Earnings Call: Q2 2016

Jul 28, 2016

Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2016 Second Quarter Earnings Results by Samsung Electronics. This conference will start with a presentation followed by divisional Now we shall commence the presentation on the fiscal year 2016 Second Quarter Earnings Results by Samsung Electronics. Good morning. This is Robert Yi from Investor Relations. Thanks for joining our call. With me representing the business units are Chang Jae won is the Senior VP of Memory Ho Gook, VP of System LSI Lee Chang hun, VP of Samsung Display Lee Kyung Tae is also VP of IT and Mobile Business and Lee Yoon, Senior VP of Visual Display. And we also have Mr. Kim Itae and Kim Sang Yeo, both are from the IR Group. 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. First, I will take you through our Q2 results. In the Q2, the total revenue was KRW50.9 trillion, a 4.9% year on year increase. This increase was mainly driven by strong sales of OLED panels for mobile applications and premium products on our set business. The gross profit was KRW21.3 trillion, a KRW1.7 trillion year on year increase, and the gross profit margin improved by 1.6 percentage point. Our set business saw a strong recovery as the earnings improved significantly year on year. The improvement came from the increased sales of Galaxy S7 and efficient mid to low end lineups in the I'm business as well as the strong sales of premium products such as SUHD TV, refrigerators and air conditioning in our consumer electronics business. Although the earnings of the component business decreased year on year due to an overall decline in ASP, the decline in DRAM ASP slowed down compared to the last quarter and the profitability of the NAND product improved. Also, our display business recorded improved increased OLED earnings due to high utilization and stabilizing yield on LCD panel production. Our SG and A expenditures increased by KRW0.5 trillion year on year due to the top line growth. However, the expenditure to revenue ratio decreased slightly as we managed our expenses efficiently, including the advertising and promotional expenses. The operating profit increased by KRW1.2 trillion year on year to KRW8.1 trillion and the operating profit margin also increased by 1.8 percentage point. In the Q2, the strengthening of the Korean won against the major currencies such as U. S. Dollar and euro had a negative impact on the operating profit by approximately KRW 300 1,000,000,000 mostly for the component businesses. Now I would like to address the business outlook. We expect strong performance to continue in the second half. Earnings in our component business is expected to increase compared to the first half, led by sales growth of high value added products under improved supply demand dynamics. In the set business, earnings in the I'm business is expected to slow down compared to the first half, but we still expect to generate continuous earnings growth year on year. In the Q3 for the set business, consumer electronics is entering into traditional low season, while the advertising and promotional expenses are expected to increase for the I'm division due to the new model launches and intensifying competitions within the industry. However, we expect to maintain relatively stable earnings as we expect improved supply demand conditions for the memory and LCD panels and stable earnings for OLED. I'd like to comment on our capital expenditure plan. During the Q2, we invested KRW4.2 trillion in CapEx, including KRW2.2 trillion for the semiconductor and KRW1.6 trillion for the display panel business. This brings the total capital expenditure for the first half to KRW8.8 trillion. We have not yet finalized the annual plan for 2016, but we anticipate the annual expenditure to increase slightly compared to last year. This year's capital expenditure will be concentrated in OLED and vertical NAND capacity as the demand for the mobile application of OLED and V NAND based SSD are expected to increase significantly in 2017. Now I would like to update you on our share buyback program. The share buyback program we announced last October is progressing as planned. First, we completed the 3rd phase this month. We invested approximately KRW 9,500,000,000,000 during these three phases, and we were able to repurchase and cancel 5,600,000 common shares and little more than 2,000,000 preferred shares. Today, the Board of Directors approved 4th and final phase of the buyback program. The total amount is approximately KRW 1,800,000,000,000 with 990,000 common shares and 230,000 preferred shares. We'll start the buyback tomorrow, and will take roughly 3 months to complete this final phase of the special buyback program. The management wants to assure you that we are committed to the shareholder return policy that we implemented last year, and we will update you on how we plan to utilize the remaining allocated capital from 2015 free cash flow at the 3rd quarter earnings release time. Samsung Electronics has been focused on staying on the top goal and product competitiveness to respond to rapid changes in the IT industry. In order to lead the development of the new technologies and establish a foundation for stable growth in the future. 2016 regard to our memory business, we have widened the regard to our memory business, we have widened the quality and performance gap against our competitors with the industry's first and only mass production of the vertical NAND and the expanding 20 nanoprocess migration. As a result, we established a solid profit platform to maximize our profitability. As we progress, we will solidify even further our technology leadership by focusing on the development of next generation high value added and differentiated products. To this end, we will push forward the mass production of the 10 nano class DRAM and develop the next generation of BNAND technologies while further strengthening the high value differentiated products such as high density SSD solutions. With regard to OLED, we have cultivated the market with our strong R and D and early CapEx commitments. We also expanded the market to the next level of technology competitiveness through the mass production of flexible panels. As we expect the demand for mid- to small size OLED panels to increase significantly, we will focus on expanding sales from external customers through actively securing capacity and strengthening our competitiveness competitive advantage. At the same time, with a clear technology leadership, we will also develop innovative next generation products in order to meet ever more sophisticated customer demand. For the I'm business, despite the stagnant growth of the smartphone market, we achieved solid earnings due to our constant efforts to differentiate our products and bringing efficiency to our product line of strategy since 2015. We'll strive to deliver growth of stable earnings by continuously strengthening our product leadership and enhancing solution capability, including Knox, Samsung Pay and Cloud Systems. Regarding our TV business, again, in spite of the saturated demand in global market, we continue to reinforce our competitiveness and maintain solid earnings. Continue to strengthen our leadership in the premium market by focusing on how to differentiate on resolution based on eco friendly, cadion free, quantum dot technology and by promoting innovative designs such as Sheriff TB. Before presentation of each business unit, I would like to share with you several data points of the key business areas. For the Q2 this year, the DRAM Powerpeak growth came in at high teens, and we saw high single digit ASP decline. For the 3rd quarter, we expect the DRAM market bit growth to be mid teens, and we will grow along with the growth to be mid-twenty percent, and we will grow in line with the market. NAND flash in 2nd quarter, our bit growth was midteens increase, and we saw mid single digit ASP decline. And for the Q3, we expect the market NANDP growth to be low teens, and we will outgrow the market. And at this point, we expect the NAND 2016 annual market growth to be roughly 40%, and we will outgrow that of the market growth. For mobile business, our total handset shipment in the second quarter was roughly 90,000,000 units, and tablet sales came in at around 6,000,000. Our blended ASP was about $2.10 range, and the mix of smartphone within our total handset was about mid-eighty percent. For the Q3, we expect our total shipment of the handset to be similar to that of the Q2 and small increase is expected for the tablet. We do expect to see our blended ASP to improve quarter on quarter into 3rd quarter and the mix of the smartphone within total handset to increase to high 80%. For TV, our LCD TV sales in the Q2 was roughly 10,000,000 units, and we expect to see about 10% increase into the Q3. With that, I'll turn the conference call over to gentlemen from the our business units to give their views. Good morning. This is Seowon Chun from the Memory Marketing team. In the Q2, the Memory division achieved a remarkable earnings growth driven by cost reduction through continuous process migration and an observed in demand for mobile and SSD products. 1st, let me update you on our NAND business, which is receiving strong market attention these days. SSD demand remained strong, thanks to rising awareness of the TCU reduction effect. We have seen accelerated transition of 10 and 15 ks RPM HDD to enterprise SSD. Also, demand for mobile storage such as eMCP and eMMC surged due to expanded adoption of high density products over 32 gigabyte, especially from Chinese smartphone makers. We achieved outstanding improvement in earnings through our focus on demand for high density products such as enterprise SSD over 4 terabyte and mobile products over 64 gigabyte as well as expanding our supply of 48 layer VLAN. For DRAM, overall demand had a remarkable growth compared to the previous quarter. Chinese smartphone brand rapidly expanded the adoption of high density mobile DRAM over 4 gigabyte and high density server demand increased driven by the launch of the broadband platform. Meanwhile, overall supply and demand conditions, including pricing, started to stabilize. The channel market price increased due to concerns of decreasing supply of TCD second half, thanks to a supply shift from PC to mobile. Due to the supply imbalance of some applications, market demand for 20 nanometer high density, value added mobile and server products was concentrated on Samsung. We focused on the area with increased demand, and this hugely contributed to solid earnings of DRAM. Next, I will comment on the memory market outlook and our strategy for the second half. In the second half, market conditions are expected to stabilize further with increasing adoption of high density products in every application as well as a strong seasonal uptick in demand. On end, as high density value added SSDs continue to expand and the transition of enterprise HDD to SSD accelerates, thanks to rising awareness of the TCO reduction effect, enterprise SSD is expected to become more than half of total server SSD shipment in the second half. We expect outstanding growth in demand for PC SSD along with increased attach ratios and high density PC SSD over 2 56 gigabyte, led by expanded adoption of high performance NVMe products. Also, with new smartphone launches, we expect the strong demand for mobile. Demand will increasingly shift to high density products, flagship to over 64128 gigabyte and mid range growing to 16 32 gigabyte. Although overall demand is expected to increase, tends to increase the demand for high density solution products in major SSD and mobile applications. Supply and demand is expected to become much tighter in the second half due to supply restrictions caused by 3 d NAND ramp up delays in the market. We will focus on expanding supply of enterprise SaaS SSD over 4 terabyte and client NVMe SSD based on Samsung only 48 layer VLAN, renowned for excellent product competitiveness, profitability and high reliability. Moreover, we will start the V NAND based high density mobile storage. We believe our focus on high density premium markets will bring about even better earnings and profitability. For DRAM, mobile DRAM is expected to lead the demand growth with launches of flagship smartphones and significant increase in adoption of 6 gigabyte products in high end smartphones. Demand for high density server products such as 32 and 64 gigabyte is expected to be very strong as well, led by transition to Broadwell, mainly in data center. PC demand is expected to have outstanding growth compared to the previous quarter due to strong seasonality and increasing portion of high end products such as gaming PC. Demand for graphics DRAM is also expected to be strong due to demand growth for console and high end graphics card DRAM. We will focus on improving earnings and maintain a profit focused product mix by expanding sales of our differentiated high density, value added products such as mobile DRAM over 4 gigabyte, 64 gigabyte server DRAM and high speed graphic DRAM based on the competitiveness of our unrivaled 20 nanometer process. Our development plan for 4th generation V NAND and mass production of 18 nanometer DRAM is progressing smoothly. Based on our industry leading process development, we will continue to secure our position at the top of the high value added solution market. And as always, we will focus on strengthening the foundation for long term stable growth. Meanwhile, we will manage in CapEx with a focus on green end to respond to strong demand for high density and value added solution products. We will continue to focus on profit maximization through capacity and CapEx management, taking into account profitability as well as supply and demand for each product. Now moving on to system LSI business. 2nd quarter earnings improved quarter on quarter due to stronger demand for 14 nanometer mobile APs in premium smartphones and the increased sales of high megapixel or 13 megapixel and above CMOS image sensors in China. In the second half, we will maintain a stable revenue stream through increasing sales of a bit to low end mobile AP and LSI products, while the demand for 14 nanometer foundry will continue to be solid. In the Q3, we expect the demand for mid- to low end 14 nanometer mobile AP to take off and the sales of CMOS image sensor in China market to be stay solid. We are seeing good positive result from our strategic decision, which we have been pursuing for a while to diversify foundry customers and strengthen our mobile AP lineup. The 10 nanometer development is also on track to achieve our target of mass production by the year end for our external sand foundry customers. We will continuously strive for long term growth by maintaining our leadership in 10 nanometer cutting edge process and by diversifying customer base for foundry and LSI. We will also strengthen our business development capabilities through supplying specialty technology or product and exploring new frontiers for continuous growth in revenue as well as in profit. Thank you. Good morning. This is Chaeyeon Lee from the Planning Department of Samsung Display. During the Q2, our total earnings improved quarter on quarter, driven by increased shipments of OLED panels and increased fab utilization in larger sized LCD TV. For the OLED business, 2nd quarter earnings improved Q o Q due to healthy flagship sales and increased demand for flexible panels as well as high fab utilization rate with the health of an expanded mid to low end product portfolio. For the LCD business, our 2nd quarter earnings show resumed q o q growth under the gradual recovery in the supply demand situation. We have improved the yield of the new TV panel production technology and also expanded the TV sales, especially from the large sized UHD. In the second half of this year, the global smartphone market will continue to slow down and the polarization between high end and low end products will be intensified. However, we expect OLED demand to rise continuously as the set makers recognize the need of differentiation to stay competitive in the market. Under these circumstances, we will actively address customers' demands in the second half and reinforce profitability through expanding the portion of value added products such as flexible and high resolution displays. Also, we'll make it sure to secure the capacity according to the market demand while strengthening competitive advantage through expanding customer base and new applications. In the second half, the LCD industry is expected to slow some encouraging signs such as continuous UHD TV market growth and size migration towards larger screens. We expect earnings to increase with an improvement in supply and demand balance as well as price stability. In response to such market conditions, we'll make the best effort to improve sales and profits by expanding our product portfolio to high value added ones such as ultra large size, high resolution and curved panels with lowering manufacturing costs. In the 3rd quarter, for the OLED business, we'll achieve solid earnings through maximizing supply capacity according to the market demand as well as expanding the portion of value added products. For the LCD industry, we expect supply and demand to improve, thanks to increased demand under strong seasonality as well as continuous UHD TV market growth and size migration towards larger screens. Under these circumstances, we'll make the best effort to strengthen profitability by improving cost competitiveness as well as expanding our portfolio to value added products, focusing on TV and maximizing the supply capacity. Thanks for listening. Good morning and good evening, everyone. I am Kyung Taeri from the IT and Mobile Communication business. In the Q2, our Mobile Communication business achieved robust performance compared to last quarter, mainly driven by strong sales of the Galaxy S7 and S7 Edge. In particular, with the sales proportion of S7 Edge exceeding 50%, the overall product mix was improved and the profitability of our mid to low end models, such as the Galaxy A and JHD, remained strong in the 2nd quarter as a result of streamlined product portfolio. All of these factors had a positive impact on the 2nd quarter earnings. In the second half of twenty fifteen, market demand for both smartphone and tablet is forecasted to increase compared to the first half, while the market competition is expected to intensify with the new smartphone model launches from our competitors. In response to such conditions, we will maintain our strong sales trend of high end smartphones and continue to optimize our product portfolio to sustain solid earnings compared to last year. Next, I would like to address the outlook for the Q3. In the Q3, the demand for smartphone and tablet is expected to increase Q on Q under strong seasonality. As for the mobile communication business, we will maintain our positive sales momentum of premium smartphones are launching a new large screen flagship model and sustaining the current sales trend of the Galaxy S7 and S7 Edge. We believe that the new large screen flagship will also meet our customers' expectation, just as the Galaxy S7 received positive response from the market by reflecting the voice of our customer. In addition, we will expand the sales volume of the Galaxy A and J Series bandwidth the 2016 editions and introduced localized smartphone for China, the Galaxy C Series, to increase smartphone shipment from the previous quarter. However, our profit in the Q3 will be somewhat impacted by intensifying competition in the market and seasonal increase in marketing expenses. Despite the earlier concern in the market, our continuous efforts to enhance our product competitiveness and streamline the product portfolio since 2015 have turned out to be successful from the beginning of this year. Accordingly, our mobile communication business has shown Y on Y earning improvement for 2 consecutive quarters. With the reinforced business capability, we will strive to maintain the current solid earnings in the future. As for the network business, the business outcome Q2 and has contributed to the profit increase of the I'm division. In the Q3, we will focus on revenue growth by leveraging the LTE expansion of our major partners and extend its flyover product for dual frequency panel. Thank you for listening. Good morning. I'm Yoon Lee, Senior Vice President of Visual Display Sales and Marketing Team. For the TV business, in the Q2 2016, in spite of demand growth in developed markets such as North America and Europe, global TV demand stayed flat compared to the same period of last year due to economic downturn in major emerging markets. In the midst of stagnant market condition, we managed to achieve solid earnings year on year by successfully launching new products, including SH TV and increasing premium product sales through the global sports events such as Euro Cup. For the Digital Appliance business, although North American market continued its growth momentum, global demand of digital appliance declined year on year. Due to the slower market growth in China and the impact from economic slowdown from emerging markets following raw material price decline. Despite these circumstances, our earnings largely improved from the same period of the previous year, led by increasing sales of premium products such as shelf collection, refrigerator, AdWash and ActiveWash washing machine. While the North America, Korea and Europe market led by led our sales growth, strong sales of newly launched air conditioner also contributed to improving our earnings during the peak season. In the digital appliance business, we continue to drive growth in earnings by continuously introducing innovative products, which reflect various consumer needs and carrying out effective marketing activities at the point of sales. For the market outlook of the second half, TV demand is expected to decrease year on year due to the weakening consumer confidence in Europe and prolonged economic slowdown in emerging markets. In response to these market conditions, as competition in the second half is expected to be intense under strong seasonality, We will focus on increasing sales and improving profitability by collaborating with major on and off line channel partners in each region and introducing local friendly promotion programs based on our global number one brand status and distribution coverage. In order to solidify our leadership in the premium TV market, we will continuously expand global marketing campaign in the second half with a strong focus on our premium lineup, SUHD TV, by enhancing consumer understanding of quantum dot and by positioning it as a representative next generation premium TV technology. Moreover, we will not only generate new brands, new demands through our product breakthrough, which reflects latest consumer lifestyle at design and consumer experience perspectives, but also diversify sales structure to establish a solid ground for further growth by spending our sales in high value VTV products such as professional covered monitors, digital signage and video walls. As for the digital appliance business, we focused digital appliance market growth to be limited due to the uncertainty in Europe and the economic downturn from emerging markets. In response to these market circumstances, we will actively seek opportunities to turn around the market dynamics by launching innovative products to offer superior consumer experience. Last but not least, we will enhance competency of B2B business, including built in kitchen and system air conditioner to achieve further growth. Thank you. Thank you. This concludes the management's parts of the presentation and we'll turn to questions and answers. Again, to ensure clear communications, we'll conduct Q and A with the consecutive interpretation. In order to ensure the efficient use of time and also ensure that we have more participants within the Q and A, we'll only be taking one question per person and we'll be grateful if you can make them as concise as possible. And we would also like to ask you to refrain from asking questions on ones involving data points or other subjects which were already provided during the conference call. Let's see if we can finish the Q and A session in 1 hour. Let's take the first question please. Now Q and A session will begin. The first question will be provided by Peter Sato from NH Investment Securities. Please go ahead. Yes. My question regards the main reasons why you were able to outperform the guidance in terms of bit growth in both DRAM and NAND in the 2nd quarter. To answer your question, to give you the overall business perspective, in terms of bit growth, first of all, because we were the leader in terms of the high density, high value products, especially the 20 nano DRAM as well as the 3rd generation VNAND products, which leverage the cutting edge process technology, we were able to deliver on especially the strong mobile as well as server demand. And during the Q2, we saw market demand being concentrated to our business. The increase in high density storage, for example, 64 gig and plus for the mobile side as well as the 4 gig plus DRAM on the mobile side was another reason why we saw a strong demand for our products and especially and the same happened on the server side as well. Especially, we're noticing that for the enterprise servers, there is a greater awareness of the TCO benefit of SSDs, and therefore, there has been an acceleration in the conversion of HDDs to SDD solutions, and that has also driven up the demand for our high density solutions. In the and we in response to such demand in the market, we were able to effectively manage our semiconductor capacity overall to maximize our productivity to meet the demand. And also that's why we were able to outperform the expectations that we had in terms of bit growth for Q2. And as of end of Q2, our inventory is rather on a tight situation. Our plans for the second half, given that second half is the high season and we also think that demand will maintain remain strong, we will respond effectively in terms of our product mix. The following question will be presented by Yoo Jung Woo from Korea Investment Securities. Please go ahead, sir. I have a question regarding NAND. You've just through the previous answer, gave us some details about the background of the strong demand for V NAND as well as your expectations for supply and demand situation in the second half of this year. Given such strong demand for VNAND, Korean competitors have also announced plans of 3 d, VNAND, mass production plans. Some are saying that they will go mass production next year, and this has caused some concern in the market of a possible oversupply of NAND next year. So in that context, could you give us your overall capacity operation plans for second half as well as next year, which I assume will include also your plans for 4 gs V NAND mass production plan? And overall, what is your view about NAND supply and demand situation going forward? As we have mentioned on the demand side, there is, 1st of all, increase in the attach ratio of SSDs on PCs. Also, there is a very rapid conversion towards SSD on the enterprise server side related with 15 ks and 10 ks RPMs. Also, we're seeing a very rapid increase in SSD usage in overall server platforms. And this especially has created a concentration of much of this demand to be based on our product, our VNAND products. In response to such increased demand, we are using our available capacity. We're also using part of Line 17 to meet this demand. And in the future, depending on how demand plays out, we will be effectively using our capacity to respond. Regarding our 4 gs V NAND plans, our current plans are moving smoothly as we have expected, and our goal is to mass produce SSDs that use our 4 gs VNAM within the year. Overall, our direction is to continue to maintain our product competitiveness so that we will be leading the market and demand changes. Regarding 2017 outlook on demand and supply, it is a bit early to give you a very detailed outlook. But at least on the supply side, we think that there's still uncertainties remaining regarding increase of 3 d NAND or a ramp up speed of alternative 3 d NAND supplies given the technology difficulty and also the initial investments that are required to actually supply 3 d NAND. And therefore, we don't think it will be easy to see any dramatic increase in 3 d NAND next year in terms of the supply side. Also on the Also, there is a rapid increase for SSD demand on server platforms. Also, there is a rapid increase for SSD demand on server platforms, including the rapid adoption of SSDs, especially on the enterprise server side due to the TCO benefit. So overall, given this outlook, we think that even if there is some increase in 3 d NAND supply in the market next year, given the very strong demand side, the demand and supply situation overall will remain stable next year. And especially, we will be most of the demand for the high value solutions such as SAS and NVMe will be concentrated towards us. The following question will be presented by Mark Christian from Goldman Sachs. Please go ahead, sir. There was a press report about acquisition by the I'm division of a cloud company. And I'm wondering, could you explain to us one of technologies or the competitive advantage that Joynt, the company has? And if possible, could you also elaborate a bit more about the expected synergy effects from this acquisition? And what would be the overall strategical direction related with cloud services for Samsung? Yes. The I'm division last month acquired Joynt, which is a company that has nohow in operating cloud server systems and storage. It has also technologies inefficiently operating cloud servers and storage. And by integrating their know how and technology, we believe that we will be able to strengthen our cloud service capabilities, especially by leveraging their technology with our wide range of devices as well as our cloud platform, we will be able to provide consistent user experience throughout this cross platform. Also, we will be able to use this to develop Samsung Pay or Samsung Health or Knox and other services into a more cloud based service offering. And we also expect that through this acquisition, we will be able to use this to increase our competitiveness in terms of future content service and software. The following question will be presented by Mark Newman from Bernstein. I wanted to ask a little bit more about the 3 d NAND or v NAND roadmap. So Toshiba has announced 64 layer just a day or so ago and Micron is planning to ramp 64 layers next year. And wonder if you could update us on the exact schedule for 64 layers. Is that what you're referring to as 4th generation V NAND perhaps? What is the schedule for that for ramping that? Again, my understanding is you're now mass production 48 layer. When is 64 layer shipping in mass production? And then what is beyond 64 layers? Anything you can explain about how many layers you will stack in the future and versus potentially a a geometry shrink at some point in the future? Any kind of clarity on the future road map would be appreciated. Thanks very much. To answer your question, yes, our 4 gs V NAND is the 64 layer. And as we have mentioned, it is the development is progressing as planned. And our plan is to mass produce SSDs using our 4 gs VNAND within the year. In terms of layering, I think it's a bit too early for us to talk of limits of how many layers can be made. We are currently planning out our mid- to long term generations and at the same time, considering other new memory technologies. The following question will be presented by Lee Sin Hyuk from Korea Investment and Securities. Please go ahead, sir. Yes. My question regards what you see in terms of TV demand globally. In July, there was the Euro Cup. In August, there is the Olympic Games coming up. Do you continue to see any positive effects on demand from these sports events? And in terms of region, do you see demand in Europe slagging since the announcement of Brexit? And also, do you see signs of demand turning around in Latin America, which has seen weak demand recently? As we mentioned previously, in the Q2, the TV market, despite sports events such as the Euro Cup, did similar remain similar to the previous year mainly because of the economic recession, especially in the emerging markets. The economic recession has had an impact on TV demand, especially Latin America, which has been going through economic recession, has a large impact on overall TV demand globally. We were able to preempt the sports events such as the Euro Cup with promotions and were able to occupy the demand earlier on. And that is why despite overall market remaining similar to previous year's level, we were able to improve our profitability in Q2. Regarding Latin America TV demand, we think that it's difficult to expect Latin America TV markets to turn around within this year. However, aside from that market situation, in terms of our company, last year, we had difficulties, especially related with the exchange rate, and that was an opportunity for us to increase the efficiency of our operation and also to create a collaborative system with the channels in Latin America. And that is why despite the overall market situation, if you look at Q2, in our overall emerging market TV business, Latin America actually recorded the highest growth rate in Q2 for us, and we expect this improvement to continue in the second half. Regarding the impact of Brexit, yes, we have also been talking to our channels and other sources to get a feel of impact that would have. Any impact on TV demand will be minimal. Any impact on TV demand will be minimal. However, we have already prepared our strategies in terms of, for example, exchange rate fluctuations against the pound as well as the euro, and we will be effectively responding to any impact there may be from Brexit. The following question will be presented by Ricky Seo from HSBC. Please go ahead, sir. I have questions I have questions regarding with your foundry roadmap. First of all, even though your timing in terms of 10 nanoplastics processes are similar to those of your competitors, when we look at your road map for 7 nano, it is a bit behind the timing of your competitors. Is there a special reason why? And would that pose any risk, especially, for example, in terms of signing up customers for the 7 nano technology? Also, could you give us the timing as to when you plan to adopt EUV? Well, regarding Well, regarding the migration towards 10 nano class and below processes, I think we have a different approach or philosophy versus the competitors. We believe considering various factors, including the importance of developing 10 nano on time and also whether the customers will be willing to accept the design difficulty as well as the cost with 10 nano and also the specifications that will come with future premium mobile products, for the time being, 10 nano is the most effective and most optimally commercial solution at this point and that is why we are focusing on 10 nano class. In terms of 7 nano, in sampling, we are able to sample at any time, but we think that when it comes to commercialization, 7 nano commercialization will happen when that becomes the most cost optimal solution and choice, and that is our approach. In terms of when we will be adopting EUV, that will be in line or synced with when we start 7 nano. The following question will be presented by Claire Koning Kim from Daejun Securities. Please go ahead, ma'am. My question regards to display side and the capacity plans. It seems that you're going through one of the major changes in terms of the display capacity in recent years, given how you have been turning off some of the mid, small, for example, 8 gs lines on the but also been increasing the OLED mid- to small sized panel lines. And given this, could you give us the future direction in terms of how you will build or add on new OLED or LCD capacity? And what is your outlook in terms of the large size 8 gs panel capacities? First, I'd like to answer your question about the mid to small size displays and then address the 8th generation or the larger size panels. First, when we look at the mid to small size, main demand being smartphones, at the handset level, there is very fierce competition among handset companies. They need to find a way of differentiating their products, and that is driving demand for our OLED panels, which provides not only excellent product characteristics, but also differentiating form factors for handset makers. Of course, this demand for our OLED panels is explained by the fact that we have been able to gain technology leadership as well as business competitiveness through continued R and D as well as active investments as a market leader. There are areas where demand may out demand is surpassing our capacity in certain areas, but we think that overall, our capacity is at healthy levels compared to the demand. And in the future, we will be expanding our capacity at the right time to meet the demand. Regarding the large size TV panels, our basic direction is to continue to maintain our leadership in terms of the business capabilities, also to maintain our dominance over the market and also to increase and improve our customer responsiveness. We will continue to develop the LCD technologies to further increase our competitiveness in terms of the technology side and to differentiate our LCD offerings and also to increase the competitive edge we have also in terms of performance and price. The following question will be presented by Nicolas Godoy from UBS. Please go ahead, sir. Yes. Good morning. Thanks for taking my questions. So far, it does not seem as if you have lowered channel pricing for the Galaxy S7 and Galaxy S7 Edge. Would that still be the case when you launch the Note 7 next month? And if that is so, what does this imply for total smartphone average selling prices in the Q3? First of all, to answer your question about our plans for the S7, S7 Edge prices in the Q3 and future. In the second half, we plan to maintain the S7, S7 Edge Prices Continuously. We think that by maintaining a consistent price policy, we are able to better maintain the trust of the channel and the overall market. On the other hand, we will also be implementing very active marketing activities in the second half to drive up actual purchases. And by this, we plan to continue to maintain the overall sales trend of our premium handsets. In terms of 3rd quarter ASP, given the fact that we're planning to launch the new large screen flagship and given the plan to maintain our prices for the S7, we expect the ASP in the 3rd quarter to improve due to the improved product mix. The following question will be provided by JJ Park from JPMorgan. Please go ahead, sir. I have another question related with V NAND in terms of productivity comparison versus a planner land. For example, if you have your 3rd generation, the 48 layer V NAND, given the same wafer capacity, how much of a productivity increase do you see versus, for example, a 14 nano planner land? I'm assuming that V NAND versus a 2 d NAND would have some sacrifices in terms of yield or processing time would take longer. Considering all of these factors, how much of a productivity gain do you experience? It's difficult to compare the productivity apple to apple between V NAND and Plannerland because of various factors. But if we just look at the output based productivity, there is an advantage, and we think that this advantage versus pilot NAND would actually widen as we migrate from generation to generation on V NAND. Also, when it comes to V NAND, in addition to productivity, we believe that other values such as performance, density as well as reliability is very important for the customers. The following question will be presented by Peter Yu from BNP Paribas. Please go ahead, sir. Could you give us some more color and direction towards your QLED progress? There has been press reports that Samsung has decided to skip WLED and go direct to QLED. And so in that sense, what is your current situation in terms of technology? Also how well is the ecosystem, for example, the equipment vendors formed? I think the major concern in the market is if you're not able to commercialize QLED within, for example, a 3 to 5 year time frame, much of the high end display market will be taken up by WLED. Given that risk, could you give us a bit more detail about when you plan to, for example, commercialize QLED? And what is your current technology situation? Well, to answer your Well, to answer your question, we are already adopting quantum dot technology on our SUHD TVs. QLED or quantum dot is currently the key of next generation TV display technology given the brightness as well as the correct color generation and the durability and the fact that it is an inorganic material. So it is a key material for future TVs. The we are already using or referring to this QLED technology as our SUHD Quantum Dot Technology. The technology continues to evolve. According to some market survey agencies, they expect Quantum Dot TV to be 3x OLED TV size by year 2020. And so we believe that Quantum Dot will continue to play a major role in the premium TV segment. The following question will be provided by Mehdi Hosseini from SIG. Please go ahead, sir. Thanks for taking my question. I have a follow-up on systemelisize, specifically on foundry. How should we think about the mix of customers or the diversity of customers as you transition from 14 nanometer to 10 and eventually to 7 nanometer? Even though it's difficult for us to go into detail customers, our overall customer diversification strategy at SystemElisa is to diversify from currently more concentrated mobile applications to other application areas such as computing, network and automotive. So we will first use the most stable technology that we have, the 14 nano process, to diversify our customersapplications into computing, network and automotive. And when we start commercializing 10 nano end of this year or next year, we will be using the 10 nano technology to further diversify our customer base. So our basic overall direction is to diversify the customer base as well as the application from the current mobile centric to other areas. The following question will be presented by Huang Min Sung from Samsung Securities. Please go I have some questions regarding the I'm business. First of all, was there any one off factors in the Q2 performance of the I'm division? And if so, how much were these one off factors? Second question is, can you compare the first half Galaxy 7 S7 sell out and sell through rates? The third question is a technology question. In the past investor form, you mentioned the fan out PLP. Also today, I've noticed that there were emphasis on high density DRAM. Given that technology strategy, what will be the impact in terms of Samsung's mobile software? What kind of software changes do you anticipate? And in that context, why not why have not dual cameras been adopted in your products? To answer your first question about any one offs in the Q2, there were, but it were they were all very minimal in Q2. Regarding your second question about our sellout of the flagship model in Q2, because we were able to deliver a product that meets the market as well as the customer needs and also supported by effective sales and marketing activities. The sellout rate of our current flagship has been higher than its previous model or previous product previous flagship model, especially in areas such as North America, Europe, Latin America and Southeast Asia. Given the very strong performance of the Galaxy S7 in the first half, we plan to continue this trend, will considerably will considerably be higher in terms of shipments and play an important role as the engine of our overall performance. To elaborate on my second question, what I was trying to ask is that given the improvements that you would have in terms of the hardware capacity, for example, with fan out PLP, I'm assuming the IO would get wider, which will improve the graphic environment on the handset. And also with high density DRAMs being used on the handset, this would all provide much better capacity and capabilities on the handset level. So my question was how does Samsung plan to leverage this in terms of software directions? Of course, as you mentioned, with, for example, high density DRAMs being used on handsets, this gives us more opportunity to offer a wider variety of services and software, and this again drives more demand for high density DRAM on handsets. Regarding dual camera, even though it's difficult for us to mention exactly when we will be adopting a certain new component, This would be in line with our overall policy of continuously studying and considering various opportunities to provide better customer satisfaction and to differentiate our products from those of competitors. The last question will be My question is once again about the DRAM market. There is a rapid change, especially on the server architecture side. Looking at the new CPU that was announced, it actually has embedded 16 gig of DRAM in the CPU. And there's also new memory approaches, for example, cross point that's being announced. Given all of this change on the technology side, what is Samsung's strategy for its DRAM business? Also in terms of investments, do you expect to have increase in DRAM related CapEx investments next year? Well overall, we do notice that there is a greater DRAM capacity demand on the server side. This mainly being driven by the fact that data traffic is also increasing and therefore, the servers are also demanding higher capacity, higher density DRAM. And that is why we are mainly planning to respond with 64 or even up to 128 gig products. That is our basic direction that we will continue to focus on the higher density, higher end server market. Given that in terms of the longer term direction, we think that there will be a lot of new demand being generated directly and indirectly because of new applications for DRAM and NAND, for example, mobile as well as this conversion towards SSDs will also drive up demand. In terms of applications, we think that VR as well as automotive will be some of the major new applications that drive up demand. So we, in the long term, see not only increases of demand for DRAM, but also related with the NAND market as well. Regarding the 3 d cross point technology that you mentioned, I think that was mainly catching interest from the demand intensive, the higher end platforms. And it is being proposed as an alternative solution to lower DRAM cost. But we don't think that this will take up a significant share of the overall market. We also think that there will be some time required until it becomes a market. And also, I think that there is a restriction in the fact that 3 d cross point is not a standard technology. So our basic response to this technology is to maintain our focus on DRAM and NAND. And also at the same time, as we mentioned, we are looking into new memory technology as well.