Earnings Call: Q3 2018

Oct 31, 2018

Now we shall commence the presentation on the fiscal year 2018 Q3 earnings results by Samsung Electronics. Good morning. This is Robert Yi from Investor Relations. Thank you for joining our earnings call for the Q3 of 2018. With me representing each business units are Mr. Chang Jae won, Senior VP of Memory Marketing Mr. Ho Gok, VP of System LSI Marketing Lee Sang yeon, VP of Foundry Marketing Team and Chaekwon Young is VP of Samsung Display Lee Jong Tae, VP of IT and Mobile Business and Park Kyung Cheol, VP of Visual Display. And we also have Mr. Kim Sang yeol and Kang Tae Yoo, both from Investor Relations. I'd 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 we go over the results, I will 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. As was the case in the 1st and second quarter, the dividend payout for the 3rd quarter is KRW 2,400,000,000,000 or onefour of the annual total of KRW 9,600,000,000,000. We have been focusing on ways to enhance shareholder value over the past few years, and dividends are a part of these efforts. We introduced a new shareholder return policy in October 2015 and our current policy, which was announced in October of 2017, features a significant increase in dividends. Annual dividends are currently KRW 9,600,000,000,000 KRW 9.6 trillion, up 3x from KRW 3.1 trillion that was declared in 2015. While return on equity bolstered by earnings improvements and proactive shareholder returns have also increased considerably, climbing from 11% in 2015 and reaching 20% range since 2017. Also regarding the corporate governance, we enhanced the Board's independence by separating the role of CEO and Chairman. We also enhanced this diversity through the appointment of a female director and also the one with international C suite experience. We will continue to build the foundation for long term growth by strengthening our competitiveness and discovering new growth drivers and also by focusing on the creation of shareholder value. With that, I would like to walk you through our Q3 results. In the Q3, the total revenue increased 5% year over year and 12% quarter over quarter to KRW 65,500,000,000,000 on the back strong sales of memory products and OLED panels. Gross profit increased approximately KRW 1 point 2,000,000,000,000 year over year to KRW 30,300,000,000, even though gross margin edged down. Compared to last year, SG and A expenses declined KRW 1.8 trillion and 4 percentage point when expressed as a portion of sales, a result of more efficient execution of advertising with the said business focusing their global marketing efforts on key lineups. Operating profits at a new quarterly high, rising KRW 3,000,000,000,000 year over year and KRW 2,700,000,000,000 quarter over quarter to KRW 17,600,000,000,000, backed by a strong performance by the Memory business, despite a weaker performance by I'm division. Operating margin rose 3.4 percentage point year over year to 26.8%. A weak Korean won versus the U. S. Dollar had a positive quarter over quarter effect of approximately KRW 800,000,000,000 mainly for the component business. Conversely, a strong one against major emerging currencies mildly weighted on results on the in the set business. I will now briefly review operating profits by business units. In the semiconductor business, earnings improved both sequentially and year on year. And in solid business conditions, the memory unit reduced costs in the DRAM business on improved yields on advanced process and fully ramped up production of new capacity in the upper level of the Pyeongtaek campus. For the display business, despite unfavorable supply and demand conditions in the LCD market, earnings improved year on year on growing sales of flexible OLED panels to large scale customers. On a quarter on a Q o Q basis, earnings improved significantly resulting from an increase in the utilization of flexible OLED panel capacity. In the I'm division, profit decreased year on year due to a decline in sales volume and higher dealer mature cost amid intensifying competition. For the Consumer Electronics division, earnings improved, thanks to strong sales of premium TV products such as QLED and ultra large models. Now I would like to share briefly on our business outlook. In the Q4, we expect overall earnings to decline as we enter weak seasonality in the semiconductor market. For the component business, earnings are expected to decline in the memory business due to seasonality but remain relatively strong for the OLED business backed by demand from major customers. For the set business, we expect sales volume in the mobile business to increase on the back of our refreshed mid to low segment lineup, which include a new A Series model featuring multi camera modules. Profitability, however, is expected to weaken due to an increase in marketing expenses as we enter the peak season. For network business, we plan to start supplying 5 gs equipment, shipping to clients in North America and Korea and establishing our position at the forefront of the 5 gs era. In the Consumer Electronics business, we expect earnings to grow as strong year end seasonality boosts demand for QLED TVs and premium home appliances. For 2019, earnings are forecast to be weak for the Q1 due to seasonality, but can strengthen as business conditions improve in the memory market in particular. Meanwhile, we are focusing on new technologies such as 5 gs and artificial intelligence and new developments in automotive electrification by strengthening our competitiveness, by leveraging our component technologies such as chipsets and OLED panels, delivering innovative form factors and leading the development of the 5 gs technology. By doing so, we can sustain mid to long term growth based on our technology technological leadership as markets for these new areas expand. Now I'll address the capital expenditures. The total capital expenditure for 2018 is expected to decrease to KRW 31,800,000,000,000, down from KRW 43.4 trillion we spent in 2017. Of KRW 31.8, we have allocated KRW 24,900,000,000,000 to Semiconductor and about KRW 3,700,000,000,000 to Display. In the Memory business, again, we expect CapEx to increase slightly year over year due to expansion at the Pyeongtaek campus. The CapEx in the foundry business, however, is expected to decline year over year as the 10 nano line expansion was completed in 2017. In the OLED business, capital expenditure for flexible panels will be significantly lower than it was last year. The total capital expenditure in the 3rd quarter was KRW 5,600,000,000,000, about KRW 4,500,000,000,000 for semi and about KRW 5 1,000,000,000,000 for the display business, which makes the year to date, at the end of Q3, total CapEx was KRW 22,300,000,000. Before we move on to presentation from each business units, I would like to share several data points in key business areas. For DRAM, our 3rd quarter bit growth came in mid teens increase and the ASP for the quarter was flat Q on Q. For the 4th quarter, we expect DRAM market bit growth to be mid single digit, and we expect our bit growth to be similar to the market growth. That will make the 2018 total market DRAM bit growth at about 20%, and we will grow in line with the market. For NAND flash, in the Q3, our bit growth came in low 20%, while we saw ASP decline of mid teens. In Q4, NAND market bit growth is expected to grow high single digit and we will grow in line with the market. Again, that will make the NAND annual bit growth at about low 40%, which also is our NAND bit growth expectation. For Display Business, the in terms of sales or the revenue, OLED mix was about 80%. For mobile business, our total shipment of handsets in 3rd quarter was about 81,000,000 units and tablet was about 5,000,000. The blended ASP of our total mobile products was about $2.20 And within the total handset shipment, the smartphone mix was high 80%. For the Q4, we expect our handset shipment to increase as well as a tablet will also increase. However, we expect the blended ASP in the Q4 to decline Q on Q and the mix of the smartphone within the total handset shipment will remain similar at a high 80% range. And for our TV sales, in Q3, we saw about mid single digit increase. In Q4, however, we expect to see about 40 percent increase of sales of our LCD TV. But annualized basis, that number will probably come down to mid single digit decrease I'm sorry, low single digit decrease of the TV sales. Okay. Now I'll turn the conference call over to gentlemen from each business units. Good morning. This is Seo Won Jung from the Memory Marketing team. In the 3rd quarter, in line with the normal seasonal effect, demand increased mainly from server and mobile. We improved our earnings by spending portion of fine process products and concentrating on sales of premium products. On end, with the high density trend for mobile being continued due to cloud company's infrastructure expansion and growth growing portion of all flash array, A. Solid server SSD demand continued. As the softening pricing stimulated the demand, demand growth was higher than expected. On the supply side, due to the industry supply of 64 layer three d NAND for OEM solutions, the portion of the 64 layer continuously increased in the market. In this process, supply for China also increased similarly to the previous quarter. We have honored solid earning growth by actively responding to the high density trend for mobile and trend of 8 and 16 terabyte high density SSD expansion with stable supply of 64 Layer 3 demand at TungTech campus. For DRAM, due to peak seasonality, demand from all application increased compared to the previous quarter. Demand for server increased, thanks to OEM peak season and expansion of new CPU adoption by data center companies. For mobile, all set demand increases due to the effects of large companies' new model launches as well as the continuing high density trend such as 8 gigabyte high density eMCT adoption for high end Chinese assets, mobile demand growth was more solid than the previous quarter. Thanks to increased set build on the fixed seasonality, solid PC demand continue mainly from large OEMs. Although graphics had an adjustment from mining and Fuji A demand, positive seasonality from gaming console compensated this demand decline. Consumer demand also remained strong, led by seasonal growth in demand mainly from UHD TV. We continue to achieve a solid earning growth following the previous quarter by focusing on strengthening cost competitiveness through expanding 1x nano product transition and actively responded to each application's customer demand. In the Q4, with external uncertainty like macroeconomic changes, set build may have some impact caused by supply shortage of major IT components. We will try our best to react to market demand throughout our technology leadership and flexible product mix as well as focus on securing good profitability. At the same time, we will focus on strengthening competitiveness in the premium market by preempting high density demand through UMCP. For 5th generation V NAND, we are currently mass producing it mainly for brand SSD by expediting this transition in server and mobile applications, we will continue to enhance product competitiveness and strengthen market leadership. For DRAM, although price may soften because of supply shortage issues of a major component and short term inventory adjustment for some customers, memory demand fundamentals are expected to stay solid. By application, for server, The high density trend is expected to remain, including expanded adoption of a high density product over 64 gigabyte, mainly from OEMs. Solid demand for PC will also continue, thanks to events like Black Friday and holiday season. For mobile, although the Chinese domestic market may show some weakness, demand is expected to increase from the second half, mainly from large customer flagship models. Moreover, as said companies need to upgrade specs for their differentiation, memory content is expected to increase in entry level model as well. So we believe that memory demand fundamentals will stay very solid. We will focus on achieving solid earnings by maximizing sales through flexible product mix according to each application's market condition. At the same time, we will focus on strengthening product competitiveness via expanding the 1x nanometer product portion and strengthen design in activity to establish solid sales base for 1Y nanometer products. Next, I'm going to talk about 2019 memory market outlook. In Q1, due to the seasonal effect, the memory market may slow down a little. However, demand and supply situation will stabilize from the Q2, thanks to increase in demand mainly from server and mobile. For NAND, the public cloud market is pending in line with the trend to store and manage data more stably and effectively, while all flash array replacement will be accelerated to operate high performance server optimized each company, demand will be diversified with more use case optimized SSD solutions. Moreover, due to the lengthening of the smartphone replacement cycle, the trend for periphery models with bigger storage, which not only backup the existing data, but also store high resolution and high density contents stably in the long term while expand continuously. As for the supply side, although suppliers' production of 64 layer may expand, supply growth will be limited due to the decrease in existing process capacity for 5th generation pre NAND ramp up. And from the second half, as the demand increase will exceed the increase in supply, the supply and demand situation will be improved. We will actively respond to expanding demand of all application caused by price stabilizations. At the same time, we will focus on strengthening our cost competitiveness by expanding supply of 4th generation and P1 billion. For DRAM, our high density trend for server, including growth in machine learning based AI services and adoption of high density DRAM from memory database and cloud instances is anticipated to continue. Moreover, in the second quarter, thanks to new CPU platform launches, high density memory demand is anticipated to expand. Demand for PCs also expect to increase, mainly led by content growth due to the expansion of the high performance portion like gaming PC. For mobile, memory demand will remain solid consistently, thanks to continuous high density trend beyond high end segment and the high density trend for mobile devices due to the impact of competition to improve specs in the entry level market. As for the supply side, even though it may vary depending on the industry 10 nanometer process expansion, rapid extension of supply is hardly likely due to increases in technological difficulties and capital intensity. We will intensify our competitiveness in the high value added market by expanding series of differentiated products such as high server products, HBM2 and high density mcp for mobile as well as strengthen our technology leadership. At the same time, thoroughly by thoroughly monitoring market conditions, we will also focus on ensuring sustainable profitability through efficient investment according to market conditions and flexible capacity management. Thank you. Good morning. This is Ben He from the System LSI Business. In the Q3 of this year, overall earnings in the System LSI Business improved quarter over quarter, thanks to rising demand of the image sensors in China amid a high seasonality and OLED DDIs for flagship smartphones. In particular, our image sensor business achieved a record high result for any quarter due to expanding adoption of multiple cameras and high resolution sensors. In the Q4, despite a likely rise in demand from products slated to launch next year, we expect overall earnings to decline due to a seasonal dip in component demand for the mobile image sensors and DDIs. In 2019, even amid the stagnated smartphone market, we expect our earnings to continue grow solidly, bolstered by contribution from image sensors as demand rise from more sophisticated camera specification such as multiple cameras and high resolution sensors. In addition, we will concentrate on diversifying our customer base in China and the U. S. By enhancing associate competitiveness through the use of 5 gs modern technology. We will also focus on expanding our business area by diversifying our product line to include 3 d sensors, fingerprint on display sensors and chips used in automotive and IoT applications. Thank you. Good morning. This is Ryan Sung Hyun Lee from Foundry Business. In the 3rd quarter, despite the declining demand for cryptocurrency mining chips, overall earnings continued to grow quarter over quarter, thanks to the increased demand for mobile APs and image sensors. In particular, we have secured the technological leadership in advanced processes by completing development and starting production of the EUV based 7 nanometer process, our first process offering using EUV. In the Q4, demand for mobile APs and image sensors is expected to decline amid weak seasonality for smartphone components. However, on a full year basis, we expect to continue our run of year over year earnings growth due to the achievement of customer diversification, including HPC customers. In 2019, we will focus on achieving solid results by ensuring a stable supply of major products such as mobile APs and image sensors. And by diversifying our customer bases in AI, automotive and 8 inches areas, we will expand our number of customers by more than 30%, striving to establish a bridge ahead to stable growth. In addition, we will maintain our technological leadership through full scale mass production of our 7 nanometer EUV process. Thank you. Good morning. This is Gonyoung Choi from the Flame Department of Samsung Display. In the Q3, the total earnings in the display business increased quarter over quarter based on increased sales volume in both the OLED and HD Businesses. For the OLED Business, for the OLED business, earnings increased quarter over quarter led by increased demand for the flexibility panels from major customers. In the LCD business, earnings improved slightly quarter over quarter, by expanded shipments of value added products such as those for high resolution and ultra large TVs. Looking ahead to the Q4, in the OLED business, we expect stable demand from major customers. We plan to focus on increasing our customer adoption of OLED panels by increasing technical differentiation of our flexible displays and improving productivity of digital panels. On the other hand, DST business under weak seasonality is likely to keep experiencing unfavorable supply and demand dynamics due to ongoing capacity expansion in the industry. Thus, we will strive to secure profitability by improving yield as well as by expanding our variated products portion of shipments, which include ultra large and high resolution TV panels. Now I would like to present the outlook for the display market and our core strategy for 2019. For the OLED business, we'll work to diversify into new product categories to continue the efforts to offer technically differentiated products, while expanding our customer base focusing on flexible displays. We plan to secure growth by reinforcing our partnership with the major smartphone customers and increasing our cost competitiveness relative to those of competitors. At the same time, we will strive to reinforce our leadership in the OLED business by improving technical completeness for new applications such as foldable and automotive and IT. For the HD business, we expect the market for premium TV panels such as UHD Ultra HD Ultra HD, Ultra HD High Definition and Ultra HD once will continue to grow. However, we are concerned about growing uncertainties caused by capacity expansion in the acid industry. In preparation for such conditions, we plan to focus on sales growth of value added products such as differentiated panels for quantum dots and 8 ks and ultra large TVs. Thank you. Good morning. This is Gensae Lee from the Mobile Communication Business. I will now present the I'm division's 3rd quarter business results and the 4th quarter end 2019 outlook. In the Q3, market demand for both smartphone and tablets increased Q o Q. Our mobile business achieved a solid sales of our flagship models backed by the earlier than usual launch of the Galaxy Note 9 at the end of August. The Note 9 is showing positive sales trend and has been highly praised for its reinforced performance, including memory content and battery life and useful features such as intelligent camera and Bluetooth Smart S10. Despite solid sales of our legacy models, overall smartphone shipments remained at a similar level Q o Q due to decreased sales of mass smartphones and increasing competition in mass segment. We deorganized our lineup for mass smartphones by discontinuing production of older models to prepare for the launch of new models, which negatively affected the sales. Our profit decreased Q o Q due to increased total promotional costs, including stores related to the Note 9 launch and unfavorable foreign exchange rate in some regions. Exchange rate in some regions. As for the network business, both revenue and profit decreased Q o Q because LTE extension of our major overseas partner concentrated in the first half of this year. Next, let's move on to the outlook for the Q4. Market demand for both smartphones and tablets is expected to increase Q o Q as we enter the year end peak season. For the mobile communication business, we expect our smartphone shipment to increase Q o Q, thanks to our enhanced lineup for mass smartphones as the new Galaxy A7 and A9 are built to deliver a whole new experience with their multi camera. On the other hand, we expect the market to decrease Q o Q as the marketing cost will increase under strong seasonality. For the network business, we aim to supply 5 gs network equipment to advanced nations such as the U. S. And the South Korea to commercialize the 5 gs in earnest. Last, I will share our outlook over 2019. We expect overall demand for smartphone to grow slightly, driven mainly by premium segment. However, as the trend of offering higher spec main cars has been expanding to mass segment, pure spec competition seems inevitable across all segments. For our flagship models, we strive to expand the sales. We are offering not only differentiated designs based on innovative core products such as OLED panels, but also diversified liner. At the same time, we will solidify our global leadership and address market competition by definitely introducing cutting edge technology for essential features such as camera and display even to our massive smartphone. As I mentioned earlier, our recently unveiled Galaxy A9 provides an innovative camera experience through its adoption of a world's first quarter camera and intelligent camera feature. Looking ahead, we will continue to wish we adopt next generation technology and features across our entire Galaxy portfolio, including the Galaxy A to give more consumers an opportunity to experience cutting edge innovation. Furthermore, we will pursue strengthening our mid- to long term competitiveness across all businesses. We aim to lead the technological innovation by introducing foldable and 5 gs devices, which we have been procuring over the past 3 years at an appropriate time. In addition, we will continue to strengthen the foundation for growth by relentlessly developing our own ecosystem based on AI and IoT. We will share more detailed information regarding AI and IoT at the Samsung Developer Conference, which will be held next week. For the network businesses, we will actively respond to global 5 gs market growth by extending our 5 gs business to new countries based on our experience commercializing 5 gs in the U. S. And South Korea. Thank you. Good morning. I'm Kyung Chul Park, Vice President of Visual Display Sales and Marketing team. Let me start with the current market conditions and our result for 2018 Q3. The TV market in Q3 expanded quarter on quarter due to favorable economic conditions centering on North America. On a year on year basis, however, the market stayed similar due to a decrease of consumption caused by exchange rate effect in emerging markets. An increase of sales of high value products such as QLED and super large screen TVs led profit to improve both quarter on quarter year on year. In particular, in their 2nd year of release, our QLED TVs received favorable feedback from both distributors and consumers regarding picture quality and differentiated features such as ambient mode and 1 invisible connection. OLED TVs saw sales triple year on year and are now on a mainstream product in the market. As for super large screen TVs of 70 5 inches and above, Samsung is leading the rapidly growing market by delivering useful features and effectively communicating the benefit of this size. Consequently, we have over half of the market share and our sales doubled year on year contributing to overall profit growth. The digital appliances market in Q3 continued to show solid growth in advanced markets like the U. S. And Europe. That said, overall market demand slightly declined due to exchange rate effect and political instabilities in emerging markets. Samsung continued to expand sales of premium products such as Family Hub Refrigerator and FlexWashing Machine Compared to last year, however, our results decreased slightly year on year due to economic downturns in emerging markets such as those in Latin America and the Middle East. Now I will share market prospects for Q4 and 2019. The TV market in Q4 this year is projected to grow slightly year on year, mainly in advanced region. Samsung will strengthen leadership in the premium ticket market and improve result by capitalizing on year end peak season demand through close partnership with distributors and by increasing sales of strategic products such as QLED and Superlises green tea models. In an industry first, Samsung will offer an AI based QLED 8 ks TV, providing consumers with incredible and never before seen value. This will open up a new horizon of ultra high picture quality TV through our viewing experience, featuring a perfect realism powered by quantum processor, allowing consumers to enjoy content through AI upscaling technology based on machine learning. Samsung will achieve high capability and maintain its role as the industry leader by staying atop the premium TV market and strengthening its technology leadership. For the digital appliances businesses, market demand may decline due to global trade issues and amid foreign exchange risk in emerging markets. Samsung will strength peak season promotions by region through partnership with distributors and will continue to increase sales of premium products such as Air Cube, Air Purifier and High Volume Dryers. As for TV, in 2019, the market is expected to stay similar year on year even amid the risks that include an absence of a global sporting event, a hike in U. S. Interest rate and economic instability in emerging markets. Samsung will continue to improve profits based on our solidified leadership and the premium market with quality and super large screen TVs. At the same time, we will also continue to lead the ultra high quality feature and super large screen TV market by expanding QLED 8 ks TV sales and reinforcing our lineup of super large screen models. As for the digital appliances business, Samsung will focus on improving profitability by releasing innovative premium products and expanding online sales. Also, we will secure a future growth engine by strengthening our B2B business that includes built in appliances and system air conditions. Thank you. Thank you. This completes the management's presentation. We will go through the questions and answer session. Now Q and A session will begin. Yoo Jong Woo from Korea Investment and Securities. My first question is about the DRAM demand and supply outlook, specifically the amount or duration of price decline that you expect from the company's perspective. I think overall, the market is expecting DRAM prices to decline starting from 4th quarter and lasting at least until the first half of next year. I think the focus of the market is the levels of decline and how long this decline would continue. And so from the company's perspective, can you share your views of how much and how long the price decline in DRAM will go on from Q4 this year until next year? I think there is some hope in the market for a soft landing. And so how short do you think this weak price period could go? Until Q4 and at least Q1 next year, due to seasonality, there could be some easing in the market condition. But in the Q2 next year, there will be the launch of the new CPU platform. And also, with the wider adoption of the 16 gigabit DDR, there will be a greater demand for high density. And we believe that both on the server and the mobile application side, starting from the second half of next year, the increase or pace of demand growth would outpace supply growth. The period of a supply shortage that extended for more than 2 years was something that both the suppliers as well as the customers had never experienced before. So in a sense, this current turnaround in prices, I think, is affected in part by a psychological factor. There could be temporary mismatch in demand and supply due to various factors such as the level of inventory at the customer side, also the seasonality of demand and also the the In the mid to long term, the memory industry demand overall maintains remains very solid. And given the overall IT industry trend that's becoming more and more data centric, we believe that demand for mobile will continue to remain strong. The next questions will be provided by Mr. Ricky Seo from HSBC. Please go ahead. My first question is about the treasury share, which was to be retired or canceled. Your original plan that you announced in April was that you will be canceling 50% of your treasury share. But I noticed that today, the BOD BOD did not make any resolutions regarding this. Does this mean your plans have changed? To answer your question, there is no change in plans of canceling the remaining 50% of the treasury shares within this year. My question is about the foldable phone. Can you give us a bit more idea of when that would be launched? And also, when I think of a foldable phone, in addition to a larger screen, what kind of appeal points are you planning? Also, I'm assuming that with a foldable phone, the UI user interface would have to be significantly different from the existing smartphones. Can you give us a preview on what kind of UI changes you're planning? To answer your question about the foldable phone, the foldable phone, we are focusing on combining perfectly both portability as well as the large screen experience by leveraging this innovative form factor called the foldable phone. That's so that we're planning to have users experience a smartphone when it's folded and then unfold it to have a tablet experience. At the same time, a key focus of the foldable will be to have an innovative and new multitasking environment where multiple tasks, multiple jobs can be done very quickly and conveniently in order to provide customers with a product that has significant and genuine value. We also realize that optimizing applications to fit the new form factor will be critical before the product launch. And because there are many factors to consider in developing foldable specific apps, we are also preparing opportunities to share the content with the app developers. Regarding the user interface differences, what will be new? Actually, the details, I think, will be dealt with at the Samsung Developer Conference that we're planning next week. Even though we're not able to share with you the specific launch schedule for our foldable phone, we will deliver a very high level of completeness through this new product. The next questions will be presented by Mr. Nicolas Caudois from UBS. Please go ahead, sir. Yes, Good morning. Thanks for taking my question. My first question is on DRAM. In the light of the recent reduction in DRAM procurement from data center or hyperscale customers, how much do you think is obviously is an inventory correction versus a period of digestion of very elevated computing CapEx since H2 2016? And if you see partly the latter, how long could we see this period of slow growth continuing before we see a reacceleration of demand driven by longer term competing requirements by those customers? And Bella, I have a follow-up. Thank you. Regarding the memory demand, actually, as we mentioned before, with the launch of a new CPU platform coming up in Q2 next year, we believe that there will be a visible increase in demand already from Q2. Regarding the data center inventory adjustments, it is true that the tight situation that we saw in the earlier part of this year has improved somewhat. But actually, there's differences depending on the company as well as the product. The inventory levels are different, and I think each company and each product would go through a different optimization process. Given the fact that in the mid- to long term, there definitely has to be inevitable increase of memory demand from hyperscale computing, there could be some adjustments by customer or by product, but that would remain short term and also on a limited basis. And still, we believe that this to long term demand fundamentals remain very strong. Thank you. And second question is on NAND flash. You are ramping up 92 layer 3 d NAND flash with a single stack structure. Do you expect a better or equivalent yield curve versus 64 year, which helps to have a single stack structure? And is this driving some conservatism on capital spending for NAND flash in 2019? Conversely, if yields improve faster, could we see more 90 2 layer wafer capacity being deployed into 2019? And finally, if you could clarify how long can you continue to iterate this single stack structure since all of your peers have moved to multiple stack structure now? Thank you. To answer your question, our ramp up of the 5th generation, the 5th generation V NAND is going according to plan smoothly. In terms of the yield curve, it's similar to our 4th generation or a little bit better than our 4th generation because it takes longer to qualify for server or mobile SSD applications. Currently, we're mainly supplying towards the PC SSD applications, but we plan to start supplying to server and mobile applications from next year as the share of our 5th generation increases. In terms of CapEx and investment, as we always do, we will be operating our CapEx flexibly depending on how yield comes. And regarding the single stack technology, as we mentioned during the Tech Day event, it's difficult to tell you right now how long we will maintain the single stack or how long that would be possible. But as we mentioned on Tech Day, we are already preparing to use the single stack on our 6 gs and 6th generation is planned for mass production second half of next year. The next questions will be presented by Mr. Kim Dong won from KB Securities. Please go ahead, sir. I have two questions related with the 5 gs market. First question is towards the I'm division. With the opening of the 5 gs market next year, do you expect to have more contracts, more orders regarding network equipment for 5 gs? Also, do you think that there will be a positive effect on driving demand for your flagship smartphones? And if so, how much? Also, what do you see as your competitive advantage in terms of 5 gs market as a company that also does mobile devices? Second question is towards the system LSI also on 5 gs. How do you assess your own competitiveness for your 5 gs modem chips? And do you think that you'll be able to add new customers on the mobile side? To answer your question about the 5 gs, first on the equipment side, this year, commercial 5 gs service is expected to start in the leading markets Korea and the U. S. Will start 1st, followed by Japan, Europe and China next year and also rolling out to other growth markets such as India in year 2020. And so as 5 gs service rolls out to various countries, we will be facing various opportunities. To answer your question from the handset side, actually, there will also be a very important turnaround with the adoption of 5 gs. It would be a good catalyst to shake up the stagnant overall market in the handsets. Especially with the adoption of 5 gs, various services that could not be fully enjoyed due to restrictions on network speed will not be will now be enjoyable. For example, ultra high picture resolution, 5 ks or 4 ks plus video or live streaming cloud games, these will all now become possible with 5 gs service. With these new services possible, we believe that there will be a greater need for high picture quality, high performance, high density memory on the handset, and this will drive stronger demand for handset replacement, especially around the high end smartphones. Regarding 5 gs, as you mentioned, we have the strength as a company that has not only 5 gs equipment but also handsets and chipsets. And based on this strength, we are focusing on delivering 1st commercial 5 gs service in the world. Also, we would like to highlight the fact that we have been preparing thoroughly on the security side as well. We have security technology that is recognized by major country governments around the world. Also, while preparing for 5 gs commercial service, we're also focusing on on experience that actually maximizes the benefits of 5 gs that can be enjoyed on our handsets as well as delivered through our 5 gs equipment, 5 gs characteristics being high speed, low latency and hyper connected service. I think in terms of our quality and the performance of our technology, we already established a clear track record on the LTE side. We have already supplied to more than 140 service providers, more than 500,000,000 products. In terms of our 5 gs modem preparations, it is a synced to the 5 gs commercial rollout schedule of each country, and we are also reflecting the unique technology requirements country by country. We're also backing this up with active promotion, especially to customers in China and the U. S. So that they are able to appreciate the leadership we have in 5 gs technology. The next questions will be presented by Ms. Claire Kyung Min Kim from Hana Financial Investment. Please go ahead, ma'am. I have a question regarding NAND. The NAND price decline is continuing. But on the other hand, I think the market is hoping that maybe the lower prices will drive up demand and that could actually put the market back to a supply and demand balance. Where in terms of which application do you think there's a possibility of greater demand growth? And in that context, can you share with us your overall outlook for demand supply situation 2019? Regarding the effects of demand growth driven by lower prices, I think that effect is shows up much larger on the NAND side versus the DRAM side. Especially, we're seeing that with lower prices, the acceleration is happening in terms of adoption of higher density NAND, especially around e storage on the mobile applications and the conversion from 10 ks HDD to AFAs are accelerating as NAND prices become lower. We have been tapping leveraging this widening base of land storage so that we have an increase in our shipments 2 consecutive quarters in a row. And actually our inventory levels have decreased this quarter. Looking forward to next year, even though until the first half due to seasonality, the stable prices will probably continue. If we look towards the second half of next year, there will be the seasonal effect kicked in with the increased demand driven by lower prices. And once these two come into force together in the second half, we believe that there will be a strong demand in the second half of next year. On the demand side, looking forward to next year, the demand situation would depend, for example, on the mass production of 3 d NAND at 90 plus layers as well as the yield situation for each company. But overall, we believe that bit growth on a year on year basis will not be large next year. So given this demand outlook and also the expected strong demand in the second half, we believe that the demand and supply situation will turn positive next second half. The next questions will be presented by Mr. JJ Park from JPMorgan. Please go ahead, sir. I think there's market talk that Samsung has been has pushed out its DRAM investments. And so in that context, can you share with us if there is any changes in your investment plans? And even though it's a bit too early, can you share with us your CapEx plan for next year? I do imagine that the market will be very interested on our investment plans. Regarding the investments of the upper level of Tantek, that is going on according to our original plan. Regarding when and how much of the remaining capacity to invest in 2018, that we will flexibly decide depending on the line operation situation. But right now, what we are considering is rather than increasing more capacity, we are, for example, considering converting the 16 line NAND capacity to DRAM capacity. And I think part of that is what you're hearing in the market. Also to add, actually, there's other ways and capacity investments to gain memory bit growth. That's through efficient production and yield, and we will be focusing on delivering memory bit growth through efficient productivity. And in terms of our line operation and investment, actually, we will be making decisions from the entire semiconductor business, including System LSI. My second question is about the shareholder return. The current shareholder return program covers a 3 year period from 2018 to year 2020 with additional possibilities open for 2021. But given the fact that this year, your free cash flow is quite strong and next year outlook is not bad, could there be a possibility of additional shareholder return being announced next year? I think that we could check the free cash flow for the entire 3 year period that's from 2018 to year 2020 when we approach mid-twenty 19. And based on that review, we could consider additional shareholder return to additional to the JPY 9,600,000,000,000 each year during the 3 year period. The next questions will be presented by Mr. Huang Min Sung from Samsung Securities. Please go ahead, sir. Listening to most of the questions that were being asked on today's call, I think that shows that there is quite a lot of concern in the market about the future industry outlook on the memory side. And usually, based on our past experience, when there is an industry downturn, it ends up being worse than what we expect going into the downturn. But as the memory industry leader, do you think that this time it will be different, that it would be less than what the market is concerned of? And if so, what is the reason? What are the grounds for your confidence? To answer your question, I think one big difference is while the past IT cycle was mainly driven by PCs, this time we're seeing a more diverse application that's in addition to PCs, there's a larger share taken up by mobile as well as server demand. So this diversification is one difference from the past experience. The other is that compared to PC, mobile and servers actually have a weaker seasonal cycle as well as a demand cycle. As you know, the seasonal demand change in the server itself is not large compared to PCs. Also, we are in a huge mega virtuous cycle where huge amount of data is being generated from various applications and devices that eventually end up on the server, and that is what is driving the server demand. And we think that we are just in the start of this virtuous upcycle. We think that actually this isn't just a change, it's better described as a paradigm transformation. This large demand driven by the server application is a new paradigm in terms of the memory industry. The fact that the industry has gone through a supply shortage for 2 years is, I think, explained by 2 main factors. 1 is on the supply side, the level of technology, the difficulty in processes have become very different from previous as we enter the 20 nano and below technology. So that's one factor. The other is the fact that there is this transformation in terms of the demand base. And these 2 were the reasons why we have been in a supply shortage for 2 plus years. The current price decline can be explained by various factors, including inventory levels at customer level, seasonality of demand as well as this psychological factor that the customers have never seen prices maintain so strong for 2 years and more. And that is a temporary reason why we're seeing a price decline. And these temporary price declines can repeat in the future, but we believe that fundamentally, we have a very strong demand base for memory. The next questions will be presented by Mr. SK Kim from Daiwa Capital Markets. Please go ahead, sir. My first question is for the display side. Your 3rd quarter earnings is quite solid as your overseas customers adopt OLED more, but I think there's still concern of flexible OLED demand and the utilization levels. The The second question is for the CE, the TV side. Can you share with us the response of the market for the newly launched 8 ks TV? Also, how much in terms of sales are you expecting next year? Also, I think there is quite a lot of rumor in the market regarding the 2 d OLED new product as well as the technology. Can you share with us the company's position regarding this rumor? And also what is your mid- to long term technology road map for your TV business? To answer your question about the display side, we do notice that the OLED panels are becoming the main stream in especially the flagship smartphones and we expect this demand to continue next year. However, on the supply side, with new competitors entering and the increase in capacity, competition we're expecting will become fiercer. We will leverage our technology advantage, which we have been building up over long term to maintain our competitive advantage in the market. Also at the same time, we will be focusing next year on expanding the applications where our OLEDs will be used. For example, we will be leveraging our differentiated technology to expand into applications such as foldable, automotive and AI, which require high level of technology. Also on the customer base, we will be increasing strategic customers so that we have a well diversified customer base. And so based on all of these initiatives, we will focus on recording higher revenue as well as profitability versus 2019, increasing our utilization versus this year. To answer your second question about the market response to our 8 ks TVs, currently, it's mainly being sold around the North American, European and Korean markets, both from the channel as well as customers. It's getting very positive reviews both for the 8 ks feature quality as well as the design. The launch of VQ LED 8 ks TV this year, the significance of that is that we were able to open a new market territory of ultra high picture quality TVs, leveraging our technology leadership. We will be rolling this out globally next year to record significant sales as well as maintain our leadership in the premium segment. Your second question about the QD OLED TV and the development plans, We have always focused our R and D efforts in delivering better picture quality experience as well as better value to our customers. Even though QV OLED is being mentioned in both the industry as well as the academia as one of various TV technologies, We will be focusing this year on the QLED technology, which is becoming a mainstream, so which has started to become a mainstream this year. And also as a tooth track, in addition to the QLED, we'll be focusing on the microLED, which has various advantages in the fact that it does not need a color filter. And in terms of black color and angle visible angle as well as picture quality and brightness has many advantages. So our technology roadmap is to have a 2 track between QLED and MicroLED. We will take one last question. The last questions will be presented by Mr. Do Hyun soo from NH Investment and Securities. Please go ahead, sir. My question is about the foundry business. Recently, a major competitor announced that it will drop its 7 nano development. What impact would that have on your business? 2nd question is can you give us an update on your EUV development, specifically, for example, up to how many layers deep are you going to be using EUV at 7 nano? And if you do that, how much of a cost improvement in terms of percentage are you expecting by using EUV versus previous technology? And what kind of customers do you think you can gain with your products that are UV based? Even though we do not mention directly regarding competitor movements, our 7 nano is a full EUV and has already received recognition for its competitiveness from our customers. And it is true that inquiries regarding our EUV 7 nano as well as other cutting edge technology has dramatically increased from customers. We have already completed our EUV base 7 nano and have already started to produce products for our customers. We plan to go into full scale mass production of our 7 nano EUV starting next year. Based on this dramatic and also very competitive product, we will be increasing customers in various applications, including mobile, HPC, AI as well as automotive. You also asked specific questions regarding the number of layers as well as the cost advantage. In terms of layers, actually, we can provide customized layering depending on each customer. Also in terms of cost, what I can say is that it enables us to offer competitive prices versus competitors. And that ends our conference call. Thank you very