Earnings Call: Q1 2015

Apr 29, 2015

Good evening 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 2015 First Quarter Earnings Results by Samsung Electronics. This conference will start with presentation followed by a Division of 20 Now we shall commence the presentation on the fiscal year 2015 Q1 earnings results by Samsung Electronics. Good morning. This is Robert Yi. Thank you for joining our Q1 2015 earnings call. We have today 6 gentlemen from 5 from business units and 1 from IR joining us. First, Paek Ji Oh is Senior VP of Memory Marketing Hong Kyu Shik is VP of System LSI Park Jin Young, VP of IT and Mobile Business Chung Young Nak is VP of Visual Display Lee Chang Hoon, VP of Samsung Display and we also have Mr. Kim Sang Yeo, who's 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 it. And such 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 going over the Q1 financial results, I would like to spend a few minutes to talk about strategies that we have for 2015. Samsung Electronics has been focused on technology and product innovations to respond to rapid changes in the IT industry. We believe that 2015 will be an important year as we strive to lead the changes in innovations. For the component business, we expect to secure a strong foundation for future growth by strengthening our technology leadership and in certain products widen the technology gap with competitors. For DRAM, 2015 will be a transitional year moving from DDR3 to DDR4. We expect to maintain high profitability by successfully expanding 20 nano process and by increasing high value added product sales mix. For NAND flash, in 2015, we expect the industry to get close to the technology limit on plan on NAND flash and we expect a transition to vertical NAND to begin in earnest next year. Against this backdrop, we expect to take the lead in technology changes in the NAND business based on our production experiences and technology leadership in vertical NAND that are more than 1 year ahead of our competitors. For System LSI Business, 2015 will be the year for us to take a step forward to move from a follower to a 1st mover in terms of technology as we are the first to commercialize 14 nano application process in the industry. We fully expect a strong turnaround and we look to secure the foundation for future growth in this business area. For the OLED business, while we expand the market and improve the profitability of glass based products with the volume increase of mid range and lineups based on cost competitiveness, we will secure the mid to long term growth engine by actively mass producing flexible displays. Our mobile business slowed in 2014 after achieving rapid growth for the past few years. In 2015, we are striving to regain the growth momentum with innovative designs using flexible displays and wireless charging as well as strengthening mobile service platform such as Samsung K. All in all, we expect 2015 to be a year for us to lay down the foundations for leadership in new technologies for the future. Now I'll go over our Q1 results briefly. During the Q1, despite the weak seasonality of the IT business and unstable macroeconomic factors, including weak euro and emerging market currencies and financial crisis in Greece, the overall earnings improved compared to the previous quarter from a solid earnings of component businesses driven by the launch of Galaxy S6 and by improved earnings of the mobile business. The revenue declined by approximately 11% q on q due to a weak seasonality. The gross profit declined KRW 700,000,000,000 quarter on quarter, but the gross profit ratio to sales improved by approximately 3 percentage point. Our SG and A expenditures decreased by KRW 1,400,000,000,000 quarter on quarter due to decreased advertising and promotion expenses from seasonal factors as well as efficient management of these expenses. The overall operating profit increased by KRW700 1,000,000,000 quarter on quarter as the operating profit of all businesses excluding the Consumer Electronics division improved. And of course, the operating profit as a percent of revenue also improved. We estimate that weak euro and emerging market currencies in Q1 negatively impacted the operating profit by approximately KRW 800,000,000,000. The set business, including the TV, bore the brunt of such effect. The non operating profit for the quarter was KRW240 1,000,000,000 reflecting KRW60 1,000,000,000 of equity gain and KRW 130,000,000,000 in income from financial activities including interest. The business unit representatives will discuss their business results in more detail shortly. So I would like to spend a few minutes on the outlook as we see for 2015. In the Q2, we expect the overall earnings to improve compared to the previous quarter as Galaxy S6 sales expand. For the component business, expect earnings improvement to come from the system LSI business due to an increase in application process sales for Galaxy S6. For the I'm business, we expect solid improvement in earnings driven by increased sales of Galaxy S6. However, we also expect marketing expenses to increase quarter on quarter due to new products marketing. The Consumer Electronics business will also recover earnings in 2nd quarter, led by launches of new TV products and by strong seasonality for our air conditioner products. In the second half of this year, for the set business, despite strong seasonality, we expect the competitions to toughen. In addition, we cannot ignore a risk of a weaker demand due to weak euro and emerging market currencies. For the component business, we generally expect stable supply and demand conditions. However, there could be a negative impact from a weak demand of said products in certain geographies affected by weak currencies. And we also have to address a possibility of increasing LCD panel supply in second half. Accordingly, this year, the IT industry's typical pattern of being weak in the first half and strong in the second half may not be as strong compared to the average year. I would like to comment now on the capital expenditure plan. During the first quarter, we executed KRW7.2 trillion in capital expenditure, including KRW4.4 trillion for semiconductor and KRW500 billion for display. As for our 2015 capital expenditure plan, at this point, we expect the total amount to remain at a similar level to that of 2014. However, I also need to mention that there is a strong possibility that it may increase. We will adjust the capital expenditure amount depending on macroeconomic conditions as well as each business' market conditions for the remainder of the year. For your reference, I would like to share several data points by key business areas. Starting with the semiconductor. For DRAM in Q1 this year, our bit growth came in low single digit increase, while ASP declined mid single digit. And for Q2, for DRAM, we expect the market bit growth to be mid single digit, and we will outgrow the market. And for 2015, we expect the market DRAM bit growth to be mid-twenty percent and our bit growth will again outgrow that of the market. For NAND flash, Q1, our bit growth was approximately 10%, and we saw mid single digit price decline. And in Q2, we expect the market NAND bit growth to be low teens and we will outgrow the market. And for 2015 as a year, NAND bit growth for the market, we expect high 30% and we believe that we will again outgrow that of the market growth. Our large panel LCD display panels in Q1, we saw about 10% volume decline with about mid single digit ASP decline. And for Q2, we expect our large LCD panel shipment to increase low single digit. And while for the year, we expect the shipment to remain similar level as 2014. For your reference within the DP business, our LCD sales was about high 50% and rest coming from OLED business. For our mobile business, in Q1, our total handset sales was 99,000,000 units and tablet sales was about 9,000,000 units. And of the 99,000,000 handsets we sold, about mid-eighty percent represents smartphones. And our ASP for the Q1 for handset was approximately $200 And for Q2, we expect the our shipment of handsets and tablets to remain similar quarter on quarter. And the mix of the smart phone within our handset will remain similar as well. And we do expect the ASP to increase from the product mix improvements. For our LCD TV, in Q1, we sold about 9,800,000 units. And in Q2, we expect low teens of volume increase. And for the year in total, for TV business, we expect about low teens of the unit sales increase. Okay. Now I will turn the conference call over to the gentleman from the business units, starting with Semiconductor. Good morning. This is Ji Ho Baek from the memory marketing team. I'm going to present our business results for the Q1 and market outlook for 2015. For the Q1 for DRAM, mobile demand remained solid mainly due to flagship smartphone launches. Server demand for data center continued to be strong in spite of weak seasonality. We actively responded to demand of each application, while continuously reinforcing cost competitiveness by expanding 20 nanometer migration. And we focused on securing profitability by providing leading edge products such as DDR4 and low power DDR4. For NAND, overall demand remained stable, driven by increasing density of smartphone storage and launches of SSD adapted higher end notebooks. We continue to secure cost competitiveness and increase the sales of solution products such as SSD and UFS. Next, I will comment on the memory market outlook and our strategy for 2015. In 2015, we expect strong server demand led by expansion of new server platform and increase of enterprise SSD adoption rate. Also mobile demand is expected to grow due to higher specification of low end and high end also also high end smartphones. For Samsung Electronics for DRAM, we will continue to reduce cost by accelerating 20 nanometer migration and we will secure profitability by having flexible product mix. Also, we will increase sales of new interface products such as 20 nanometer TDL4 and low power TDL4 with our leading edge technology. For NAND, we will reinforce our competitiveness with 10 nanometer class migration. Also, we will expand 3 d NAND based SSD to all SSD segments and new interface mobile storage such as UFS. Now moving on to the system LSI business. In the Q1, revenue decreased quarter on quarter under weak seasonality, while profitability improved led by 14 nanometer ramp up and increased utilization. In the Q2, we expect earnings to improve as supply of 14 nanometer mobile AP and LSI products such as CIS and DDI increase for new flagship smartphones. In 2015, we expect a turnaround for system LSI through stable production of 14 nanometer product and sales expansion of high value added LSI products such as high resolution CMOS image sensor and OLED TDI. Also, we will continue to diversify foundry customers and strengthen competitiveness of leading edge process and LSI products for long term growth. Thank you for listening. Morning. This is Changwon Lee from the Planning Department of Samsung Display. For LCD panel, in the Q1, although our shipment decreased Q o Q due to weak demand, TV panels on the weak seasonality. We brought a solid result led by strong demand for premium TV panels such as UHD TV. In the Q2, we expect our earnings to improve Q o Q, led by increasing shipment of strategic products such as UHD, curved and ultra large sized TV panels over 60 inches for responding to demand increase from China Labor Day and new products of customers. In the second half, it seems that the market supply and demand condition will remain tight, thanks to increasing demand for premium TV panels such as UHD and ultra large side TV panels. However, risk factors exist in the second half that could influence the supply and demand condition such as an increase in industrial capacity and demand decrease of TV set makers due to exchange rate fluctuation. Under these market conditions, we will focus on addressing demand for UHD TV panels, which is expected to grow continuously by expanding mass market line of for UHD as well as by increasing shipment of premium products such as curved and ultra large size panels. In particular, we will appropriately respond to market changes by enhancing mass market lineups based on cost efficiency and by focusing mainly on profitable product mix to address risk factors in the second half. For OLED panel, in the Q1, our earnings increased Q o Q due to higher shipment of new high end smartphone panels. Although we will strive to increase our sales by addressing demand for new high end OLED Tenors in the second quarter, profit growth would be limited due to an increase in cost from operation of the new A3 line. Looking ahead in the second half, we plan to focus on improving earnings, but we expect competition among panel makers to intensify further due to slowing growth of the smartphone market. Under these circumstances, we will make the best effort to improve profitability by intensifying product line of from mid to low end market, by expanding customer base in addition to addressing demand for new high end smartphone panels. In particular, we will reinforce our market and technology leadership through mass production of flexible display, which is our mid to long term growth engine. Thank you. Good morning, everyone. I'm Sinyang Park from the Mobile Communications Business. Today, I'd like to present our business results and outlook for the IT and Mobile Communications division. In the Q1, market demand for smartphones and tablets decreased Q on Q in line with the typical market seasonality. In terms of our business, smartphone shipments increased compared to the last quarter. However, revenue for the mobile communications business slightly decreased Q on Q due to decreased sales of tablets and feature points. On the other hand, our earnings increased compared to the last quarter as a result of decreased marketing expenses and increased sales of newly introduced mid range smartphones. Taking a deeper dive into our smartphone business, our new mid range models including Galaxy A Series showed strong sales in the Q1. Moreover, we enhanced our premium lineup with the Galaxy S6 and S6S. Recently, shipment increased mainly in Southeast Asia and the Middle East. Regarding our tablet business, shipments declined in the Q1 as a result of market slowdown and the typical effects of seasonality. As for our networks business, revenue decreased from the previous quarter, mainly due to a delay in LTE Networks Investments by major overseas customers. Now let's turn to the Q2 outlook. Market demand for smartphones and tablets is expected to remain at a similar level to the previous quarter. For smartphones, as the global launch of the Galaxy S6 and S6 Edge, we forecast our marketing expenditure to increase Q on Q. Nonetheless, we expect that our business performance will improve with increase of our high end shipments. However, total smartphone shipments are forecasted to remain at a similar level to the previous quarter due to a possible decrease in sales of mid to low end models. The Galaxy S6 and S6 S have been receiving the most attention and the positive feedback from the market since their release on April 10. It's so difficult to predict shipment volume of these devices at this point, as we are still in the early stage of sales. However, based on the promising initial responses, we expected that the Galaxy S6 and S6S will outperform the Galaxy S5 in sales. As for our tablets, we will actively respond to market demand with competitive products such as the newly introduced ELXI TAB A. ELXI TAB A is notably differentiated products as its product capabilities has been enhanced through adoption of FLIM Design and SPAN. Finally, we will move on to the outlook for the year 2015. Market demand for smartphone is expected to continue to increase compared to the last year due to global expansion of LTE services and growth in emerging markets. However, tablet market growth is expected to slow down. In 2015, we will continue to do our best to increase our smartphone sales with our competitive product lineup. We plan to solidify our leadership in the premium market with differentiated and innovative products, while also actively responding to the growing mass market. For our tablets, we will optimize our product portfolio by focusing on the premium and mass markets. At the same time, we will enhance our product competitiveness. Furthermore, we will increase the overall operational efficiency across all business areas, including R and D and marketing to improve profitability. However, EVO competition in the mass markets and the possible decrease in demand due to the effects of foreign exchange rate in specific regions leaves some uncertainties for our business performance. As for our network business, we will actively expand into new markets with our experience and know how in the LTE business. Thank you. Good morning. I'm Eric Chung from Visual Display Sales and Marketing. With the Q4 being a traditionally slow season and due to the foreign exchange rates in Europe, Russia and Brazil, the flattening market demand slowed down. These regions account for a high percentage of our sales. Thus, as we adjusted average selling price to address a foreign exchange rate, It significantly impacted our company. In addition, an increase in material cost due to strong one dollar life change rate also contributed to a decline in earnings. However, we are still maintaining our solid number one position in market share of the rapidly growing UHD TV, consumer brand awareness and the brand preference index. For the digital appliance business, market demand decreased slightly year on year. With the economic stagnation in the European market and the reduced demand in some emerging markets. Even so, our company's sales and profit increased year on year, thanks to the growing sales of premium products. In Q2, as the weak trend of major currencies is expected to continue, The flat TV market growth is likely to remain the same as the last quarter due to lower market demand. However, the growth of UHD TV market expected to continue. Against this backdrop, we are planning to increase sales of the top of the line SUHD TV based on largely extended UHD TV lineup to gain a bigger ground in the premium TV market and to actively improve profit. In particular, the recently introduced premium product as UHD TV integrates our best technologies, offering ultimate picture quality experience in all aspects, including color, brightness and contrast. Also by featuring an eco friendly, cardinal free technology, which is calmness to humans. It is being recognized as the new frontier of the premium TV market. Also, we will continue to expand and introduce regional models that meet the needs of regional consumers and to solidify our leadership in the global TV market. Lastly, by applying the open source platform Taizen, will offer easy convergence with the other devices, simple usability and the customized content and services to strengthen our leadership in software. For the digital appliance market demand in 2nd quarter, economic recovery in the North America is expected to continue, but economic slowdown in emerging markets including Russia and Latin America because of falling oil prices and currency depreciation. Accordingly, I will actively prepare for the week for the peak season for air conditioner sales, while moving forward to improve our results by expanding our premium product sales such as Chef Collection and Active Dual Washing. We'll also globally expand the Samsung Open House, the exclusive experience zone for showcasing digital appliances and actively enhancing our retail marketing and sales management in order to build up our brand power in digital appliance business. Thank you. Okay. This concludes the our presentation. I will turn the conference call over for Q and A. Before, again, we start the Q and A, I just want to get your understanding that we'll do the consecutive translation for Q and A session to make sure that we can communicate clearly what the our views on many of the questions are. I know it will take a little longer, but we certainly hope that this quarter, we can finish the Q and A in 1 hour. Last quarter, it last about 1.5 hours and I heard a lot of complaints. So let's see if we can keep it down to 1 hour. First question, please. The first question will be provided by Nicolas Godoy from UBS. Please go ahead, sir. Good morning. I've got two questions. First one is on the mobile side. So So obviously, the Galaxy S6 has been out now for just below 20 days. Maybe if you could give us a bit more color on the feedback you've been gathering so far for sell through by regions and also on preferences between the GS6 and the GS6 Edge as well as NAND flash content? And maybe come back within that on your comment you just made on being volumes likely being better than the Galaxy S5. I guess the hurdle here is not very high. How would you think about it versus the Galaxy S3 and Thank you. To give you an update on the initial response of the sales of S6, the S6 S6 sales are going very well as we had originally expected. In the case of S6 Edge, the market demand actually surpassed our original expectations and currently the S6 Edge supply is a bit tight. Compared to you've also asked to compare the S6 initial sales to S4 and S3. First of all, I would like to comment that it is a bit difficult to directly compare S4, S3 with the S6 sales given various factors, including that there was a difference in the number of countries that were included in the initial launch as well as difference in timing. And also the fact that because of the tight supply situation on the S6 Edge, the market response may not be very it's difficult to assess the market response. But given all of these limitations, as I mentioned in the presentation, it is selling better than the S5, and we are expecting the S6 edge supply situation to quickly be resolved. And given all of these factors, we are expecting we are hoping that the this would be the best selling among all of the Galaxy S series that we have launched so far. In terms of region, in all of the regions, also the S6 is selling better than the S5. Great. And as a follow-up on Sammis, you must be at a stage now where you define your investments for Line 17 for the second half of the year. We expect that you've concluded module 1 of Phase 1 with DRAM up to 40,000 of those per month of capacity installed equipment wise already. So what is your what are your updated thoughts on module 2, whether you'll dedicate this to DRAM or not and whether this will happen in H215 or whether you're actually temporizing your decision considering overall supply and demand factors for DRAM? Thank Well, I think we had a question about Line 17 in the past conference call as well. It's I get the impression that the market seems to be adding a lot more imagination than what we answer. And then there's some misinformation included in what's all being speculated and imagined by the market. Once again, as we have always consistently maintained, our CapEx investment regarding Line 17 is as following as our original plan, including the capacity. We have made no decisions in terms of adding or increasing the investment regarding Line 17. The Line 17 investment is following the original schedule that we had planned out. Okay. Thank you very much. The second question will be presented by JJ Park from JPMorgan. Please go ahead, sir. I have two questions. The first question is for the semiconductor side. Now assuming that the S6 will sell very well, that would probably mean that you would need more 14 nano capacity. I think the previous guidance that was provided by company was that 14 nano would account for about 30% of total system LSI capacity. Do you have any plans? Or do you expect that share of 14 nano in system LSI capacity to increase? The second question regarding semiconductors is can you give us a breakdown of a captive versus the non captive of your 14 nano capacity this year? To answer your first question, yes, we did provide that as of end of this year, we're expecting 14 nano capacity to account for about 30% of our total 12 inches capacity. And as of current, we do not see any reason for that to change. Regarding your second question about the share of the captive demand in our 14 nano business, I think last conference call, we gave you the share of the captive in our total business unit sales. Compared to our total business unit sale, probably the captive share in our 14 nano is a bit higher. The second question related with the I'm business is about the Galaxy 6 Edge. As you mentioned, it's you've mentioned that it's selling better than originally expected and this is causing or this also there is a tight supply situation there. About when do you expect this the supply situation for the flexible display to be resolved? As I previously mentioned, the supply situation for the 6 Edge is quickly being improved, and we're expecting that the situation will be resolved during the Q2. The following question will be given by Seung Hyok Lee from Korea Investment Securities. Please go ahead, sir. Yes. I have a question. One question about the TV business. If I recall correctly, I think the Q1 was the first time your TV business has recorded a loss. We've also heard that due to exchange rate movements in certain regions, the ASP for your products had to be raised in certain regions. My question is about what is your strategy going forward given the situation? Do you have any plans of, for example, decreasing the share of the less profitable or the less profitable models or the or in terms of in size or models that are not as profitable? Also, are you going to be shifting your strategical focus from a market share focus to more of a profitability focus? Overall, how are you planning to respond to this market situation? Yes. First of all, to explain a bit more of the performance in the Q1. As you mentioned, due to the depreciation of the currencies in Europe, Russia and Brazil, we had to increase our ASP in these areas, which has resulted in slowing down of sales in these areas. Also, the strong dollar has had an impact in terms of increasing our cost structure. Also, it happens that these areas, Europe, Russia and Brazil, are places where we have a relatively higher market share compared to other regions. So the impact of the exchange rate has been more market marked. Now in terms of response, we have already been responding quite appropriately by, for example, adjusting the sales prices as well as adjusting the lineup given the market situation as it unfolds. Also, our premium the new launched premium, the SUHD TV, has been bringing about a very positive market response. And already, we have seen improvement in our performance in Europe and in the Russian or CIS region starting from already in March. The next question will be provided by Young Park from Hyundai Securities. Please go ahead. I have some questions regarding the semiconductor business. First is that our information is that you've already completed the development of the 18 nano DRAM technology. What is your plans in terms of application of this technology in the second half? How much do you think you can produce in the second half using the 18 nano DRAM technology? And what is the amount of efficiency that you're expecting to gain versus 20 nano? It seems you have even better information than I have. But to comment on our 18 nano technology, I think still it is too early in terms of the phase of the technology to talk about mass production because I think currently the more immediate focus is on converting the 20 nano, the true 20 nano processes. Even though our R and D center is working very hard to push forward on the 18 nano, I don't think that we will be expecting to see any sampling or mass production with the 18 nano within this year. I think it will be in the better interest of the company and the investors that we immediately focus on spreading and also improving the yield and improving the mass production situation of our 20 nanotechnology. And actually to correct, I never actually specifically mentioned 18 nano. Then I have two questions regarding the 14 nano FinFAT. There are rumors I've heard market rumors that even though the production is going well, the yield on the 14 nano FinFAT is low. I think it will be we could you could dispel such rumors if you by telling us the 14 nano FinFAT yield in Korea. Also, when do you expect GlobalFoundries to start producing products that use 14 nano FinFAT? To answer your first question about the yield, our 14 hour process, as you know, we've succeeded we are we successfully developed 14 nano FinFAT for mobile applications for the first we started mass production of 14 nano FinFAT for mobile applications for the first time in the world. It is continuing its ramp up and mass production. And the capacity and the yield of our 14 nano FinFAT process is on track as originally planned, and we're not expecting any unexpected impact from it. In terms of the global foundry and their mass production plan, I don't think it's appropriate for us to talk about the business plans of other companies. The following question will be presented by Sandeep Bhaskar from Jefferies. Please go ahead sir. Hi, good morning. Thanks for taking my questions. I have one question on system LSI, another on Samsung service platform. The first one, can you give us an update on customer progress both for 14 nanometer spin set as well as 28 nanometer FBSOI? What portion of your Q1 system LSI revenues were generated from 14 nanometers? And what portion of full year 2015 system LSI revenues do you think would be contributed by 14 nanometers? You've asked about the 14 nano FinFET as well as the 28 nano FTE SOI. Regarding specific customers and customer progress, a bit difficult and sensitive topic for us to go into. But to talk about the you've also asked about the share in revenue. 14 nano is still in ramp up in the Q1. So as of Q1, it does not account for a large portion of E system LSI revenue. But looking towards the full year, as we had mentioned, since 14 nano does account, we're expecting it to account for about 30% of our 12 inches capacity. On a full beer basis, I think that would also be in line in terms of the 14 nano revenue share in the system LSI total revenue. Great. Thank you. That's helpful. Different question. If you could give us an update on Samsung Pay in terms of whether Samsung has signed up additional banks or credit card issuers or merchants to support Samsung Pay since the original announcement? And whether we should expect future Samsung smartwatches to support Samsung Pay as well? Regarding your question about Samsung Pay, we are expecting the overall mobile Pay market to rapidly grow. And in response to this anticipation of fast growth, we have been preparing the Samsung Pay service. As you know, one of the advantages of Samsung Pay is that it is based on a it can also be used on a magnetic strip method, which means that it will provide very high accessibility in the existing credit card merchant base to the consumers. So this high accessibility is a very strong advantage of Samsung Pay. Also in terms of security, we have prepared a triple security approach where we use not only a credit card encryption but also fingerprint and a NOC system to provide a very secure and safe platform. In terms of our plans, we are planning to launch Samsung Pay in Korea and in the U. S. During the second half of this year. We are currently considering the rollout to other countries going forward about whether it will be applied to the future smartwatches Because that does touch upon the specific the specs of our future products, I hope that you will be able to gain more information about that when we launch our next smartwatch. Thank you very much. The next question will be given by Matt Evans from CLSA. Please go ahead sir. Hi. Thanks for taking my call. There's been some reports in the last week or so that about 1 in 3 consumers who pre ordered the Galaxy S6 in Korea didn't actually buy the product in the end. And we've heard some similar reports out of Taiwan. Could you clarify exactly what this means? And perhaps it's related to the definition of what a pre order is perhaps in some markets versus others or some confusion there anyway? And then secondly, can I assume that the talk about the seasonality this year being perhaps not so back end weighted as usual does not apply to semiconductors? It seems that you're talking more there about display panels and TVs and mobile, but I just want to confirm that. Well, you've asked about the pre order. And it is true that some media have been mixing different definitions of preorder in their reports. And in reality, actually, the definition of a preorder is different across regions or countries or even by carriers. So given this reality, it is very difficult for us to, for example, propose a single definition of what a preorder is and how to interpret that. And especially given the fact that already the product has been launched in most of these countries. So to give you an update on how you see the Korean sales situation, it is, as we mentioned, selling more than the S5. And currently, we're thinking that it's selling quite well. Regarding your second question about seasonality, yes, we also agree that for semiconductor, the second half would actually be stronger. The reason why we felt that the seasonality may not be as distinct this year is because of the ZET business and the impact that the exchange rate may have on the ZET business. Due to the exchange rate, we may have to raise prices on the set business, which may which does present the risk of demand for sets being weaker. And if this falls on the second half, relatively, we may have a relatively weaker second half for the set business. Yes. Tom, let me focus on that. Thank you. The following question will be given by Sam Song from Bank of America Merrill Lynch. Please go ahead, sir. My first question is about the display business. And I'm assuming a scenario where one of your competitors decide to invest in a 10 gs LCD fab and also increase its investments in OLED. If a competitor comes with these moves, what will be your strategy in terms of responding? Would you respond head on, also invest in a 10 gs LCD and invest in an OLED TV fab? Or would you rather maintain a more passive stance? I think your question can be boiled down into our investment plans regarding the ultra large LCD panel line and our strategic direction regarding our OLED TVs. First, regarding the ultra large size LCD production line investment, it is quite a large size investment. So we are considering various different plans in terms of the investment, and we will decide depending on how the demand unfolds as well as how the ultra large size industry grows how the market situation develops, we are studying these very closely as we continue to review different investment plans regarding the large size LCD line. About the second question about our OLED TV, as we have previously also mentioned, we have been continuously been developing various technologies. As of yet, the OLED TV still lacks significantly in terms of cost competitiveness. So we will we are currently focusing on developing an optimal mass production engineering technology and we'll decide how we will go forward by looking at the market needs for LED TV and also by talking with our customers. My other question is about your 14 nano capacity. Now you're expecting that 14 nano to account for about 30% of your 12 inches capacity at the end of this year. But by that time, by the end of this year, I'm assuming we will be entering the slow season. Also the demand that's being generated from S6, the APs for that, the captive APs, I'm assuming by the end of this year, we'll be drawing down, which means to effectively use the 14 nano capacity that you will have by the end of this year, you should be successfully developing non captive customers at this point. I'm wondering if that is going on very smoothly. Regarding our 14 nano, because we are so much ahead of our competitors globally on our 14 nano, we have continuously been receiving various inquiries, requests and demand from actually a large variety of customer groups and applications. And so in terms of customers, we are adding on according to our plan and we have no concern on the customer side regarding the 14 nano capacity. The following question will be presented by Mark Newman from Bernstein. Please go ahead sir. Hi. Yes. Thanks for taking my question. First of all, I'd just like to thank you for the letter and the I think the outline Bob you gave at the beginning of the call was actually very, very helpful and I think actually covers a lot of the questions. My question actually is about the handset division. There's been a lot of focus obviously on this call around S6 and S6 Edge. I actually want to talk a little bit more about the mid end and low end handsets. The handset units, smartphone units seem to be improving a bit. And if we look at what's happening, the high end smartphone strategy around S6 focusing on differentiation seems to be paying dividends, seems to be working with some improvement there. But the mid end and low end, it may be a little bit better than Q3, Q4 last year. But with your guidance for Q2, it's implying low end and mid end actually down despite seasonality improving. So I'm wondering why you're not being more aggressive on pricing in the mid and low end. We have heard from our checks that the mid and low end phones are some of the pricing is not competitive with some of the competitors still. And I'm just curious why Samsung is not being more aggressive on pricing perhaps to go more after share. Thanks Regarding our mid- to low end strategy, as you know, we have completely changed our mid- to low end lineup. As of 4th quarter of last year, we've launched the new Galaxy AE Prime Core. And the sales of these new mid to low the mass lineup has been expanding during the Q1. And we think that this expansionary trend will not see much change and will continue into the Q2. Now during the presentation, what I mentioned was more of the old models in the mass market line that are being phased out and will be opposing the long tail end of their life cycle as we go into the Q2. They will have a decrease. But overall, in the new or the main mid to low price range models, we do not expect any trend changes in the Q2 versus Q1. About your question of why we are not aggressive in terms of pricing in this mid- to lower end market, Actually, we are planning to actively respond, including pricing in the emerging as well as growth market. Thanks very much. The next question will be provided by Peter Lee from NH Investment Securities. Please go ahead, sir. First, my question is about your semiconductor. It's very impressive that how you used your own processor for the baseband chip for the S6. Going forward, what is your plans or strategy in terms of a 1 chip solution, including mobile APs? Well, especially given the current mobile environment, 1 chip is a very important product group, especially responding to the mid- to low end mobile segment. We've already launched our first ONETIP solution in 2013 and have continued to expand and strengthen our ONETIP lineup. And our current focus is to continue to build a very competitive and strong ONETIP lineup as well as enhance our capabilities. The second question is about the NAND market. It seems the 3 d NAND will be developing in earnest in the second half. It seems almost all of the NAND companies are saying that they would do 3 d either second half this year or next year. What is your progress in terms of the 3 d NAND side? And what is your schedule in terms of the 38 layer? 48, excuse me, 48 layers. About the V NAND market, looking back, it seems the V NAND market itself has changed quite a lot during the past year. There are more competitors in the space than a year ago. But aside from the competition, we've also been continuously developing our V NAND according to our own plans and schedules and roadmaps. And the qualifications have continued with the customers. And we're expecting that the that soon that not only the enterprise SSDs, but also the PC that its client SSDs would also be produced only on V NAND, which would increase volume and which would decrease our fixed cost burden. So I think going forward, our approach towards our VNAND business is focused more on developing and improving the solutions that use VNAND rather than focusing on the VNAND itself. Our qualifications are with our customers are going currently are moving ahead very smoothly, which will help us in terms of our VNAM business in the second half. Regarding the 48 layer question that you had, that would be equivalent to our what we internally call the V3, which we plan to introduce in the second half and will become one of the main products in our product lineup. Just one correction, I think, on the translation. Mr. Baek did not say that there are more competitions now. He said there are a lot more talks in the market now. We do not see anyone in the VN market until sometime next year. The following I have some follow-up questions regarding the S6 sales trends that you're seeing. You've mentioned that the number of countries that the S6 was launched is different from the previous series launches. And but still that the sales of S6 is better than S5. Is that on a sell in basis or a sell through basis? And if that's on a sell through basis, I think my recollection is that the previous launch was in 70 countries. The S6 launch was in 20 countries. So we're talking about a smaller country footprint. But if on a sell through basis, if S6 you're saying is selling better than the S5, is that in terms of quantity, that shipment volume? Or is that more in terms of the speed of how the S6 is selling? Regarding the S6 sales that I was referring to previously, that applies to both sell in basis as well as sell through basis. And in terms of the sales being better than S5, that is on a volume basis. The second question is about the semiconductor business. Last year, I recall that you had used some of your logic fab capacity to produce memory. Is there any DRAM or land still left in that logic fab? Or is that already all gone? And could you give us a bit more detail about the semiconductor investment plans this year? Last year, actually what happened was not instead of you in order to create a maximum synergy effect in the entire semiconductor business unit, we, as you mentioned, used part of the logic fab. But rather than using the entire system LSI fab, what happened were, if there were certain bottleneck process steps and we could find not identical but similar enough capacity somewhere else, then we would, for example, use vehicles to move around the production so that we could remove the bottlenecks somewhat. And this in using and actually doing this that is using other capacity to clear up certain bottleneck process steps is an approach that we can still use. And this would also decrease the idle capacity and it's an advantage that Samsung can leverage as a semiconductor business. Regarding the investment on the semiconductor side, as we mentioned last year, to give you last year's investments, it was about JPY 10,000,000,000,000 on the memory total, about a JPY 7 to JPY 3 mix between DRAM and NAND. Currently, we're seeing that it won't be the investment won't be very different from last year, but we are still looking into our semiconductor investment plans this year because there are, I think, sufficient possibility that it may be higher than next than last year. And also the mix could also change versus last year's investment depending on how the market situation unfolds as well as the impact that we're anticipating from the new product launches in the second half. So the mix could also be flexible. I think we have 2 more questions waiting in queue before we end the conference call. The next question will be presented by Mehdi Hosseini from SIG. Please go ahead, sir. Please go ahead, Mr. Hosseini. Okay. Maybe we should move on. The following question will be presented by Henry Kim from Citigroup. Please go ahead, sir. Business. First of all, my question is, have you decided in terms of the Phase 2 for your S3 Line 17, whether it will be DRAM memory or system LSI? There was a similar question before, but I think this is a slightly different approach to that question. My question is, have you decided about Phase 2? And if so, could you give us some direction about what you've decided? The second question is, could you give us your road map in terms of your LSI 10 nano mass production plans? The third question is regarding what you're planning to do with your 2 d that's planner NAND capacity. You've alluded that the 2 d NAND seems to be approaching its migration limits. If so, what are your plans on using your current 2 d NAND fab? Will you be changing it to a 3 d NAND fab? Or will you keep it in order to address the remaining low density applications? To take the first two questions, first of all, regarding S3, the Line 17 Phase 2, System LSI is planning to use it as originally planned. To give you an update on the progress, the building is expected to be completed within this year. In terms of filling the building as well as the ramp up, that would be decided flexibly depending on the customer demand. About the mass production of the 10 nano, the development of the 10 nano is going forward smoothly according to plan. Also, the mass production plans are also moving according to plan. We're expecting to go into mass production end of next year, 20 16. I think our experience in successfully mass producing and ramping up our 14 nano FinFAT will be leveraged very effectively and that preparation for the mass production for the 10 nano would also be achieved very smoothly and quickly. Well, to clarify, I don't think we've ever mentioned that Samsung Electronics that we have reached the scaling limit or migration limit of 2 d planner land. The industry may have, but I don't think we've ever actually mentioned that we have because we are continuing to migrate on our 2 d planner land. We're going into 10 nano in the 2 d NAND space as well. This will be coming on next year and the year after. So we have our road map continues on the 2 d planner land next year and the year after. On the 3 d NAND side, the SSD is the key application. On the 2 d, well, we have to think about the demand from the handset, the smartphone mobile side. The handsets and the smartphones are now demanding more storage. So that's going towards higher capacity and higher density. But on the other hand, even though the V NAND may address the capacity and density issues, because that will be 256 gigabits or 32 gigabytes. That will be one application. But still there are consumer electronic products that would not need that much density or capacity. And that would still be, we believe, better addressed by the planner NAND approach down the road. And so our basic approach to the NAND business is that we have 2 lines. 1 will be the high density, high capacity, the higher reliability applications being addressed by the V NAND side. And then our planners would go towards the applications, the consumer applications that do not need that much density or capacity or reliability.