will continue to sense and monitor the impact that these factors would have in the server market next year. To answer your second question about the QD display, as you mentioned, through the event that we had earlier this month, we announced our plans of investing a total of KRW 13,000,000,000,000,000 to the QD display technology until year 20 25. This involves converting the LCD capacity, the 8.5 gs LCD capacity that we have in Asan to QD display. And the scope is most of our LCD capacity in Korea will be converted in the long term to QD display. If I break down the KRW 13 trillion, around KRW 10,000,000,000,000 is investments for equipment and facilities and KRW 3,100,000,000,000 will be R and D related investments. Initially, we're thinking of starting out with a monthly capacity of around 30,000 pieces and focus on building up our technology and after that, gradually expand our supply while monitoring the market situation as well as the product competitiveness. You've also asked about the competitiveness of QD Display versus other technologies. Our QD Display is based on Samsung Proprietary QD Technology, and we believe that technology wise compared to other competing technologies, the QD Display technology has advantages in terms of color reproduction, viewing angle and resolution and actually can be expanded to not only TVs but monitors and other display applications. That's another advantage. Given the fact that Samsung has always had excellence in manufacturing, we believe that with our manufacturing excellence, QD display will be a very competitive offering, especially in the premium TV segment. And based on our mass production experience, we will achieve quick and efficient cost efficiencies. The next questions will be presented by Mr. Yoo Jong Woo from Hangong Investment and Securities. Please go ahead, sir. I have two questions. The first question is about the inventory, the semiconductor inventory. You said that you expect the inventory to reach normal levels in first half of next year. Can you first of all give us an update on your byproduct, by each product, the inventory situation as of second half this year? And regarding the inventory next year, can you give us a bit more detail of, for example, your production plans and your expectations in terms of supply and demand that support your view of inventory normalization year? Second question is about the NAND. You've mentioned that you're expecting the NAND prices to rebound in all applications in Q4. But I'm wondering how this ties in with your views before that the decrease in NAND prices are increasing demand given the elasticity of demand to price. But if as you mentioned, prices started to rebound from the Q4, would that what would be the impact of higher prices to demand given the price elasticity of To answer your first question of our inventory, first of all, NAND already reached normal inventory levels during the Q3 as we had expected. In the case of DRAM, especially with our shipments going beyond what we had originally expected during the Q3 by large margin, the DRAM inventory as of where we stand decreased significantly versus the previous quarter. Regarding the timing of DRAM inventory reaching a normal level, as we mentioned during the speech, in the mid- to long term, one of the things we are expecting is that CMOS image sensor demand will remain strong for quite some time. And so we do need additional capacity to respond to this CIS or CMOS image sensor demand. And based on our review of our overall semiconductor line optimization, we are planning to increase our CIS capacity starting from 1st quarter of next year. So that will be one factor in terms of our DRAM inventory. On top of that, next year, the DRAM demand will remain solid according to our expectations, especially around increasing content. And so with these factors considered, we are anticipating that our DRAM inventory will reach normal levels during first half of next year. To answer your second question about the NAND to PICE outlook, as we mentioned, our NAND inventory have already reached normal levels by Q3. And overall, in the industry, the supplier inventory is quickly reaching stable levels as well. And that is why NAND prices are expected to rebound during the Q4. The oversupply of NAND that we saw until the first half of this year was the result of decreased demand overall in the market and increased supply. To look back at how this oversupply happened during the first half, first of all, on the demand side, especially inventory levels climbed around data center customers, which suddenly decreased purchasing demand. And the other hand, from the supply side, what happened in the first quarter or first half was that overall in the industry, there was an for major solutions, including server SSDs that resulted in a very rapid increase in supply. Looking back at that oversupply Looking back at that oversupply situation, even though the drop in NAND prices did hurt the profit margins of the suppliers, if we look at the impact from the perspective of the overall IT industry, thanks to decreased LAN prices, the acceleration of mobile and SSD, high density adoptions happened. And also, we were able to increase markets that used to be a very limited market for NAND. And so if we look at the overall market demand perspective, the decrease in NAND prices actually had a positive effect. Through this experience, we learned that the NAND market has particularly and relatively strong price elasticity for demand. And this gave us the thought that if the prices rebound quite rapidly going forward, this may have a negative impact on promoting the sound demand growth in the industry, for example, by decreasing the adoption rate and content increase rates. And that is why we will focus on sensing the changes, fluctuations in market demand for NAND and managing our investments and supply flexibly in line with the market situation and market changes in the mid- to long term so that we are able to maintain a stable profitability in our business. The next questions will be presented by Mr. Kim Dong Won from KB Securities. I have a question that ties the I'm in the system LSI regarding the low end handsets. Can you share with us your mid- to low end handset profitability currently? And whether you have plans of increasing the quantities that you produce through ODM and JDM for cost competitiveness purposes. And if the I'm does increase its JDM volume, the question that I would like to pose to the system LSI side is, do you think that this will potentially decrease your share of I'm divisions business, especially at the low end side? To answer your question about our mass models, as you know, this year, we went through a mass model lineup transition the A Series. And we've also focused on quickly introducing innovative technologies that consumers want onto our mass phones, mass smartphones and thereby enhancing the competitiveness of our mass offerings. Also, based on the stronger product competitiveness, we were able to increase our mass model sales versus last year. And also with the transition between our old and new models being wrapped up during the first half, in third quarter, our mass sales our volume and also profitability improved. You've all asked us whether we have plans of increasing our JDM volume. As you know, we have been using JDM as a method for some limited models in order to respond timely to the rapidly changing market environment and also to actively satisfy the demands of our customers and the market by operating our lineup more efficiently and using our internal resources more efficiently. Regarding whether to increase our JDM quantity, we have not reached any decision as of yet. And we will decide the future direction by closely analyzing next year's market situation, the product competitiveness and actually the feedback from real end consumers customers. And we will even if we decide to expand, minimize the impact that this would have in our suppliers. To answer that question from the System LSI side, already our products have quite satisfying price performance. And of course, we will continue to enhance our cost competitiveness to that we are able to actively defend our market share by delivering the price performance that our customers want. We also plan to increase our market share in the low end segment by increasing starting supply to not only ODMs but other local Chinese customers. The next questions will be presented by Mr. Peter Li from Citi Global Markets Securities. Please go ahead, sir. I have two questions. The first question is about your investments on DRAM side. There were talks of new fab investments and some rumor in the market regarding TungTech Line 2. Can you give us an update on your investment plans? 2nd question is about a process question. How is your ramp up plans for the 1ZNANO? And can you also give us an update on your EUV? As we have mentioned several times, we still maintain a very solid market outlook in the mid- to long term. And our basic approach towards our investments remain the same that we will pursue our investments in capacity management in order to strengthen our sustainable profit base rather than focus on increasing the size of market share. Regarding our investment plans for next year 2020, it is still being studied and reviewed. But we are going to continue our investments in order to secure our future technology leadership and also to respond to future demand on a forward looking basis. And also, we'll be focusing or putting more emphasis on flexible operation and management of our investments depending on the market situation next year. Under that basic direction, in order to respond to the mid- to long term demand increases, Xi'an Phase 2 will be completing construction as planned within late this year and is planning to start operation from early next year. The actual size of that capacity increase will be determined flexibly considering the market demand situation. Regarding Comtech Phase 2, it's also planning to start operation next year in 2020. And there may be some facility investments for test production purposes, but we have not yet decided regarding exactly when to start full mass production or the size of that mass production capacity, which will be decided once again flexibly depending on changes in demand. To answer your second question about our process migration update, 1Z Nano is currently in mass production as we've planned. And including 1z, we believe that according to our expectations as of end of this year, the share of the 10 nano class product will be around high 70s or 80%. Next year, we see we will continue we plan to continue our migration for 1Y and 1Z for the major applications. And starting from first half of next year, 1Y processes will take position as our main process. And even 1Z, we will observe the qualification status with our major customers as we continue stable ramp up. Regarding the EUV, as we mentioned before, we are currently evaluating EUV for especially a 10 nano class technology, including the 1Z technology or the process. And we will be introducing or adopting EUV when we see the economics justifying it. Given the fact that the foundry business has already been working with EUV and is in stable mass production, we hope to leverage that experience and know how so that once we do adopt EUV, we will be able to overcome effectively difficulties such as process difficulties by using the cutting edge latest technology so that we are able to continue to maintain our advantage in terms of cost. The next questions will be presented by I have two questions. First question is about the DRAM capacity. Assuming that there is no increase in capacity under that assumption, how much of a bit growth are you able to incrementally achieve through just process technology migration? And under that assumption, how much of a cost reduction could we expect this year and next year? Second question is about the 5 gs handsets, the smartphone market. Can you share with us your next year 5 gs market outlook, demand outlook? And what are your plans? For example, what kind of market share are you expecting to achieve next year in the 5 gs smartphone segment? To answer your question about the DRAM, we are regarding next year DRAM market outlook and sales plans are currently still working on them. And so it's a bit too early to share with you the detailed data. But looking towards next year, there's one factor that the upside, the positive factors, which is that the data center customers that we've been talking to especially are giving some positive demand outlook for next year. They're talking about quite detailed quantities for horizons for more than several quarters, talking about purchasing. So that's a positive factor for next year DRAM. But on the other hand, there is still demand uncertainties that linger due to various external factors. And there was this buildup of inventory that happened recently, and we need to wait and see the impact that would have in next year's demand. And so based on that basic outlook demand outlook for next year, our plan is to supply in line with market demand growth through incremental increase in bit through process migration. In terms of cost advantages or cost saving, basically, with each node migration, we are able we target net DAI gain of around 20% to 30%. But given the fact that with each migration step, we're dealing with more difficult technology and the increase of process steps. The actual bit growth that we get through node migration is a bit lower than the 20% to 30% target that we have. But that will be the high level expectation. And when we actually look at the actual process migration and the relationship it has to bit growth and cost saving, one change that we have been noticing is that especially as our applications become more diverse and the level of quality that the customers demand become higher, more time is taking in the qualification process overall. And also, where in the past the process migrations happened with all applications before, we're now seeing that process migration is happening by application and by customer according to different time lines and schedules. And therefore, the amount of bit growth or cost savings we expect in practice through process migration is now being affected by a large number of factors, including the speed of how a new node is migrated. And therefore, actually, that connection between process or node migration and bit growth and cost saving depends. It's on more of a case by case situation. Your second question was about the 5 gs market outlook and our plans. Next year from 2020, 5 gs market demand is expected to increase quite rapidly because of the 5 gs commercialization in China and also the launch of 5 gs handsets by other manufacturers. But with this increase in demand, we're also expecting there to be more competition in the market as well. This April last April, we were able to launch the world's 1st 5 gs smartphone, the S10 5 gs. And also, we followed up with additional 5 gs models, including the Note 10, the Fold and A90. Based on this experience of having commercialized 5 gs and especially the leading markets such as Korea, U. S. And Europe, we plan next year to introduce 5 gs models in not only the high end segment, but in wider price segments so that we will have a wider 5 gs lineup, which will help us respond timely to the 5 gs commercialization schedules by each country. And at the same time, we will strengthen our collaboration with carriers and also focus on identifying services that will differentiate the 5 gs experience. We will take one last question before ending today's call. The last questions will be presented by Mr. To Hyun Woo from NH Investment and Securities. Please go ahead, sir. I have two questions tied with the 5 gs smartphone demand related with memory. For memory from the memory perspective, what is your outlook of the 5 gs smartphone market next year? And we connect it with 5 gs, what do you 2nd question is towards the foundry business. There's been some press reports, especially from the overseas media, that your EUV 7 nano yield is not as high as expected and that this may result in some disruptions in your 5 gs chipset supply. Can you give us an update on your EUV 7 nano yield and the supply situation for the 5 gs chips next year? To answer your first question, from the memory's perspective, looking at the 5 gs smartphone market, actually, the high density product started to be adopted on the 5 gs smartphone already from 2019. And we do see many OEMs are preparing to launch their 5 gs smartphones next year. Especially with more subsidies being provided from next year. Actually, the 5 gs handset shipment outlook is being upward adjusted continuously, and we're expecting especially rapid growth around the Chinese market. If you look at some external sources external sources that are providing data on outlook for next year 5 gs smartphone, 5 gs smartphone shipment quantities are ranging from some agencies saying that it will be around mid- to low 100,000,000 and some others are expecting 5 gs smartphone shipments to be around the mid- to high JPY 200,000,000. So it's a very wide range. And it will probably take some time for that range to narrow down and the market to reach a consensus regarding next year's 5 gs handset shipments. But I think there will be no disagreement that especially compared to 2019, there will be a very significant growth in 5 gs handset shipments. So on top of that strong outlook for 5 gs handset demand and shipments next year, as the 5 gs smart phones were adopted from the flash segment, they started out with high density memory. And with more high spec applications for 5 gs being rolled out, we think that there's still a quite strong momentum behind higher density adoption on the 5 gs smartphones. And so we expect the memory demand, especially for the high 5 gs smartphones, to remain quite solid for some time. On top of that, if we look towards other applications such as servers, server demand will probably remain solid. And so overall, we are expecting the memory demand to remain solid next year. However, we are carefully watching the impact that the recent macro factors would have and the possible impact that the inventory buildup that happened recently may have on next year's demand. Regarding your second question about our EUV 7 nano, since starting our mass production in Q1 this year, we have been maintaining a stable yield. And we've also with adding the new customer, we are planning to increase our EUV 7 nano supply from the Q4. We expect the 5 gs chipset demand chip demand to increase quite rapidly, and we're expecting the 5 gs chips to contribute significantly to our revenue. So currently, our focus is continuing to maintain stable supply of this product. Thank you very much. And this ends our 3rd quarter earnings conference