Morning, ladies and gentlemen. Thank you very much for joining us for the third quarter 2017 earnings conference call of Samsung Electronics. The conference call will start with a presentation by the company, followed by a Q&A session. If you have any questions, press star one. We will start the presentation by Samsung Electronics. Good morning. This is Robert Yi. Before we start our third quarter earnings call, our CFO, Lee Sang-hoon, will announce the company's shareholder value enhancement strategy, including the 2018 to 2020 shareholder return program. I would like to remind you that some of the statements we'll be making today are forward-looking, based on the environment as we currently see it, and all such statements are subject to certain risks and uncertainties that could cause our actual results to be materially different from those expressed in today's discussion.
I will turn the call over to Mr. Lee, our CFO. Thank you.
This is Lee Sang-hoon, CFO of Samsung Electronics. Thank you for your continued interest in and support of Samsung Electronics. At Samsung Electronics, we are working tirelessly to lead innovation and sustain growth amid the rapidly changing trends of the IT industry and uncertain business environment. We remained focused on efficiently deploying capital and securing right business opportunities through M&A, CapEx, and R&D. In the component businesses, we have secured industry-leading competitive positions in semiconductors and flexible OLED by making strategic investments backed by cutting-edge technologies. Our set businesses secured global leadership through product differentiation on products such as smartphones and TV. We are strengthening our competitiveness in next-generation technologies, including IoT, AI, and automotive electronics to drive future growth.
The continued focus on our core competencies resulted in recent record-setting quarterly profits, as well as industry-leading operating metrics this year. ROE is also expected to increase significantly from 2016. We have made significant improvements in our shareholder return program. In October 2015, we announced a three-year initiative on shareholder return program, including KRW 10 billion special share buybacks and cancellation. By the end of 2017, we will have returned more than KRW 20 trillion in share repurchases and more than KRW 10 trillion in dividends. Last April, we canceled 50% of common and preferred shares held in treasury. All these efforts contributed to share count reductions of 12.4% for common shares and 20.1% for preferred shares over the last two years and resulting in per-share value increases.
Our initiation of a quarterly dividend this year is a significant step in our commitment to delivering continuous and even distribution to our shareholders. Our strong business performance and the efforts to deliver higher value to our shareholders drove the company's share price, more than doubling over the past two years. The board of directors and the management does not rest on these achievements. We have been actively communicating with investors to seek diverse views and continue to review our shareholder return program to further improve clarity and predictability to match global top-tier standards. As one of the largest multinational IT companies, our footprint extends across the entire globe, and as a result, we are constantly compared with other global leading IT companies.
The global standards that we are measured by extend far beyond operating metrics such as revenue, profits, or market share, and it reaches to capital allocation policy as well. We aim to achieve global leading standards in all aspects to secure our position as a global top-tier company. As a part of this effort, the BOD has approved a three-year shareholder return policy for 2018 to 2020 period. The core strategy of the policy enhancement is to provide investor communities with greater predictability on returns. First, we will significantly increase dividends. As our share price more than doubled over the last two years, we believe shareholder returns in the form of dividends will be the most beneficial in enhancing shareholder value. We believe that the company's shares remain undervalued compared to our global peers for various reasons.
By sustaining a certain level of dividends, we expect the market to reevaluate the value of our shares and thereby contributing to a total shareholder value increase. Subject to approval of shareholders at our AGM, we will increase 2017 total dividends by 20% compared to 2016, which would result in a total dividend amount of KRW 4.8 trillion. We will further increase 2018 total dividends by 100% over 2017, which will bring a total dividend for 2018 to KRW 9.6 trillion. Annual dividend for 2019 and 2020 will be kept at same level as 2018, which will bring the total dividend returns for the 2018 to 2020 period to approximately KRW 29 trillion. Second, future M&A investments will not be deducted from the free cash flow calculations. This policy change will increase the amount of capital available to return to shareholders and also result in greater transparency and predictability.
The portion of free cash flow allocated for shareholder return will be set at minimum 50% over the three-year period. However, this change may bring the free cash flow percentage distributed to shareholders higher than the free cash flow percentage calculated under the previous methodology. Third, we will apply the minimum 50% of free cash flow on a three-year basis. This is to prevent potential fluctuation of annual shareholder return resulting from computing based on the annual free cash flow. After dividend payouts, any remaining portion of the 50% of free cash flow available for shareholder returns will be used either for additional cash dividends or share buybacks as deemed appropriate. Our strong balance sheet and healthy liquidity have equipped the company with the capability to continue investing in our core businesses while pursuing new growth opportunities.
Therefore, we believe that it is essential to balance between short-term returns and future value-enhancing opportunities. We believe that the most certain and effective way of shareholder return is to enhance the enterprise value by sustaining growth through strategic investments and M&A, and to increase annual returns from free cash flow growth. Accordingly, the company's management, myself included, will work tirelessly to continue our strong results by focusing on enhancing the competitiveness and profitability through our differentiated technologies and strategic investments. These efforts, coupled with balanced capital allocation strategy, will result in enhanced shareholder value. Thank you for your continued interest in our business.
Thank you, Mr. Lee. As you know, we still have to conduct the third quarter earnings call right after the Q&A. With your understanding, we will take three to four questions.
Now, Q&A session will begin. Please press the star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, star and two, on your phone. The first question will be provided by Yoo Jong-woo from Korea Investment & Securities. Please go ahead, sir.
Yes, thank you very much. Regarding the new shareholder return policy that you announced today, I believe the fact that you have significantly increased dividends as well as decided not to include M&A and other factors, not to deduct that from the free cash flow calculations can be viewed to be very positive. On the other hand, the 50% of free cash flow being available for shareholder return has been maintained. When the 50% was set last year in November, I think there were some expectations in the market that maybe this time that 50% would be raised. Can you explain in detail the reasons, the rationale behind not increasing the percentage of free cash flow available for shareholder return this time?
앞에서 설명드렸지만, 지금 규모나 시점을 예측하기 어려운 M&A를 free cash flow 계산할 때 차감하지 않도록 한다고 말씀을 드렸습니다. 이렇게 되면 과거 정책에 비해서 주주 환원 규모에 대한 예측 가능성도 높아지지만 M&A 규모만큼 free cash flow가 증가해서 주주 환원 규모가 늘어나는 효과가 있습니다. 그러니 실제 유지가 되는 게 아니고 늘렸다고 말씀드릴 수 있겠습니다.
As we mentioned, we have decided to not deduct the M&A from the free cash flow calculation. M&A was difficult to predict in terms of size as well as the timing. By not deducting M&A in future free cash flow calculations compared to the previous shareholder return policies, not only does this increase the predictability of shareholder return size, but also we believe that in effect, the amount of shareholder return available increased according to the size of the M&A. Therefore, we believe that actually we did not maintain the percentage. Actually, there was an in effect increase of the percentage of free cash flow available for shareholder return.
네, 감사합니다. 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 CIMB 증권의 이도훈 님입니다.
The following question will be presented by Lee Do-hoon from CIMB. Please go ahead, sir.
좋은 실적과 개선된 주주 환원 정책 발표에 감사드립니다. 제 질문은 free cash flow의 50%를 주주에게 환원한다는 것은 여전히 나머지 50%는 지속적으로 회사 내부 현금으로 쌓여서 증가한다는 얘기로 들리는데요. 이처럼 증가한 현금에 대한 회사의 활용 계획이 무엇인지 말씀해 주시면 감사하겠습니다.
My question is about the remaining 50% of free cash flow. With the 50% of free cash flow is paid out as shareholder returns, still the remaining 50% will be retained, and it will accumulate. What are the company's plans on how to use this increasing cash?
현금 증가는 결국 사업을 통해서 free cash flow가 늘어나고, 또 우리가 하만 같은 M&A를 함으로써 감소되고 이거에 좌우될 거라고 보여집니다. 최근과 같이 CapEx 규모가 늘어나는 상황에서는 free cash flow가 크게 늘어나지 않고 주주 환원과 M&A를 감안하면 현금 증가도 제한적이지 않을까 생각됩니다.
The increase of cash or free cash flow is basically a function of how much free cash flow we can generate from the business and also will be reduced as much as, for example, M&A needs, such as the M&A of Harman that we went through. Therefore, looking at the current situation where we're seeing a significant increase of CapEx needs, we don't expect our free cash flow to increase dramatically in the future. Given the M&A needs as well as shareholder return policies, we expect our cash increase to be limited in the future.
네, 감사합니다. 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 JP Morgan의 JJ 박입니다.
The following question will be provided by JJ Park from JPMorgan. Please go ahead, sir.
질문 기회 감사드립니다. 기존 정책에서 말씀하셨을 때 70조 정도 필요 현금 추가분에 대해서는 주주 환원에 쓰신다고 하셨는데, 이 정책이 향후 3년 주주 환원 정책에도 유효한지 궁금합니다.
I recall that in the previous shareholder return policy, you mentioned that the company would be providing whatever exceeds the KRW 70 trillion level of required cash for shareholder returns. Is this policy still effective under the new 3-year shareholder return plan that you've announced today?
3년 동안 저희들이 그걸 해왔는데요. 그동안 일부 주주분들은 이러한 3년마다 필요 현금 수준을 정하고 초과분을 환원하는 것이 주주 환원 규모도 예측하기 어렵고, 또 여러 가지 문제가 있다고 이슈를 제기해 왔습니다. 실제 시장에서 올해 실적도 대폭 개선되고 해서 현금이 작년 말보다 늘어날 것으로 예상했는데, 저희들 Harman M&A도 있었고, 또 CapEx도 대폭 증가해서 오히려 연말 순현금이 줄어드는 것으로 지금 예상이 됩니다. 또한 필요 현금 수준도 얼마만큼, 지금 70조라고 저희들이 얘기했지만 그게 적정하냐는 것에 대해서 논란도 있어 왔습니다. 이런 점들을 고려해서 주주 환원 규모의 예측 가능성을 높이는 새로운 정책을 통해 주주분들과 장기적이고 지속적인 신뢰를 쌓는 게 중요하다고 판단했고, 필요 현금 초과분 환원은 앞으로 적용하지 않겠습니다.
We have been implementing the shareholder return program for the past three years. Actually, some shareholders have voiced questions on this policy of setting a certain level of required cash and distributing what exceeds that is shareholder return. The issues that they have raised include the fact that this makes it very difficult to predict the size of shareholder returns. Also, for example, this year, given the very strong performance of the business, the market had actually expected our cash to increase at the end of the year. Actually, when we look at the current situation, due to the M&A of Harman, as well as significant increase of our CapEx needs this year, our net cash at the end of the year probably will be less than what we had at the end of last year.
The fundamental question was whether KRW 70 trillion, a certain level of required cash itself, is appropriate or not. Given all of these factors, we have decided that what is most important is to build a long-term and sustainable trusting relationship with the shareholders. To do that, we needed to provide better predictability of the size of shareholder return, and therefore, we have decided to no longer use this principle or approach of setting a certain level of required cash and distributing the cash that exceeds it. We will take one last question for our CFO.
The following question will be provided by SK Kim from Daiwa Capital Markets. Please go ahead, sir.
It seems that the highlight of the new shareholder return policy lies in dividends. You've announced that there will be a dramatic increase in the dividends from 2018 onward. I'm just wondering, the KRW 29 trillion of total dividends for the next three years, is this something that is guaranteed regardless of the free cash situation that would actually unfold in 2018? The dividend size that we have announced today, it was determined based on what we believe, what was based on what we foresee in terms of our ongoing business performance, as well as financial situation in the next three-year period. It was set at a level that we believe we can sufficiently handle and manage.
Even if there are some unexpected issues in our businesses in the next three years, 2018, 2019, and 2020, resulting in somewhat of less than expected free cash flow, the dividend policy that we announced today will be kept and executed. Well, this completes our shareholder return policy Q&A. We will move on to the regular earnings conference call.
Hey, this is Robert Yi. Now we can start our earnings call for the third quarter 2017. With me representing each business units are Mr. Sewon Chun , Senior VP of Memory Marketing, Heo Guk, VP of System LSI Marketing, Mr. Yi Sang Hyun, he's the Vice President of Foundry Marketing, Lee Chang-hoon VP of Samsung Display, Mr. Lee Kyeong Tae , VP of IT Mobile, and Mr. Lee Sang-hoon , Senior VP of Visual Display, as well as we have Mr. Kim Sang-Hyo , VP of IR Group. Again, I would like to remind you that some of the statements we'll be making today are forward-looking, based on the environment as we currently see it. All such statements are subject to certain risks and uncertainties that could cause our actual results to be materially different from those expressed in today's discussion.
Before we go over the results, I would like to update you on the progress of our ongoing shareholder return program. We completed the third phase of our KRW 9.3 trillion share repurchase program last week. We have returned approximately KRW 7 trillion over the three phases by repurchasing 2.59 million common shares and 648,000 preferred shares, all of which are canceled. Today, the board of directors approved the fourth and final phase of the program, in which we will repurchase 712,000 common shares and 178,000 preferred shares. The final phase will start on November 1st and take approximately three months to complete. The board of directors has approved a third quarter dividend of KRW 7,000 per share for both common and preferred shares. The dividends will be paid in November. I would like to take you through our third quarter results.
In the third quarter, the company's total revenue grew 30% year-over-year and rose slightly quarter-over-quarter to KRW 62 trillion. The gains were mainly driven by robust memory markets and increased sales of flexible OLED panels. Gross profit reached KRW 29 trillion, an increase of approximately KRW 10.6 trillion year-over-year. Gross profit margin improved significantly, rising 8.3 percentage point over the same period. SG&A expenses increased by KRW 1.3 trillion year-over-year, mainly from consolidation of Harman results and a small increase in R&D and advertising expenses. However, as a percent of revenue, it decreased by 4.2 percentage point year-over-year. Operating profit in the quarter set a new record high, increasing KRW 9.3 trillion year-over-year to KRW 14.5 trillion, driven by strong profitability at the semiconductor business and the recovery of the smartphone sales. The operating margin also improved, rising 12.5 percentage point year-over-year to 23.4%.
In the third quarter, the overall weakness of the Korean won against major currencies, including EUR, positively impacted our operating profit of approximately KRW 470 billion quarter-over-quarter, mainly in affecting the set business. The semiconductor business recorded a significant earnings growth both year-over-year and quarter-over-quarter, as memory ASP stayed strong based on robust demand from the server markets for high-density server DRAMs and SSDs, and increased sales of high value-added System LSI products. With regards to the display business, despite revenue growth in the OLED business due to rising sales of flexible products, total display earnings decreased quarter-over-quarter due to a rise in initial ramp-up cost and a decline in rigid OLED sales. However, the magnitude of the profit decline quarter-over-quarter was smaller than we initially projected at the start of the third quarter.
For the IM business, total smartphone shipments increased from robust sales of the Galaxy Note8 and J Series products. However, quarter-over-quarter earnings declined as the mid to low-end smartphone mix increased. In the consumer electronic business, strong sales of premium products, including QLED TVs, contributed to a quarter-over-quarter earnings improvement. However, profits declined year-over-year as a result of a rise in TV panel prices and B2B investments in home appliance businesses. Next, I would like to address our business outlook. In the fourth quarter, we expect our earnings to continue to improve, driven mainly by the component business as flexible OLED panel shipments are expected to increase significantly and tight supply and demand conditions should persist in the memory market.
Regarding the set business, we believe competition will intensify in the smartphone market, but expect to maintain solid earnings resulting from a rise in premium product sales amid strong seasonal demand. In 2018, we expect earnings growth to continue mainly on contributions from the component business, again driven by continuing favorable supply and demand conditions in the memory industry as well as OLED growth. In the set business, we will focus more on securing profitability rather than increasing volume by differentiating flagship smartphone models and reorganizing TV lineups toward the high value-added products. Furthermore, we will aggressively strengthen our capabilities surrounding new growth engines in areas such as AI and IoT. Now, I would like to comment on our capital expenditure plan. We expect the total capital expenditure for this year to be approximately KRW 46.2 trillion, a significant increase from last year.
CapEx for the semiconductor and display business is expected to reach KRW 29.5 trillion and KRW 14.1 trillion respectively. In the third quarter, we invested KRW 10.4 trillion, including KRW 7.2 trillion for semiconductor and KRW 2.7 trillion for the display. This brings the cumulative capital expenditure to KRW 32.9 trillion as at the end of the third quarter this year. In the memory business, the investments are mainly focused on, number 1, Pyeongtaek Fab to expand capacity to address rising demand for vertical NAND. Second, DRAM process migration. Third, supplementing any capacity loss resulting from the migration. For the foundry business, we are increasing our 10 nano capacity to address rising demand for cutting-edge process technology. For the OLED, we have been concentrating our investments on expanding capacity for flexible panels to respond to growing demand.
In the fourth quarter, substantial portion of investment will be made in the semiconductor business to build infrastructure related to new sites and clean rooms. Before presentation of each business unit, I would like to share with you several data points for each of the key business areas. For DRAM, in the third quarter, our bit growth came in high single-digit, and our ASP grew high single-digit as well. For the Q4, we expect market DRAM bit growth to be low single-digit, and we expect our growth to be similar. That will bring the 2017 market DRAM bit growth to be approximately 20%, and our bit growth will be mid-teens. For third quarter NAND, our bit growth came in at mid-teens, and we saw low single-digit ASP increase in the third quarter.
In Q4, we expect the market NAND bit growth to be mid-teens, and we will grow in line with the market. For 2017, we expect the NAND market bit growth to come in at high 20s. For the display business, OLED revenue mix was about high 60% of total display panel business. For the mobile business, our shipment of total handsets in the third quarter came in at 97 million units, tablet about 6 million. Our blended ASP of total handset was about $210, and the mix of the smartphone within total handset was about mid-80%. In Q4, we expect the total handset shipment to decline Q-on-Q, but we expect to see tablet volume to increase Q-on-Q. We also expect the blended ASP of our handsets to increase in Q4, and the mix of the smartphone within total handset will be kept about mid-80%.
For our TV business, in Q3, we shipped about 10 million units. In Q4, we expect to see about mid-30% increase in volume shipment.
Good morning. This is Sewon Chun from the memory marketing team. In the third quarter, the demand of memory for all applications, including PC, graphic, server, and mobile increased due to seasonal demand from Singles' Day and Black Friday, and the trend for higher content per box. As the overall restriction of industry supply stays, price continue to rise under solid supply and demand conditions. On end, following the launch of new flagship smartphones, set build demand and content growth have driven strong mobile demand. In addition, demand for data center SSD remained strong due to expansion of cloud infrastructure and trend for higher density. Therefore, overall, NAND demand remained very solid.
For the supply side, in spite of the industry's mass production of 64-layer, mainly for applications such as client and mobile, supply continued to be insufficient due to decreasing planar capacity during the process of 3D NAND transition. We continue to drive solid earnings growth by actively responding to demand for higher density NAND from smartphones and from value-added, high-density markets, such as data center NVMe SSD and enterprise SSD over four terabytes via stable 64-layer 3D NAND ramp-up at Pyeongtaek Campus. For DRAM, due to peak seasonality, demand for all applications increased compared with the last quarter. Demand from server remained solid due to cloud services expansion, new CPU platform launches, and trend for higher density. Demand from mobile also remained strong, thanks to new flagship models launches and content growth. In addition, due to increased set build of consumer products under peak seasonality
PC demand and graphics demand from game console also increased over last quarter. We successfully focused on maximizing sales and profit by satisfying demand for differentiated products, such as server DRAM over 64 gigabytes and low power LPDDR4X, through expanding supply of 1x-nanometer products and effectively managing a profit-focused product mix while taking the market circumstance into considerations. Next, I will comment on the memory market outlook. In the fourth quarter, although industry supply of 3D NAND and sub 20-nanometer DRAM products may increase, overall supply demand is expected to remain tight due to continuously increasing demand, mainly from mobile and EDP. On NAND, insufficient supply situation will continue, thanks to strong demand for mobile and SSD on the peak seasonality. For mobile, while expansion of new flagship model launches, strong demand is expected to continue.
For server, demand for SSD continues to be strong due to the expansion of new data center constructions, as regulations for information security enhanced worldwide. Although the price of PC SSD increased, the SSD attach ratio keeps increasing. As a result, demand for client SSD is also expected to remain solid. As for supply, although suppliers' production of 64-layer may expand, supply growth is expected to be limited compared to demand growth due to decreasing planar capacity and increasing technical difficulties. However, supply and demand may vary according to each application, depending on the industry's transition speed of 64-layer and design-in status. While closely monitoring market conditions, we will continuously improve profitability by expanding sales of differentiated products and managing a profit-focused product mix. For DRAM, strong demand from data center expected.
At the same time, mobile demand is expected to remain solid, thanks to continued increase in memory usage along with seasonality, new flagship launches, and industry trends such as reinforcing on-device AI and AI capabilities. In addition, demand of PC is also expected to remain solid due to seasonality. We will continue to deploy flexible product mix strategy according to individual application market conditions. Moreover, we will concentrate on strengthening cost competitiveness by spending 1x-nanometer process production. Next, let me comment on 2018 market outlook and our strategy. For the NAND market, recently, data scientists began to draw meaningful business insight and create new services by analyzing and utilizing big data generated from various devices. Because of this trend, demand for servers with high performance will continue to increase. As a result, SSD adoption is expected to increase rapidly in more wide areas.
In addition, high performance and high-density trend for mobile NAND are expected to be continued as on-device AI capability appears in smartphone market. We will expand the high value-added solution market via server SSD based on 64-layer 3D NAND, mainly from Pyeongtaek campus. At the same time, we will improve product competitiveness and strengthen market leadership by developing and introducing 5th generation 3D NAND product on a timely base. For DRAM, solid demand growth is anticipated mainly from server due to incoming new data center builds and increasing memory usage, especially from processing big data at faster speed and using AI and machine learning capabilities. Mobile demand is also expected to grow as content per box increase due to the spread of dual camera, 3D sensors, and on-device AI. On the other hand, bit growth will be made mainly from process migration, therefore, tight supply-demand conditions are expected to continue.
We will maintain profit first rather than market share policy and strengthen cost competitiveness through expediting ramp-up of 1x-nanometer and introducing finer process technology at a proper time. We will also try to strengthen our market leadership by expanding sales of our high-density differentiated products, such as HBM, high bandwidth LP4X, and uMCP solutions.
Good morning, everyone. Now moving on to the System LSI business. In the third quarter, we've achieved a favorable result due to an increased sales of mobile processors for the mid to low-end smartphones and image sensors for Chinese smartphones. In addition, the new flagship smartphone launches have also helped to increase the sales of OLED DDI. In the fourth quarter, even though the supply of OLED DDI for the premium phones are expected to continuously increase, the earnings are projected to stagnate as the sales of mobile processors and image sensors decrease due to weak seasonality. In 2018, we will continue to lead the earnings growth through sustained growth of mobile processors and OLED DDI sales, and increase growth of the image sensors sales due to larger adoption of the dual-camera feature on smartphones.
Furthermore, by utilizing our technological leadership in 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. Following the previous quarter, we continued to record favorable results in the third quarter, which was mainly from increased sales of 10-nanometer mobile products, benefiting from stabilized yield ratio and strong seasonality. In addition, the increase in demand for the differentiated products such as 32-nanometer mobile TDI and 65-nanometer image sensors, have also contributed to the good earnings. As for the technological achievement, we've completed the 8-nanometer process development three months earlier than initially planned. In addition, we have established the milestone for the long-term growth by delivering the industry first 28-nanometer FD-SOI, embedded MRAM test chips to the customers.
In the fourth quarter, even though the earning growth is expected to be limited, we project the 10-nanometer will be a long-lived node as it diversifies its application from mobile to cryptocurrency mining. In addition, we will promote the new 8-nanometer heavily while diversifying the customer bases through offering differentiated solutions such as fingerprint, eFlash processors, etc. In 2018, we will continue to derive a favorable earnings growth by increasing the supply of the 10-nanometer products and image sensors through mass productions in line S3 and transformation of line 11 respectively. We will focus on strengthening the 7-nanometer process competitiveness by investing in EUV related infrastructures. We will also diversify the customer base by offering the total solutions combined with RF and embedded MRAM technology for FD-SOI platform and packaging.
Lastly, we will continue to drive the growth by actively addressing the new demands. Thank you.
Hello. This is Lee Chang-hoon from the planning department of Samsung Display. During the third quarter, total earnings for the display business declined. This was driven by an increase in initial start-up costs for the new OLED product line, as well as decreased ASPs of LCD panels. With the OLED business, in the third quarter, although our sales increased through increased shipment of flexible displays led by launches of our major customers' new flagship model, our earnings declined QoQ due to an increase in initial start-up cost of the new production line, as well as intensified competition in rigid OLED products with the LTPS LCDs. With our LCD business, the third quarter, our earnings declined under decreased ASPs of LCD panels led by an imbalance between supply and demand based on set makers' inventory adjustment as well as capacity expansion in the LCD industry.
Looking ahead to the fourth quarter for the OLED business, we expect growth in sales led by an extended supply of flexible products. Under this circumstance, we plan to focus on securing profitability through increasing shipment of rigid products as well as enhancing productivity of flexible OLED panels. On the other hand, in the fourth quarter, we are concerned that the imbalance between supply and demand will continue due to capacity expansion in the Decrease in demand on the weak seasonality. In response to these market conditions, we will make effort to improve profitability by focusing on cost reduction and yield improvement by expanding the portion of value-added products, such as ultra-large, high resolution, and quantum dot products. Now, I would like to present the outlook for the display market and our core strategies for 2018.
For the OLED business, we expect OLED to become mainstream products in the smartphone industry, and in particular, expect flexible panels to strengthen their market positions within the high-end products. Under this circumstance, we plan to focus on achieving continuous growth through actively addressing customers' demands for flexible displays with continued effort to create technical differentiation from competitors. For the LCD business, we are concerned about the increasing uncertainty led by intensified competition among panel makers, as well as capacity expansion in the LCD industry. However, at the same time, we expect that the market for premium TV, such as UHD and ultra-large TV panels, will continue to grow. In preparation for these market conditions, we will make every effort to improve profitability by reinforcing strategic partnerships with major customers, as well as expanding our value-added product lineups, such as ultra-large, high resolution, quantum dot, and frameless panels. Thank you.
Good morning, everyone. This is Lee Kyeong Tae from the mobile communication business. I would like to present the third quarter business results and the outlook of the IM division. In the third quarter, market demand for smartphone increased Q on Q due to the seasonality. During the same period, the tablet demand stayed at a similar level to the previous quarter. Our smartphone shipments increased Q on Q, thanks to the launching of Galaxy Note8 and solid sales of new Galaxy J 2017. However, our revenue and profit decreased Q on Q due to the higher sales proportion of mass smartphones. The Galaxy Note8, newly released in the third quarter, has shown strong sales in almost all regions, with a reinforced product competitiveness, like a dual camera, enhanced S Pen usability, and multimedia features.
As for the network business, our revenue and profit decreased Q on Q as LTE investments from our major overseas partners were conducted already in first half of 2017. Let me move on to the outlook of the fourth quarter. Market demand for both smartphone and tablets is expected to increase Q on Q as we enter the year-end peak season. In particular, we forecast the competition to get harder in the premium smartphone market due to competitors' new smartphone model. With the global expansion of our Galaxy Note8 and increased marketing activities, we aim to raise sales proportion of flagship models and improve product mix. Through these efforts, we will maintain our revenue and profit at a similar level to the previous quarter. However, our smartphone shipment is expected to decrease Q on Q, as mass smartphone shipment is likely to decline.
As for the network business, we will improve our revenue and profit by introducing next generation network solution into global advanced markets. Lastly, I would like to share the outlook for 2018. Next year, we expect the smartphone market growth to be recovered with the increased replacement demand in high-end segment as well as mid to low-end segment. Meanwhile, it seems that the challenges in our business will be increased due to severe competition and increase of the material cost. We will solidify our leadership in the premium market with a differentiated design, high quality, and innovative features. In terms of operations, we will focus on improving profitability by optimize product portfolio and enhance productivity, as well as the efficient operation of local manufacturing sites. Moreover, we will explore a new business opportunity ahead of the competition through the new technologies such as 5G.
At the same time, we continue to promote the service business. By doing so, we will strengthen the foundation for our mid to longer-term growth. This day, we have the Samsung Developer Conference 2017 and share our vision for the intelligence era. We are combining our IoT product and services into a single powerful platform. Through this unified platform, we believe that we will be able to provide consistent user experiences to our customers and the mass adoption of IoT. Furthermore, Bixby will be at the center of our open ecosystem, not only available on all of our products, including TV and home appliances, but also on third parties devices and services. With Bixby, we will grow an open ecosystem where a variety of devices and services can seamlessly work together to provide harmonized experience for our customers.
As for the network business, we aim to strengthen the presence in the market by expanding our customer base in developed markets and increasing the supply of 5G-ready network solutions. Thank you.
Good morning. I'm Lee Sang-hoon , Senior Vice President of Visual Display Sales and Marketing Team. I would like to present the current market conditions and our results for the third quarter of 2017. As for the TV market in Q3 this year, as we have entered into peak season, the market has grown quarter-on-quarter. But due to the decreased demand in the advanced markets, including North America, the TV market is projected to have weakened year-on-year. Under these market circumstances, as we were affected by the panel price increase, our results were modestly decreased year-on-year. However, as the expansion of sales portion in UHD TVs and ultra large screen TVs led to higher average selling price, we have significantly improved our quarter-on-quarter results.
In particular, fueled by the increase in the sales of flagship lineup, QLED, we have achieved over 40% market share in above KRW 2,500 segment, as well as in ultra large TV segments, thereby solidifying our leadership in the premium market. As for the digital appliance market, with maintained growth of the advanced countries and economic recovery in the emerging countries, including Southwest Asia and CIS, the overall market demand saw a modest increase year-on-year. Retaining strong sales of air conditioner and washing machines in the domestic market and the expanded sales of the premium products such as AddWash washing machine, we continue to grow sales. However, due to the investments costs in the North American builders market, our overall earnings slightly went down compared to the last year. Next, let me brief on the market prospects for Q4 of 2017 and the next year, 2018.
For the TV market in Q4 this year, as the market is entering into the year-end peak season, we expect to see an increase in demand centering on North American, West European, and Latin American markets, the panel price is expected to become stable. Under these circumstances, making full use of our accumulated know-hows on peak season promotion, we will collaborate in advance with our partners to preoccupy the demand in the year-end peak season, such as Black Friday. At the same time, by expanding sales of our strategic products, including QLED and ultra large screen TVs, we will further strengthen our premium leadership in the TV market. Specifically, in order to maximize the QLED sales that currently continues to grow, we will reinforce our premium marketing activities. Also, by complementing the QLED lineup with the new Q6 series, we will strongly drive the QLED to gain more dominance.
As the new opportunities in B2B business, digital signage markets are projected to increase, including QSR, that is quick service restaurant sectors. We have set up our bases by winning on large scale projects. Also, for the world first Onyx introduced recently in domestic market, we will go further develop our business in the global market with our constant investment and technology leadership. As for the digital appliance business, in the coming year-end peak season, the advanced market are expected to show a stable growth in demand while the growing markets maintain their recovery trends. Under this condition, along with the Family Hub refrigerator, FlexWash washing machine, and other existing premium innovative products, new models including QuickDrive washing machine, POWERstick PRO, which were newly introduced at IFA, will drive a continuous revenue growth.
As for the TV market of 2018, due to an effect of major sports events such as World Cup and Winter Olympic Games, demand for the UHD and ultra large screen TVs along other lines is expected to keep growing. Based on cooperation with our channel partners, we will actively respond to a growing demand coming from the global sports events. With all of these efforts, we will continue to expand the premium lineups that includes the QLED and ultra large screen TVs and introduce products designed for consumers' lifestyle. As for the digital appliance business, by strengthening cooperation with our channel partners, we will carry out various sales promotion for each region. In the meantime, by constantly expanding the B2B business, including built-in home appliances and system air conditioners, as well as online business, we will actively drive for profitable growth. Thank you.
Q&A session will begin. Please press star one, star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, star and two on your phone. The first question will be provided by Nicolas Gaudois from UBS. Please go ahead, sir.
Yes, good morning. Thanks for taking my questions. The first one is for memory capacity. Have you now fixed plans for the west side clean room on the second floor of Pyeongtaek fab, i.e., in terms of timing of a ramp and the split between DRAM and NAND flash? How about your initial views for the east side clean room in the second floor of Pyeongtaek? Thank you. I've got a follow-up after this.
Regarding the memory market, as you know, since the end of last year or late last year, the demand side is mainly being driven by servers and mobile applications. On the supply side, there is inevitable bit loss that's created as we migrate to 10 nano class process technology, also because of line 11 being converted for CIS production. Due to this bit loss, to make up for that, there is inevitable investments and capacities that are necessary. Last year, we decided to convert part of Hwaseong's NAND capacity to DRAM. Because of the inefficiencies that are caused as a result of this conversion, we have actually decided to reduce the size of the NAND conversion to DRAM than originally planned, rather use part of the upper floor of Pyeongtaek for DRAM capacity.
Whether it will be west side or east side, it's difficult to give you a specific answer today because we're actually in the process of continually reviewing the detailed plans. However, our basic approach to DRAM capacity management is that we will flexibly manage our capacity, especially depending on the market situation for each product, as well as the migration in the 10 nano class process technology.
Okay, thanks. The second question relates to the CapEx announcement you just made for 2017. For the Semis portion of KRW 29.5 trillion, could you give us a bit more color on the split between NAND flash, DRAM and LSI, also the portion of this KRW 29.5 trillion which actually relates to fab infrastructure investments, so bricks and mortars as well as the prioritization of a fab, which you say I think for Q4 will be actually quite substantial. Lastly, how do you see those segments qualitatively evolving for CapEx into 2018? Thank you.
두 번째 질문은 반도체 CapEx에 관한 질문입니다. 올해 연간으로 반도체 CapEx를 29.5조 원으로 오늘 말씀을 하셨는데요. 29.5조 원을 NAND, D램, 시스템 LSI로 나누면 퍼센티지가 어떻게 되는지 말씀해 주시면 좋겠고, 또 한 가지는 29.5조 원 중에 사실은 인프라 관련 투자가 있을 것 같은데, 특히 4분기의 경우에는 인프라 투자가 상당한 비중을 차지하지 않을까 싶은데, 그 비중에 대해서 말씀을 해주시고 또 질적으로 봤을 때는 2018년도 반도체 관련 CapEx에 대한 전망을 말씀해 주시면 좋겠습니다.
CapEx 얘기할 때마다 굉장히 조심스러운데요. 나름대로 또 시장의 다른 여파도 있고 해서 대략적으로 말씀을 드리면, 17년 총 반도체 투자 중에서 메모리하고 System LSI는 한 7대 3, 아니면 한 75% 대 25% 정도로 split이 날 것 같고요. 메모리 내에서의 DRAM과 NAND는 한 4대 6, 아니면 DRAM이 조금 더 적을까요? 그 정도로 컬러를 드리면 되지 않을까라는 생각은 드는데. 4분기 투자 중에서 인프라 투자 비중은 정확하게 지금 제가 숫자는 갖고 있지 않지만, 대략 한 35에서 40% 정도 인프라 투자가 되지 않을까. 왜냐하면 지금 클린룸 작업하는 부분이 상당히 투자가 많이 되고 있기 때문에.
저희가 말씀드린 대로 앞에서 어쨌든 이런 많은 투자가 결과적으로는 18년 과대한 빚 성장으로 연결되는 게 아닌가라는 우려가 시장에 일부 있는 건 알고 있는데, 어쨌든 저희로서는 올해나 내년에 이 반도체 투자가 단순한 어떤 연간 빚 성장을 위한 드라이브가 아니고, 앞으로 2, 3년을 내다보면서 하는 그런 투자로 보기 때문에 조금 더 장기적인 관점에서의 CapEx로 봐야 되지 않나라는 그런 시각 갖고 있습니다.
We're always very cautious about answering specific questions about CapEx because we don't want the market to respond in an overreacting way. To give you details of the 2017 CapEx for semiconductors, I think if we split that between memory and System LSI, the split would be seven to three or maybe 75% to 25%. Within memory, DRAM versus NAND will be about four to six or memory may be at slightly less than four. In fourth quarter, yes, infrastructure investments among CapEx spending for semiconductors I think accounted for about 35%-40%, given the fact that a considerable amount of work is being done preparing the clean rooms. We do know that there are some concerns in the market that maybe such huge investments that we're making in semiconductors may lead to excessive bit growth next year.
Actually we have a different approach to the investments that we're making right now. We believe that the investments we're making this year and next year in our semiconductor business is not for immediate bid growth next year. We actually have a longer-term horizon. We think that the investments that we're making now and next year is more for the overall business capabilities for the next two to three years.
예, 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 Daiwa Capital Markets의 SK Kim입니다.
The following question will be presented by SK Kim from Daiwa Capital Markets. Please go ahead, sir.
질문 주셔서 감사합니다. 저는 IM 쪽에 질문이 있습니다. 갤럭시 S8 경우에는 뛰어난 제품 차별화에도 불구하고 기대 대비 판매가 저조한 것으로 보이는데요. 현재 메모리 등 부품 쪽에 부담이 계속 증가하는 상황에서 향후 플래그십 모델에서 차별화 전략을 어떻게 가져가실 건지, 그리고 특히 갤럭시 S9의 경우에는 지금 경쟁사 신제품 판매가 지연돼서 출시 시기상 1분기에 부정적인 영향이 예상되는데요. 이에 대한 출시 시기 변화 등 어떤 대응 전략이 있으신지 가능한 부분 답변해 주시면 감사하겠습니다.
My question is for the mobile business. Even though the Galaxy S8 had various differentiating strengths in its product, its sale seems to be weaker than originally expected. On top of that, the component price burdens, for example, increasing memory prices, is increasing the overall cost burden on these high-end flagship models. Given this backdrop, what is your plans in terms of differentiating your future flagship launches? For example, the S9 on top of that may be negatively impacted in terms of launch timing, given the fact that your major competitor has been delaying the launch of its flagship model so that may have a negative impact on Q1 next year. What are your plans specifically about how to respond to this timing issue? Do you have, for example, plans of changing the timing of when S9 will be launched?
많은 질문을 해주셔서 좀 나눠서 말씀을 드리겠습니다. 먼저 플래그십 전략과 관련해서 말씀을 드리면, 추지하시는 바와 같이 당사는 그동안 플래그십 제품을 통해서 엣지 디자인이라든지 삼성페이, 홍채 인식, 그리고 인피니티 디스플레이, 최근에 빅스비까지 소비자 니즈 기반의 어떤 차별화된 가치를 지속 선보여 왔습니다.
이러한 경쟁력을 바탕으로 해서 프리미엄 세그먼트 내에서 MS 확대를 위해 최선을 다해서 노력하고 있습니다. 앞서 스피치에서도 말씀드렸듯이 4분기에는 Galaxy Note8의 출시 국가를 확대를 하고, 거래선과 협력을 하는 sell-out 프로그램도 강화를 하고, 적극적인 switching 그다음에 retention 활동을 전개하도록 하겠습니다.
There was actually several questions in one, so I'll sort of answer it by dividing that into different questions. First, regarding our flagship strategy, as you mentioned, we have always provided differentiated value to our consumers by building in new technologies and new features into our flagship model, such as the edge design, Samsung Pay, iris recognition, Infinity Display, as well as Bixby. This has been part of our efforts to increase our market share within the premium segment. As we mentioned in the speech previously in the fourth quarter, we will not only expand the number of countries where Galaxy Note 8 is launched, but we also have plans of strengthening our sell-out program by collaborating with the customers. Also, we have plans of implementing switching and retention activities actively in order to further expand the market share we enjoy in the premium segment.
그다음 내년 1분기를 언급을 하셨는데요. 내년 1분기에 프리미엄 세그먼트 내에서 경쟁사 신제품 출시에 따른 업체 간 경쟁이 치열할 것은 예상이 되지만, 저희들이 보유하고 있는 기술 리더십과 제품 경쟁력을 기반으로 해서 flagship 제품의 판매량을 지속 확대하도록 하겠습니다. S9에 대한 출시 시점이나 이런 부분에 대해서는 언급하기 어려운 부분을 이해를 해 주시기 바랍니다. 경쟁사를 의식해서 출시 시점을 조정하고 이런 것보다는 저희들이 자체 로드맵과 소비자 니즈에 기반한 그런 출시 시기를 결정하고 있음을 이해해 주시면 좋겠습니다.
Your second question was more about next year first quarter. We do expect there will be fiercer competition, especially in the premium segment, given competitors launching their flagships. However, we plan to expand our sales in the premium segment based on our technology leadership as well as the competitiveness of our products. Regarding the exact timing of when S9 will be launched, as always, it's difficult for us to mention future product launches. Rather than being conscious of the competitors launching, I think, as always, we will be deciding when to launch based on our product roadmap and meeting the needs of our consumers.
예, 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 한국투자증권의 유종우입니다.
The following question will be provided by Yoo Jong-woo from Korea Investment & Securities. Please go ahead, sir.
저는 반도체 메모리 수급 관련돼서, 내년 수급 관련돼서 한 가지 질문드리겠습니다. 간략하게 내년 DRAM 수급이 견조할 걸로 말씀을 해주셨는데, 사실 시장에서는 내년 DRAM 수급에 대해서 논란이 많습니다. DRAM 수급이 피크가 왔다, 안 왔다에 대한 논란들이 많은데 내년 서버 DRAM 중심의 수요가 어느 정도로 유지가 될 수 있을지하고, 최근에 DRAM 공급 증가에 대한 우려도 커지고 있는데 이러한 부분들을 종합해서 내년도 DRAM 수급에 대해서 조금 더 설명을 해주시면 좋을 것 같고요. NAND도 말씀해 주신 것처럼 3D NAND 공급 증가가 상당히 내년에 클 걸로 우리 계산이 되는데 이러한 부분 때문에 공급 과잉 가능성은 없는지 말씀해 주시면 감사하겠습니다.
My questions are about your outlook on the memory demand and supply situation next year in 2018. You mentioned that you're expecting solid demand and supply situations to continue, that the situation remains tight in 2018. Actually, I think the market, there is still a lot of controversy about where we stand in terms of this demand and supply cycle. Some are saying that already we have peaked in terms of demand and supply. It would be great if you could give us a bit more of your insight and outlook about what you expect there to be in terms of demand and supply. First of all, in the server DRAMs, how much or at what level do you think server DRAM demand will be maintained next year? Also, there are concerns of there being a huge increase of DRAM supply next year.
Given that, what do you expect the 2018 DRAM supply and demand situation to be? Also, in terms of NAND, there are some concerns that there will be a huge increase in 3D NAND supply next year. Do you see any possibilities of there being an oversupply of NAND, specifically 3D NAND, next year?
질문하신 부분에 대해서 수요와 공급으로 나누어서 답변드리도록 하겠습니다. 먼저 수요 측면에서는 앞서 실적 발표에서 말씀드린 바와 같이 클라우드 서비스 확대와 신규 CPU 플랫폼 출시 영향 등으로 서버 수요는 지속 강세를 유지할 것으로 보이고, 특히 머신러닝, AI 도입 등으로 인해 고용량화 추세가 지속될 것으로 생각됩니다.
또한 해상도 증가, 고용량 콘텐츠 확산과 함께 온디바이스 AI 기능 도입 등으로 인해 모바일 시장에서도 이러한 경향이 지속돼서 수요를 견인할 것으로 보입니다. 더불어 4K 콘텐츠 확대로 인해 컨슈머 제품들의 수요 역시 증가할 것으로 예상되어 18년 수요는 fundamentally 지속 견조할 것으로 판단됩니다.
I think I can answer your question by dividing into the demand side versus the supply side. First, in terms of the demand, as we had mentioned in the presentation, we see that there will be, first of all, strong demand driven by, for example, the cloud service as well as the new CPU platform being launched. On top of that, we're seeing actually the high density trends to continue driven by applications such as machine learning and AI. Also, in addition to the server side, we're expecting that the mobile devices would also be a major engine in driving up demand next year as there is more higher resolutions being adopted on the mobile side, as well as on-device AI applications that are being adopted.
Also, in addition to mobile and servers, we're actually expecting there to be a strong demand growth in consumer devices, especially as the 4K level content increases. Based on all of these factors, we're expecting demand growth to remain strong and sustained in a fundamental manner in 2018.
반면 공급 측면에서는 업계 내에서 1X 나노 DRAM 확대하고 3D NAND 공급 증가가 원활하게 이루어질 경우 공급 부족이 일부 완화될 가능성도 있겠으나, 기술적 난이도 증가로 인해서 이와 같은 원활한 전환에는 불확실성이 존재합니다. 따라서 18년 수급은 전반적으로 타이트할 것으로 판단되고 다만 공급사들의 선단 공정 전환 정도, 그리고 고객사 홀 현황에 따라서 응용체별로 상이한 모습을 보일 것으로 예상됩니다.
On the supply side, there could actually be a bit of an ease in the supply shortage if the companies are able to successfully and smoothly migrate towards 1x-nanometer class DRAM technology and also are able to scale up their 3D NAND supply successfully. There's always uncertainty in terms of such migrations. Overall, we're expecting the 2018 supply situation, demand supply situation to remain tight. Specific situation will depend on how successful companies are in terms of migrating towards cutting edge process technology and also the specific calls by customers.
네, 감사합니다. 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 Citigroup Global Markets Securities의 Peter Lee입니다.
The following question will be provided by Peter Lee from Citigroup Global Markets Securities. Please go ahead, sir.
네, Citigroup 이세철입니다. 저는 반도체 쪽 두 가지 질문드리는데요. 먼저 System LSI 쪽 관련해서 허국 상무님께 질문드리겠습니다. 최근 신기술들이 많이 나오면서 이미지 센서에 DRAM을 적층한 FRS 또는 3-Stack Image Sensor로 불리는 칩들이 지금 업계 중에서 개발 중인 것으로 알고 있습니다. 이와 관련해서 삼성전자의 개발 현황 그리고 그 시장 전망에 대해서 공유 부탁드리겠고요. 두 번째 질문은 Foundry 쪽 관련해서 이상현 상무님께 질문드리겠는데요. 최근 사업부에서 Samsung Foundry Forum 하고, 그리고 언론 보도를 통해서 FD-SOI 관련해서 프로모션을 진행 중에 있는 것으로 알고 있습니다. 이와 관련해서 FD-SOI의 시장 전망하고 그리고 삼성전자의 경쟁력은 어떤 것인지 답변 부탁드리겠습니다.
I have two questions. First question is about some new technology trends that are emerging, especially in image sensors. There are image sensors that also combine memory, FRS, as well as these 3-Stack Image Sensors. Can you give us, first of all, your technology update on these new products and what you see in terms of market outlook? The second question is specific to the Foundry. You've recently announced, including at the Foundry Forum, that there is a promotion of FDS. Can you give us your market outlook on FDS and also describe the competitiveness that Samsung has in the FDS segment?
네, 저희 System LSI product에 관심을 갖고 질문해 주셔서 감사합니다. 먼저 System LSI부터 답변드리겠습니다. 3-Stack Image Sensor 혹은 FRS, Fast Readout Sensor는 메모리 칩을 내장해서 모바일 카메라에서 더욱 개선된 화질과 슈퍼 슬로우 모션 같은 독특한 사용자 경험을 제공하는 새로운 CMOS image sensor 기술입니다.
Well, thank you very much for that question. First of all, the 3-Stack Image Sensor or the FRS, the Fast Readout Sensors, actually support greater picture quality on the mobile device platform, and can even provide very unique and differentiating user experience such as super slow motion. It is a new CMOS sensor product.
프리미엄과 하이엔드 시장 중심으로 내년인 18년에 채용이 본격화되고 빠르게 확대될 것으로 예상되는데요. 당사도 이러한 시장 수요에 대응하기 위해서 솔루션을 준비 중이고 18년 상용화를 할 계획입니다.
We're expecting this to be adopted next year, especially on the premium and high-end handsets, and will then quickly expand from there. Based on that expectation, we are currently preparing solutions and expect to commercialize our solutions within next year.
다음으로 파운드리 질문에 대해서 답변드리겠습니다. 당사 FDSOI는 기존 벌크 CMOS에 비해서 저전력, 고성능을 동시에 추구할 수 있는 가격 경쟁력 있는 솔루션으로 저희들이 제공하고 있습니다. 현재 IoT, Automotive, Consumer 등으로 고객을 확대 중입니다. 특히 미주와 유럽 지역 고객 중심으로 현재 성공적으로 양산을 시작하고 있으며, 현재 아시아 지역까지 고객을 확대 중입니다.
The FDSOIs versus the bulk CMOS is actually a solution that can provide lower power requirements, higher performance, and also has a price competitiveness. Currently, we are expanding our customers in IoT, automotive, and consumer applications. We have already started successful mass production for American and European customers, and currently in the process of adding on Asian customers.
금년 말까지 총 40개의 제품 tape-out이 예정되어 있으며, 향후에는 FDSOI 공정에 RF로 connectivity를 제공하고, eMRAM으로 non-volatile memory 기능까지 제공해서 특히 IoT 등의 응용처에 맞춘 플랫폼 솔루션으로 제공할 계획을 가지고 있습니다.
Currently, we're expecting to tape out a total of 40 products by end of 2017. In the future, we're planning to provide RF connectivity and also add on eMRAM to provide a platform solution.
네, 감사합니다. 다음 질문 받겠습니다.
다음으로 질문해 주실 분은 KB증권의 김동원 님입니다.
The following question will be provided by Kim Dong-won from KB Securities. Please go ahead, sir.
예, 질문 기회 감사드립니다. 저는 DP와 CE 부분에 질문드리겠습니다. 먼저 Flexible OLED의 경우, 현재 저희 제품 믹스가 스마트폰 중심으로만 되어 있는데요. 향후에 저희가 대면적 OLED 패널 적용이 가능한 신규 애플리케이션을 준비하고 계신지 궁금하고요. 만약 계획하고 계신다면 언제부터 제품 믹스 다변화가 가능한지 말씀 부탁드리겠습니다. 두 번째로는 하이엔드 TV 시장에서 OLED TV와 경쟁을 저희가 해야 되는데요. 내년에 저희가 QLED TV 라인업하고 폼팩터가 올해 대비 어떤 변화가 있는지 궁금하고요. 65인치 이상 초대형 TV 시장에서 향후 우리 회사가 해상도가 높은 8K QLED TV 진입도 고려하고 계신지도 말씀 부탁드리겠습니다. 감사합니다.
I have questions for the DP, the display, and the CE businesses. First of all, the flexible OLED business currently that you operate is mainly dominated by smartphone applications. I'm wondering if the company is preparing to add on other applications, such as large-size OLED panel applications other than smartphones. If so, when do you think this diversification of application and product would be possible? Second is about the TV business for next year. Your TV business is competing or has to compete with the OLED TVs. In that context, what are you planning in terms of your QLED TV lineup for next year, and what kind of form factors can we expect? Also, in the ultra large size 65-inch-plus segment, are you considering, for example, entering into the high picture quality 8K QLED segment?
디스플레이 부분 먼저 말씀드리겠습니다. 중소형 OLED의 경우에는 저희가 지금 주력으로 하고 있는 스마트폰 이외에도 AR, VR, 그리고 foldable, automotive 등 다양한 애플리케이션 향후에 확대 적용될 것으로 전망됩니다. 먼저 특히 automotive의 경우, 에너지 효율, 디자인 차별화, 또 야간 운전 시에 운전자 안전에 중요한 항목으로 부각되고 있는 블랙 화질 구현 등 이 측면에서 OLED의 장점이 많기 때문에 많은 관심이 집중되고 있습니다. 그래서 automotive의 경우에는 고객사와 협력을 통해서 철저히 준비해서 지금의 사업 리더십을 계속해서 확보해 나갈 수 있도록 하겠습니다.
First of all, even in our mid to small size OLED business, we believe that in addition to smartphones, we will be able to expand our mid to small size OLED panels to applications such as AR, VR, foldables, as well as automotive. Especially in the automotive application, our OLED has various strengths, for example, in terms of energy efficiency, in terms of design possibilities, and especially in the ability to reproduce black screens, which are particularly important for driver safety during nighttime driving. Therefore, we're gathering a lot of interest for automotive applications. We will continue to collaborate and work closely with our customers in order to maintain our business leadership in OLED.
또한 향후에 신규 애플리케이션으로 예상되고 있는 foldable의 경우에, 저희는 고객 수요에 맞춰서
지속적으로 연구 개발하고 있고, 또 시장과 소비자가 원하는 수준으로 제품의 완성도를 제고할 계획입니다. 폴더블의 경우에는 세트 측면에서 완성도를 제고하고, 또 최종 소비자의 수용성이 중요하기 때문에 고객사와 긴밀히 협력해서 고객이 원하는 시점에 양산이 이루어질 수 있도록 준비해 나가고 있습니다.
Another new application that we're working on is the foldable application. We are continuing our R&D efforts in line with the customers needs and schedules. We will be delivering a foldable application that has a higher level or a high level of completeness that meets the needs and expectations of the market as well as consumers. In foldable, not only is the level of completeness at the set level, at the end device level important, but also it's important that our foldable solutions, meet the demands that are expected by our customers as well as the end consumers. We will prepare in line with the schedules of our customers.
TV 부분 관련해서 말씀을 드리겠습니다. 질문하신 내용이 QLED하고 8K TV에 관련된 내용이 있었는데 QLED 먼저 말씀을 드리고 8K는 나중에 말씀드리도록 하겠습니다. 우선 QLED는 이제 출시 6개월이 됐는데요. 시장에서 지속적으로 인지도가 높아지면서 판매량이 빠른 속도로 늘어나고 있습니다. 2500불 시장, 프리미엄 시장에서 40% 이상 점유율을 달성했고, Forbes, DisplayMate 등 해외 유력 매체도 실환경에서 최적의 성능을 보이는 TV라고 호평하고 있어서 프리미엄 TV의 지위를 굳혀가고 있는 상황이라고 판단하고 있습니다. 18년엔 이러한 프리미엄 시장 리더십을 이어가기 위해서 QLED의 화질 쪽 완성도를 더 높이고, 소비자 니즈를 한층 더 반영을 할 것이고요. 스타일 측면에서 더 진보시킬 예정입니다. 또한 소비자가 더욱 다양한 선택을 할 수 있도록 QLED 사이즈 및 시리즈를 다양하게 강화를 할 예정이고요. 다만 아직 현 시점에서 구체적인 내용에 대해 말씀드릴 수 없는 점이 있으니 양해해 주시기 바랍니다.
Your question about the TV, first of all, was about the QLED and next year's roadmap. Second was about 8K technology. To answer the first part of your question, it's been about six months since we launched QLED. Since then, the awareness of the product has increased and has actually resulted in quite fast increases in the sales. Especially, we've been able to record more than 40% market share in the $2,500 and above premium segment. Also, we've received very positive reviews from major media such as Forbes and Display. We believe that we have actually gained a very strong position, leadership position in the premium TV segment. In 2018, we will continue to strengthen our leadership with the QLED TV by further enhancing picture quality, further enhancing the completeness of the product, also meeting consumer needs better, and also improving in terms of the styles further.
We are planning to actually provide a wider selection to our consumers by launching a wider range of sizes as well as adding new series. It's difficult for us to go into detail at this current time.
다음에 8K TV 질문 관련해서 말씀을 드리면, 향후 초대형 TV 시장이 지속 성장이 예상이 됩니다. 이러한 추세에 발맞춰 8K 초고화질 기술에 대한 수요도 증가할 것으로 예상을 하는데요. 이제 구체적인 실례로 2018년 평창 동계 올림픽에서 UHD보다 해상도가 4배 더 높은 8K 시험 방송이 예정되고 있고, 일부 국가에서는 상용방송 또한 계획 중에 있습니다. 이에 따라서 콘텐츠 제공 업체도 8K 화질의 콘텐츠 제작에 나서고 있어서, 여러 가지 8K 사업 환경이 조성이 되고 있다고 판단을 하고 있고요. 말씀하신 대로 8K 시장은 65인치 이상 시장이 중심이 될 것으로 예상이 됩니다. 그래서 따라서 여타 디스플레이 기술에 비해 대형화 등 8K 전환의 장점을 가지고 있는 QLED 기술을 십분 활용해서 당사는 해당 콘텐츠 환경 변화에 만반의 준비를 하고 있습니다.
Regarding the 8K TV, we are first of all expecting the ultra large size TV segment to continue to grow. With the larger screen sizes in TVs, there will also be stronger demand for such high picture quality created by 8K technology. One example is that in the upcoming Winter Olympics to be held in Pyeongchang next year, there will actually be a pilot broadcasting at 8K picture quality, which is even four times higher resolutions versus UHD. We're also hearing that some countries are preparing to commercialize 8K broadcasting. This has also led many content providers to start production of 8K content. Overall, we are seeing a business environment being created and becoming ready for 8K supporting TVs.
We think that in 8K quality resolution, large screen sizes that are 65 inches and above would be the main segment. Therefore, we are planning to leverage the advantages that we have with our QLED ultra large size TVs. We are preparing fully to take advantage of this new display technology.
이제 시간이 많이 지나가서 마지막으로 두 질문만 더 받고
Due to limited time, we will take two more questions before ending today's conference call.
[Foreign language] The following question will be presented by Woo Dong-je from Bank of America Merrill Lynch. Please go ahead, sir.
예, 질문 기회 주셔서 감사드립니다. 우동재입니다. 저는 한 가지 질문인데요. 전반적으로 우리 메모리 반도체가 가장 큰 이익 기여를 하고 있잖아요. 근데 전반적으로 bit growth, 즉 물량 증가가 그 어느 때보다 낮은 것 같습니다. 그런 반면에 우리가 인프라 투자를 제외하고도 설비에 대한 투자가 그 어느 때보다 많은 것 같습니다. 그래서 연초 대비 어떤 부분에서 문제가 발생했고, 우리가 다시 정상적인 bit growth를 내년에 하실 수 있는지. 포괄적으로 공정이 어렵고, manufacturing cycle time이 더 길어지는 그런 문제는 다 알고 있는데요. 구체적으로 어느 부분에서 생산 차질이 났는지를 좀 더 설명해 주시면 감사하겠습니다.
I have one question. That's actually about your memory business and your bit growth. Even though memory is currently contributing the largest to the earnings of the company, we're seeing that your bit growth, actually the volume of your business is low compared to previous years. On top of that, in terms of CapEx, even if we exclude infrastructure investments, your investments in actual facilities, equipment itself is quite large. I'm just wondering where has your production disruptions been happening specifically? There seems to have been a mismatch versus what you were expecting in bit growth start of this year versus what you're actually producing right now. I'm wondering where did these unexpected production issues happen, and do you think it's possible for you to recover normal bit growth in the future?
I do understand that we are at processes that are very difficult to manage, and that the manufacturing cycle times have become even longer. I do understand the overall general challenges and difficulties of turning out memory at where we stand in terms of technology. Regardless of that, where specifically has these production issues been happening?
이번 3분기에는 서버향 DRAM하고 SSD 공급 확대를 위해서 제품 간의 믹스 조정이 있었습니다. 이 과정에서 bit 손실이 발생하여서 지난 분기 말씀드린 기존의 가이던스를 소폭 하회하였습니다. 연간으로는 기존에 말씀드렸던 11라인 DRAM Capa 일부 CIS로 전환한 것과 16라인 NAND Capa의 일부를 DRAM으로 전환하는 등의 과정에서 Capa 조정에 따른 일부 bit 손실이 불가피하여 연간 bit 가이던스를 하향 조정하였습니다.
In the third quarter, the bit loss is mainly attributed to the product mix change that we went through in order to increase memory for servers and also to increase production of SSDs. In addition to that, as we had announced last quarter, there was the conversion of line 11 to CIS production and line 16 from NAND to DRAM. That has resulted in bit losses, which resulted in us overall lowering the bit growth guidance for this year.
예, 감사합니다. 마지막으로 질문 하나 더 받고 끝내겠습니다.
마지막으로 질문해 주실 분은 JP Morgan의 JJ Park입니다.
The last question will be provided by JJ Park from JPMorgan. Please go ahead, sir.
네, JP Morgan인데요. smartphone 쪽에서 아까 하이엔드 쪽만 말씀하셨는데 최근 컴포넌트 가격이 오르고 나서 이 중저가 쪽 휴대폰에 대한 이익률 유지 방향에 대해서 말씀해 주시면 감사드리겠고요. 두 번째는 지금 말씀하신 DRAM 관련된 건데요. 올해 전자가 제가 몇 년 동안 봐서는 처음으로 DRAM 쪽에서 마켓셰어를 많이 잃은 것 같은데, 혹시 2018년에는 다시 마켓셰어 regain할 계획이 있으신지, 아니면 현재 마켓셰어를 계속 유지할 계획이신지 말씀해 주시면 감사드리겠습니다.
I have two question. The first question is for the mobile side. The component prices are increasing and that is affecting also the mid to low-end segment. I would like to hear specifically how you're planning to maintain your profit margins in the mid to low-end segment despite increasing component prices. Second question is about the DRAM business. This is the first time that Samsung Electronics has lost market share in DRAM. Does it plan to regain its previous market share next year, or will you be more trying to maintain where you stand currently?
네, 스마트폰 중저가 휴대폰에 대한 전략 부분 말씀을 드리겠습니다. 제품 경쟁력 측면에서 보면, 저희들이 이 중저가 폰에다가 하이엔드 제품에서 적용했던 유용한 기능의 하드웨어 기술 그리고 서비스를 중저가 제품으로 확대 적용해서 성장 시장의 수요에 대응하고 있고, 경쟁 심화에 적극적으로 대응하고 있습니다. 특히 저희들 올 3분기에 출시했던 Galaxy J 시리즈 2017년형 경우에는 메탈 디자인하고 고화소 셀피 카메라, 그다음에 Samsung Pay를 지원을 함으로 해서 시장에서 큰 호응을 얻고 있고, 글로벌로
판매에도 견조세를 보이고 있습니다. 이와 같이 앞으로도 제품 경쟁력 강화와 그 다음에 시장 수요에 적극 대응해서 판매를 확대를 하고, 그 다음에 저희들 내부적으로도 라인업 효율화와 함께 부품 공용화, 생산성 향상, 거점 운영을 효율적으로 해서 중저가 스마트폰의 수익성도 지속 확보하도록 하겠습니다. 이렇게 해서 양적으로나 질적으로나 사업에 기여할 수 있도록 그렇게 추진해 나가겠습니다.
To answer your first question, in the mid to low-end segment, our first focus has been to increase the competitiveness of our mid to low-end handset offering by expanding the hardware technologies and services that we first adopted on the high-end segment. This has been effective in terms of meeting the growing demands in the growth markets, and also responding to fiercer competition in the mid to low-end segment as well. For example, the Galaxy J series 2017, which we launched in the third quarter, has received very strong responses in all global markets, given the fact that it's a mid to low-end segment handset that has metal design, a high pixel count selfie camera, and also supports Samsung Pay.
In the future, our plans of maintaining profitability in the mid to low-end, first of all, is to increase sales based on our strong product competitiveness and by effectively meeting market demands, while at the same time, making our product lineup more efficient, increasing the components that we commonly use over various handsets, increasing the productivity, efficiently operating our local manufacturing facilities, which will help us improve the overall profitability of the mid to low-end handsets. By doing that, our aim is to contribute to our overall business in both scale as well as quality of the profitability.