Earnings Call: Q4 2015

Jan 27, 2016

Now we shall commence the presentation on the fiscal year 2015 Q4 earnings results by Samsung Electronics. Good morning. This is Robert Yi from Investor Relations. Thank you for joining our call. Today, we have 5 gentlemen from the business units: Jeon Jae Won, the Senior VP of Memory Marketing Mr. Ho Kook, VP of System LSI Marketing Lee Chang Hoon, the Vice President of Samsung Display Lee Kyung Tae, also Vice President of IT and Mobile Businesses and Lee Yoon is a Senior VP of Visual Display Business and also Mr. Kim Sang Yeo, VP of IR. I would like to remind you that some of the statements we'll be making today are forward looking based on the environment as we currently see. And all such statements are subject to certain risks and uncertainties that could cause our actual results to be materially different from those expressed in today's discussion. Before we go into the Q4 results, I would like to update you on the shareholder return. As you know, we announced in October of last year KRW 11.3 trillion or about USD 10,000,000,000 of special buyback program and 3 year shareholder return policy. Under that special buyback program, we just completed the first phase on January 12 this year. The total amount was KRW 4,250,000,000,000 and we repurchased and canceled 2,230,000 common shares and 1,240,000 preferred shares. We were able to reduce the total amount used in the buyback by increasing the proportion of preferred shares relative to the outstanding share ratio. Today, the Board of Directors approved the 2nd phase of the buyback program. The total amount is approximately KRW 3,000,000,000,000 with 2,100,000 common shares and 530,000 preferred shares. I assume it will take about 3 months to complete starting tomorrow. As I mentioned last year, the special buyback and cancellation program is currently being implemented over 3 to 4 phases and is expected to be completed within this year. Next, I would like to address the 2015 annual shareholder return. The Board approved annual dividend of KRW 3,000,000,000,000, which is the same level as that of 2014, including the special dividend. This brings the 20.15 annual dividend per share, including the interim dividend to 21,000 won, which is 5% increase over 2014. Although a similar capital was allocated to 20 15 annual dividend, the partial dividend amount increased due to a reduction in total number of outstanding shares, resulting from the first phase of the special buyback program. With the KRW 1,000 per share interim dividend already paid, the year end dividend per share is KRW 20000 for the ordinary shares. With various capital expenditure opportunities to consider in 2016, we will review the ways to provide additional shareholder returns when we can get more visibility of 2016 free cash flow. Now I will go over our 4th quarter results. The overall revenue came in at approximately KRW 53,300,000,000,000, a 3% increase compared to the previous quarter. The increase mainly came from the Consumer Electronics business. Our SG and A expenditures increased Q on Q by KRW0.5 trillion as marketing expenses increased from seasonality, but the ratio to revenue remained flat quarter on quarter. The overall operating profit decreased by KRW 1,300,000,000,000 Q on Q to KRW 6,100,000,000,000. Amid unstable macroeconomic conditions, including a sharp fall on oil price, most of the earnings decline came from the component businesses. The continued weakness in PC demands and slowing IT demand continued to put pressure on DRAM prices. LCD ASP also declined sharply due to supply and demand imbalance. The component businesses experienced another negative factor on their earnings this quarter as the positive foreign currency impact that significantly contributed to the component businesses' earnings in the 3rd quarter turned negative this quarter due to strong won. We estimate the strong won against major currencies in the Q4 brought approximately KRW 400,000,000,000 of negative impact to our 4th quarter operating profit, affecting mostly the set businesses. The non operating profit for the quarter was negative KRW 1.4 trillion. The other non operating loss was KRW 2,500,000,000,000. In accordance with International Accounting Standard, we recorded impairment losses on equity investments in several entities, including Samsung SDI and Samsung Card, whose share prices have declined this year for longer than 6 months as well as reduction in some intangible assets. On the other hand, we recorded approximately KRW 1,000,000,000,000 equity income in this quarter. Biologics, which we own 47%, changed its accounting method of its investment on BioEbis from a consolidation method to an equity method. In this process, Biologics recorded gains from the revaluation of its investment in BioEbis. For your reference, these transactions had no impact on our 2015 free cash flow. The 4th quarter ROE and EBITDA ratio declined, especially the ROE ratio declined mostly from the nonoperating items. Without these non operating items, the 4th quarter ROE should have been 10%. The business unit representatives will discuss their results in more detail shortly after. Now I would like to make a few comments on the future outlook. We expect difficult business conditions to continue into Q1 with weak seasonal demand and the IT industry slowdown. Especially, we anticipate overall weak demand environment for our component businesses. For semiconductors, we will focus on reinforcing product competitiveness on of high density and solution memory products and the ramp up of the 2nd generation 14 nano process. For Display Panel, we expect steady earnings from OLED business driven by new product launches of major OLED customers. However, LCD profitability is expected to weaken due to continued weak supply and demand balance. For the SET business, we expect handset shipments to decrease due to weak seasonality and discontinuation of old models, but we'll strive to generate strong profit in mobile business by improving product mix through launches of various new products this quarter. For 2016, although it is too early to provide the outlook in specific detail, it would be a challenge to maintain 20 15 operating profit level as we expect weak macroeconomic conditions and the IT demand to persist during the first half. However, we expect the business conditions to improve in the second half driven by strong seasonality of the set businesses and increasing mix of various strategy component products. Along with our efforts to secure profitability of each businesses in 2016, we'll also focus on reinforcing mid- to long term business competitiveness, including new business areas. For DRAM, as adoption of high density and high value added products such as DDR4 and LP DDR4 in major applications increase, we plan to focus on reinforcing the differentiated product structure based on our successful 20 nano process. In addition, we'll further solidify the dominant position in DRAM technology through the introduction of 10 nano class process. For NAND, we will expand our superior product competitiveness and technological leadership by expanding major production of the 3rd generation vertical NAND as the only company in the industry to do so. We'll also lead the growth of high density storage market to strengthen the foundation for the mid- to long term growth. For System LSI, we'll secure a stable profit foundation by diversifying foundry customers and by expanding SoC product lineups based on our 14 Nanoprocess competitiveness. We expect to continue to stay on leadership path on technologies by bringing 10 nanoprocess within this year. In addition, we'll continue to strengthen competitiveness of this LSI products such as bioprocessors and CIS products. For the OLED business, we expect to secure mid to long term growth capabilities in 2016 by enhancing technology level and productivity of the flexible display and by expanding new applications, including transparent, mirror, head mount devices, automotive and OLED for personal computers. For our I'm business, going beyond differentiation of hardware, we'll focus on reinforcing software competitiveness with a new R and D organization dedicated to the development of software and services. In addition, we'll continue to focus on strengthening our wearable products such as watch and VR. For our TV business, we'll reinforce our premium market leadership with our SUHD TV, which is the only TV with ecofriendlyquantum dot technology in the world. And we plan to lead the era of smart home through our smart TV with a smart hub that provides connectivity with other devices with the controlling and monitoring functions. For Internet of Things, we not only have a portfolio of cutting edge devices that covers the whole spectrum of mobile, IT, TV and consumer electronics, but also have innovative components such as flexible OLED and IoT exclusive chip solution we call Arctic as well as powerful IoT platforms such as SmartThings. Based on our competitiveness of the overall ecosystem, we plan to focus initially on smart home and smart health, which have high growth potential. Now I'd like to comment on our capital expenditure. The total capital expenditure for 20.15 was KRW 25,500,000,000,000 KRW 14.7 KRW 14.7 trillion was for semiconductor and KRW 4,700,000,000,000 was for display. The rest was used for smartphone production line and the consumer electronic complex in Vietnam as well as building R and D complex in Seoul. The capital expenditure in display business was lowered compared to the plan due to the timing of the investments. We cannot provide any guidance on 2016 capital expenditure at this time as it has not been decided yet. As I mentioned earlier in my speech, we are reviewing various investment opportunities. Before the presentation of each business unit, I'd like to share several data points as I always have done for key business areas for your reference. For DRAM, in Q4, our bit growth declined low single digit, And we saw high single digit decline of DRAM ASP. For NAND flash, in Q4, our bit growth came in mid teens and ASP declined low teens. For Q1 2016, we expect the market's DRMP growth to be low single digit, and we will probably outgrow that slightly. For NAND Flash, for market bit growth in Q1, we expect again low single digit and our bit growth will certainly outgrow that of the market. For 2016, for the whole year, for DRAM market bit growth, we expect mid-twenty percent and our bit growth is expected to grow aligned with the market. NAND flash for 2016, we expect market bit growth would be around 40% and we will outgrow that of the market growth. For our mobile businesses, our total handset shipment in Q4 was 97,000,000 units. And we had tablet sales of 9,000,000 units. The mix of the smartphone within total handset was roughly mid-eighty percent. The blended ASP for our mobile businesses in Q4 was mid-one hundred and eighty dollars For Q1, we expect our handset shipment, as I indicated earlier, we expect you to see small decline as well as tablet, we expect to see a decline. The mix of the smartphone to the total handset probably will remain flat from the Q4, but we do expect to see our blended ASP for handset to increase in Q1. For our LCD TV, in Q4, we shipped 16,000,000 units. For Q1, we expect to see sizable decline. For the year in 2016, we expect the TV set sales to increase somewhere around mid single digit. Now I will turn the conference call over to the gentlemen from the business units, starting with Semiconductor. Good morning. This is Seowon Jeon from the memory marketing team. I'm going to present our business result for the Q4 and the market outlook for the next quarter. In Q4, for DRAM, although PC demand remained weak, mobile demand increased driven by smartphone launches and overall content growth. And high density server demand remains solid, mainly driven by data center. Although, earnings decreased due to weak demand from certain applications, we focused on strengthening our market leadership by reinforcing cost competitiveness with 20 nanometer migration and by actively responding to the demand for high value added products such as DDR4, LPDDR4 with profit focused product mix. Front end. Mobile 3 d demand increased due to high density smartphone launches and content growth in all segments. Also, demand for solution products increased driven by SSD attach rate growth in PC and high density enterprise SSD market growth. While we secured profitability by spending solution products such as SSD, eMCP. We reinforced the product competitiveness by mass producing 3rd generation free NAND and by expanding 10 nanometer class process migration. Next, I will comment on the memory market outlook and our strategy for Q1. For DRAM, even under weak seasonality, we expect the server DRAM demand to remain solid, mainly driven by data center and mobile demand to increase with fresh smartphone launches from major mobile companies. For Samsung Electronics, with a flexible application mix strategy, we will reinforce competitiveness by spending 20 nanometer process migration and by increasing sales of high value added and differentiated products such as AKB TDDI4, LPDDR4. Front end, although demand is expected to decrease on the weak seasonality, the market condition may vary by each application due to overall SSD contents and attach rate growth as well as high density mobile product launches. We will continue to secure cost competitiveness by spending 3rd generation VLAN supply and 14 nanometer process migration. Also, we will make our best effort to improve earnings by actively responding to demand for high value editor solution products such as enterprise SSD and high density mobile storage. Despite the expected uncertainties in year 2016, including potential IT market slowdown, we expect a solid overall demand driven by content growth in each application with high density server demand increase and smartphone content growth. For DRAM, we will focus on maintaining our market leadership rather than on growth and continue to expand the sales of high value added end differentiated products. Also, we will concentrate on strengthening stable bid to long term profit generation basis. Through expansion of 20 nanometer migration and development of a 10 nanoclass process. For NAND, we will lead high end storage market growth such as enterprise SSD and high density mobile storage market. And we will reinforce our market leadership by strengthening product competitiveness, including ramping up of 3rd generation V NAND. Now moving on to the System LSA business. In Q4, earnings improved driven by increase in 14 nanometer foundry supply despite a slow seasonal demand for SoC and LSI. In Q1, we expect earnings to be affected by slow mobile demand under weak seasonality. However, we will reinforce our leadership in process technology and product competitiveness by starting mass production of 2nd generation 14 nanometer process and by supplying to new premium smartphones. In 2016, despite the expected uncertainties in the global economy and IT demand, we will focus on retaining growth momentum and strengthening the foundation for long term growth through diversifying customer base and product lineup. Thank you. Good morning. This is Chaeyeon Lee from the Planning Department of Samsung Display. For LCD panel in the Q4, our earnings declined Q o Q due to decreased shipments of larger sized panels and continued ASP decline. In the Q1, we expect a price competition on panel makers to intensify further due to slowdown of set demand from continued exchange rate fluctuations in the emerging markets and overall oversupply from a decrease in demand under a weak seasonality and an increase in the industrial capacity. In response to these tough market conditions of the Q1, we will focus on cost reduction and inventory management as well as expansion of the customer base. For OLED panel in the Q4 despite positive factors such as increased shipments and line utilization ratio, our earnings slightly decreased q o q due to ASP decline and increased shipment portion of mid to low end display panels. In the Q4, although we expect competition among panel makers to intensify further due to slowing growth of the smartphone market, we will make the best effort to reinforce cost competitiveness and customer base and to increase the utilization ratio the line utilization ratio. Now I'd like to present the outlook for the display market and our core strategies in 2016. For LCD panel, while we expect overall shipment area to increase Y o Y, it seems that total shipments may decrease. Furthermore, we expect the industrial capacity to increase Y o Y. We will appropriately respond to these top market conditions in 2016 by continuously monitoring the market condition as well as by focusing on cost reduction and inventory management. For OLED panel, we expect the smartphone market growth to slow down Y o Y, and that growth will come mostly from the emerging and low end markets. Under these circumstances, we'll make effort to diversify product lineups and expand customer base. Furthermore, we'll reinforce our market and technology leadership through technological improvement and mass production of flexible displays, which is our mid- to long term growth engine. At the same time, we'll strive to secure new growth engines by reinforcing development of new applications such as transparent, mirror, head mount and automotive display. Thanks for listening. Good morning, everyone. I am Kyungtae Lee from the Mobile Communication Business. I would like to present the 4th quarter business result and our future outlook for the IT and Mobile Communication business. As for the Mobile Communication business, in the 4th quarter, market demand for smartphone and tablets grew Q on Q in line with year end seasonality. However, our revenue slightly decreased from the previous quarter as a result of inventory adjustment to cover the slowdown of market growth and increased portion of mid to low end smartphone sales. Profit of the I'm division also slightly reduced Q on Q, mainly because of seasonally increased marketing expenditures. As for our smartphones, our product mix is somewhat worsen with the shipment growth of mid- to low end models, mainly in the emerging markets, including Southeast Asia and Latin America. On the other hand, our coverage shipment and revenue grew Q on Q, thanks to strong sales of the Galaxy Tab A and Tab S2. For our network business, both revenue and profit improved compared to the Q3, driven by the expansion of overseas LTE Business. Now let's turn to the outlook for the Q1 of 2016. The market demand for smartphone and tablets is expected to drop Q on Q under weak seasonality. In response, we plan for a global extension of the 2016 edition of Galaxy A smartphone, which we initially launched in China last December. Brand new Galaxy A7 and A5 of a trendy and sensible design along with differentiated service and functionality, which can be found in our flagship models. Also, these 2 devices support Samsung Pay, which is a simple, safe and virtually anywhere mobile payment service. Our smartphone shipment for the Q1 is expected to slightly decline from the previous quarter under a weak market seasonal condition as well as discontinuation of our long standing mid to low end models. However, with improved product mix and newly launched models, we expect our revenue and profit to slightly increase Q on Q. Now let me discuss the outlook for the year 2016. As for the mobile communication business, we forecast a single digit growth for the smartphone and tablet market this year. Accordingly, we believe competition among smartphone players will intensify even further as a consequence of a market growth slowdown. In response to such challenging market circumstances, we will give our full efforts to increase our smartphone shipment and sustain double digit margin by continuously strengthening our product capability and maintaining streamlined product portfolio. For mobile for premium smartphones, we will lead the premium market and strengthen our position leveraging our top notch technology innovation. In the mid to low end segment, with optimized line ups based on competitive products, we will expand our shipment volume while improving our profitability. We will also expand our tablet and wearable devices' contribution to the overall business performance. In addition, we will continue to develop and provide a service like Samsung K that offer practical value to our customers in order to drive sales growth of our devices. As for our network business, we will aim to achieve revenue growth based on our LTE business experience and technology excellence. Lastly, we will actively seek for new business opportunities for the future growth while making a continuous effort to deliver Samsung's new value and experience to our customers through acceleration of software and service innovations. Thank you for your attention. Good morning. This is Yoon Lee, Senior VP of Visual Display, Sales and Marketing team. I would like to present the market conditions and our results for the Q4. In the Q4 2015, TV market grew substantially from the previous quarter, driven by increased demand during the year end peak season. However, global demand slightly decreased compared to same period last year due to slower consumer confidence from major emerging markets, including South America, CIS and Eastern Europe. We actively responded to Black Friday demand in North America through successful promotion activities of our premium flagship lineup, SUH TV, and expected sales of premium products, including UHD and Cubbed TV. As a result, our overall earnings improved from the previous quarter as well as previous year. In Digital Appliance Business in the 4th quarter, the North American market continued its growth momentum. But in emerging markets, the demand decreased since the consumer confidence dropped due to slow market growth in China, a decline in price of raw materials and impact of weak exchange rate. Under these circumstances, we expanded sales of premium innovative lineups such as shelf collection, refrigerator and active washing machine, primarily in the North American market. As a result, our earnings improved compared to previous quarter and the previous year. Next, let me brief you on the outlook for 2016. Due to the impact of sporting events such as Brazil Olympics and Euro Cup, we anticipate a slight increase in TV demand, while consumer preference for larger inch TVs and increase in UHD contents continue. However, we expect to see limited TV demand growth as economic downturn risk exists due to currency headwinds in major emerging countries. In response, we plan to actively expand SH TV by further enhancing picture quality and design of the current SH TV. Also, we will focus on acquiring profitability by continuously increasing sales portion of curved and large inch TV. Meanwhile, we are going to introduce new smart TV lineups with a single remote control and single access, which offers smart user experience through consumer centric user interface. Furthermore, entire ACH TV line ups will be equipped with Internet of Things hub feature and become the central role of smart home by conveniently offering connectivity to home IoT gadget. While the year 2016 is expect to be difficult, as economic recession risk from emerging countries increases, we aim to improve profitability by further strengthening premium product sales, optimizing lineups and enhancing efficiency. During the Q1, we expect TV market demand to decrease from the previous quarter as TV market enters seasonally weak period after the year end peak season. However, we will focus on securing profitability by expanding UHD and COVID premium product sales and by successfully introducing our new lineups centering on SUHD TV. As for the Digital Appliance business in 2016, while U. S. Market demand remains solid, we forecast limited desalplines market growth due to growing global foreign currency risk. In response to this, we will actively seek to improve performance by introducing innovative products such as Active Wash and by launching new premium products, including Family Health Refrigerator. Along with this, we will enhance competence of our B2B business, which includes system air conditioners. Thank you. Thank you. That's the end of our prepared presentation. Now we'll take the moving to a Q and A session. As we have done in several quarters in the past, we will use the consecutive translation for Q and A, okay? So why don't we start the Q and A session? Thank you. Now Q and A session will begin. The first question will be provided by Sacha from NH Investment Securities. Please go ahead, sir. My first question is about your outlook on the 2016 Samsung or excuse me, the 2016 DRAM market outlook in terms of demand and supply. There has been some concern with the weak demand, especially in the Q1. For the full year 2016, what's the company outlook on the industry, the market situation of DRAM, especially the demand and supply side? And what is your strategical approach to this? Our overall 2016 market outlook in terms of the demand side, we are expecting the set growth rates to decrease or to be lower than 2015 growth rates. But on the other hand, we're expecting the content in servers and mobile devices to increase, and that would also be a plus factor in terms of demand in 20 16. On the supply side, our industry outlook in 2016 is that with more producers migrating onto the 20 nano technology, there will be this will be an increasing factor on the supply side versus 2015. But the supply situation will differ for each application and product depending on how the 20 nano migrations are going to unfold. And also as the difficulty of the processes become more difficult or more increases, this will also have an impact on the supply side. So we think that as the year unfolds, overall demand and supply situation will stabilize versus the early part of this year. Also, in terms of our strategy, we will be focusing on our 20 nano migration and also migrating further as well as focusing on the DDR4 and also mobile related applications. And we will be able to grow our supply, we're planning, at market growth levels. This year, our main focus will be on profitability rather than increasing volume. So our main approach this year on the DRAM side is to maintain our leadership and also continue an operation that is sustainable and profitable. The following question will be presented by Nicolas Guduo from UBS. Please go ahead, sir. Yes. Good morning. The first question is on the OLED side. Considering the slowdown we're seeing in high end smartphone growth, we should expect potentially a pull in of plastic OLED demand in order to help innovation in form factors. When in that context will we see Samsung Mobile releasing its initial product? And when for foldable displays? And when can Samsung display serve potential large scale requirements from other high end smartphone customers as well? And then I have a follow-up on To answer your question, regarding, 1st of all, the flexible OLED products, as you know, we are already mass producing flexible OLED products, and it is already being used in several smartphone markets smartphone models that are already on the market. Regarding foldable OLED, that development process on our end is being carried out smoothly according to our schedule. However, the timing of mass production or product launches, that would depend on the customers, and we are in the process of discussing that with customers. So that would depend on the results of the consultation that we have with customers. And as far as the flexible OLED is concerned, already we are supplying that to not only captive but also external customers, and various companies are using and producing products that use the flexible OLED we supply. Okay. And follow-up question is for is on LSI. You alluded earlier to the rollout more processed flavors for 40 nanometer plus your 2nd generation for the main process as well as customer diversification. So if we look at the application fields, on top of application processes and integrated modem and application processes, we, I guess, should see incremental demand this year for GPUs, semi custom graphics for game consoles and networking. Is that the case? And is this sufficient to offset the possible loss of market share with your largest application processor external customer to support profitability for LSI this year? The System LSI, in addition to our mobile application business, already has been preparing intellectual property as well as business infrastructure on other application end, such as network related businesses, automotive applications as well as other multiple new applications. So this year, our plan and focus is to not only increase the market share with existing mobile application customers but also focus on increasing the market share in these other applications such as network, automotive and other applications? Right. But to be clear, automotive is not 14 nanometer, obviously. So specifically for 14 nanometer logic process on the FinFET side, apart from networks, what are the applications you see expanding? Yes. Because this 14 nano is relatively a new product, when I meant automotive, I meant that we are in the process of being assessed and qualified for automotive applications in the future. So that trial process with potential customers have already started. In terms of 14 nano other applications other than mobile, we are developing, for example, game or wearable as a target application. The following question will be presented by Jong Woo Yoo from Korea Investment Securities. Please go ahead, sir. I have one question first about the I'm side, the mobile side, and then I'll ask another follow-up question or another question regarding with the GP side. First, on the I'm side, mobile side, last year, you were able to introduce new models on the mid- to low end side, which have brought positive performance results on both volume shipment as well as profitability. Looking into this year, we're expecting other companies to follow suit and become more active in the mid- to low end part of the market, especially the Chinese companies. I'm wondering my question is, how does Samsung plan to differentiate itself in the mid- to low end space versus especially other companies, the Chinese makers? As you mentioned, while the entire smartphone market itself is weak in terms of growth, especially within that, the mid- to low end segment is where there is more growth relatively speaking, versus the entire smartphone segment. But also, as you mentioned, we're expecting competition to get more fierce in this segment as well. Our plan and our response is to continue to launch new additions to the Galaxy A and J series, which we introduced last year with very positive market responses and by introducing new additions to the A and J this year to enhance our competitiveness in the mid- to low end segment. More specifically, the Galaxy A Series 20 16 Edition will have a design that uses both glass and metal, so it will be a very attractive design. Also, it would increase the specifications on the camera and memory side, also add some new features such as the fast charge and Samsung Pay, which will all enhance the usability of the 2016 A Series. The J Series also will focus on enhancing the key features that the customers and the users really focus on, for example, larger for example, screen as well as battery specifications. And by introducing these new additions to the A and G series this year, we will focus on continuing to maintain our competitiveness in the mid- to low end segment. Regarding the display side, is that even though you said that this year's CapEx plan has not been decided, I'm assuming that your OLED related CapEx spending would have to increase quite significantly this year. Could you at least give us some more color on your OLED related CapEx spending plans? Especially can you divide that into the midsmall size versus the large size OLEDs? Regarding our CapEx on the mid- to small size mid- and small size OLEDs, we do expect to have investments related with the A3, but we have not yet been able to finalize the exact size of our facility investments related with E3 this year. But our basic policy and approach is that we will be making these investments ahead so that our capacity expansions would be leading in order to maintain our competitive advantage on the display business and also will respond flexibly to market and customer demands. I think you've also asked us about the large size OLED related investments. Our current activity related with a large size OLED is to explore various manufacturing and mass production methods on the R and D side to find the optimal mass production method that will give us the strong cost competitiveness. We're also looking into the marketability of large size OLEDs. So in addition to all of these manufacturing related R and D efforts, we are also talking to customers to identify potential market needs. The following question will be provided by Young Park from Hyunde Securities. Please go ahead, sir. Mr. Young Park, please go ahead, sir. The next question will be given by SeunHyok Lee from Korea Investment Securities. Please go ahead, sir. I have two questions related with the CE, specifically TV set business. First is, even though Q4, the TV demand growth was relatively weak, it seems that your TV set business profitability has improved quite significantly. I'm sure that the decline in the panel prices have helped, but were there any other major factors that explains the significant improvement in your TV set profitability in the 4th quarter? The second question is about your 2016 product mix strategy. Since already you have super UHD curved and UHD TVs out there, I don't see much more room for improving or enhancing your lineup on the TV side this year. What strategies do you have in terms of further improving your product mix on the TV this year? To answer your first question and give a bit more detail about our 4th quarter TV performance or results, actually, the improvement in the profitability can be explained by several factors. One is that we were able to very actively and successfully respond to the peak seasonality in the developed markets, for example, the U. S. Black Friday demand. Also, we were able to launch very successful promotions with major hUHD, curved and UHD TVs. Also, even though hUHD, curved and UHD TVs. Also, even though the growth markets, developing markets had various difficulties in terms of weak currency, we were able to leverage our strengths in the supply chain management side and enhance our operational efficiency so that actually the growth markets contributed to the better performance or profitability of our TV business in the 4th quarter. Regarding the 2016 product lineup, our focus is to, 1st of all, make our SUHD TV product the top and most premium product offering out there in the entire TV market. As you know, we have many strengths in the HD AT and T TV itself. Our quantum dot technology is environmentally friendly. Also, we offer the industry's best picture quality as well. The SU HD TVs that we will be introducing this year also has improved, for example, the color gamut as well as brightness, so that it will be the best display in terms of TVs in the market available, and we will make this very clear and strong positioning. Also, we are focusing on offering a differentiated consumer and viewer experience. For example, we will be featuring a 1 remote, one access point concept where our remote and access point will be the point of accessing all content for the viewers. So it will be a smart as well as a very seamless and best viewer experience that will differentiate our TVs from other TV offerings. We will also be focusing on making our SUHD the focal point of the IoT service. As you know, IoT is a very hot topic in the industry. We will be offering an IoT hub service or a feature on all of our SUHD full lineup so that the TV will be the focal point and the hub for the home IoT environment. The following question will be provided by Marco Shin from Goldman Sachs. Please go ahead, sir. I have two questions. The first question is about Samsung Pay, which you launched last year with a very positive market responses. Personally, I am also very I am also using Samsung Pay, and I find it very convenient. You've mentioned during your presentation that you plan to expand Samsung Pay onto more models and more regions this year. Specifically, which models and which areas and which time line do you expect to roll out Samsung Pay? Also, have you found Samsung Pay to actually have a positive effect or a positive impact on the sales of Samsung handsets? Regarding the models where the Samsung Pay will be supported, as you know, currently available, Samsung Pay is currently available on our flagship models, S6, X6 Edge and the Note 5. And the 2016 edition, A5 and A7 also already support Samsung Pay. In terms of regional rollout, we launched Samsung Pay in Korea and the U. S. Last year. We will continue to roll out the regions, starting with China, the U. K. And Spain this year and also continue to increase the regional coverage of Samsung Pay. As you mentioned, the consumer response in the Korean and U. S. Markets regarding Samsung Pay was very positive. And yes, indeed, it is positively helping and impacting our smartphone sales. So we will continue to roll out Samsung Pay as a global service so that more consumers around the world can experience a differentiated service through Samsung Pay. On the semiconductor side, I have a question regarding the packaging, your packaging technology roadmap recently. Your competitor has come out with new packaging technology info, and it's getting a lot of attention in the market. What is your road map regarding packaging? As you know already, we are mass producing a TSV package memory product. And in terms of packaging technology, we implied that we have the industry's best packaging technology. In addition to the TSB, we are continuing to improve and enhance our POP packaging so that we provide not only a thinner thickness that so that the products are thinner, but also that we are able to enhance our cost competitiveness. We continue to develop our technology and packaging processes so that we are able to meet the customers' demands with the optimized as well as differentiating packaging offerings so that we not only have thin packaging but also be able to achieve it with less investments as well as material cost. The next question will be given by Ricky Seo from HSBC. Please go ahead, sir. I have two questions regarding the V NAND product. V NAND, is it possible for you to give us a rough figure of the share of VNAND in your 2015 revenue as well as what you expect VNAND to contribute in your revenue in 2016? Also, some say that because VNAND versus 2 d NAND has lower margins, the VNAND itself is actually lowering your overall NAND margin mix. When do you think the margins on the V NAND side would become similar or even higher than your 2 d NAND? And does that is that a function, for example, of the mix of 48 stack V NAND having to take up a certain portion of your V NAND production? Well, with the 3 d NAND production and demand increasing on both sides, Actually, the 3 d NAND has, as of last year, accounted for more than half of our SSD revenue. We believe that the 3 d NAND business will continue to grow in this year as well as looking at the customers and the applications that we have already been designed into. As our 3 d NAND production continues to ramp up, this also is a positive factor on our cost competitiveness, and our cost competitiveness on the 3 d NAND will continue to improve, similar to planner NAND level. We will also, this year, focus on increasing the revenue, for example, by developing and focusing on the increase of the enterprise SSD applications. I have a question about your future strategy. It seems even though you're currently focused on the existing foundries, the market, at least in the next 3 to 4 years, expected to move shift towards more of the mid to low or analog and specialty foundry demands. And so I'm wondering, strategically, what is your approach and what preparations are you making? Are you considering or have you considered, example, starting 8 inches wafers? If you have, what has kept you from doing it already? What are the major obstacles if you have considered 8 inches in Samsung moving into, for example, analog or specialty foundry businesses? Currently, our foundry process is focused, as you know, on mobile applications. And so currently, our focus is to continue to maintain that focus and expand mobile applications and to diversify our customers on those applications. Regarding 8 inches we already do have the technologies. We have been trying to expand customers, but our major approach and strategy on the 8 inches is to respond to market demand and market situation so that we are able to supply products when the market requires them. The following question will be provided by Min Sung Huang from Samsung Securities. Please go ahead, sir. I have a question on the SystemElist I business. During your presentation and answer, you've mentioned that you have plans of mass producing 10 nano before the end of this year. Is this for captive customer use? Or do you also have large external customers in mind when you talk about 10 nano mass production by end of year? And considering that it has not been long since you've mass produced 14 nano, what will be the impact of this in your profit ability in terms of development cost as well as depreciation? Please understand that we it's difficult for us to disclose any specifics related with the customers. But as we mentioned, our 10 nano plan is moving ahead smoothly. The target is to start mass production in 4th quarter. The pursuit of the 10 nanotechnology is a part of our focus on maintaining technology leadership in this space. Our current focus also includes the ramp up of our 14 nano technology and the major focus to enhance the profitability of our 14 nano is to diversify our customer base. The following question will be presented by Young Park from Hyundai Securities. Please go ahead, sir. I have one question related with the mobile side, the other related with your semiconductor capacity. First, the mobile related question is the strategic implications of your recent organization change. You've there was a change of the head of the mobile business. You've also done some organizational changes. What is the implication of all of this change in your 2016 16 strategy as well as your mid- to long term strategies on the mobile business? As you mentioned, we had some organizational changes at the end of last year, major highlights being that we've actually split our development organization into Division 12 so that we split the hardware development from the software development. Also on the sales side, we have launched a separate sales organization in charge of wearable sales, which would include smartwatches, VR and other devices. The basic intention behind this organizational change is to put more focus on innovation of software and services. While we continue to differentiate our hardware, we will like to use this new organization in order to accelerate innovation on the software and service side and also to focus on developing and identifying new business opportunities such as smart health or cloud businesses, which will give us the growth engines for future. Also, we in terms of the long term longer term or mid to long term businesses, we would flexibly respond to the market, which has been rapidly changing in order to continue to maintain a foundation for sustainable growth. My second question was about your capacity plans this year and also going forward. I fully understand when you say your capacities will be operated flexibly given that 2016 demand is still quite uncertain. But at least according to your current plan on the DRAM side, what is the share of 18 nano-1x at the end of this year according to your current plans? On the NAND side, are you expecting to start the Pyongchak facility in 2017 with NAND capacity? On the system LSI side, will the equipment for Phase 2 Fab 17 be coming in this year? Regarding the 1x nano share, it's difficult for us to give you a number for the reasons that you've mentioned, but I can give you an update saying that we are on plan and on track. We will continue to maintain our market and industry leadership as we had done on the 20 nano product. And the 1x nano, we believe, will continue to enhance our product competitiveness. Regarding the Pyeongtaek campus, it's still doing its groundwork and plans for what products or when to mass produce has not been decided yet. But we will respond to customer demand as well as market situation flexibly. Regarding the fab 17 on the system at list, I actually the equipment for fab 17 is currently being co developed, jointly developed. So the timing of commercial operation will depend on when this equipment development is completed as well as customer demand and market situation. The following question will be given by JJ Park from JPMorgan. Please go ahead, sir. First, I have a question regarding the impact of currency exchange rates on your business and profitability. During the Q3 conference call, you mentioned that due to the week 1 or increase of the Korean won versus dollar exchange rate, there was a positive impact on the parts business by about KRW 800,000,000,000. This time, you're saying that because of the currency, strong won, that there was a negative impact by about KRW 400,000,000,000. But actually, when you look at the exchange rate, even though there are other exchange rates versus the Korean won other than the dollar, actually, during the Q4, the Korean won, there was only about a move of KRW 10, which is a relatively small currency exchange rate difference versus the KRW 800,000,000,000 versus KRW 400,000,000,000 impact on your profits, 3rd quarter versus 4th quarter. So are there other factors other than the 10.1 movement in the exchange rate that explains the impact due to currency rate changes? As you mentioned, our business itself, Samsung Electronics deals not only in dollars but also in multiple currencies around the world. So as you mentioned, the there are other exchange rates, Korean won versus other currency exchange rates to consider. As you mentioned, if you just look at the Korean won versus U. S. Exchange rate, in the Q3, Korean won turned weak by about 6.7%, but the value of the Korean won in the 4th quarter actually increased by about only 1%. But on the other hand, during the Q4, the Korean won was strong against the euro. It appreciated by 2.4%. It was also it appreciated by about 10% versus the Brazilian real. So other currencies did impact the 4th quarter earnings. So that's one factor. By contrast, during the Q3, the Korean won was weak not only against the dollar but also the euro, pound and even the Chinese yuan or renminbi. Also, another factor to highlight related with exchange rate and currencies is that while the strong Korean won or the weak Korean won in the 3rd quarter had a positive impact on the parts side of our business, the component business, the negative impact of the strong won during the Q4 impacts mainly our SET business. And because most of the emerging market currencies were relatively weak versus the Korean won in the 4th quarter. I have a question. My second question is about the DRAM and your outlook, especially on the DRAM prices. It seems the DRAM market itself is in a downturn market. But what do you think needs to happen for the market to hit an inflection point, for example, for prices to stabilize and the downturn market to turn around, do we need to wait until the end market itself turns around? Or do you think that with lower DRAM prices, this could drive an increase in content growth and that will be able to provide an inflection point on the DRAM market. The reason I'm asking this question is because even though the supply growth has sort of decelerated or has been picking off, the prices DRAM prices have continued to go down more than expected. And so what do you think specifically would be an inflection point sufficient to turn around the DRAM prices? As you mentioned, the DRAM market has changed overall versus the past, the major change being that the sources of applications, the sources of demand have itself become much more diverse. PC, for example, which used to be the majority of DRAM demand, now accounts for only about 20%, whereas there are other applications that drive demand in the DRAM market. And we think that the price decline will the price curve or the decline will differ from application to application. For example, on the mobile side, because it's a sliding down scheme, the prices on the DRAM for mobile applications will follow that curve, whereas other applications, each application will show a different price declining trend depending on specific applications. So that would mean that for each supplier, the situation, the prices and the profitability will be a factor of not only their cost competitiveness but also how well they meet specific application demand. Given that industry situation, our approach is to maintain a certain level of profitability, but also be able to maintain competitiveness in specific application demand going forward. Even though the conference call has been going on for some time, we still have many people waiting to ask questions. So perhaps we will be able to entertain 3 or 4 more people before closing the call. The following question will be presented by Peter Yu from BNP Paribas. Please go ahead, sir. My first question goes to the System LSI business. Even though your 4th quarter revenue increased quite significantly versus Q3, your operating margin has remained flat quarter on quarter. What is the specific reason of your profitability being low despite the growth in revenue? And in 2016, what do you expect to happen to your profitability? And what would you think in the mid- to long term will be a normal level of profitability for the LSI business? Also, you mentioned that the CapEx on the semiconductor side decreased in 2015. Specifically, what part of the semiconductor business was the main reason for the decrease in CapEx last year? Regarding our System LSI 4th quarter revenue and profitability that you asked about, our revenue in 4th quarter grew significantly, especially thanks to the increase in supply of our 14 nano foundry operation. But we actually took some one off costs in the Q4, too, in order to prepare for 2016 operations. For example, we cleared out some long term inventory. And so that one off costs in the 4th quarter kept our profitability from increasing in line with our revenue. In 2016, even though there are many uncertainties in the market, we believe that by stabilizing our 14 nano operation and by diversifying our customers, we will be able to grow at similar levels as we saw in 2015. And to clarify the second question, which was about semiconductor CapEx decreasing, actually, that was a reference to what we mentioned in the Q3 that the entire company, enterprise level, Samsung Electronics entire company level CapEx will be JPY 27,000,000,000,000,000, which was mentioned during the Q3 conference call. Actually, that decrease is not attributed to the semiconductor. That was because the display side CapEx was less than expected. And a follow-up question was then why was display CapEx less than expected and that was because the timing of the CapEx execution changed? My second question related with the TV side is that while highlighting your Super UHD TV, you emphasized the fact that it is the quantum dot technology is environmentally friendly, specifically that it's cadmium free. Is this a technology that's unique to Samsung that other competitors will find difficult to emulate? Our environmental friendly or eco friendly quantum dot technology, which is cadmium free, As far as we know, we are the only maker who does quantum dot TVs with no cadmium included. We have already seen some Chinese company mentioned that they have Quantum DOP technology. But according to what we have found out, it is these other technologies do use Kratium, whereas we don't. We are, in that sense, eco friendly. But Quantum Dot as a technology, the value of it or the importance of it is not only that it's eco friendly, but that also compared to other display technologies, it provides better picture quality in terms of supporting color gamuts as well as supporting better brightness. We will take 3 more questions. I would like to kindly ask that each person limits their questions to one question given the fact that this conference call has been going on for some time. The following question will be presented by Medio Seni from SIG. Please go ahead, sir. Thank you. Looking at your semiconductor business, specifically in the memory, can you help us understand the mix of DRAM and NAND revenues? And also, how should we think about operating profit in the memory broken by DRAM and NAND? First, please understand that it's difficult for us that we're not able to give you the specific breakdown of revenue in DRAM versus NAND. But DRAM is a larger share of our revenue in the memory side versus NAND. Sure. Doesn't it imply that it is very important for your DRAM business to maintain profitability? And in that context, what are the key variables or what are the key contingency plans in case demand were to pick up, in case price erosion for some of these other segments outside of PC were to continue to weaken, is there anything that you can do with the supply bit supply that could help you better manage profitability of the DRAM that could have a material impact for your overall memory and semiconductor division profitability. Our major contingency plan on the memory business is basically to drive more memory demand, to create demand for more memory content on the device level or on the end or in the set level, not only for servers, for data centers, but also on mobile, We believe that we there will be more content being put on mobile devices, which will demand more memory, and this will drive up demand for memory. That is in line with the type of memory products that we offer, DDR4 and LPDDR4 that we started mass production in early 2015. We continue to expand on that level. And this is where we enjoy the benefits of the increased memory content on the mobile side and other devices. Of course, as this becomes more of a mass market, there may be some price erosions there, but we believe that we will be able to compensate for any price erosion or decrease in price premium by increasing the amount of memory, therefore, by leveraging the trend of more memory content on the device. The next question will be presented by Hyun Woo Do from Mireya Securities. Please go ahead, sir. My question is related with your NAND capacity plan for this year. You mentioned during the guidance that you plan to grow NAND shipment in 2016 by about 40%. I've crunched some numbers, and it seems without additional capacity expansion, you cannot meet this 40% increase in shipment NAND this year. But given that there's no further room for capacity on the Xian side, does that mean that you're planning on or do you have any plans of converting any of your 2 gs lines in Korea to 3 gs? Gs? Well, regarding our planner operation, our 2 d NAND, we continue to enhance our competitiveness of our existing 2 d NANDs. And we, for example, will be we have started the 1Z NANO and we'll continue to migrate to and further scale down to maintain our competitiveness on the planar NAND operation. On the V NAND, we've already started our 3 gs 3rd generation V NAND, and we'll continue to expand the sales of our V NAND. And overall, the strategy is to enhance our cost competitiveness as well as product competitiveness on both the 2 d and 3 d NAND operations. And actually, our NAND The last question will be given by Mark Newman from Bernstein. Please go ahead, sir. Hi, thanks for squeezing me in. My question is actually on the shareholder returns. Correct me if I'm wrong, but I understood that the policy you announced in the last quarter was to return 30% to 50% of free cash flow to shareholders, which was in addition minus and that was in addition to the $11,000,000,000,000 onetime buyback, accelerated buyback program. So could you clarify that? And if so, this 21 ks dividend for 2015 does not meet the 30% to 50% free cash flow. It's actually something like 22% of free cash flow for last year. So does that mean that there's going to be additional money for buyback that's in addition to the EUR 11,000,000,000,000 onetime buyback program? Our basic shareholder return policy is based on the free cash flow available. But given the fact that the key factor that impacts free cash flow is CapEx and that given all of the variability and uncertainty in the market currently, it's difficult for us to have sufficient visibility of our CapEx needs and plans for 2016 as of yet. Given that, first of all, we have announced today our plans for dividends, which is more important in terms of maintaining sustainability. And so we first of all announced the dividends, which have increased slightly versus the dividend of 2015. Additional shareholder return for 2016, we will be announcing that closer to the second half of this year as we get more visibility of our CapEx needs, that is the free cash flow for 20 16.