Earnings Call: Q4 2017

Jan 31, 2018

Now we should commence the presentation on the fiscal year 2017 Q4 earnings results by Samsung Electronics. Good morning. This is Robert Yi from Investor Relations. Before we announce our 4th quarter results, I would like to invite Mr. No Hee Chan to share his thoughts as the new CFO and provide updates on the progress of our shareholder value enhancement program. Now I would like to turn it over to our new CFO. Thank you, Bob. This is Heechan No. I'm very honored and privileged to introduce myself as your new CFO of Samsung Electronics to our shareholders and investor communities. Samsung Electronics has remained focused on driving forward innovation and establishing effective investment strategies, omniitoto rapidly changing IT industry. As a result, we secured global leaderships on many product categories, which enabled the company to generate solid results on a continuous basis and build a sound and strong capital structure. We have also worked hard to enhancing shareholder value through our strong shareholder return program and improved corporate governance. As your CFO, I am committed to continuing our growth momentum, enhancing our sound financial structure and delivering higher value to our shareholders. I will now update the progress on our shareholder return program. We have completed the share repurchase program for 2017 that we announced in our post quarter 2016 earnings call. During the program's 4 hedges, we invested approximately KRW 9,200,000,000 to repurchase and cancel, KRW 3,300,000 common sales and 826,000 preferred shows. As for 2017 dividend, as you know, we announced in last October KRW 4,800,000,000 annual dividend, which represented 20% increase of 2016. However, under the dividend focused return strategy that we adopted for 2018 to 2020 Sharehold Return Program, the Board decided to allocate all of 50% of free cash flow to the 2017 annual dividend. This brought 2017 annual dividends to KRW 5,800,000,000, 46% year over year increase. Today, the Board approved a year end dividend of 21,501 per common share and 21,500 and 51 per preferred share. With the approval of the above mentioned year end dividend at the upcoming meeting of shareholders. We will complete the 3 year shareholder return program covering through 2017. Last October, the company announced a 3 year shareholder return policy covering 20 18 to 20 with the aim to bring higher clarity and predictability of our shareholder returns. To recap, we will allocate at least 50% of free cash flow to shareholder returns for the 3 years period, and will pay out KRW 9,600,000,000 in dividends each year. We will peacefully carry out these promises. We will also continuously invest in key businesses and develop new growth drivers in order to continuously bring strong results and enhance the shareholder value. As another step in enhancing shareholder value, the Board of Directors approved 54.1 split stock split today. There have been numerous requests for our stock split based on argument that high price of Samsung Electronics sales was a hindrance to certain potential investors. Third, cash increased in frequency. As the price of our shares rose significantly during 20 17 based on our earnings growth and enhanced shareholder return program. The Board believes a stock split will make Samsung Electronics more accessible to a wide range of investors and that they can share the significantly increased dividends from 2018. We also expect the split to add liquidity and market ability to our stock, which could contribute to enhancing our corporate value in the long term. The company's management and Board of Directors will work tirelessly to make the company more competitive and profitable. Last but not least, we remained committed to increasing shareholder value through enhancing shareholder returns. Thank you. Thank you, Mr. No. Now we will go over the 4th quarter results as scheduled. With me representing each of the business units are Mr. Cheung Sei Won, Senior VP of Memory Marketing Mr. Ho Gok, VP of System LSI Marketing Mr. Lee Sang Hyun, VP of Foundry Marketing Team and Chaekwon Young, VP of Samsung Display Lee Kyung Tae, Vice President of IT and Mobile Business and Cho Sung Hyuk, VP of Visual Display Business as well as Mr. Kim Sang Yeo and Kwon Tae kyu from the IR Group. Would like to remind you that some of the statements we'll be making today are forward looking based on the environment as we currently see it, and all such statements are subject to certain risks and uncertainties that may cause our actual results to be materially different from those expressed in today's discussion. In 2017, we achieved record high earnings mainly on contributions from the component business. Demand for high value added server memory stayed strong and our preemptive and strategic investments to prepare for new technology and market growth started to contribute to the results. In the 4th quarter, total revenue grew 24% year over year and slightly Q on Q to KRW66 trillion, driven by robust memory market conditions and an increase in shipments of flexible oil heater panels. Gross profit increased approximately KRW7.8 trillion year on year to KRW30.2 trillion and gross margin improved 3.8 percentage point. SG and A expenses grew KRW1.9 trillion year on year due to the consolidation of Harman's results and increase in R and D costs, as well as advertising and promotional expenses. However, as a percent of revenue, SG and A expenses declined 1.9 percentage point year on year. Operating profit came in at KRW15.1 trillion, an increase of KRW5.9 trillion year over year driven by significant increase in profitability at the semiconductor business. Operating margin improved almost 6 percentage point year over year to 23%. The strengthening of the Korean won against major currencies limited our earnings growth by reducing our operating profit by approximately KRW 660 1,000,000,000 quarter over quarter with the impact mostly on the component business. In addition, special incentives distributed to the employees of the semiconductor division during the quarter lowered the 4th quarter profit. I would like to briefly review operating profits by business units. In the semiconductor business, earnings improved year on year as memory ASP continued to rise and supply and demand conditions remained tight on the back of a strong demand that center on server memory products. Regarding the display, earnings increased on the OLED business due to rising sales of flexible products for premium smartphones, but earnings decreased in the LCD business as demand remained slow. In the I'm business, earnings in the mobile business rose slightly year over year as we increased our flagship portion of smartphone sales. Total smartphone shipments, however, edged down. The decrease mostly coming from the lineup optimization of low end models. In the network business, customers' LTE investments concentrated in the first half, resulting in the year over year earnings decline seen in the second half. As a result, total I'm earnings decreased slightly. In the CE business, despite rising sales of premium products such as ultra large sized and QLED TVs, earnings in the TV business edged down year over year due to a dip in the market demand. In the home appliance business, however, earnings grew on the back of strong sales of premium products, including our Flex wash line. Next, I would like to address our business outlook. In the Q1, we expect to experience weak seasonal demand and an additional negative impact on profitability related to exchange rate fluctuations. Regarding the component business, we expect demand for server DRAM to remain strong, mainly driven by data center needs, but overall DRAM shipments to slow down due to conversion of line 11. For the display business, on the weak seasonality of the smartphone market, intensified competitions with the LTPS LCD and the potential decline in panel demand could weigh on OLED profitability. In the SET business, we expect the mobile business to improve its earnings led by an increase in sales of flagship products with the launch of Galaxy S9. The CE business will focus on securing profitability under weak seasonality. In 2018, we expect our earnings growth momentum to continue driven by component business as the memory business is expected to deliver strong results. In the set business, we will strive to maintain solid earnings by focusing more on securing profitability as opposed to volume growth through further differentiating our premium products. In the mid to long term, we expect our component business to see demand expand from new applications. For the set business, we also expect increasing opportunities, mainly related to software and connectivity. We will address this industry trend through implementing our strategy to connect devices and services based on artificial intelligence and IoT platforms. In semiconductors, demand for high density memory for cloud and server as well as for chipsets required for automotive electronics and artificial intelligence are expected to rise. We will reinforce our technology competitiveness based on cutting edge process and TSV and other next generation packaging based solutions. The oil leader business will strengthen its competitive edge in the premium category with the release of foldable panels and focus on expanding new applications in areas such as IT, automotive electronics, capitalizing on our technology and cost competitiveness. Regarding the mobile business, we'll continue our efforts to differentiate smartphones by adopting cutting edge technologies such as foldable OLED panels. At the same time, we will drive forward new businesses related to AI or IoT by strengthening the ecosystem based on Bixby and building on our 5 gs technology. The consumer electronics business will bolster our leadership in the TV market by applying new technologies such as 8 ks MicroLED. Also, we'll improve the connectivity and usability of home appliances by expanding the application of Bixby. We'll do our best to create new business opportunities through our preemptive and strategic decisions based on paradigm shift in the IT industry, as well as remaining focused on increasing competitiveness of our existing businesses. Now I would like to comment on our capital expenditures. Total CapEx for 2017 was KRW40 3,400,000,000,000,000,000,000,000 for semi and KRW13,500,000,000,000 for display. The total was up significantly year over year as we invested in kyungtech fab to expand capacity to address rising demand for vertical NAND, facilitate migration of DRAM processes and build new wafer capacity to mitigate the capacity loss resulting from the migration. We also increased our 10 nanometer capacity to address demand for cutting edge process technology for our foundry business and invested on expanding capacity for flexible OLED panels to respond to growing demand. Although our capital expenditure plan for 2018 has not yet been finalized, we expect the total amount to decrease on year over year basis. Before the presentation of each business units, as I do each quarter, I'd like to share several data points for each of the key business areas. In the Q4, our DRAM bit growth came in low single digit and we saw our ASP increase about 10%. In the Q1, we expect the market DRAM bit growth to decline low single digit and our bit growth will come in similar to that of the market. And for 2018, at this point, we expect the DRAM market bit growth to be about 20% and our bit growth will also come in similar level. For NAND, in the Q4, our bit growth came in at about 10% growth, and we saw ASP increase of low single digit. In Q1, we expect to see flat market bit growth for NAND and also our bit growth will be similar level. And for 2018, for the year, we expect the NAND market growth to be about 40%. Again, our bit growth will be similar in line with the market. For our display, our revenue mix of the total display, about high 70% was from the OLED business. And for our mobile business, in Q4, we sold 86 well, we shipped 86,000,000 handsets and 7,000,000 tablets. And the blended ASP for Q4 was high two $10 range. And the mix of the smartphone within the total handset was mid-eighty percent. And in Q1, we expect the both the total handsets and tablet to decline quarter on quarter slightly. And for blended ASP, in Q1, we expect to see an increase. And the mix of the smartphone within our total handset in Q1 will rise to high 80%. And for our TV business, in Q4, our shipment or sale of the TV was mid-thirty percent range. But in Q1, we expect to see 20% range decline in volume. And now I'll turn the conference call over to the gentleman from our business unit. Good morning. This is Seowon Jeon from the memory marketing team. In the Q4, as the overall industry supply remained restricted due to increasing seasonal IT demand, a friendly market environment continued. On end, as peak mobile seasonality and the trend for higher density mobile products continued and growth for server SSD also remains solid, Overall, LAN demand was very healthy. For the supply side, in spite of the industry mass production of 64 layer product ramping up, for certain customers and applications, overall qualification status varies according to each customer and application. As a result, the increase in market supply has been limited. We have strengthened profitability and garnered solid earnings growth by timely responding to newly launched mobile motors and higher density trend, while concentrating on value added high density SSD market via a stable 64 layer three d NAND ramp up at Pyeongtaek campus. For DRAM, due to peak seasonality, demand from all applications increased compared with the previous quarter. Demand from server remained solid due to cloud service expansion, build demand for new data centers and higher density trend for new CPU platform launches. Demand from mobile also remains strong, thanks to increasing set numbers and content growth, mainly from new flagship model launches. In addition, under continuous peak seasonality, demand from PC and consumer market also remains solid. In spite of the seasonal decrease of demand from gaming console, graphic demand continued to be strong thanks to an increase of GDDR5 demand for high specification gaming PC and high performance products for cryptocurrency mining. We continuously improve our earnings by satisfying demand for differentiated products, such as high density server DRAM over 64 gigabyte and low power LPDDR4X and HBM through expanding supply of D1x nanometer products and elastically managing product mix. Next, I will comment on the memory market outlook. In the Q1, even though there might be low seasonal effects, overall supply and demand is expected to be remain solid due to impact of continuously strong demand mainly from server and industry supply constraints. On end, in spite of off seasonality, server SSD demand of major cloud providers, especially large companies, continue to be strong and high density trend mainly for flagship and high end smartphone continues. Therefore, overall demand is expected to be maintained at the level of the previous quarter. As for supply, in spite of expansion of suppliers' production of 64 layer, supply growth is expected to be limited due to reduction of existing plant capacity. While we were accelerated 64 layer transition, we will also strengthen product differentiation via competitiveness of our solution product based on 3 d NAND. For DRAM, strong server demand, including replacement demand from data center and PC demand for securing inventory will offset slow seasonality. For mobile, although set yield will decrease under traditional low season effect, demand decrease will be lower than that of previous year, thanks to not only higher density trend mainly from high end, but also content growth from low end. For the consumer side, strong demand mainly from set top ups for 4 ks UHD is anticipated for graphic demand despite a decreasing demand for console due to low seasonality, VJ Card for gaming and cryptocurrency mining demand anticipated to be strong. We will continue to deploy a flexible product mix strategy according to individual application market conditions. Moreover, we will concentrate on strengthening cost competitiveness by continuously spending 1x nanometer process transition. But in the Q1, slight shipment slowdown will be inevitable due to reduction in capacity caused by transition to CIS in Line 11 and reduction in the number of days of operation. Next, let me comment on 2018 market outlook and our strategy. On end, as demand is expected to be remain strong, stable market conditions will continue in 2018. Thanks to increasing adoption of high density and high performance SSD for data center and all fresh array for enterprise, SSD will be used in more wider area replacing HDD. In addition, high performance and high density trend for mobile LAN are expected to continue as need for high resolution become greater and the number of high capacity content such as video clip generated and shared in mobile device increase. As for the supply side, due to expansion of supply's production of 64 layer, supply shortage in previous year were partially moderated, but we think it is more likely expansion may be limited in short term period because customers' qualification process takes time. We are focusing on mass production of 3 d NAND, mainly at Cheongtaek Campus. At the same time, we will focus on strengthening our technology competitiveness and maximizing profitability via introducing and ramping up the next generation product after 64 layer product in right timing. For DRAM, due to expansion of cloud infrastructure and increase in demand for real time data analysis using AI, machine learning, demand for high density and high performance product is increasing. As a result, overall demand is expected to be solid, especially for server data. Mobile demand is also expected to grow as content per box increase due to increasing software requirements for high performance mobile games and on device AI and to upgrade in hardware specification such as dual camera, 3 d sensors and full screen display. On the other hand, in spite of industry's effort to expand the supply, extending bit growth will be limited due to increasing the technological difficulty and limited clean room for expansion. Therefore, solid supply demand conditions are expected to continue. We will maintain a profit first rather than market share policy while strengthening cost competitiveness through expediting final process technology migration, 10 nanometer class at a proper time. We will also strengthen our market leadership by focusing on sales of our high density server DRAM and differentiated products such as HBM2, LPDDR4X and on development of UMCP solutions. Thank you. Now moving on to the sister asset business. Good morning. This is Ben Ho from sister Asset Marketing. In the Q4, the earning has been stagnated as the sales of mobile processors and image sensors decreased due to the weak seasonality. In the Q1, we will improve the earning by ramping up mass production of mobile processors for the premium phones and by expanding the sales and highly valued 3 stack backs readout sensors. In 2018, as many smartphone vendors are expected to increase the adoption of dual camera as well as 3 StepFX sensor FX Redial Sensors, the demand for the image sensors are expected to grow accordingly. In addition, we will continue to post strong earnings through the sustained growth of the mobile processor sales. Furthermore, by utilizing our technology leadership mobile devices, we will expand our solution offerings to various applications, including IoT, VR and Automotive and collaborate closely with our customers and ecosystem partners. Now moving on to the Foundry business. In the 4th quarter, the earnings decrease is due to the weak seasonality, which resulted as a slowdown of major customer sales. However, the sales in China has increased significantly as we've secured a diverse Chinese customers to establish the milestone for long term growth. In the Q1, the earnings are expected to increase with the ramping up of 2nd generation 10 nanometer process products for this year's flagship smartphones and growing demand for those cryptocurrency mining chips. In 2018, we will continue to provide derivative processes, including 8 and 11 nanometers to satisfy customers' needs and lead the technological process leadership with a risk production of 7 nanometers. In addition, we will actively address the market demand by increasing the mass production capability through ramping up the new S3 and S4 lines for various products, including mobile processor and the image sensors. Lastly, we will lay the foundations for mid- to long term growth by securing orders of diverse applications, including HPC, consumer, network and automotive. Thank you. Before we go over the display section, I'd like to make one correction on the data points that are provided. I said that Q1 2018 that we expect to see our total handset volume to decline. As a correction, we do expect to see our handset shipment to increase slightly quarter on quarter. Thank you. Good morning. This is Hoonyoung Choi from the Planning Department of Samsung Display. During the Q4, the total earnings for the display business grew quarter over quarter, driven by an increase in supply of OLED panels, despite a decrease in revenue of of LCD panels due to lower ASPs. OLED business. Our 4th quarter earnings improved quarter over quarter. Our on increased shipments of OLED panels for flagship smartphones. On the other hand, earnings for the AC business declined quarter over quarter in the 4th quarter, fees in shipments alongside continued ASP declines of SD banners under weak seasonality. Looking ahead to the Q1 of 2018, we are concerned about the decline in profitability under weak seasonality of smartphone industry as well as intensified competition with LTPS LCD and slowdown in demand for OLED panels. Under these circumstances, we plan to focus on securing profitability by increasing our flagship product portion of sales, expanding our customer base, as well as enhancing productibility on flexible OLED panels. For the LCD business in the Q1, while we are concerned about a decline in demand under weak seasonality, we expect utilization to be stable due to increased demand for large sized and high resolution TVs led by a major sports events in the Q1. In response to these market conditions, we will try to improve profitability by focusing on reducing cost, increasing yields and expanding our value added portion of products such as ultra high definition and large size and the quantum dot products. Now I would like to present our outlook for the display market and core strategies for 2018. For the OLED business, we expect OLED to become a mainstream panel in the smartphone industry and in particular to strengthen its market portion in the high end product category. Under these circumstances, we'll focus on increasing market share to actively addressing customers' demand with continued efforts to strengthen technological differentiation from LGPS LCDs. At the same time, we strive to secure new growth engines by reinforcing our competitiveness in new applications. For the SSD business, we are concerned about increasing uncertainties caused by both intensified competition in the industry and the capacity expansion by Chinese manufacturers. In preparation for such market conditions, we'll make every effort to meet the need of large size and high resolution TV markets as well as to reinforce our market leadership by offering differentiated products based on advanced technologies. At the same time, we will strive to improve the fundamentals of display divisions, not just to qualitative growth, but also based on quantitative improvement sorry, qualitative improvement by reinforcing strategic partnership with major customers and expanding our very added portion of products. Thank you. Good morning, everyone. I'm Kyung Kandi from the Mobile Communication business. I would like to present our Q4 results and share our outlook for the I'm division. In the 4th quarter, demand for smartphone and tablet increased Q on Q under year end seasonality. Our smartphone shipments decreased Q on Q mainly due to the base effect of a strong sales of massive smartphone including the Galaxy J Series in the previous quarter. Conversely, the portion of premium smartphone increased due to solid sales of flagship models such as the Galaxy S8 and Note A. Operating profit, however, declined Q on Q as marketing cost increased under strong seasonality. As for the network business, our revenue and profit in second half of twenty seventeen decreased as LTE investment from our major overseas partners conducted in the first half. Next, I will share our outlook for the Q1 of 2018. In the Q1, we expect demand for smartphone tablets to decrease Q on Q due to typical seasonality. We will minimize the impact of off peak season and strengthen our premium leadership with the sales of newly launched Galaxy A8 and A8 plus and the introduction of the Galaxy S9. The newly launched Galaxy A8 and A8 Plus were well received by our millennial customers for providing a rich multimedia experience, including front dual camera. We will ensure that we translate the positive response into a solid business performance. The new Galaxy S9 will be released at MWC next month, and we will strive to maximize initial launch effect. Through these efforts, we expect our smartphone shipment to increase slightly Q on Q and both sales and operating profit to increase due to the rise in AST. As for the network business, we will strengthen our business fundamentals by supplying LTE based facials mainly to the U. S. Now let me move on to our outlook for 2018. We expect the demand for smartphones to continue to grow, backed by solid replacement demand for premium models. Meanwhile, our business is likely to face growing challenges due to rising uncertainty in the global business environment, severe competition and material cost burden. We will increase the revenue contribution of premium smartphones by launching enhanced flagship model and increasing long tail sales of existing flagship models. To extend the sales of premium smartphones, we will strengthen our product competitiveness by differentiating our core features and services such as the camera and Dixie and reinforce the seller programs and its credential stores. And we will continue to optimize the low end to mid range smartphone liner and improve productivity also. I think so, we will achieve qualitative growth of our smartphone business. For the network business, we will extend the supply of 5 gs led network solutions into the major markets, including South Korea, the U. S. And Japan. Lastly, I would like to share our mid to long term outlook. To strengthen our leadership in the premium market, we will continue to pursue meaningful innovation by utilizing next generation parts and new technologies based on our competencies and experience in the mobile business. Furthermore, we will secure competencies in new business to ensure sustainable growth. We have a well used period of technological transition, which includes network evolution and the product changes from feature point to smartphones as an opportunity to grow. In this positive 5 gs era, which will drive future changes, we will lead world 1st commercialization of 5 gs and take a global leadership position. Moreover, we will continue to foster our services and new businesses such as Bixby and IoT based on our big to long term roadmap. And we will provide multi device experiences under Woonsamsung strategy so that consumer can use our various devices more easily and conveniently. Thank you. Good morning. I am Song Hyok Cho, Vice President of Visual Display Sales and Marketing team. Let me start with the current market conditions and our results for 2017 Q4. The TV market in 4th quarter has grown by double digits from last quarter with the year end holiday season. However, the market is projected to decrease Y over Y because of declining demand in North America, China and Middle East. Samsung's result was slightly down y over y due to sales decrease from defocusing on entry lineup and declining selling price from heavy competition. However, our performance has improved from last quarter by driving sales of premium products during the year end holiday season. Samsung has further solidified leadership in the premium market by expanding their QLED and ultra large screen TV sales and achieved market share growth in the premium market segment. The digital appliance market in 2017 Q4 has shown a moderate growth from last year due to the continued growth of the North American market and the recovery of European and CIS economies. We continue to show sales growth Y over Y and have achieved high sales in advanced markets like North America and Europe. We especially had strong sales in premium products like the flat washing machine and the dual cook oven. However, our results show limited improvements because of the increase in raw material cost and investment in the North American B2B market. Next, I'll share the market outlook for the Q1 and then whole year of 2018. For Q1, the TV market demand is projected to decrease both Y over Y and Q over Q because of a slow season following the year end holiday season and a decline in market demand. Samsung will further establish premium leadership in the TV market by reforming our sales structure with an emphasis on high value products like the ultra large screen and QLED TV. We'll also launch our new models all year in the Q1 to concentrate on improving our results. For the digital appliances business, Samsung will accelerate growth by expanding the premium lineup, which includes the Family Hub 3.0 refrigerator and the quick dry washing machine and reinforcing marketing activities. As for the 2018 TV market, the ultra larger screen and premium markets are expected to continue growing with momentum created from sports events such as the World Cup and then Winter Olympic Games. As the premium market continues to rise, Samsung will strengthen its new lineup, which includes ultra large screen, QLED as well as 8 ks TV and expand marketing activities for better performance. Samsung TV will provide new experiences and values by introducing Bixby and SmartThings, which will further enhance connectivity between Samsung products and offer seamless user experiences. With these efforts, we will continue to be at the forefront of the product innovation as the market leader and lay a foundation for sustained growth. As for the digital appliance business, Samsung will further strengthen the B2B business, which includes built in home appliances and system air conditioners. We will expand distribution channels, including online channels and continue to build up the future growth engine. Thank you. Thank you, gentlemen. This completes the management's presentation. Let's start Q and A session. The first question will be presented by Mr. Yoo Dong Woo from Investment and Securities. Please go ahead, sir. I have two questions. The first question is a semiconductor about NAND demand. Today, during the presentation, it sounded like you have a very positive outlook on the NAND demand. But I think overall, the market has some concerns, erosions. So can you give us a bit more detail of the grounds for your positive view for NAND demand this year, especially what is your outlook on supply and demand? And what do you think would be the pricing related impact of that? Second question is about the stock split that you've announced today, the 50 to 1 stock split. Can you give us details of when that will happen? And for example, when will the stock first trade after being split 50 to 1? First, to answer your question about the NAND demand supply situation. First of all, the first half of twenty eighteen is a seasonally weak or low period and therefore the sound demand and supply situation may temporarily ease during the first half, but we also think that there is a lot of NAND, especially from the mid to low end mobile side and also other applications that are more price sensitive or price elastic and that would drive up demand for NAND as prices may ease. And therefore, for the full year, we're expecting the demand and supply situation to remain sound. Also, there are some concerns that there will be more supply as other companies ramp up their 64 layer 3 d NAND. But number 1, it will take some time for them to qualify, for example, to servers and other applications. And also, the increase in supply may not happen immediately. About the price trends, because price is determined by the market supply and demand situation, it's difficult for us to give you an outlook on where prices would be in the future. But given the fact that there is increasing content increase in smartphones and also in data centers as the amount of data that has to be processed increases significantly, there will be more SSD adoption. And therefore, given all of this, we expect the demand side fundamentals to remain strong. To take your second question about the scheduling and the time line for the stock split, well, the first procedure would be the general meeting of shareholders, which currently is scheduled for March 23. So the articles of incorporation, a change of the articles of incorporation would have to be approved at our general meeting of shareholders. So that's one step. And then following, there will be a swap or an exchange of old stock with the new split stock. And so according to that time line, we're expecting that perhaps the split stocks would start trading around mid May. The next questions will be presented by Mr. Peter Li from Citigroup. Please go ahead, sir. I have a question on semiconductors, but this time it's on DRAM. On DRAM, there's also concern in the market of especially demand slowdown from smartphones. Can you give us the demand outlook and overall demand and supply outlook for 2018? Regarding the DRAM, the DRAM demand will be the strong driver of DRAM DRAM demand will remain as servers, especially as data center infrastructures continue to expand. Also, the rollout of the new CPUs, that's also driving more demand for DRAM because of other applications such as machine learning. That is all driving demand for DRAM, especially from the server side. On the mobile side, there was some burden of the BOM side, the material cost side, especially in the mass segment of mobiles. But as more and more mobile phones adopt dual cameras and full screens, this would require more content. Also, especially the high performance mobile games that are becoming more popular will also require more content as well as on device AI. These will all increase the content on mobile phones, which will keep demand from mobile applications strong as well. And even though the industry has been working very hard to increase supply, there are problems there are difficulties because of the 10 nano class technology being very difficult. Also, there are limits in terms of the clean rooms that are available. And therefore, given all of these factors on the demand and supply we expect that for DRAM full year, the demand and supply situation will remain sound. The next questions will be presented by Mr. J. J. Park from JPMorgan. Please go ahead, sir. I have two questions. The first question is on the mobile side. The component prices have remained strong since last year and that has increased the BOM cost burden on smartphones. And so my number one question is, what is your plans of maintaining the profitability of the overall I'm division? Also, is there a room for, for example, increasing the prices of your handsets? And recently, in China, it seems a Chinese company has been increasing quite a lot of market share. Can you share with us your plans of how to respond to this? This year, while continuing to expand sales of our premium products, we are also preparing various initiatives on the mass segment side. First of all, we will improve the overall product mix by actively driving upsell from feature phones to smartphones and from entry level to mid end segments. Through this, we anticipate the effect of qualitative growth equivalent resulting in ASP increase. Also, we will roll out useful functions that are already proven on flagship models to mass segments to enhance the competitiveness of our mass products. Also, we will continue the efforts for profitability, such as streamlining the product lineup, increasing common parts and also enhancing productivity. Regarding India, we have quite a wide lineup. And of this lineup, we will pick the lineup that is optimized towards the Indian market. Also, while maintaining the premium brand leadership through collaboration with operators as well as distribution. We will also have very targeted customer segment marketing and also focus on providing more experienced type retail spaces to Indian consumers so that we are able to gain market share as well as profitability. The second question to the DP side is actually connected. Given the high BOM cost burden on handset makers, some are saying that this has resulted in lower than expected penetration of OLED panels on handsets. In order to increase the OLED panel adoption on smartphones, do you have plans of, for example, adjusting the prices for whether rigid or flexible OLEDs? Regarding the OLED panels, there has been competition always within from the LTPS LCD side. But compared to the LTPS LCD, OLED has the advantages in terms of resolution, color, real black as well as in terms of power consumption. And therefore, given the inherent advantages of the OLED panel, we believe that we will be able to continue penetration and market share. In order to provide more cost competitiveness, we will continue to enhance our operational efficiency as well as our cost saving efforts. Also, we will continue to drive to our efforts to add new customers, not only in China, but also in other parts of the world, so that overall, our customer portfolio becomes more diverse. The next questions will be presented by Kim Dong Won from KB Securities. Please go ahead, sir. I have two questions. The first question is to the DP side. Due to the lower than expected demand for the recent flagship launch by the North American strategic customer, market is expecting your flexible OLED shipment in the first half to decrease. What is your strategy in responding to this decrease in shipment? 2nd question is to the CE side, the TV business. It seems, especially in the high end TV segment, OLED TVs, business. It seems, especially in the high end TV segment, OLED TVs are increasing market share faster than expected. So we would like to ask what is your plans of responding and differentiating to OLED TVs using your QLED? Regarding your first question, I'm sure you will understand it's difficult for us to mention specifically to a customer. But as we mentioned before in the previous Q and A session, we have been increasing and adding new customers, not only in China, but in other parts of the world in order to secure a stable and diversified portfolio customer portfolio. And we believe that with that portfolio, our overall business structure will not be impacted by temporary changes in demand. So in addition, rather when it comes to the OLED business, rather than temporary increase or decrease of demand, what's important is the fact that OLED has become the mainstream segment. We were the first to develop the flexible OLED and we are following this output continuous technology development. We will not only continue to launch differentiating products, but also uses to pioneer new applications for OLEDs. Also internally, we're continuing our focus on improving our yield as well as productivity. And based on this operational efficiency, we will respond to competitors as well as uncertainties in the market situation. And so by efficiently operating our lines, we will gain not only better productivity but also profitability. The QLED TV was launched in Q1 of 2017. And since its launch, it has been gaining not only a wide recognition globally, but also its sales volume has been increasing quite rapidly. Based on this, we have been able to not only maintain but strengthen our leadership in the premium TV segment. The industry also has various initiatives to further roll out and increase the adoption of QLED TVs. For example, in the first half of last year, we had the QLED forum in China, which was attended not only by us, but TLC, Hisense, other TV companies as well as members of the academia. And retailers also participated in the QLED forum in China and in order to spread more adoption of QLED TVs. This year, our focus will be on expanding the QLED TV lineup. We will have a stronger lineup. Also, we will focus on more active marketing globally in order to increase the sales of QLED TV. The next questions will be presented by Mr. Huang Min Seo from Samsung Securities. Please go ahead, sir. I have two questions. First question is about the AI chip. You've mentioned of expanding the AI chip. In that context, what is your strategy going forward for the Actinos AP for AI as well as MuSine Learning? 2nd question is about the DRAM business. In the previous presentation, you provided your DRAM bit growth for 2018 to be 20% growth, that being market level, which I noticed is a bit higher than the previous forecast that you mentioned, which used to be in the high teens. And so I'm wondering whether this counts in some of the capacity that you're seeing visibly this year. So for example, at the end of 2018, that's this year, what is the output that you're expecting from Kyung Taek that went into this 20% bit growth for 2018? I also I've heard that the wafers are starting to go in for the 1Y process. How much of an output are you expecting from that to that went into the 20% viscose projection? Regarding the AI, currently, what is required by these AI applications, especially on the mobile and deep learning side are still very initial, face recognition, object recognition or some intelligent image processing is the current next year, actually, there will be demand for high performance AI technology, not only on the mobile, but also in consumer as well as automotive applications. So the System LSI division has been preparing for this market environment. So this year, we will be launching an Exynos processor that is capable of face recognition and intelligent image processing. And further down the road, we'll prepare this in an NPU, a neural processing unit, a form that would support, for example, automotive, consumer as well as mobile applications. Also in terms of our strategy, we'll prepare actually a very wide SoC lineup to respond not only to the premium, but also to the mass segments with our intelligent SCNOS processors. Regarding the second question about the DRAM, as we mentioned during the presentation as well as the Q and A, our outlook on DRAM demand is that it will remain sound. So even though there was some capacity loss in the process of converting Line 11 to CIS, We are continuing, for example, to increase the yield on our 1x nano processes. And regarding Kyungjeet capacity, as we have previously mentioned, we will invest flexibly into the PYNTech capacity in order to meet the beat this demand depending on the market situation. Regarding 1xNano, as we mentioned, we succeeded in mass production in November last year in 2017. And currently, we're ramping up with the target of doing a bit crossover with 1x nano in 2019. Regarding capacity, we will manage the capacity depending on the market situation as well as the overall situation in the 1 nano class technology. Mr. Nicolas Guadoua, please go ahead with your questions. Yes. Hi, good morning. Thanks for taking my questions. The first question relates to DRAM and once again you remain positive on the outlook for server DRAM into 2018. So maybe if you could help us a little bit, estimating what was eventually the bit demand growth in suburbioram for the market in 2017? What is your expectation for 2018? And how do you see the segmentation between data center and traditional enterprise in this segment evolving with on top of that what are the typical differences in DRAM densities you observe currently between these two segments? And the second question relates to RGB OLED. So obviously, you alluded to some uncertainty on demand that you will effectively address through your customer mix. In the context of that, in the context of your comments early on, on foldable products coming in, what are your plans regarding the A5 fab? And is it more likely than not that you would effectively deploy capacity there in 2019? Thank you. Regarding your first question about the server DRAM bit growth, in 2017, we estimate that the server DRAM bit growth was around 30% to 40%. The as you know, in servers, memory is a very essential component in order to provide high quality service. And therefore, compared to other applications in the server segment, price elasticity is relatively low. Also, given the fact that high density memory is critical to provide service for servers, There will we expect the demand for DRAM on the server segment to remain strong. Also some of the dotcom companies that used to operate their own servers have converted to the public cloud, and this has resulted in demand for traditional servers decreasing. But actually, this isn't a decrease in itself, but actually a shift of demand from traditional servers to a public cloud supporting servers. Also, this has left traditional server makers to actually focus more on the very high end, the high capacity servers such as hyper composite servers. And this is driving increase in content for both data center as well as traditional servers. Regarding the foldable OLED question, our position has always been to prepare our technologies to meet the customer demand when ready. And therefore, we have continued our R and D and development efforts regarding foldable display solutions. Our focus is on delivering the level of execution and the completeness that would satisfy not only market, but also the consumers' level of expectation. And therefore, currently, we are in close collaboration with our strategic customers in order to deliver the solution that will meet the consumers as well as market demand. Regarding the new fab, we have actually started to do the preparation work, the groundwork for the new fab on a preemptive basis to prepare for uncertain market situation as well as expected new demand. However, we have started to do the preparations and so the exact timing of when it would operate or how much capacity will be delivered from the new fab has not yet been decided. The next questions will be presented by Mr. SK Kim from Daiwa Capital Markets. Please go ahead, sir. I have two questions for the I'm business. First of all, is I think one of the concerns in the market as is that especially as the smartphones become more and more high specification, especially around the flagship, the high end, But at the same time, prices for components, MLCCs as well as memory prices are going up. So this would inevitably increase prices of smartphones, which may result in decrease of demand. That's the scenario that the market is concerned of. So I'm wondering how you are planning to respond to this series of events. 2nd question is actually linked to the OLED Q and A that we had from the DP side. As the OLED mentioned, OLED display is becoming a mainstream display on the high end handsets and more and more Samsung's competitors are starting to use OLED on their handsets, which is diminishing the differentiating power that used to have by having OLED displays on your handsets. So I'm wondering how you plan to continue to differentiate even though OLEDs are becoming more mainstream in the high end segment. Regarding your first question about the high end smartphone segment, the high end smartphone segment is expected to continue growth, especially driven by replacement demand from mid to mid high segment users. However, it appears that there is some consumer resistance for smartphones that are above the $1,000 mark, and therefore, we need to prepare for that. We will focus on expanding the premium product sales by launching new and differentiated flagship models, while at the same time maintaining the long tail sales of existing flagship models. We will also support this with stronger sell out programs, for example, in collaboration with operators or distribution and conduct active marketing activities, especially around experienced spaces. Regarding your second question of how we will respond to competitors adopting OLEDs, well, in terms of OLED display itself, already from several years ago, we have been leading the market by offering differentiated and well executed designs using OLEDs, starting from the edge to the infinity display based on our flexible OLED technology and experience. So that's one strength. On top of that, we offer new and rich experiences through useful services such as Samsung K or Samsung PaaS Bixby as well as companion devices such as the Gear S or Gear VR and Icon X. That is another point of differentiation. In the future, we will strengthen our leadership in the market by providing differentiated services such as AI, IoT, health, while continuing product innovation based on our next generation components and new technologies. Given the limited amount of time, we will take questions from 2 more attendants before closing the session. The next questions will be presented by Mr. Tong Tang won from Nomura Securities. Please go ahead, sir. It seems that overall because the industry is now in the territory of very high and sophisticated technologies, it's becoming more and more difficult to achieve cost savings. I'm wondering how Samsung Electronics plans to respond to this situation? And also, do you think the next generation memory could be a solution to this issue? And in that context, could you give us an update on your development efforts on the next generation memory? We have already achieved differentiating advantages in terms of productivity and cost by preemptively investing a large scale strategic in our technology. We will continue to do this. So leveraging our process technology as well as 3 d NAND technology, we will continue to achieve cost as well as productivity advantages compared to the competition. Also, we will continue this leadership to go further in the 10 nano class DRAM as well as higher stack 3 d NAND developments so that we are able to maintain our productivity as well as cost advantages going forward. Regarding the next generation memory, we have been working on next generation memory for quite a long time. We have been looking into various different options. We have been talking to customers as well as other industry partners on next generation memory solutions. But given the fact that the existing processes, the existing memory actually has additional room for scaling and additional room for cost reduction. We think that for the time being, next generation memory solutions will only remain in the niche market. The last questions will be presented by Ms. Claire Keoming Kim from Taishan Securities. Please go ahead, ma'am. I have two questions. The first question is for the foundry business. It seems that there has been demand from the cryptocurrency mining side, especially so I would like to ask what was the impact on especially the cutting edge process side of your Foundry business? And going forward, what is your outlook on the demand being generated from cryptocurrency mining? 2nd question is to the DP side. We have been hearing that a Korean competitor as well as a Chinese company is preparing to go mass production with their flexible OLED. And so how will you respond to the entrance of these new competitors? Regarding your first question, there has actually been an explosive growth in cryptocurrency related demand, and that has resulted in our orders also increasing significantly from such cryptocurrency mining related customers. Especially, it seems our 14 nano and 10 nano processes not only have the right to process, but also the design infrastructure needed to support their cryptocurrency applications. And what is more encouraging is that actually our process technology has proven to be have an advantage in terms in serving the cryptocurrency demand. In addition to the 14 nano and 10 nano technologies, we're also receiving a lot of inquiries regarding new nodes such as 8 nano from such customers. And we believe that our foundry customers will be increasing their market share in the cryptocurrency segment. In addition to cryptocurrency, we expect our supplies to penetrate into further applications. And driven by this, we expect that the foundry business will achieve a sound growth and a very strong number to position. Regarding your second question about the display and how we plan to respond to the new competitors in the OLED market, we believe that the focus lies in the fact that we have accumulated technology leadership as well as business leadership in the mid to small size OLED segment. We will leverage that. Also, we think the key lies in number 1, gaining the technology differentiation. So we will continue to innovate our technologies and use that innovative technology to maintain our market leadership, but also focus on improving our yield as well as productivity and to widen the gap in terms of productivity versus the new entrants.