Earnings Call: Q1 2018

Apr 26, 2018

Morning and good evening. First of all, thank you all for joining this conference call. And now we'll begin the conference of the Fiscal Year 2018 First Quarter Earnings Results by Q and A session. Now we shall commence the presentation on the fiscal year 2018 Q1 earnings results by Samsung Electronics. Good morning. This is Robert Yi from Investor Relations. With me representing each business units are Mr. Cheonjae Won, Senior VP of Memory Ho Gook, VP of System LSI Lee Sang Hyun is VP of Foundry Marketing Kwon Young, VP of Samsung Display Lee Kyung Choi is VP of IT and Mobile and Jo Sung Hyuk, VP of Visual Display Business and as well as Mr. Kim Sang Yeo and Kang Tae kyu, both from the IR. 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 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 Q1 dividend and stock split. The Board of Directors today approved a 1st quarter dividend of KRW1700 per share for both common and preferred stock. As a part of our shareholder return policy for 2018 through 2020 that we announced last October, we set the minimum annual dividend of KRW9.6 trillion in each of the 3 years covered by the policy. Accordingly, the quarterly dividend for the Q1 to be paid in May is KRW2.4 trillion, onefour of the annual total. Regarding the stock split, the original shares will be suspended from trading for 3 business days over April 30 through May 3, and the new shares will start trading from May 4. Now I would like to walk you through our Q1 results. In the Q1, total revenue rose roughly 20% year over year to KRW60.6 trillion, thanks to the strong performance by the memory business and an increase in sales of flagship products in the mobile business. Gross profit increased approximately KRW 6.3 trillion year over year to KRW 28.7 trillion and gross margin improved 3 percentage points over the same period. SG and A expenses grew slightly year over year, but as a percent of revenue, it declined 3.2 percentage point. Operating profit set a new high, increasing KRW5.7 trillion year over year to KRW15.6 trillion, driven by significant profitability improvements in the semiconductor business and the early global launch of the Galaxy S9. Operating margin rose 6.2 percentage points year over year to 25.8%. In the Q1, a strengthening of Korean won against the U. S. Dollar negatively impacted operating profit quarter over quarter by approximately KRW 600,000,000,000 with the effects felt most by the component business. In the semiconductor business, earnings increased significantly year over year, thanks to favorable memory market conditions driven by a strong demand for server and graphic memory as well as earnings improvements in both the system LSI and foundry businesses led by increasing demand for chips used in flagship smartphones and cryptocurrency mining. Auto Display Business profitability weakened due to decreased flexible OLED demand and intensifying competition from LTPS LCD on our rigid OLED. In the LCD market, an imbalance between supply demand caused by increased production capacity at competitors further weighed on profitability. For the I'm division, earnings in the mobile business grew considerably as sales of flagship products increased due to the early launch of the Galaxy S9 and a solid performance by the Galaxy S8. In the Consumer Electronics business, despite growing sales of premium products, including ultra large size and UHD TVs, earnings in the TV business edged down year over year as we reshaped our lineups by removing certain models in the mid to low segments. In the Home Appliance business, profitability declined slightly due to due mainly from rising raw material prices. Next, I would like to share our business outlook. For the Q2, we expect the Memory business to stay strong, but generating company's total earnings growth will be quite challenging due to weakness in the display business and decline in profitability in the mobile business caused by weak demand in high end segment. Regarding the component business, we expect demand for server mobile DRAM to remain strong and demand for high density storage to grow as the price of NAND softens. For the System LSI and Foundry business, we forecast that the supply of 10 nano application processors and cryptocurrency mining chips will expand, but earnings may decrease quarter over quarter due to a slow demand for smartphone components. The OLED business will focus on securing profitability by reducing costs and boosting yield amid weak demand for flexible products. In the LCD business, oversupply is expected to persist even as major sporting events boost demand. Moving on to the set business. Profitability in the mobile business is expected to decline quarter over quarter due to stagnant sales of flagship models amid weak demand and an increase in marketing expenses to address the situation. In the Consumer Electronics business, we expect earnings to improve in the 2nd quarter led by expanding sales of new models, including those of our QLED TV lineups and strong seasonality in the air conditioner market. In the second half of twenty eighteen, we expect earnings to grow over the first half, mainly driven by the component business with increasing OLED panel sales and strong DRAM demand. For the SET business, we will strive to sustain profitability by solidifying our market leadership with greater sales of premium products amid softer demand and intense competition in the high end segment. In the mid- to long term, as new areas like artificial intelligence, automotive technology and 5 gs transform the IT landscape, component business and widening opportunities for the SET business as digital devices show increasing connectivity. We will strive to strengthen our business capabilities by delivering differentiated technology in the component business and solidifying our leadership in cutting edge technologies like artificial intelligence and 5 gs to name a few. Now I would like to turn to capital expenditure. Total CapEx in the Q1 was KRW8.6 trillion, including KRW 7,200,000,000,000 for the semiconductor business and KRW 0.8 trillion for the display business. Although our plan for 2018 has yet to be finalized, we expect CapEx to decline year over year considering that it rose substantially in 2017 due to our efforts to respond to market growth and emerging technologies, which included expanding production capacity of flexible OLED panels. Before we move on to presentations from each business unit, I would like to share several data points in key business areas. For DRAM, our bit growth in Q1 declined low single digit, while ASP increased mid single digit. And for the Q2, we expect DRAM market bit growth to be high single digit and our bit growth will be similar to that market growth. And for 2018, we expect the market DRAM bit growth to be roughly 20% and we will grow in line with the market. For NAND flash, in Q1, our bit growth declined mid single digit, while our ASP declined low single digit. And for the Q2, we expect market NAND bit growth to be low teens and our bit growth will be similar to that of the market. And for 2018, for the year, we expect the NAND market bit growth to be roughly 40%, and again, we will grow in line with the market. For display business, the mix of OLED panel sales was roughly mid-seventy percent of total revenue. And for the wireless business, the total sales of handsets in Q1 was 86,000,000 units and tablet, 5,000,000 units. And blended ASP for our total handsets was $mid-two fifty And of the total handset sales, the smartphone mix was low 90%. And for the Q2, we expect the handset sales to decline quarter over quarter, while tablet sales will be similar to that of the Q1. And blended ASP for our handsets will see small increase quarter over quarter, and the mix of the smartphone within total handsets will remain at low 90s. And for TV business, our LCD TV sales in Q1 declined by 20% quarter over quarter, while in 2nd quarter, we expect the TV shipment to decline mid single digit. But for the year, for 2018, our TV sales unit is expected to be similar to that of 2017. Now I'll turn the conference call over to the gentlemen from each business units, starting with memory. Good morning. This is Seowon Jeon from the memory marketing team. In the Q1, in spite of weak seasonality, thanks to strong demand mainly for server, a solid market environment continued. On end, although demand for mobile slowdown due to overall low seasonality along with some weakness in smartphone, Stable demand continued as expansion of cloud infrastructure and high density trend for solution product continued. For supply side, supply has been gradually increased as supplies began mass production of 64 layer products. However, supply increase was disproportionate due to delays in qualification of some applications. As a result, more supply increase was made in channel market and OEM. We have garnered solid earning growth by concentrating on sales of high density mobile storage and value added solutions such as SSD over 2 terabyte for data center and over 8 terabyte for enterprise with a stable 64 layer V NAND ramp up at Pyeongtaek. For DRAM, despite weak seasonal effects, strong demand continued, hence the increasing demand from server and graphics. Server demand remains strong due to continuous expansion of data center infrastructure and high density trend because of fast adoption of new CPUs. Demand from mobile also increased steadily along with content growth in all segments. PC demand was decent enough, showing general signal pattern. For graphic, in spite of game console set yield decreased, total demand increased, thanks to strong demand from graphics card and cryptocurrency mining. Although shipments decreased against the previous quarters due to the transition of Line 11 capacity to CIS, We continuously improve our earnings by concentrating on high value added product markets such as high density server DRAM over 32 gigabyte, HBM2 and uMC based on low power LPDDR4X. Next, let me comment on the memory market outlook. In the Q2, along with continuous strong demand for server, overall demand is expected to be strong with increased demand from mobile expected. On end, with price being softened, total demand mainly for high density storage is expected to increase. For server, datacenter will remain to be a main driver for strong SSD demand. On top of this, in enterprise market, strong demand for high density SSD over 8 terabyte will continue as well, especially from large OEM and companies. For mobile, as high density trend mainly for high end smartphone continue, overall demand will be strong. While closely monitoring each application market status, we will continue to increase high density server SSD supply and to drive more E2D strategies based on our solution products' competitiveness and stable software because expansion of data center is now taking its place not only in the U. S. But also in the Chinese market. Moreover, high density DRAM portion will also increase with the fast spread of new CPU. For mobile, thanks to expansion of the high spec game gaming smartphone market and spreading dual camera adaption to the volume segment, mobile demand driven by content growth is expected to remain solid. While we will concentrate on strengthening cost competitiveness by expediting qualification process of 1y nanometer and continuously spending 1x nanometer products. We will also continue to deploy a flexible product mix strategy. According to individual application market conditions, Next, I will comment on second half of twenty eighteen market outlook and our strategy. On end, solid demand mainly for server and mobile will be maintained in second half of year twenty eighteen. As condition of soft tuned price continues, the trend of SSD replacing HDD will be accelerated and storage size will get bigger from all smartphone segment, resulting in demand increase both from server and mobile market. As for the supply side, due to expansion of supply's transition toward the 64 layer, tight market condition will be moderated and supply and demand status for each application may differ depending on the level of supply increase and qualification status. We are focusing on mass production and expanding conversion of 64 layer mainly at Pyeongtaek campus. At the same time, we will focus on strengthening our product competitiveness and cost of leadership via flexible investment according to market condition and introducing and ramping up the next generation products in a tiny manner. For DRAM, demand from all application will increase As data center companies continuously invest in infrastructure because of exponential increase of regular and irregular data, strong server DMM demand will continue. Moreover, in analyzing this data in real time using AI and motion running, high performance HBM demand is also expected to grow. For graphics, console demand and Fuji card for cryptocurrency mining demand are anticipated to be strong consistently. Mobile demand is also expected to grow as content per box increases for their product differentiation, especially for flagship and high end model, which support high performance mobile games and on device AI in accordance with the trend for high performance and high density memory. On the other hand, in spite of industry effort to increase the supply, extending bit growth is more likely to be limited due to space constraint and increase in technology difficulty. Therefore, even market is remained to be tight continuously. To cope with this market circumstance, we will adhere to our policy of flexible supply and investment in accordance with market condition and also will strengthen our cost competitiveness via expanding sub-1x nanometer class technology migration. At the same time, we will also solidify our position in value added market to the future extent by focusing on sales of our high density server data and differentiated products such as HBM2, LPDDR4X and creating new solution market with UMCP products. Thank you. Good morning. This is Pedro from the CTSI Business. The Q1 of this year on a quarter over quarter basis, mobile DDI earnings declined due to the slow OLED panel demand, but overall earnings increased aimed strong demand for the mobile processors and image sensors led by the launch of this year's premium smartphones. In the Q2, we expect earnings to remain flat quarter over quarter due to slowing growth in demand for the premium smartphone components. Nevertheless, we will try to continue favorable earnings by focusing on the stable supply of mobile processors and image sensors for flagship models. In 2018, we expect the demand for the image sensors to grow as many smartphone makers are projected to increase adoption of dual camera and the 3 step fast video sensors. In addition, we believe we will continue to post solid earnings backed by sustained growth of the mobile processor sales. Also in 2018, we plan to expand our solution offerings from mobile to include areas such as IoT, VR and Automotive. And we'll collaborate closely with our customers and ecosystem partners. Thank you. Good morning. This is Ryan Sung Hyun Lee from the Foundry Business. In the Q1, despite slowing demand for mobile chips and weak seasonality, total earnings grew quarter over quarter due to increased demand for high performance computing chipsets. We broke ground for the EV line in Hwasong to address future demand for 7 nano and below semiconductors and expanded our foundry ecosystem by launching SAFE, the Samsung Advanced Foundry Ecosystem Program. In the Q2, demand for high performance computing chipsets is expected to remain solid. Accordingly, we will expand the supply of HPC and 10 nano mobile products to continuously generate favorable earnings. Also, we plan to actively promote FPSY and 8 inches processes, aiming to increase both the number of customers and applications that use related products. For 2018, despite slowing demand for mobile chipsets, we are targeting generating favorable earnings once again, thanks to our efforts to diversify our customer and application basis. In addition, we will continue to offer derivative processes, including those 4811 nanochips to satisfy the needs of our customers. While also laying the foundation for mid- to long term growth and technological process leadership via EV 7 Nano Risk Production. The foundry business unit was launched as an independent business unit in May last year and is pursuing pure play foundry business. In 2018, we expect to achieve over $10,000,000,000 sales, including the sales from the system LSI business and maintained a strong second place in the future in the foundry market. We will strive to maintain this growth in the future. Thank you. Good morning. This is Gojung Choi from the Planning Department of Samsung Display. In the first quarter, total earnings in the display business decreased quarter over quarter because of weakened profitability of OLED business panels. For the OLED business, earnings decreased quarter over quarter due to a slowdown in demand from major customers and intensified competition with LTPS LCD. As weak demand seems likely to persist throughout the Q2, the OLED business will work to strengthen competitiveness and expand our customer base by reducing cost and improving production efficiency. On the other hand, with decreasing demand, the LCD business kept its profit at a similar level quarter over quarter by reducing cost and expanding our value added portion of sales, such as UAT and large sized products. In the Q2, the supply and demand dynamics in the SSD business SSD industry are likely to remain unfavorable due to continuous expansion of capacity. So we strive to secure our profitability by developing value added and differentiated products and strengthening activities to reduce costs. Now I would like to present our outlook for the second half of twenty eighteen. For the OLED business, we expect OLED panels for smartphone to see a rebound in demand and in particular, flexible OLED panels to strengthen their market position in the high end segment. Under these segments' circumstances, we will make efforts to increase our market share by expanding our customer base and developing products with new technology. At the same time, we'll work to diversify our business portfolio into new product categories such as IT. For the specialty business, we're still facing increasing uncertainties caused by fierce competition with Chinese manufacturers. We will improve our fundamentals on a qualitative basis by reinforcing our strategic partnership with our major customers and increasing differentiation of our value added products such as quantum dot in 8 ks resolution TVs. Thanks. Good morning, everyone. I'm Gyeon Tae Lee from the Mobile Communications business. I would like to present the I'm division's 1st quarter results and outlook for the Q2 and second half of this year. For the mobile communication business, market demand for smartphone and tablets decreased Q o Q as we move into seasonally weak period. Our smartphone shipment increased Q o Q, thanks to the early release of the Galaxy S9 and S9 plus and solid sales of existing models like Galaxy S8. Our revenue and operating profit grew considerably both Q o Q and Y o Y due to an increase in sales driven mainly by premium models. On March 15, we launched the Galaxy S9 and S9 plus equipped with advanced camera features such as super slow motion, dual aperture mode and AR emoji, while their infinite display and premium sound quality provide a rich and immersive multimedia experience. The popularity of the Galaxy S9 plus with its dual camera have improved the personal portion of Galaxy sales, while the sales portion of Galaxy models with the higher memory capacity also increased. These factors significantly contributed to the solid Q1 earnings. Regarding the network business, revenue and profit growth improved Q o Q, led by investment in LTE by major overseas partners and extended offerings of new solutions for network optimization. I will now present our 2nd quarter outlook. Under continued weak seasonality, we expect overall demand for smartphone to increase slightly Q o Q due to the launching of new smartphone modules in the market. Our smartphone shipment, however, are likely to decline Q o Q as we discontinued production of old mid range models. We also expect our earnings to decrease Q on Q due to the slowdown in our sluggish model sales and increased marketing expenses result from sluggish demand for premium market. We will give our best efforts to maintain sales trend over the Galaxy S9 and S9 plus by expanding experiential marketing, strengthening the cooperation with our business partners and utilizing promotional programs like trading. For the network business, we expect earnings to grow QoQ on supplying LTE commercial network to North America and extend the offering of network solutions for 5 gs commercialization in advanced market. Finally, I will share our outlook for the second half of twenty eighteen. We aim to strengthen our sales performance in the premium market by launching new flagship model in second half and maintaining long tail sales of the Kedex S9, S9 Plus and last year's flagship model. For the mid range segment, we are planning to extend the sales and increase contribution to overall performance by continuing to improve line of efficiency with the new model designed for target market, while also selling both offline and online channel. Moreover, we will reinforce our service business by expanding our PIXIEV 2.0 base, open ecosystem to provide the customers with a smarter and more convenient multi device experiences using our various devices and services. As for the network business, we expanded the LTE business by attracting new business partners and lead the world's first commercialization of 5 gs successfully. Thank you. Good morning. I'm Song Hyok Cho, Vice President of Visual Display Sales and Marketing Team at Samsung Electronics. Me start with the current market conditions and our results for 2018 Q1. The TV market in Q1 has decreased from last quarter due to the slow season following the year end holiday, but the market has grown Y over Y due to increased demand in CIS, Middle East and Latin America. Samsung's result was slightly down y over y in the course of sales mix restructuring with the defocus on entry lineup. However, Samsung has been improving the product mix by expanding QLED and ultra large screen sales and accelerating the transition into UHD. Samsung continues to record a high market share following last quarter in the premium segment, including 2,500 and above segment, backed by a full expansion of the flagship premium QLED and ultra large screen TV sales. This way, Samsung further solidified leadership in the premium TV market. The digital appliance market in Q1 has shown a moderate growth due to increased demand in both developed and emerging economies. Samsung continues to show sales growth y over y due to strong sales in premium products like the FlexWash washing machine, Cube Air Purifier and system air conditioner. But Samsung's results are slightly down y over y because of the increase in raw material price and operating cost of new factory in North America. Now I'll share the market prospects for Q2 and the whole year of 2018. For Q2, the TV market demand is projected to grow Y over Y, mainly driven by the global sports event and the demand growth in emerging market. Samsung will focus on improving Y over Y result by fully expanding new model sales as well as driving sales during the soccer event. We have a big improvement in our new lineup this year, innovative new features and extended lines in premium, that's gaining great attractions from the customers. As for QLED, the picture quality has greatly improved with the enhanced colors color and black expressions. QLED continues to receive positive reviews for new features like ambient mode, which enables TV screen to be perfectly blended into home interior when it's off while showing useful information such as news and or weather. 1, invisible connections, which includes not only data transmissions but also power supply, is also well received by the customers. In addition, Samsung extended the ultra large screen line of 75 inches and above from entry to premium segment to provide more options for consumers. With these newly upgraded liners, Samsung will accelerate new model sales and improve result in Q2. As for digital appliance business, for Q2, Samsung will increase air conditioner sales during the peak season and accelerate business growth by expanding premium lineup like the QuickDry washing machine and the PowerStick Pro vacuum cleaner. The 2018 TV market is projected to slightly grow, thanks to a global sports event, sales and demand growth in the emerging market. This year, Samsung prepared a solid foundation for growth by strengthening and extending the QLED and ultra large screen lineup. New features like ambient mode and on invisible connections will provide a whole new customer experience in lifestyle, which TV sets have never tried before. With this addition of Samsung's launch of 8 ks and MicroLED in second half, Samsung will solidify premium leadership with innovative products and focusing on ensuring sustainable and profitable growth in the mid- to long term. As for the digital appliance business, Samsung will continue to strengthen premium sales in developed market, reinforce the B2B business for built in appliance, system air conditioner and expand our online business. Thank you. Thank you. This completes the our part of the presentation, and we'll move on to Q and A sessions. Now Q and A session will begin. Global Market Securities. Please go ahead, sir. I have two questions. The first question is about the second half memory demand supply situation outlook that you have for that would be for both DRAM and NAND. Even though currently the supply and demand situation is overall fair at the industry level, there is more capacity being brought on, on the DRAM side, and so some are expecting that the supply demand situation may become a bit looser in the second half. Likewise, for NAND, with increased supply of 3 d NANDs, what do you think will be the supply and demand situation for both DRAM and NAND in the second half? 2nd question is the system LSI question. Recently, as a part of the trade sanctions regarding GTE, some are saying that it may be difficult in the future for Chinese companies to import semiconductors from the U. S. Does the System LSI division believe that, that may actually be a positive for its business in selling APs or system or image sensors to Chinese companies? Regarding the second half outlook for the DRAM supply situation, even though there is increased supply, given the very strong demand that's driven especially from the server side as well as the increased technical difficulties, we think that there will be a limit to the bit growth in the DRAM industry in the second half. And so even though the supply situation may loosen a bit from the current situation, it would still remain tight according to our outlook. As we have always said, the company focuses on maintaining a sound and healthy memory market, and therefore, we try to avoid competing over market share and focus more on maintaining sustainable profitability and maintaining our capacity flexibly to achieve those Regarding the second half NAND situation, NAND prices have stabilized, but that has actually created more demand from both the server and mobile applications. And so even though 3 d NAND supply increased and that would ease the tight situation a bit, we think that the supply and demand situation in the second half for NAND would depend per application, depending on each company's qualification timing and whether qualification comes through. From the second question, the system LSI question, we are actually watching very carefully how the actual conclusion is reached because depending on the actual final conclusion, the impact on the market would differ. So we are carefully watching and preparing for different conclusions. If it's a SoC related business opportunity, we will, of course, actually actively respond to those opportunities. Regarding image sensors, we actually think that, that's not affected by the scope of the current discussion over the trade sanctions. Also, we have a very tight relationship with many of the SoC suppliers. So I we are not expecting any impact on our image sensor business. The next questions will be presented by Mr. Nicolas Cordova from UBS. Please go ahead, sir. Hi, good morning. Thanks for taking my questions. The first one is on the display side. You have installed new capacity in the L7-one building, I. E, the fab called A 4. When do you actually expect to start mass production? And can you also redirect some of underutilized space in the A3 fab to Chinese smartphone vendors as well? 2nd question is back to Sami. You're currently ramping up DRAM capacity in PureTech. There are also discussions about possible capacity conversion in Line 13 from DRAM to image sensors. So overall, could you bring some light on the current status, I. E, when would that conversion start? How long would it take? And what is the net impact on total DRAM wafer capacity of all of these versus the incremental CMOS sensors capacity you will deploy? Thank you. To answer your first question regarding the seven-one line, the A four fab, That is being prepared according to the schedule that we have consulted and agreed with the customer, and we will be operating on schedule. Regarding the utilization of the A3 capacity to supply to Chinese customers, that question will pertain to a specific customer, so we would not be able to answer that. However, as we have always mentioned, maximize the leverage maximize the leverage the resources that we have on hand as much as possible. For full year, our capacity operation strategy as well as plans have not changed. We will maintain the plan that we have started out with. So the focus of the Hwasong campus will be for DRAM, Kyung Taek for V NAND. From the second half, we are planning to use the capacity available at the upper floor of Kyung Taek to do DRAM, but the amount of production will be at a level to compensate that offset the bit loss that comes from conversion of some of the 11 Line 11 capacity to CMOS and other bit losses that happened during the process migration process. There were some media reports of possibilities of us further converting our DRAM capacity to image sensors. However, other than the conversion of Line 11 to CIS, we do not have additional plans, for example, of converting Line 13. The next questions will be presented by Mr. Yoo Jong Woo from Korea Investment Securities. Please go ahead, sir. I have two questions. The first question is for the mobile division. Regarding smartphones, what is your outlook for the sell through for the S9 in the second quarter as well as the second half outlook? Also, during the speech, you mentioned that you're expecting to have a significant increase of marketing expenses in the second quarter versus the Q1. And so how much impact do you expect to have that to have on your profitability in Q2? On your 1Y mass production preparations as excuse me, 1Y mass production update as well as migration on NAND as well. Regarding your first question about the outlook for the S9 sales, recently, we've seen an overall sluggishness in premium smart demand overall in the market. In order to counter the expected leveling off of our premium segment sales, we are planning active marketing in the second quarter, especially focusing on providing more experienced type marketing opportunities at store end, so that consumers can actually feel and experience the differentiating features of S9 and S9 plus such as AR emoji, super slow mo and low light photo taking so that they have an experience they have the opportunity to experience and choose. Also, we will strengthen collaboration with business partners and expand periods as well as channels that offer trading programs order to lower the initial burden of consumers with a practical financing program to generate active sales. For the second half, the focus of our sales as well as marketing activity would be to successfully launch our new flagship in the second half as well as maintain an active long tail sales of existing models, including S9 and S9 plus But as we mentioned during the speech, because of the increased marketing in the second quarter versus first quarter, earnings will decrease versus 1st quarter. Regarding the DRAM D1Y Nano, We are currently focusing on the D1Y nano with a target of mass production within the year. The current process is going smoothly as we had done in the D1X nano, and we're expecting a big crossover to occur within 2019. The actual timing of pilot production would differ, but we're expecting 2nd quarter PC and then to move on to other applications such as server and mobile. Regarding the NAND migration, our target is to have the mass production of 5 gs vNAND within 2018, 18, but this year, our focus will be expanding the 4 gs vNAND that's currently in production. The next questions will be presented by Mr. Kim Dong won from KB Securities. Please go ahead, sir. I have a question regarding, first, the display and then the CE business. In the display side, in the large panel sizes, there are various computing technologies that are being used, QLED, MicroLED and other technologies. So can you give us your strategy, your technology strategy in terms of the next generation large size panels? Second question is about the high end TV segment, where it seems OLED is taking on a larger share of the high end large sized TV market. And so I would like to ask what is the differentiating strategy of Samsung Electronics' VD division? And regarding that, you've introduced the 142 inches MicroLED screen size. Do you have plans of introducing smaller sizes, for example, a 65 or 75 inches MicroLED? Regarding your first question about our strategy for the next generation large size display technology, we are actively meeting the needs of the high end large size TV customers. Our technology development focus is on Quantum Dot as well as 8 ks. In order to meet these needs, we are closely cooperating with our customers in order to deliver a product that meets high standards of completeness. Also, we are, at the same time, closely watching the development of the next generation display technology, including MicroLED, but other technologies as well. And we will be fully prepared so that we do not miss any opportunities in the display technology evolution. I will answer the second question, which was about our TV business, especially the first question was what is our strategy of differentiating our TVs, especially in the high end segment? Actually, in the ultra large size TV segment, we have been maintaining the leadership in the premium segment, especially with our QLED and ultra light sized TVs. We have market share of +40 percent, number 1 in the $2,500 plus market segment. Also, we are noticing that there's a strong growth happening in the ultra large market at 75 inches plus. There's strong growth on a year on year basis. Here, we are maintaining market share of the upper or high 50% ranges with our large size TV offerings. We will continue to focus on the QLED as well as the ultra large size segment in our TV strategies, also expand and strengthen our lineup as well as offer differentiating features in the ultra large size TV as well as QLED TV segment. For example, the new QLED TV model that we have launched this year not only has the best picture quality, both in terms of black expression as well as color expression, but we've also expanded the lineup, made the lineup even stronger. Also, we have added some differentiating features, including ambient mode as well as 1 Invisible Connect that actually enhances the lifestyle value of the TV within the home setting. Also, we will continue to focus on the 75 plus ultra large segment. We will be expanding this to the entire lineup so that people who want to enjoy high picture quality but also in ultra large screen sizes would choose Samsung and would equate ultra large size, as meaning a Samsung TV, to maintain the leadership that we have in the premium TV segment. You've also asked about whether we have plans of developing different size micro LED TVs. We are planning to start sales of micro LED displays from the second half of this year. We'll start from in house indoor premium applications such as media rooms, museums, boardrooms or high end hotels. But our basic strategy is that we will use micro LEDs for the ultra large size segment, whereas we will focus on the QLEDs for the large size segments. The next questions will be presented by Mr. Tooe Hyun Woo from NH Investment Securities. Please go ahead, sir. Yes, my question is about your second half high end smartphone strategy. There was Samsung has always been considered the dominant player in the high end segment, especially on the Android app Android OS smartphones. But recently, we have seen many Chinese companies, including Huawei, come out with high quality as well as very cutting edge feature smartphones on the high end side. For example, triple cameras or on display fingerprint sensors are being introduced by these Chinese companies. It seems these are a threat to your position in the high end Android segment. And that is why I think what you will introduce in your second half, the 9, will be a critical would have a critical meaning in terms of keeping your position in the high end. How will how are you planning to differentiate yourselves in the high end premium segment in the second half? Yes. As you have mentioned, we have been introducing cutting edge new features to the high end segment of the smartphone market, including the edge display, Iris recognition, Infinity display as well as cutting edge cameras, dustproofing, waterproofing, wireless charging and all of these new features have added to values that customers actually appreciate, and we will continue to do that. Regarding what we are preparing for the Note 9 in the second half, as you know, the Note series has a very strong and loyal following, especially around people who appreciate the S10 and the productivity that they gain by that interface. And that's why we will continue to strengthen and enhance the basic features of the NUC series, at the same time, develop new value and new experiences through the S10 interface. The next questions will be presented by Ms. Claire Kyung Min Kim from Taixin Securities. Please go ahead, ma'am. Yes. I have one question regarding the results of the I'm division in the Q1. Were there any one off reversal of provisioning related with royalty payments that were reflected in the your Q1 results? If so, what would be the size of that one off? And also, would there be any impact to future ongoing earnings? I'm assuming you're referring to the cross licensing agreement with Qualcomm and that was announced at the end of January. The 2 companies amended the cross licensing agreement on mobile devices to strengthen cooperation, And we are looking forward to this opening the new chapter for long term win win business collaboration between the two companies. However, due to the confidentiality clause of the agreement, details cannot be disclosed, but the effect will be limited to future revenue and there was no one off reversal of provisioning. We will take 2 more questions. The next questions will be presented by Mr. SK Kim from Daiwa Capital Markets. Please go ahead, sir. I have two questions. The first question is for the I'm division. As you know, the demand for the high end smartphones are becoming stagnant, and this is resulting in sluggish sales as well as demand for this flagship models. And I think that is actually increasing the market expectations for the next form factor, the foldable phone. You've been asked this question before, but can you give us a bit more update in detail of not only the hardware side, displays as well as batteries to launch a foldable phone as well as the software preparation update? Also, could you be able to give us a bit more detail as to the time when the market can expect to see this new form factor? 2nd question is for the foundry business. You've mentioned the demand related with cryptocurrency mining. Last week, Taiwanese competitor mentioned that they're expecting or they're expecting demand related with cryptocurrency to become uncertain in the Q2. And so we would like to see your view from your side, what do you see in terms of cryptocurrency related foundry demand in 2nd quarter as well as outlook in the second half? Regarding the foldable phone, we have been continuing our R and D efforts for several years to commercialize the foldable smartphone. And currently, we're focused on collaborating with companies in various fields to enhance the level of completeness of the product. Rather than focusing on just the title of being the world's first, we are focusing on delivering truly a truly well made product that offers real value to the consumers. So before we can announce a timing of when a foldable phone will be commercialized, we want to see the components, performance as well as durability to be further enhanced and stabilized. Also, we want to see various use cases to justify the new form factor to be prepared. Regarding demands related with cryptocurrency mining, actually, inquiries related with cryptocurrency mining applications are continuing to come in from customers, and many of these inquiries are leading to actual order and production, and we're expecting cryptocurrency related demand to contribute to overall earnings this year. Especially, we're focusing on providing the cutting edge process as well as low power platforms so that our customers can produce products that offer greatest value. Even though, yes, cryptocurrency is a market that's very difficult to project in the long term, we believe given the potential of the blockchain technology, in the long term, blockchains will go beyond just cryptocurrency and spread to different applications. We'll take the last question. The last questions will be presented by Mr. Hong Min Sung from Samsung Securities. Please go ahead, sir. Now to put everything together that was mentioned related with demand during this conference call, it seems while overall you're expecting demand from mobile applications to be weak, the server related demands will continue to remain strong this year. Can you then give us an update to your views before on your demand? Because I think before, we were assuming DRAM demand will grow by about 20%, NAND by about 40%. So given the changes that you've seen up till this year, how would that change? How much? And in which direction? To recap the overall demand outlook that we have for memory, For DRAM demand, we share the same view that with the market that the DRAM demand will grow around 20%, and we actually think that, that demand will come strong from both the server and mobile side. The reason why we're expecting strong demand to continue from the server side is that, as you referred, hyperscale companies have continuously announced their plans for new data centers. Also, considering how they are buying new land as well as securing new submarine optical cables, we're expecting that there may be additional new construction announcements to come down the road. And therefore, based on those, we expect demand from the server side will continue to remain strong. Especially these hyperscale companies have been increasing the type of services that they offer, the level of services going increasing. We're also seeing an increase of the content because of AI, machine learning, on device AI support, also the increase of cloud. All of this has led to the increased adoption of 64 gigabyte DRAM. And also, in order to process all this data on a real time basis, we're also seeing stronger demand on the HBM side as well. Even for the mobile applications, even though demand was weak in Q1, that was due to seasonality, and that seasonality was not beyond what we usually see in other usual years. Rather, looking forward to second half, there are new mobile products planned to be launched. Also, Chinese handset makers are increasing their content, and so we expect second half mobile related memory demand to also remain strong. So looking forward to the full year 2018, even though mobile SED growth may decline, overall DRAM demand from the mobile side, we are expecting will increase as there's greater content DRAM content, especially from the high end side of the segment as more and more smartphone users, user phones for applications such as game applications that require higher On the NAND side, we are expecting prices NAND prices to stabilize in the second half, but this will drive greater demand from both server and mobile. So we're expecting market fit growth for NAND to be in the 40% range. For SSD demand, we're expecting actually greater demand from OEMs. That's because with the lower BOM cost, more OEMs will go for an all flash array that will substitute the SDD. So that conversion, we think, will accelerate. Also on the data center side, there will be a greater preference for SSDs that can process data more stably and quickly. On the mobile storage side, actually smartphone makers have started to use a large capacity storage as a differentiating point of their end device. And so we're actually seeing demand for 64 gig as well as 128 gig storage. Also, the Chinese smartphone makers have actually been starting to offer an e storage as a main feature to their phone.