We will now begin Samsung SDI's Q3 2026 Earnings Presentation.
Good morning. I am Yoon Tae Kim, Executive Vice President of the Finance and Accounting team at Samsung SDI. First of all, I would like to thank everyone for joining today's earnings call. Joining me today are Jae Kyun Oh, EVP and Head of Business Management Operation, Hanjae Cho, EVP and Head of Strategic Marketing, Yonghui Cho, EVP and Head of the ESS Business Team, and Ik-Soo Kim, Senior Vice President and Head of the Strategic Marketing Team for the Electronic Materials Business.
The presentation will be simultaneously interpreted into English, while the Q&A session will be consecutively interpreted. Let us now begin Samsung SDI's third quarter 2026 earnings conference call.
I will now start with financial results for Q3 2026. Q3 revenue, including AMPC, was KRW 4.7 trillion, up 20.9% QoQ and 52.6% YoY. Operating income was KRW 408 billion, up significantly QoQ, and returning to profit YoY. Pre-tax income was KRW 262 billion, including equity method losses of KRW 36 billion. Net profit was KRW 342 billion, supported in part by an income tax reversal.
Next, I will review our financial position as of the end of Q3 2026. The partial sale of Samsung Display stake lowered the equity value of affiliates, while exchange rate effects reduced property, plants, and equipment. Reflecting these factors, total assets declined by KRW 6.1 trillion QoQ to KRW 41.5 trillion. Borrowings were partially repaid and the translated amount of foreign currency debt decreased. Affected by these, liabilities declined by KRW 4.2 trillion QoQ to KRW 16.6 trillion, and the liabilities to equity ratio improved from 78% to 67%. Total equity decreased by KRW 1.9 trillion QoQ to KRW 24.9 trillion. Capital expenditures in the third quarter totaled KRW 926 billion. Please refer to the appendix for further details on our financial position.
Next, I will present the Q3 results by business units. First, the battery business saw a surge in ESS and BBU sales driven by AI data center growth. Sales of prismatic batteries for new EV volume model projects and high capacity cylindrical batteries also increased. Additionally, compensation from customers contributed to higher earnings. Revenue reached KRW 4.4 trillion and operating income stood at KRW 362 billion, both up significantly QoQ and YoY.
Moving on to the electronic materials business. Amidst strong downstream demand, sales of patterning materials for semiconductors and film materials for foldable smartphones and displays grew, sustaining solid performance with revenue of KRW 276 billion and operating income of KRW 46 billion.
Next, I will present the key business highlights for the Q3. First, having improved results sequentially, we are strengthening our position in the U.S. ESS market by reinforcing our local production and supply capabilities. At growing ESS demand, we have secured more than 60 GW in orders year to date. In August, we acquired a full stake in SynergyCells, our joint venture with GM, establishing our first standalone production base in North America. We plan to initially use SynergyCells as a production base for ESS batteries, where demand remains strong and expand its capacity in phases.
Going forward, we will continue to secure new orders and further strengthen the foundation for our mid to long-term growth. On the supply chain side as well, we are strengthening our compliance with non-FEOC requirements, including by signing long-term LFP cathode material supply agreements with major Korean suppliers.
Second, based on the competitiveness of our prismatic and cylindrical battery products, we're moving our LFP business into full-scale operation. At StarPlus Energy in the U.S., we began our first mass production of high-capacity prismatic LFP cells for ESS in October, and in Europe, we secured an LFP battery project for EVs and are continuing our efforts to win additional orders.
In addition, we unveiled our new cylindrical LFP cell for BBUs for the first time at Data Centre World Asia in Singapore this September, broadening our product portfolio for AI data centers. Going forward, we'll diversify LFP applications across ESS, EVs, and BBUs and rapidly scale up the related business.
Lastly, we're continuing to secure next-generation technologies and new applications to establish leadership in future markets. For our solid-state batteries, we've delivered our first samples to the humanoid partners and are continuing customer evaluations as we prepare for mass production. For cylindrical batteries, we are broadening our applications, adding new customers in aerospace and humanoids. In semiconductor materials, our industry first mass-produced high thermal conductivity EMC, now supplied to major customers, won the IR52 Jang Young-Shil Award, underscoring our technological edge.
Now, our EVP of Business Management Operation will address the market outlook and business strategies for the fourth quarter of 2026.
Hello, I'm Jae Kyun Oh, EVP of Business Management Operation. I will now present the market environment and business direction by business unit for 4Q. First, the ESS market is seeing rising demand driven by the growing share of renewables, the ongoing replacement of the aging power grids, and surging power demand from AI data centers. ESS project contracts are subtly growing larger and longer.
In Korea as well, with the bidding volume of the third Central Contract Market scaling up markedly, we expect ESS demand growth to continue. In response, we will ramp up full-scale production at our U.S. LFP line, which began operating in October, and accelerate the conversion of additional NCA lines to LFP to meet strong market demand. We will also finalize the long-term supply agreements for utility ESS and UPS under negotiation with major customers within this year, establishing a stable foundation for growth. In addition, we will actively bid in Korea's Central Contract Market to strengthen our position in the domestic market.
Moving on to the EV battery market. In Europe, with prolonged high oil prices and subsidies, demand continues to recover, led by small and affordable vehicles. Major OEMs are also preparing for the introduction of the IAA, or Industrial Accelerator Act, looking to source more batteries produced within the region. We'll increase sales for the volume models that have entered mass production, and in response to OEMs demand for locally produced prismatic batteries, continue to win new orders based on our diverse portfolio across high-nickel LFP and mid-nickel products.
In addition, to ensure the successful mass production of the projects we have already secured, we will prepare the production lines at our Hungary plant and establish supply chain for key materials and components as planned. Meanwhile, in the U.S., with regulations on internal combustion engine vehicles easing and OEMs adjusting their electrification strategies, demand is expected to remain sluggish for the time being. We'll monitor market and work with key customers, including on next-generation battery development, to seek mid to long-term growth opportunities.
Next, let me turn to the small battery market. In cylindrical batteries for BBU use, rising power demand from AI servers is driving the need for higher power and capacity, while demand for LFP is also growing for its safety and the cost efficiency, reflecting increasingly diverse customer needs. For IT applications, while the surge in memory prices is expected to slow overall set demand from flagship models is likely to remain relatively solid.
Against this backdrop, we will increase VBU volumes with our existing CSP customers and add new customers to broaden our customer base. We will also expand our product line of expanding form factors from 18650 to 21700 and diversifying materials beyond high-nickel to include LFP. For IT pouch batteries, we will ensure a smooth ramp-up of initial volumes for major customers' new flagship models.
Lastly, let me move on to the electronic materials market. In semiconductor materials, wafer input is expected to rise, driven mainly by demand for AI server chips. OLED panel demand is also expected to keep growing, led by flagship smartphones and IT devices. We will drive sales growth in semiconductor materials centered on patterning materials, and for OLED materials, work to supply high-value film materials, including for major customers' new platforms. Thank you.
This concludes the presentation and we will now begin the Q&A session. The Q&A will be held in Korean and followed by the same content interpreted into English. For any questions you may have, please follow the operator's instructions.
Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant.
[Non-English content] The first question will be provided by Jin Myung Lee from Shinhan Investment Securities. Please go ahead with your question.
Good morning. Thank you for the opportunity to ask questions. I have two questions. The first question is that in your presentation, you outlined Q4 market outlook and your business strategies. Could you provide more detail on the earnings outlook for each business?
My second question is that SPE has begun mass production of LFP batteries. Is the production ramp-up progressing as planned? Could you also provide an update on when the additional LFP lines expected to begin mass production?
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This is CFO , Oh Jae Kyun and I'll be providing the answer to your first question. In Q4, we expect to maintain company-wide profitability supported by continued solid growth in the ESS and small battery businesses. Let me provide a little more detail by business.
For ESS, we expect a significant increase in utility ESS sales, driven by the start of mass production at SPE's first LFP line and higher output from existing NCA lines. Together with increased UPS battery shipments for data centers, we anticipate strong QoQ sales growth. In addition, as U.S. production ramps up, we expect increased AMPC benefits to drive more tangible improvements in profitability.
For the small battery business, we plan to sustain the improvement in profitability by resuming shipments of cylindrical EV batteries to North American customers and commencing initial shipments of pouch batteries for new smartphones.
For EV batteries, while sales to European volume models are expected to increase, continued volume declines in existing projects are likely to remain a burden on profitability. For electronic materials, while display materials are expected to be affected by the seasonal slowdown toward year-end, demand for semiconductor materials is expected to remain solid, led by patterning materials.
For the remainder of the year, we will focus on executing the business strategies outlined earlier to deliver a strong financial finish to the year. At the same time, beyond improving short-term performance, we will continue to focus on securing orders for key projects, steadily ramping up production at our U.S. manufacturing facilities and advancing next-generation technologies.
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This is EVP Yonghui Cho and I'll be answering your question related to LFP battery of mass production. Our LFP line for ESS applications at SPE began mass production in early October as planned, and is operating smoothly. Battery cell shipments begin in mid-October, and following module and box assembly, we plan to begin delivering finished SBB products to customers in December.
To expand LFP production capacity next year, we are converting additional two lines, which are scheduled to begin operation in phases starting in the first half of next year. We have already secured orders for all the additional lines and are focused on ensuring production readiness to meet customer delivery schedules.
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[Non-English content ] The following question will be presented by Jiwoong Yoo from Daol Investment & Securities. Please go ahead with your question.
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Good morning. My name is Jiwoong Yoo from Daol Securities. I also have two questions. With U.S. ESS production ramping up this year, order intake also appears to be growing rapidly. Could you provide an update on ESS orders secured so far this year and the outlook for additional orders as production capacity expands?
My second question is that the European EV market has shown signs of recovery recently. From a battery manufacturer's perspective, what trends are you seeing in customer demand and new order opportunities?
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This is EVP Yonghui Cho, and I'll be answering your first question related to U.S. ESS orders. Supported by the competitiveness of our prismatic batteries, particularly their superior safety, we have secured more than 60 GWh of ESS orders through October this year, primarily in the U.S. utility market. Orders secured to date are sufficient to keep both our SPE and Ulsan production lines operating at full capacity through 2028. We are now focused on securing orders to support production at SPE and Ulsan beyond 2029, as well as at SynergyCells.
Based on ongoing discussions with key customers, we aim to secure additional orders by year-end that exceed the total volume secured through October. This order book provides a solid foundation for mid to long-term growth in our ESS business. Alongside winning new orders, our priority is to ensure stable production and timely deliveries in line with customer schedules. We will continue to drive growth by ramping up LFP battery production and progressing with the development and launch of next generation SBB products as planned.
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I will provide the answer to your second question related to the European EV market. This is Hanjae Cho, the EVP. The European EV market has recently been showing a gradual recovery in demand, supported by persistently high oil prices and expanded subsidies in major markets. In particular, sales of volume models are increasing. We also began supplying batteries for volume models of key customers in Q2 and have been expanding shipments since then. We expect this strong sales growth to continue into Q4.
Along with the recovery in EV demand, OEMs are also reinforcing their electrification strategies, and we expect the market to continue growing over the medium to long-term, particularly in the volume segment. Leveraging our competitive strength in prismatic batteries, which are increasingly favored by the market, we are actively pursuing opportunities to supply batteries for next-generation platforms of major customers.
In Q3, we also secured new orders for next-generation LFP and mid-nickel battery projects from key customers. In addition, we are actively discussing new high-nickel prismatic and 46 series cylindrical battery projects with multiple customers, with prospects for securing new orders continuing to improve.
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[Non-English content ] The following question will be presented by Hoe-soo Ahn from DB Securities. Please go ahead with your question.
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Good morning. This is Hoe-soo Ahn from DB Securities. I also want to thank you for the opportunity to ask questions, and I have two questions. The first question is that with the expansion of AI data centers expected to drive strong growth in BBU demand, what is the market outlook? What are your plans for product differentiation and business expansion to capitalize on this growth?
The second question is: have plans for utilizing SynergyCells been finalized? Could you provide an update on mass production timeline and planned capacity?
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This is EVP Hanjae Cho, and I will be providing the answer to your first question. Driven by increased investment in AI data centers and rising power demand per server, the BBU market is expected to grow a strong CAGR of approximately 30% through 2030. As GPU performance in AI servers continues to improve and power demand increases, there is growing demand for higher capacity, higher power BBUs. In particular, the adoption of the sidecar architecture, which separates BBUs from the main server rack into a dedicated rack to accommodate a greater capacity, is gaining traction. As a result, we expect increased adoption of 21700 cells, which offer higher energy capacity than conventional 18650 cells.
To address these market changes, we plan to expand our BBU specific product portfolio with tabless 21700 cells that combine high capacity with enhanced power output, as well as LFP cells for which initial demand is emerging. Leveraging this expanded portfolio, we will continue to secure new customers, including global CSPs. Going forward, we will continue to proactively address diverse customer needs and expand shipments, positioning the BBU business as one of our key pillars of mid to long-term growth.
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This is EVP Cho, and I'll be answering your question related to SynergyCells. For SynergyCells, we plan to prepare for mass production of next generation high capacity LFP batteries for ESS applications to meet growing demand in the ESS market. We are currently working on optimized design to convert the existing facility, which was originally designed for EV battery production for ESS battery manufacturing. We are currently in discussion with our key customers regarding mid to long term supply volumes.
While the timing may vary depending on the progress of our investment, we currently expect mass production to begin between the second half of 2028 and early 2029. Thereafter, we plan to gradually add production lines and expand our production capacity in phases.
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[Non-English content] The following question will be presented by Sunwoo Lee from JP Morgan Securities. Please go ahead with your question.
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Good morning. This is Sunwoo Lee from JP Morgan. I also have two questions. The first question is that you appear to be continuing to secure long-term ESS orders in the U.S. With AMPC benefits set to phase down from 2030, how are you preparing to maintain ESS profitability as these benefits decline? How are discussions with customers progressing?
The second question is that you mentioned that the company has secured new customers in the humanoid and aerospace sectors. When do you expect these businesses to begin generating meaningful sales and making a significant contribution to earnings?
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This is EVP Yonghui Cho, and I will answer your question related to ESS profitability. We are preparing a range of measures to maintain stable profitability beyond 2030 when AMPC benefits begin to phase down. As customers increasingly seek to secure long-term supply volumes, we are already in discussions with key customers regarding supply volumes beyond 2030. To ensure appropriate profitability, we are negotiating prices that reflect the phased reduction in AMPC benefits, and we expect market prices to settle at reasonable levels going forward.
We will also strengthen our product competitiveness and continue to lower manufacturing costs by developing higher capacity ESS cells and improving energy density. At the same time, we will reduce expenses by optimizing our supply chain, raising productivity, and improving operating efficiency. Together, we expect these efforts to drive a meaningful improvement in profitability.
Going forward, we will continue to strengthen our position in the U.S. ESS market through ongoing cost innovation and enhanced product competitiveness. Leveraging our strategic partnerships with customers, we will also work to maintain stable profitability even after AMPC benefits are phased down.
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I will provide the answer regarding humanoid and aerospace sectors. This is EVP Hanjae Cho. The humanoid and aerospace sectors offer significant mid to long-term growth potential. Leveraging the competitiveness of our high power, long cycle life, cylindrical batteries tailored to these markets, we have secured leading global companies as customers. Shipments for new businesses, including humanoid and aerospace applications, are expected to increase gradually starting next year.
By 2028, these businesses are expected to account for more than 10% of our cylindrical battery sales, making a meaningful contribution to earnings. Going forward, we will continue to expand these businesses by supplying specialized cells tailored to the needs of each market, including ultra lightweight batteries and products with enhanced low temperature performance.
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[Non-English content] The last question will be presented by Hyunsoo Kim from Hana Securities. Please go ahead with your question.
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Good morning. This is Hyunsoo Kim from Hana Securities. I also have two questions. With demand for AI semiconductors growing rapidly, what high performance, high value-added products or new materials are you developing to capture further growth opportunities in the semiconductor materials business?
My second question is that the company has completed the sale of part of its stake in Samsung Display this quarter. How does the management plan to utilize the proceeds from the sale?
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I will provide the answers to your first question, which is related to electronic materials, and this is VP Ik-Soo Kim. As semiconductors become more highly integrated and deliver higher performance, effective thermal management is becoming a key challenge. This is increasing the importance of packaging materials that reliably protect chips while improving heat dissipation.
To address this need, we developed the industry's first high thermal conductivity EMC, combining heat dissipation materials with a curing system built on our extensive experience. We have received mass production approval from major semiconductor manufacturers, and currently serve as the main suppliers for DRAM and mobile AP applications.
As AI adoption expands, we expect high performance semiconductors to be used in a wider range of applications. We will continue to improve thermal conductivity to strengthen our product competitiveness, while expanding our portfolio by developing materials for next generation large area packaging and glass substrates.
Alongside the high thermal conductivity EMC mentioned earlier, we are developing a range of high value-added patterning materials, including EUV materials, essential for advanced fine patterning processes. These efforts will position us to capture growth opportunities as major semiconductor customers adopt more advanced manufacturing processes and expand production capacity.
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I will answer the second question related to the proceeds from the sale of part of our Samsung Display stake. This is Yoon Tae Kim, the EVP. We plan to use the proceeds from the sale of our stake in Samsung Display to fund major capital investments in SynergyCells, Hungary and Korea to strengthen our long-term competitiveness. As these investments will be made in phases according to our investment plans, we have already used a portion of the proceeds to repay debt and improve our financial position.
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Before we close, we would like to address a question submitted online. The question asks whether commercialization of all-solid-state batteries for humanoids will be possible next year, and about the current status of preparation, and the answer will be provided by EVP Hanjae Cho.
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Let me provide the answer to this question. We are currently working with multiple customers on humanoid projects targeting commercialization of all-solid-state batteries in the second half of next year. We began supplying all-solid-state battery cell and pack samples for humanoid applications in September, and customers are currently conducting performance evaluations. We are refining product specifications for mass production next year through ongoing performance improvements and validation to meet customer requirements. In parallel, we are on track to establish a stable supply chain for key materials, including cathode materials and solid electrolytes.
In particular, major humanoid manufacturers are looking to expand beyond industrial applications into the household market, making safety an increasingly critical competitive factor. Accordingly, we expect customer demand for all-solid-state batteries to continue growing. We will carry out each stage of performance validation and production preparation in line with customers' mass production schedules, making every effort to achieve our commercialization target in the second half of next year.
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Thank you for the response. We appreciate the valuable feedback from our investors, and the insights will be taken into consideration in our key management decisions. With that, we will now conclude the Q3 2026 earnings call. If you have further inquiries, please contact our IR team. Thank you very much.