Earnings Call: Q2 2015

Jul 30, 2015

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 a dividend Q and A session. Now we shall commence the presentation on the fiscal year 2015 Second Quarter Earnings Results by Samsung Electronics. Good morning. This is Bob Yi from Investor Relations. Thank you for joining our Q2 2015 earnings call. With me representing the business units are Mr. Paek Ji Ho, who's a Senior VP of Memory Marketing Hong Kyu Shih, VP of System MSR and Marketing Park Jin Young is the Vice President of IT and Mobile Business Chung Young Nak is VP of Visual Display Lee Chang Hoon, VP of Samsung Display as well as Mr. Kim Chang Yeo, Vice President of Investor Relations. I would like to remind you that some of the statements we will 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'll go over our Q2 results. During the Q2, despite unstable euro and emerging market currencies and continued Greek financial crisis, overall earnings improved quarter on quarter based on strong earnings of the semiconductor business, driven by expansion of high value added memory products and mobile application processor business. The improved consumer electronic earnings from the launch of new TV models also contributed to the earnings growth. For our smartphone business, earning improvement was quite muted despite GS6 launch due to low smartphone shipments and increase in marketing expenses for the new product launches. For the entire company, the overall revenue increased by approximately 3% compared to the previous quarter, and this is mainly driven by Semiconductor and Consumer Electronics. The 2nd quarter gross profit increased by about KRW 1,400,000,000,000 Q on Q, led by greater mix of cutting edge process and increased utilization from semiconductor business. As well as, as I mentioned, the launch of new premium TV products, including SUHD. The gross profit margin improved Q on Q by approximately 2 percentage points. Our SG and A expenditure increased by about KRW 500,000,000,000 quarter on quarter mostly due to increased advertising and promotion expenses from the launch of new products in the 2nd quarter. The overall operating profit increased by KRW900 1,000,000,000 quarter on quarter and the operating margin also improved. The non operating profit for the quarter was KRW730 billion, reflecting about KRW190 billion in income from financial activities including interest, about KRW 40,000,000,000 from equity gains and about KRW 500,000,000,000 in other category. The other non operating profit increased significantly compared to the previous quarter This is mainly due to about KRW 400,000,000,000 of gain. 1st on finalization of sales of investment in Samsung Techwin and Samsung General Chemical as well as we had sales of some other assets in the 2nd quarter. The effective tax rate in the 2nd quarter was 24.6%. Obviously, this is much higher compared to previous year. In 2015, we expect the rate to be higher than that of 2014 due to changes in tax credit regulations in Korea. Now I'd like to make few comments on the future outlook. In the second half, amid expected difficult business environment for the I'm business, for the high end smartphone market, we plan to maintain sales momentum by strategic adjustments of GS6 price and introducing new models. In addition, we will launch new mid to low end products and continue to work on improving efficient management of expenses. For our system LSI and consumer electronic business, we expect improvements in earnings compared to the first half, mainly driven by the start of 14 nanometer foundry business and increase in TV shipment on the strong seasonality. We expect the memory and display businesses to contribute solid earnings in the second half. However, there still exist risk of supply increase of LCD panel and premium DRAM products. We expect a weaker pattern of weak first half and strong second half to emerge this year compared to that of the typical year for the IT industry. Our focus during the second half will be on improving overall earnings compared to that of the first half. Short comments on the Q3 outlook. For our component business, we expect positive factors such as increase in mobile, server and memory demand. However, we still expect some risk factors, which include softer seasonal growth of PC demand and potentially somewhat difficult LCD panel market. For the SET business, despite increasing smartphone shipments in the I'm business, increase in marketing expense and the low consumer electronics season would make the improvements of overall earnings to be difficult. You will hear more from the business unit representative in a short while. Now I'd like to comment on our capital expenditures. During the Q2, we executed KRW5.9 trillion in capital expenditure, including KRW3.2 trillion for semiconductor and KRW1.1 trillion for display. The total first half capital expenditure was KRW 13.2 trillion, which is approximately 30% increase from KRW 10,300,000,000,000 that we spent the first half of last year. As I mentioned earlier, in 2015, we are focusing on securing platforms for the future growth. And for this, we see great opportunity to make additional capital investments to reinforce cutting edge technology leadership in vertical NAND and also to improve cost efficiencies of our display panel production. We are currently and carefully reviewing these factors and we'll provide you with updates as we finalize decisions. Now I'd like to address the shareholder returns. The Board of Directors approved the interim dividend of KRW 1,000 per share for 2015. The board has been reviewing a plan to increase the interim dividend to reduce significant skewness toward the year end dividend. This interim dividend increase is a small, but a step toward that objective. As for the 2015 year end dividend, we will make a decision as we get close to the year end by taking this year's business environment and increase of capital expenditures into consideration. For your reference, we have no plan to pay special dividend this year. Lastly, I would like to spend few minutes to talk about the progress of our strategies. For the memory business, with the DRAM, we continue to drive our focus on expanding the share of high value A products such as DDR4 and low power DDR4 and our advanced process competitiveness. And for NAND flash, we are leading the changes in the industry paradigm by introducing the 3rd generation vertical NAND and reinforcing NAND storage lineups. In our system and SI business, we plan to continue to focus on mobile application process of business as well as starting the supply of foundry customers in the second half using the 14 nano. For the OLED business, with improved yield on the new flexible OLED line, we are focusing on securing new mid- to long term growth engine through launching the next generation innovation products, including foldable panels within 1 to 2 years. In addition, based on our strengthened cost competitiveness of glass based OLED, we are in process of expanding mid to low end OLED lineups and securing new customer base. As for our consumer electronic business, we launched SUHD TV that provides a whole new level of picture quality. From now on, we'll make an effort to stimulate the stagnant premium TV demand by expanding our premium lineup, including Super UHD and other UHD as well as Carved TV for mass market products. In summary, despite the current difficult business environment, Samsung Electronics is steadily taking steps to improve our competitive positioning and continue to focus on being ready for the next technology era. Before we turn to the presentation for each business unit, I'd like to share several data points for key businesses area for your convenience. Starting with semiconductor. For DRAM, in 2nd quarter, our bit growth was mid single digit increase and we saw about mid single digit decline of ASP. For the Q3, we expect DRAM market bit growth to be low teens, and we expect to again outgrow the market growth. And for 2015 year in total, we expect the market DRAM bit growth to be low to mid 20%, and we will be outgrowing that industry growth. For NAND flash, 2nd quarter, our bit growth was low teens and we experienced low single digit ASP decline. In the 3rd quarter, NAND market bit growth, we expect to be low teens. And similar to DRAM, we expect to outgrow the market. For 2015, we expect the market NAND bit growth to be around 40%, and we will also outgrow the annual bit growth. For Display Panel, for large LCD panel business, in terms of revenue mix, the LCD portion out of the total DP was high 50%. We had about 10% decline in shipment of large panels in 2nd quarter and the ASP declined about mid single digit. And for the Q3, we expect the large LCD panel shipment to increase low single digit with, again, low single digit ASP decline possible in 3rd quarter. The shipment of the our large LCD panel for the year, we expect to be for annual base would be high single digit decline. For mobile business, in Q2, we shipped about 89,000,000 handsets and about 8,000,000 tablet. Our ASP for the 2nd quarter was about mid-two twenty dollars and mix of the smartphone within total handset was low 80%. The 3rd quarter handset shipment, we expect to see increase from the 2nd quarter, whereas tablet, we expect to remain flattish Q on Q. For LCD TV set, shipment in 2nd quarter was about 10,000,000 units. And in Q3, we expect high single digit increase in LCD TV sales. And now I'll turn the conference call over to the gentlemen from the business units starting from Semiconductor. Good morning. This is Chi Ho Belk from the memory marketing team. I'm going to present our business results for the Q2 and market outlook for 2015. For the Q2 for DRAM, despite weak seasonality, demand increased due to average memory contents growth as well as increased adoption of new interface memory for server and high end smartphones. We reinforced cost competitiveness by expanding 20 nanometer migration, including high value added products and maintained solid earnings by responding to increasing demand for our leading edge products, such as high density DDR4 and low power DDR4. On end, mobile storage demand increased due to contents growth driven by higher resolution of smartphones. Also, enterprise and data center SSD demand increased mainly with high density and reliable products and client SSD demand maintained steady growth momentum. Along with 10 nanometer migration, we improved the earnings by expanding sales portion of solution products such as SSD and UFS. Next, I will comment on the memory market outlook and our strategy for 2015. For DRAM, after the end of Q3, new product launch of each segment is expected to drive overall market demand. In particular, high end smartphone with 2 gigabyte up to 4 gigabyte low power DDR4 and high end server with DDR4 are expected to lead demand in the second half. Also, PC DRAM demand is supposed to improve towards the 4th quarter. For Samsung Electronics, we will focus on securing profitability by actively responding to strong demand of high value added leading edge products such as DDR4 and low power DDR4 and by continuing to expand 20 nanometer migration. On end, we expect demand for solution products to increase, led by demand growth of high density mobile storage and adaption increase of SSD for both server and client. We will reinforce cost competitiveness by expanding V NAND supply and by continuing 10 nanometer class migration. We will also improve earnings and strengthen market competitiveness by actively responding to demand for our leading edge solution products such as SSD, UFS and eMCP. We will focus on securing sustainable profitability by maintaining leadership of cutting edge products and by flexibly responding to market demand changes. Now moving on to the System LSI business. In the Q2, revenue increased compared to the Q1, driven by sales increase of 14 nanometer mobile APM related components such as RF and PMIC for new smartphone motors. Demand for high value added LSI products also remained solid, including high resolution CIS and DDI for flexible display. In the 3rd quarter, we plan to maintain earnings with 14 nanometer foundry supply. In the second half overall, we expect earnings to improve compared to the first half, driven by 14 nanometer foundry business. We also expect solid CIS sales to continue due to new high resolution CIS product launches and further entry into the Chinese mobile market. Going forward, we will continue to strengthen foundation for stable growth by diversifying customer base and product lineup based on our cutting edge technology. Thank you. Good morning. This is Changhoon Lee from the Planning Department of Samsung Display. For LCD panel, in the Q2, although we had risk factors such as decreased panel shipments and ASP, our earnings increased Q o Q, led by the growth of overall shipment area, thanks to the continued trend toward larger size panel and strong demand for premium TV panels such as UHD TV. In the second half, it seems that the market growth will continue for premium TV panels such as UHD and ultra large sized TV panels. However, risk factors exist despite the year end peak season that could bring about overall oversupply such as an increase in the industrial capacity and a decrease in demand from TV set makers due to exchange rate fluctuations. We will appropriately respond to these rough conditions of the 2nd quarter to secure profitability. For OLED panel, in the second quarter, our earnings slightly decreased Q o Q due to an increase in the cost from operation of the new A3 line and a decline in sales of smartphone panels and weak seasonality. In the second half, 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 achieve stable growth by reinforcing product line ups and by expanding customer base. Furthermore, we'll focus on improving profitability by addressing demand for the new high end smartphone panels of major customers. In particular, we will reinforce our market and technology leadership through technological improvement and mass production of flexible display, which is our mid- to long term growth engine. At the same time, we'll strive to secure new growth engines by reinforcing technical development of new applications such as transparent, mirror, head mount and automotive display. In the Q3, we expect lower profitability than the previous quarter due to uncertainties in the LCD market. However, we will make an effort to maintain the overall profitability level of the previous quarter by improving earnings of the OLED division. Thank you for listening. Good morning, everyone. I'm Jin Young back from the Mobile Communications business. Today, I'd like to present our Q2 business results for the IT and Mobile Communications division and our outlook for the upcoming future. In the second quarter, overall market demand for smartphones decreased Q on Q as slow seasonal market circumstances continued, while demand for tablets remained steady compared to the previous quarter. In terms of our business, smartphone shipments dropped Q on Q due to a decrease in sales of our long standing mid to low end models. However, our mobile communications business revenue increased with an improved product mix, thanks to sales of the Galaxy S6 and S6H. Meanwhile, I'm division's earnings remained at a similar level compared to the previous quarter. The supply shortage of the Galaxy S6S increased marketing expenses from the release of our new packaging products and weak performance of our networks business affected our earnings. The Galaxy S6 and S6S sold evenly throughout all regions. However, due to a supply shortage of the Galaxy S6S caused by unexpectedly high market demand. The total sales of the Galaxy S6 and S6S in the 2nd quarter were below expectations. Also, our tablet shipments slightly decreased Q on Q due to continued slow market seasonality. In our networks business, revenue decreased Q on Q, mainly from reduced LTE investments by our major customers in the Q2. Now turning to the future outlook for the second half of twenty fifteen. Market demand for smartphone is expected to increase Y o Y, but this growth rate is forecasted to slow down compared to previous years. Also, market demand for tablets is estimated to decrease Y o Y. As for our smartphone business, we have already resolved the supply shortage issues of the Galaxy Moreover, we will strive to maintain solid stage of high end smartphones in the second half of twenty fifteen by flexibly adjusting the Galaxy S6 and S6H prices depending on market circumstances, while also launching new large display model. In the mid to low end segments, we will continue to strengthen our competitiveness by introducing new models in the market. At the same time, we will continue to give our best efforts to improve profitabilities by increasing the operational efficiency across all business areas, including R and D and marketing with overall optimized product portfolio. As for our tablets, we will actively respond to market demand with the Galaxy Tab A Series, which was launched in Q2 and new products that will be released in the second half of twenty fifteen. Regarding our NetBox business, we will actively expand into new markets with our accumulated LTE business experience and know how. Finally, let me discuss our outlook for the Q3. Smartphone market demand is expected to slightly increase due to seasonality, while the tablet market is estimated to remain at a similar level as the previous quarter. In terms of our business, smartphone sales volume is expected to increase Q on Q with reinforced product lineups in each price segment. Our tablet shipments are expected to remain at a similar level as the previous quarter. For our networks business, we will actually seek opportunities to increase revenue through new partnerships with Officey's mobile operators. Thank you. Good morning. This is Eric Cheng in Digital Display Sales and Marketing. Let me brief you on the Q2 market conditions and the business results. In the Q2, the flash TV market demand decreased compared to the previous year due to global market stagnation caused by currency depreciation in Europe and the emerging countries. Amid the market segmentation, our performance improved from the previous quarter owing to the launch of SUHD and the sales expansion of premium product. But year on year, our performance declined due to the base effect from the strong TV demand in the Q2 year 2014 World Cup and the global economic recession. However, we are maintaining the solid number one position in the market share of the flat and UHTV market as well as in consumer brand awareness and the preference index across major countries. In the midst of challenging market circumstances, we reported higher profit in the 2nd quarter, supported by earnings improvement of TV business, thanks to strong leadership positioning in UHD and the largest size premium TVs. Next, moving on to the digital appliance business. As for the digital appliances market in the Q2, despite economic downturn in Europe and the emerging countries, overall market demand increased compared to the previous quarter due to the evident trend of economic recovery in North America. In response to such market condition, performance of all core products improved Q on Q. We largely increased the term line in North America with strong sales of innovative premium products, namely the Chef Collection refrigerators and active washing machines. And the sales from Europe and the Southwest Asia also increased. Moving on to the second half outlook. For the product panel TV market demand in the second half, traditionally demand increases in the second half. As we enter the year end peak season mainly in North America. But this year, we expect demand to remain at a similar level to the previous year due to a slowdown of growth in emerging markets and continued uncertainties of economic recovery in European region. Meanwhile, we expect premium TV demand to increase in the second half as we expect to see a continued increase in U. S. TV and the consumer preference or larger TVs from the first half. In order to cope with the trends, we are planning to take the lead in creating new demand by introducing affordable premium lineups to gain a bigger ground in the premium TV market and to actively improve profit. As for digital appliance, our economic recovery in North America is expected to continue. However, economic slowdown in emerging markets is also forecasted to continue because of falling oil price and the raw material prices. As a response, we will actively focus our marketing efforts on across the consumer touch points in preparation for the year end peak season. And we will increase sales of innovative products such as Active OSI, while we are striving to expand sales mainly in other areas to market including North America. Also, I will continue to exhibit the Samsung Open House concept, which is geared to promote consumer experience offering through dedicated sharp image shop display for Samsung Digital Appliance products in major retail outlets. With Samsung Open House, I will focus on building a premium brand image with a differentiated store display concept including product experience zones? Thank you. Now Q and A session will begin. The first question will be presented by Young Park from Hyundai Securities. Please go ahead sir. Well, thank you very much. I have two questions, one regarding business. While Robert Li was explaining the data points, he forecasted for the 3rd quarter a global DRAM bit growth in the low 10% and that the company would be outperforming that market growth rate. As you know, currently, there are concerns about the demand and supply situation in the DRAM market. And I would just like to ask whether you could confirm the information that I have regarding the Q3 bit growth outlook. When you forecast outperforming the market in terms of DRAM bit growth, is that implying that you'll focus more on the graphic DRAM side, which is less affected by the overall market demand and supply situation in the DRAM side. There are forecasts that in the Q3 and going forward that there will be increase overall in the market demand for graphic DRAMs. Is that going to be the focus of the company's DRAM growth bit growth as well, so that the company would be less affected by, for example, commodity DRAMs or the EDP side? Well, actually, because your question already had most of the answers that I would have provided, there isn't really much for me to add. But in conclusion, as you look at the data points that we provided, as the company gave the bit growth forecast for the Q3, we also provided you with a full year bit growth forecast and you would notice that that is expecting a bit growth for the global market. And so as you can see, not only us, but the entire industry seems to be moving towards not away from commodities, more towards the mobile or graphic DRAMs and the bigger chip sizes. Also the full year bit growth reflects some of the ramp up problems and that occurred So in conclusion, regarding ourselves, our company, during the 3rd Q4, what we have been doing is we have been meeting the demand and the request that we receive for the new products on the DDR and the LPDDR side with sufficient lead time. And so we will continue to do that. So most of the DRAM growth for us comes from the mobile side with some from the graphic. Actually, 2nd quarter or 3rd quarter PC DRAM, we're expecting that to decrease versus the 2nd quarter. Server DRAMs, we're expecting an increase. And my question on the I'm side is, it seems that the decrease in smartphone shipments in the second quarter was considerably large. The decrease was large. Mainly, it seems, it was due to the poor shipments on the mid- to low end side of the segments that you operate. It seems that during the presentation, you've mentioned that there is a possibility that the shipments could increase in the 3rd quarter. So in that context, could you give us a bit more detail about your strategy and plans of how to increase the shipments in the mid- to low end segment of the smartphones? Yes. As you pointed out during my speech as well as you pointed out, the shipments for the smartphones, the major cause of the decrease we see the direct cause is the decrease in the shipments of the longer standing models that will be soon approaching discontinuation and will be phased out. That was the main cause of the decrease. On the other hand, the mid- to low end new models that were launched across end of last year and early this year, actually their shipments have been meeting our original expectations. Going forward in terms of our mid- to low end smartphone strategy, number 1, in addition to the new models that were launched since the end of last year, we will be launching additional new models in the second half of this year. These models would also have better price competitiveness. So by launching these new models in the mid to low end segment, we will be addressing this shipment. The second is we would also introduce mid- to low end models that have AMOLED displays or larger displays. And also, we're planning to have marketing activities for each series that consists our mid- to low end lines, so in order to The following question will be presented by Peter Setchel from NH Investment Securities. Please go ahead, sir. I also have a question for the I'm and a question to the semiconductor side. If I ask my question about the smartphone first. Even though the overall response of the Galaxy series that was launched this year wasn't as strong as before. It seems the Galaxy 6 Edge had very good responses and provided a direction or a hint towards the direction of the high end handsets going forward. In that context, my question is, could you give us a bit more detail of your plans and strategy regarding future high end handsets, for example, of a flexible or foldable display phone on the high end side? And can you give us an idea of when in terms of timing these new high end phones could be adopted? As you've mentioned, this year, we introduced the Edge as a new hardware innovation. And as you mentioned, the market response was very positive. Regarding our future flagship roadmap, it's difficult for me to give you specifics about hardware innovations that we're planning. You specifically mentioned foldable. But rather than giving you specifics our road map, what I can say is that we will continue to introduce innovative hardware features, well exemplified by the edge display adoption going forward. And on top of hardware innovation, especially in the high end side, we're also focusing on adopting innovative software and service features to continue to provide additional value to the users. You did ask about the specific timing of when, for example, the foldable will be commercialized. It's difficult for us to give you specific answers to such questions. I hope you will understand. But I can answer that we will continue to maintain an innovative approach to hardware on the handset high end side. My second question regarding semiconductors is about the 3 d NAND, which is one of the areas that you have been emphasizing in the semiconductor business. Can you give us a bit more direction in terms of the change in the share of the 3 d NAND as well as the 3rd generation on 3 d NAND directions and future plans? To answer your question, the V NAND the 2nd generation V NAND, we have successfully developed and are selling very well. The 3rd generation, we think that, that will be coming out in the Q3 by latest, at least by October, the 3rd generation NAND will V NAND will be out. And as we have been mentioning, the 3rd generation V NAND in terms of cost competitiveness will excel, surpass what's already out there in the market on top of the fact that as a V NAND, it has the advantages of high reliability, high density as well as various performance advantages. And so we think that the 3 generation 3rd generation VNAM, once it's available, will attract very strong demand from the high end enterprise and the data center market. And once we see the demand, we will then adjust our ramp up schedule appropriately. And if necessary, we can even actually speed up the ramp up a bit for the 3 generation V NAND if that's what the market demand calls for. It's difficult for me to give you the exact portion breakdown, but I can say that in terms of the V NAND, the second half would be about threefold what we saw in the first half. The following question will be presented by Nicolas Godoy from UBS. Please go ahead sir. Yes. Hi, good morning. First question is on the mobile side. The second question is on the semi side. For the mobile side, the Galaxy S6 was released with relatively high ASPs. And I think you mentioned you will bring down ASPs to drive volume. So maybe if you could give us a sense of where blended ASPs were for the Galaxy S6 in Q2? What kind of level of decline we would see in Q3 visavis for instance what we saw last year with Galaxy S5? And how much how you intend actually to price the larger screen sizes models in the high end coming out in Q3 vis a vis those ASPs for the Galaxy S6? Thank you. And then I'll ask my follow-up for Sami. Yes. Your question seems to be basically asking the current ASP for the Galaxy S6 and the future direction as well as the pricing for the new model that will be coming out. But please understand that it's difficult for us to give you a pricing down for specific models that we have in our product line. What I can though provide is a guideline on in terms of the overall smartphone ASP direction for the 3rd quarter. Looking towards the second half of this year, there's 2 major factors that would impact the ASP for the smartphones. One is a positive factor that is in addition to the existing flagship models that we have, we're also expecting new models to be launched in the second half and the sales of these new flagship models and existing flagship models will have a positive effect in our ASP. The negative side would be that as we try to drive up these shipments in the Q3 and as we respond actively that may have a negative impact in the ASP. Our approach basically to the ASP in the 3rd quarter is to maintain or improve the ASP versus 2nd quarter by improving our model mix. But as we mentioned during the presentation, there is a possibility that our may drop versus the Q2. Okay. That's very useful. Thank you. And on the semi side, if we look into 2016, there is a fairly high chance that in DRAM Micron will grow reasonably strongly as they reach maturity 20 nanometer and using the LPDA process with full conversion at Inotel. So here you have one of your competitors effectively growing strongly versus not growing that much at all this year. From your perspective, do you think you would be better off trying to match this growth next year? Or considering how much market share you've gained already in DRAM and the overall supply and demand dynamics in the industry, would you be looking rather at optimizing profits and potentially undergoing one of your competitors next year? Thank you. Well, to first give you the overall answer, in the past as well as current and in the future, for us, it's always been an issue of profitability. Profitability is the top priority of the business that we operate rather than competing over market share. I feel that it's inappropriate for us to directly mention or comment about production or growth of a specific company. But what we can say is that if you look at this year, even the bit growth overall, including ourselves, was less than what was expected up till now. I think this represents some of the difficulties in terms of gaining yield as the industry approaches the final geometry migration, there are difficulties. We have been able to somewhat overcome these difficulties. And I think by the end of this year, except for the products that we have to guarantee longevity, we would either have received approval or would be in the approval process for most of the products for most of our customers. Also given the characteristics of the memory market where a new product that is launched this year doesn't really have much effect in the competition. And actually, the actual competition effect comes in the following year. So as we've completed the conversion to 20 nano class this year that we believe we're expecting that to contribute to our This likewise, if there's a company that completes their conversion to 20 nano next year, that may actually have an impact on the market competition the following year. So to put it simply, we are ready to start January next year with 20 nano, whereas other companies, I believe, would not be in that position and their ramp up will differ. And I think there is a definite gap and a difference between a company that can start in January with 20 nano and those that cannot? The following question will be presented by Mehdi Hosseini from SIG. Please go ahead sir. Yes. Thanks for taking my question. I want to stay on the topic of profitability within the semiconductor. Would you expect V NAND, especially as you ramp the 3rd generation to help with overall profitability for the semiconductor division? And I have a follow-up. Regarding VNAND, as you know, the major source of VNAND are the high end enterprise SSDs, which require high reliability, high density and high performance. The characteristics of these high end enterprise SSDs is the fact that it's a very stable demand source. It's forecastable. And also, it doesn't fluctuate as much as other demand sources. So yes, high margins absolute high margins are important in the business, but also the value of this SSD enterprise SSD demand is the fact that it provides us with a stable base where we can gain appropriate margins and appropriate market share. I also think that the fact that a customer would choose to use a V NAND has strong implications in the fact that that probably means if the customer has a platform that uses VNAND that it will be difficult to operate 2 platforms, the planner platform and a V NAND platform simultaneously and that may have large implications in the overall NAND market. Okay. And then my follow-up question is on the handset, your commentary regarding new models coming out. Does that imply that the next generation Note, Note 5 should be introduced later in the year? Or is that part of an earlier product launch? Excuse me, but can you clarify the question of did you ask about whether the next generation to the NUC5 will be launched this year or? Yes. How should we think about the introduction of the next node? Is Note 5 part of the product introduction later in the year? Or is that going to be introduced earlier more like in the Q3? Actually, we have announced that there will be an unpacking event for the new NUC5, the new NUC model on August 13. So we have announced the launch schedule. But the problem is because we have an unpacking event announced, it's difficult for us to give you further details of the new model until that event. The following question will be presented by Sun Hyuk Lee from Korea Investment Securities. Please go ahead, sir. I have two questions. One is regarding the CE, Consumer Electronics side. The other is regarding the I'm division. First, my CE question is about the TV business. It seems that the TV demand is very weak affected by overall economic weaknesses and recessions. It feels like this weak TV demand has now entered a stage of being a structural issue more than anything else. And it seems that compared to other segments, the consumer demand, especially for the high end TV segment, has become weaker. And I feel that the company itself, you have also been increasing promotions and also have been focusing the marketing efforts more on the mass TV segments. Does this mean that your focus, your previous focus and push behind the high end TVs, for example, the quantum dot or the OLED TVs have changed? Have you revised your strategies regarding the high end TV side is the question first. The second regarding the mobile side, it's more of a fundamental strategy question. As you mentioned, the overall smartphone market in the second quarter have recorded a negative growth. And the on the low end handset side, the competition posed by the Chinese handset makers are becoming stronger and that's eating up much of the profitability in that segment. So given forward, it seems like you will be forced into a position where you would have to choose between profitability versus volume. It would be great if you could, for example, focus on volume and achieve economies of scale, which would in the long term round you back to profitability. But if you had to choose between profitability versus volume, what would be your approach? Well, thank you very much for your question. The promotions that you mentioned and that were on the media is actually to drive up the demand in sales for our affordably priced Super UHD TVs. And we will be operating our TV lineup flexibly for each segment, for each market, given the fact that the market situation is also different depending on the market. And all of this will be towards the focus of enhancing our profitability. Actually, our Super UHD TVs have been very well received by media as well as the retail channels and the consumers as being a very great product. And we believe that we will be able to increase our Super UHD TV sales going forward. What's important, I think, from the consumer's perspective is not what kind of value the TV set as a product can offer the end consumer. And therefore, we will be continuing to focus our capabilities in enhancing our Super UHD TV lineup. Well, it seems that your question itself is assuming that it is a time for us to choose that we would have to choose profit or volume 1 over the other. But still, we believe that we still can basically pursue both profits and volume shipment by flexibly operating our product portfolio in the smartphone and handset market. Of course, as we tactically operate our portfolio for each region and country, the weight placed between volume versus profitability may change depending on the region and country. But basically, our strategy and belief is that we can still operate by pursuing both. And we will maintain, of course, our market leadership by focusing on innovative hardware as well as services and software and to enhance our brand competitiveness. The following question will be presented by JJ Par from JPMorgan. Please go ahead, sir. I also have two questions. The first question is the system LSI business question. Compared to second half of last year, how much growth are you expecting from foundry sales? To answer your question, as we have mentioned in the second half, we are expecting our 14 nano foundry supply to increase quite significantly. And therefore, the revenue generated from the 14 nano foundry business would also increase much. But on the other hand, our overall division will be growing as well. And so in terms of the share of the foundry revenue, it will probably be similar to what you saw in terms of share second half of last year. The second question regards the GS Edge and its display. You mentioned during the presentation that during the Q2, there was a shortage in the GS Galaxy S6 Edge product. Can you give us a breakdown of the share between the rigid Galaxy S6 versus the Edge? And because you've mentioned that the demand for Edge is strong, what do you think that portion would be? That's the S6 versus the S6 Edge as of the end of this year. Also given the fact that you're planning to launch the large size of the Galaxy S6 during this year. Full year, what will be the shipment for all of the Galaxy S6 series? And also this would also probably address the display business as well. But do you have plans of supplying your edge display to external customers? First about you've asked about the share of the 6 Edge in the overall 6 lineup and what that would be, how much that would grow to by the end of this year. It is true that we are seeing strong demand for the 6 Edge. But because the share between S6 and S6 Edge is affected by various factors, it's difficult for me to give you a specific breakdown of the share as well as future directions on that. But we do see that there is strong demand for the 6 Edge. Also about future models, it's difficult for us to mention productions about future models that we have not yet released. To answer your question about the edge display, that will be the flexible OLED display. Yes, we will sell it outside the captive market depending on as the customers and market demand, we will be selling that outside the captive market. For the OLED in general, our OLED displays, we will be continuing to enhance our competitiveness in terms of the picture quality and performance as well as our cost competitiveness. And so we are also planning to increase the OLED sales to outside customers in the future. The following question will be presented by Mark Hsu from Goldman Sachs. Please go ahead, sir. I have two questions. One is about the NAND. Can you give us an update on the capacity expansion for the Xi'an fab for the NAND capacity? And also, can you give us your market outlook for the second half? It seems that there are different views towards what would happen in the NAND market in the second NAND market? 2nd, regarding the display side, the flexible OLED capacity increase, has the increase itself been completed in the first half? Or do you have more work to do for the increased capacity for the flexible OLED in the second half? And can you give us a feel of what yield you're achieving currently? Well, to answer your question about our Shansab capacity, Xianfab, as we've mentioned, is mainly dedicated to the V NAND. So in addition to developing new products and enhancing our process capabilities, We also use the Xianfab to respond to the demand for enterprise and high end data center SSDs. The current ramp up is being conducted gradually and according to plan. And so the current ramp up is within plan. And as we have hinted previously, if the 3rd generation V NAND demand, depending on how that unfolds, we could actually bring forward the ramp up but within plan. About your second question, you've asked about how we look towards the second half of the year regarding the NAND market situation. Actually, I think one factor is the smartphone and how there is very fierce competition at the smartphone set level. And so given the same budget, given the same BOM cost, we're seeing that the smartphones are actually adopting higher resolution displays and adopting higher density and higher performance components in order to win in this competition. And this naturally leads to higher content in DRAM and memory. And so we expect that in the second half, many of the new not only the high end flagship smartphones, but even at the low end of the market that many of the new models that will be launched will be requiring about twice the mobile storage that the previous phones required. And so this will be so the demand for mobile NAND, we think, will definitely remain strong in the second half. Also, there's the SSDs that can be divided mainly into client SSDs versus the enterprise SSD. Many people are saying, yes, the PC market itself is very is struggling and is weak. But I think many of the PC makers themselves would adopt SSDs as a way of differentiating and breaking through the difficulties that they see in the market. And so in the second half or overall the NAND market, we expect to have a solid growth. As well as the yield situation. As you know, the A3 line started operation from last April. And initially, we had some challenges in gaining yield, mainly due to the issues with the depositing of over a large area as well as adoption of some new technology. But these problems have already been solved and we have achieved a very stable yield and there are no issues in terms of supply. Capacity wise, as you know, we already have the A3 line and the existing flexible OLED capacity. As you know, we are planning to add some more capacity earlier next year. Beyond that, we will decide depending on the market situation, market demand for flexible OLEDs. The following question will be presented by Sandeep Bajekar from Jefferies. Please go ahead sir. Thanks. Good morning. I have two questions both in semiconductors. First, can you give us some color on how much of Samsung's 2nd quarter semiconductor operating profit sequential increase was driven by system LSI and 14 nanometer progress. Did memory operating profits increase in line with the 2% revenue growth reported in the 2nd quarter? Well, Sandeep, I think you're asking. Please understand that your question is asking for a bit more detail than what we can provide. As what we have been providing as guidance, the system LSI has turned around to positive profit from the Q2. And both the memory and the system LSI business has been growing in operating profit versus Q1 and Q2 or Q2 operating profit has grown versus Q1. Great. And then second question is just a follow-up on Samsung strategy and priorities in DRAM. Is it possible for Samsung to maintain operating margins in DRAM this year similar to last year's given the demand environment, especially if competition in DDR4 might increase? Well, since you've asked about the DRAM strategy and priorities, as you know, our strategy has to have a longer term perspective in addition to the immediate situation. We have to think down the road as well. Of course, the best situation, the ideal situation is where we can we have currently the best OP margin and we can continue to maintain that down the road. But as a strategy, we also need to think what would happen in the future. It seems some of the flagship models have started actually outright with 4 gigabyte LPDDR4. And this in a sense is an investment for the future. While we can also afford to maintain our OP margins and prevent the OP margin from deteriorating too much because we have the cost competitiveness on our 20 nano class 8 gigabyte as 8 bit, excuse me, the 8 bit 20 nano product line gives us the ability to keep our OP margin from deteriorating any too much. And so in terms of strategy and since you've asked about strategy, what we do need to focus is not only the OP margin, but also maintaining and increasing our capabilities to grow the market. We've been having this Q and A session for a bit more than an hour. There were many questions asked and answers provided. But due to the limited amount of time, I would like to receive 2 more questions before we close the conference call. The following question will be presented by Mark Newman from Bernstein. Please go ahead, sir. Hi. Yes. Thanks for taking my question. A question is also on the DRAM market, looking at the health of the DRAM market. You commented a lot about the recently about the demand. There seems to be a little bit of a mismatch, I think, between what Samsung is saying, I think, what at least the market believes at the moment, because although supply is very, very weak, Samsung's supply is actually quite strong. And that's at a similar time that demand is particularly weak this year. So I want to just the question really is looking at the demand profile, what is it that we are missing on the demand side? Because PCs and smartphone units actually seem to be quite weak at the moment. Is this just all content? Is this just all smartphone content? Are we just massively underestimating the smartphone content increase? And based on your assumptions of the demand profile over the next few quarters, do you think that the smartphone content increase and other demand growth is going to be enough to stabilize market prices after a pretty weak first 6 months of the year? Thanks. That was a difficult question that you've posed. First of all, on the PC side, yes, we're not offering a positive outlook on the PC demand either, especially given the fact that there seems to be a large finished PC that's PC set inventory. Is that still there in the second quarter and that will continue on the third quarter? So that would remain slow. But I don't think it's a type of a market where we would gain any by lowering our DRAM prices. I don't think given the current PC DRAM situation, lowering prices on our PC DRAM would generate additional demand or create demand. And so given that market, it's not the type of market where we want to drive down our prices for the sake of market share. On the mobile side, yes, as you've mentioned, the shipment growth, the number of unit growth, the rate of growth has decreased, but it is still growing. And we're noticing that the competition on the smartphone in all segments is becoming fierce. And the result of this fierce competition across all segments of smartphones is that even the low end smartphones are now adopting HD class displays, which is driving up DRAM and NAND. And so the content increase could actually be more than what you're expecting to see from the mobile side. For example, the high end handsets that last year used 2 to 3 gigabytes are coming out with 4 gigabytes as they use LPDDR4. Also even the mid to low end which started last year with 1 or 1.5 gigabytes are now this year moving up to 2 or 3 gigabytes. So given the fact that the growth rate in terms of shipment and units, number of units, the growth rate may be decreasing, it is still a growing market and content demand on the mobile side may be more than what you expect. We think this trend will continue on to next year. And when we meet our customers, they are saying that memory is one of the core values of what a smartphone consists of. And even though we did start this, we started the initiative, the market acceptance has also been very good. The last question will be provided by Matt Evans from CLSA. Please go ahead sir. Hi. Yes. My question is concerning the product lines in the mobile division. It seems that the message earlier in the year was that you're going to simplify the number of models, but now it seems you'll have for example 2, phablet type devices coming into the market potentially confusing the consumer again. So is this a change in strategy? Or how should we look at that? To give you the conclusion or the answer first, our strategy in terms of the number of models have not changed from what we announced at the start of the year. Regarding the new model, because our unpack event is not far away, it is in August, It's we are in a difficult situation to give you details about the new model that will be unpacked in a few weeks. In terms of the more efficient lineup, actually, we have been in the process of making our lineup more efficient. That effort started from the end of last year and has been continuing. The market may feel that our lineup is still quite large because actually currently we're in a transition period where we're carrying both the long standing models that are near end of life as well as the new models that we have been announcing in preparation for that. So we are in a mixed situation where we have both. But most of these long standing models that are approaching end of life will be completing their end of life will be discontinued at least by end of third quarter. So that from Q4, you will visibly see our new model lineup with a more efficient lineup and consisting of products with greater competitiveness. Okay, Matt. Okay. Thank you. Okay. Thank you.