Earnings Call: Q3 2017

Oct 31, 2017

Followed by Q and A session. Now we will start the presentation by Samsung Electronics. Good morning. This is Robert Li. Before we start our Q3 earnings call, our CFO, Sahun Li, 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 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. With that, I will turn the call over to Mr. Li, our CFO. Thank you. This is Chang Hoon Lee, 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 sustained 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 and A, CapEx and R and 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 20 16. In addition to these business results, we have made significant improvements in our shareholder return program. In October 2015, we announced a 3 year initiative on shareholder return program, including $10,000,000,000 special share buybacks and cancellation. By the end of 2017, we will have returned more than KRW20 1,000,000,000,000 in share repurchases and more than KRW 10,000,000,000,000 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 point 4% for common shares and 20.1% for preferred shares over the last 2 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 2 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 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 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 3 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 dividend. As our share price more than doubled over the last 2 years, we believe shareholder returns in the form of dividends will be the most 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 4,800,000,000,000. We will further increase 2018 total dividends by 100% over 2017, which will bring a total dividend for 20.18 to KRW 9.6 trillion. Annual dividend for 20.19 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 29,000,000,000,000. 2nd, future M and A investments will not be deducted from the free cash flow calculation. 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 3 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. 3rd, we will apply the minimum 50% of free cash flow on a 3 year basis. This is to prevent potential fluctuation of annual shareholder return resulting from computing based on the annual free cash flow. After dividend payout, 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 a short term return 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 and 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. Li. As you know, we still have to conduct the Q3 earnings call right after the Q and A. So with your understanding, we'll take 3 to 4 questions. The first question will be provided by Jong Woo Yoo from Korea Investments and 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 and 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 expectation in the market that maybe this time that 50% would be raised. Can you explain the reasons, the rationale behind not increasing the percentage of free cash flow available for shareholder return this time? As we mentioned, we have decided to not deduct the M and A from the free cash flow calculation. M and A was difficult to predict in terms of size as well as the timing. And by not deducting M and 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 and A. And 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. The following question will be presented by Do Hoon Lee from CIMB. Please go ahead, sir. 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? 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 and A needs, such as the M and A of Harman that we went through. And therefore, looking at the current situation where we're seeing an increase a significant increase of CapEx needs, We don't expect our free cash flow to increase dramatically in the future. And given the M and A needs as well as shareholder return policies, we expect our cash increase to be limited in the future. The following question will be provided by JJ Park from JPMorgan. Please go ahead, sir. I recall that in the previous shareholder return policy, you mentioned that the company would be providing whatever exceeds the KRW 70,000,000,000,000 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? We have been implementing the shareholder return program for the past 3 years. And 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. But actually, when we look at the current situation due to the M and 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. Also, the fundamental question was whether JPY 70,000,000,000,000,000, a certain level of required cash itself is appropriate or not. So 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. And 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 providing or 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 Market. Please go ahead, sir. It seems that the highlight of the new dividend or 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 JPY 29,000,000,000,000 of total dividends for the next 3 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 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 3 year period, it was set at a level that we believe we can sufficiently handle and manage. Therefore, even if there are some unexpected issues in our businesses in the next 3 years, 2018, 'nineteen and 'twenty, 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 and A, and we will move on to the regular earnings conference call. Hey, this is Robert Yi. Now we can start our earnings call for the Q3 2017. With me representing each business units are Mr. Cheon Sei Won, Senior VP of Memory Marketing Bo Gook, VP of SysML SI Marketing Mr. Lee Sang Hyun is the Vice President of Foundry Marketing Lee Chang Hoon, VP of Samsung Display Mr. Lee Kyung Tae, VP of IT and Mobile and Mr. Lee Yoon, Senior VP of Visual Display as well as we have Mr. Kim Sang Yong, 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, 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. Before we go over the results, I would like to update you on the progress of our ongoing shareholder return program. We completed the 3rd phase of our KRW 9.3 trillion share repurchase program last week. We have returned approximately KRW7 trillion over the 3 phases by repurchasing 2,590,000 common shares and 648,000 preferred shares, all of which are canceled. Today, the Board of Directors approved the 4th 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 1 and take approximately 3 months to complete. Are for both common and preferred shares. The dividends will be paid in November. Now I would like to take you through our Q3 results. In the Q3, the company's total revenue grew 30% year on year and rose slightly quarter over quarter to KRW 62,000,000,000,000. The gains mainly driven gains were mainly driven by robust memory markets and increased sales of flexible OLED panels. Gross profit reached KRW29 1,000,000,000,000, an increase of approximately KRW10.6 trillion year over year. And gross profit margin improved significantly, rising 8.3 percentage points over the same period. SG and A expenses increased by KRW 1,300,000,000,000 year over year, mainly from consolidation of hard earned results and a small increase in R and D and advertising expenses. However, as a percent of revenue, it decreased by 4.2 percentage points year over year. Operating profit in the quarter set a new record high, increasing KRW 9,300,000,000,000 year on year to KRW 14,500,000,000,000, driven by strong profitability at the semiconductor business and the recovery of the smartphone sales. The operating margin also improved, rising 12.5 percentage points year over year to 23.4%. In the Q3, the overall weakness of the Korean won against major currencies, including euro, positively impacted our operating profit of approximately KRW 470,000,000,000 q over q mainly in affecting the SET business. The semiconductor business recorded a significant earnings growth both year over year and Q over Q as memory ASPs 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 q over q due to a rise in initial ramp up cost and a decline in rigid product rigid OLED sales. However, the magnitude of the profit decline Q over Q was smaller than we initially projected at the start of the 3rd quarter. For the I'm business, total smartphone shipments increased from robust sales of the Galaxy Note 8 and J Series products. However, quarter over quarter earnings declined as the mid to low end smartphone mix increased. In the Consumer Electronics business, strong sales of premium products, including QLED TVs, contributed to a Q over Q earnings improvements. However, profits declined year over year as a result of rise in TV panel prices and B2B Investments in Home Appliance Businesses. Next, I would like to address our business outlook. In the Q4, we expect our earnings to continue to improve driven mainly by the component business as flexible OLED panel shipments 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 artificial intelligence 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 KRW46 point 2 trillion, a significant increase from last year. CapEx for the Semiconductor and Display business is expected to reach KRW29.5 trillion and KRW14.1 trillion, respectively. In the Q3, we invested KRW10.4 trillion, including KRW7.2 trillion for Semiconductor and KRW 2,700,000,000 for the display. This brings the cumulative capital expenditure to KRW 32,900,000,000,000 as at the end of the Q3 this year. In the Memory business, investments are mainly focused on: number 1, kongTech fab to expand capacity to address rising demand for vertical NAND second, DRAM process migration second, DRAM process migration and 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 4th 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 Q3, our bit growth came in high single digit and our ASP grew high single digit as well. For the Q4, we expect market DRAMP 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 3rd quarter NAND, our bit growth came in at mid teens, and we saw low single digit ASP increase in the 3rd quarter. In Q4, we expect the market NAND bit growth to be mid teens, and we will grow in line with the market. And 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 3rd quarter came in at 97,000,000 units, tablet about 6,000,000. Our blended ASP of total handset was about $2.10 and the mix of the smartphone within total handset was about mid-eighty percent. 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. And 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-eighty percent. And for our TV business, in Q3, we shipped about 10,000,000 units. In Q4, we expect to see about mid-thirty percent increase in volume shipment. Good morning. This is Sewon Jeon from the memory marketing team. In the Q3, 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 continued to rise under solid supply and demand conditions. On end, following the launch of new flagship smartphones, set build demand and contents growth have driven strong mobile demand. In addition, demand for datacenter SSD remained strong due to expansion of cloud infrastructure and trend for higher density. Therefore, overall, land 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 a 3 d NAND transition. We continue to drive solid earnings growth by actually responding to demand for higher density NAND from smartphones and from value added high density markets such as datacenter NVMe SSD and enterprise SSD over 4 terabytes via stable 64 layer CDNAND ramp up at Kyung Taek 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 remains 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 gigabyte and low power LPDDR4X through expanding supply of 1 d1x 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 Q4, although industry supply of 3 d NAND and sub-twenty nanometer DRAM products may increase, overall supply demand is expected to remain tight due to continuously increasing demand mainly from mobile and EDP. On end, 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, SSD attach ratio is keep increasing. As a result, demand for client SSD is also expected to remain solid. As for supply, although supply's production of 64 layer may expand, supply growth is expected to be limited compared to demand growth due to decreasing planner 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 is expected. At the same time, mobile demand is expected to remain solid, thanks to continued increase in memory usage along with the 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, Renmi 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 land are expected to be continue 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 VNAND, mainly from Pyeongtaek Campus. At the same time, we will improve product competitiveness and strengthen market leadership by developing and introducing 5th generation free NAND product on a timely basis. 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, 3 d sensors and on device AI. On the other hand, bit growth will be made mainly from process migration. Therefore, high 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. Thank you. Good morning, everyone. Now moving on to the System LSI business. In the 3rd 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, new flagship smartphone launches have also helped to increase the sales of OLED TDDI. In the Q4, even though the supply of OLED TDI for the premium points are expected to continuously increase, the earnings are projected to stagnate as the sales of mobile processors and image sensors decreased due to weak seasonality. In 2018, we will continue to lead our earnings growth through sustained growth of mobile processors and OLED TDDI sales and increased 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 3rd 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 nanometers mobile TDI and 65 nanometers image sensors have also contributed to the good earnings. As for the technological achievement, we've completed 8 nanometer process development 3 months earlier than initially planned. In addition, we have established the milestone for the long term growth by delivering the industry first 28 nanometer FE SOI, embedded MD and embedded MD and test chips to the customers. In the 4th 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, e flash processors and etcetera. In 2018, we will continue to drive favorable earnings growth by increasing the supply of the 10 nanometers products and image sensors through mass productions in Line S3 and transformation of Line 11, respectively. We will focus on strengthening the sub-seven nanometer process competitiveness by investing in EUV related infrastructures. We also we will also diversify the customer base by offering the total solutions combined with RF and embedded MRAM technology for FPSOI platform and packaging. And lastly, we will continue to drive the growth by actively addressing the new demand. Thank you. Hello. This is Chen Lee from the Planning Department of Samsung Display. During the Q3, total earnings for the Display business declined. This was driven by an increase in initial startup costs for the new OLED product line as well as decreased ASPs of LCD panels. With OLED Business in the 3rd quarter, although our sales increased through increased shipment of flexible displays led by launches of our major customers' new flagship model. Our earnings declined Q o Q due to an increase in initial startup cost of the new production line as well as intensified competition in rigid OLED products with the STPS LCDs. For the LCD business, the 3rd 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 Q1, for the OLED business, we expect growth in sales led by an extended supply of flexible products. Under these circumstances, 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 Q1, we are concerned that the imbalance between supply and demand will continue due to capacity expansion in the LCD industry as well as a 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 these circumstances, 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 on 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 partnership with major customers as well as expanding our value added product line ups such as ultra large, high resolution, quantum dot and frameless panels. Thank you. Good morning, everyone. This is Ken Tae Lee from the Mobile Communication business. I would like to present the Q3 business results and the outlook of the I'm division. In the Q3, 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 Note 8 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 Note A, newly released in the 3rd quarter, has shown strong sales in almost all regions with reinforced product competitiveness like dual camera, enhanced F10 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 twenty seventeen. Let me move on to the outlook of the Q4. 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 Galaxy Note A 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 net 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 market. Lastly, I would like to share the outlook for 2018. Next year, we expect the smartphone market growth to be recovered due to 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 the differentiated design, high quality and innovative features. In terms of operation, we will focus on improving profitability by optimized product portfolio and enhanced productivity as well as the efficient operation of local manufacturing side. Moreover, we will explore a new business opportunity ahead of the competition through the new technologies such as 5 gs. 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. Yesterday, we held the Samsung Developer Conference 2017 and share our vision for the intelligence era. We are combining our IoT product and services into a single platform single powerful platform. Through this unified platform, we believe that we will be able to provide consistent user experiences to our customer and the best adoption of IoT. Furthermore, Pixley 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 3rd party devices and services. With Bixby, we will grow on open ecosystem where the variety 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 5 gs Ready Network Solutions. Thank you. Good morning. I'm Yoon Lee, Senior Vice President of Visual Display Sales and Marketing team. I would like to present the current market conditions and our results for the Q3 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 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 $2,500 segment as well as in ultra large TV segments, thereby solidifying our leadership in the premium market. As for the digital plans market, with maintained growth of the advanced countries and economic recovery in the emerging countries, including South West 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 AdWash washing machine, we continue to grow sales. However, due to the investments caused 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 in North American, West European and Latin American markets, and 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 market are projected to increase, including QSR, that is Quick Service Restaurants, sectors, we have set up our basis by winning our largest scale products projects. Also, for the world's first cinema LED introduced recently in domestic market, we will go further develop our business in the global market with our constant investment and technology leadership. Now as for the Digital Plans 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 trend. Under this condition, along with the Family Health Refrigerator, FlexWash Washing Machine other existing premium innovative products, new models including KeepDrive Machine, PowerGun Vacuum Cleaner, which were newly introduced at Ifa, will drive continued 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 line ups that includes the QLED and ultra light 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. The first question will be provided by Nicolas Godoy 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 Westside cleanroom on the 2nd floor of a Chantec fab, I. E, in terms of timing of a ramp and the split between DRAM and NANDFASH? And how about your initial views for the East side cleanroom in the sum of for Piantech? Thank you. I've got a follow-up 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 and also because of Line 11 being converted for CIS production. And due to this bit loss to make up for that, there is inevitable investments in capacities that are necessary. Last year, we decided to convert part of Hwasong's land capacity to DRAM, but 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 and rather use part of the upper floor of Pyongtaek 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 continuingly reviewing the detailed plans. However, our basic approach to DRAM capacity management that we will 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. And the second question relates to the CapEx announcement you just made for 20 17. For the semi portion of €29,500,000,000,000 could you give us a bit more color on the split between NANDFASH DRAM and LSI? But also the portion of this KRW 29,500,000,000 which actually relates to fab infrastructure investments, so bricks and mortars as well as the facilitation of a fab, which you say, I think, for Q4 will be actually quite substantial. And lastly, how do you see those segments qualitatively evolving for CapEx into 2018? Thank you. We're always very cautious about answering specific questions about CapEx because we don't want the market to respond in an overreacting way. But 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 7% to 3% or maybe 75% to 25%. Within memory, DRAM versus NAND will be about 4% to 6% or memory maybe slightly less than 4%. In 4th quarter, yes, infrastructure investments among CapEx spending for semiconductors, I think accounted for about 35% to 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. But 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 bit 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 2 to 3 years. The following question will be presented by S. Kim from Daiwa Capital Markets. Please go ahead, sir. My question is for the mobile business. Even though the Galaxy S8 had various differentiating strengths in its product, its sales 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. So 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? 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. And 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 Q4, we will not only expand the number of countries where Galaxy Note S 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. Your second question was more about next year Q1. We do expect there will be fiercer competition, especially in the segment 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. But rather than being conscious of the competitors launching, I think, as always, we will be deciding when to launch based on our product road map and meeting the needs of our consumers. The following question will be provided by Junho Yoo from Korea Investment and Securities. Please go ahead, sir. 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. But 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. So 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. And so given that, what do you expect the 2018 DRAM supply and demand situation to be? Also in terms of NAND, there are some concerns possibilities of there being an oversupply of NAND, specifically 3 d NAND next year? 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, 1st 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 are seeing actually the high density trends to continue driven by applications such as machine learning and AI. Also on top of that, 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 4 ks level content increases. And so based on all of these factors, we're expecting demand growth to remain strong and sustained in a fundamental manner in 2018. 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 class 1x nano class DRAM technology and also are able to scale up their 3 d NAND supply successfully. But there's always uncertainty in terms of such migrations. So overall, we're expecting the 20 eighteen supply situation, demand supply situation to remain tight, but 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. The following question will be provided by Peter Lee from Citigroup Global Market Securities. Please go ahead, sir. I have two questions. First question is about some new technology trends that are emerging, especially in imaging sensors. There are image sensors that also combine memory, FRS as well as these 3 stack image sensors. Can you give us, 1st 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 FTS? And also describe the competitiveness that Samsung has in the FTS segment? Thank you very much for that question. First of all, the 3 stack image sensor or the FRS, the FAST reader 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. So it is a new CMOS sensor product. Therefore, we're expecting this to be adopted next year, especially on the premium and high end handsets and we'll then quickly expand from there. So based on that expectation, we are currently preparing solutions and expect to commercialize our solution within next year. The FDS versus the SIMOS bulk SIMOS 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. In terms currently, we're expecting to tape out a total of 40 products by end of 2017. And in the future, we're planning to provide RF connectivity and also add on EMM nonvolatile ramp to provide a platform solution. The following question will be provided by Do Won Kim from KB Securities. Please go ahead, sir. I have questions for the DP, the Display and the CE businesses. First of all, the flexible Yled 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. And if so, when do you think this diversification of application and product would be possible? 2nd is about the TV business for next year. Your TV business is competing or has to compete with the OLED TVs. So 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 inches plus segment, are you considering, for example, entering into the high picture quality 8 ks QLED segment? 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. And 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. Another new application that we're working on is the foldable application. We are continuing our R and 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. So 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, and we will prepare in line with the schedules of our customers. Your question about the TV, first of all, was about the QLED and next year's road map. 2nd was about 8 ks, 8 ks technology. To answer the first part of your question, it's been about 6 months since we launched QLED. Since then, the awareness of the product has increased and had us 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 QI LED 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 style further. Also, 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, but it's difficult for us to go into detail at this current time. Regarding the 8 ks TV, we are, 1st of all, expecting the ultra large size TV segment to continue to grow. And with the larger screen sizes in TVs, there will also be stronger demand for such high picture quality created by 8 ks 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 8 ks picture quality, which is even 4x higher resolutions versus UHD. We're also hearing that some countries are preparing to commercialize 8 ks broadcasting. This has also led many content providers to start production of 8 ks content. So overall, we are seeing a business environment being created and becoming ready for 8 ks supporting TVs. We think that in 8 ks quality resolution, large screen sizes that are 65 inches and above would be the main segment. And therefore, we will we are planning to leverage the advantages that we have with our QLED large sized ultra large sized TVs, and we are preparing fully to take advantage of this new display technology. Due to limited time, we will take 2 more questions before ending today's conference call. The following question will be presented by Simon Wu from Bank of America Merrill Lynch. Please go ahead, sir. I have one question and 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. And on top of that, in terms of CapEx, even if we exclude infrastructure investments, your investments in actual facilities, equipment itself is quite large. And so 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. So 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. So I do understand the overall general challenges and difficulties of turning out memory at where we stand in terms of technology. But regardless of that, where specifically has these production issues been happening? In the Q3, 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 and that has resulted in bit losses, which resulted in us overall lowering the bit growth guidance for this year. The last question will be provided by JJ Park from JPMorgan. Please go ahead, sir. I have two questions. The first question is for the mobile side. Previously, you did answer your plan specific to the high end segment. But the component prices are increasing and that is affecting also the mid to low end segments. So 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? 2nd 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? 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 segments. This has been effective in terms of meeting the growing demand in the growth markets and also responding to fiercer has received very strong responses in all global markets, has received very strong responses in all global markets, given the fact that it has it's a mid- to low end segment handset that has metal design, a high pixel count selfie camera and also supports Samsung Pay. So in the future, our plans of maintaining profitability in the mid to low end, 1st 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. And by doing that, our aim is to contribute to our overall business in both scale as well as quality of the profitability.