Earnings Transcript for SSNLF - Q3 Fiscal Year 2024

Operator: Hello, everyone, and welcome to the Samsung Electronics 2024 Third Quarter Financial Results Conference Call. I will be your coordinator. All participants will be in a listen-only mode until we open the question-and-answer session following the presentation. As a reminder, this call is being recorded. I would now like to turn the conference over to the Investor Relations team. Please go ahead.

Daniel Oh: Good morning to those here in Korea in Asia, and good evening to those in the Americas and Europe. I am Daniel Oh, Head of Investor Relations. Welcome to Samsung Electronics earnings call for the third quarter of 2024. Before getting into details of our performance, I want to inform you that presentation deck and other supplementary information can be found on Samsung Electronics Investor Relations website at www.samsung.com/global/ir. And a webcast of today's call will also be available on the website. Today's discussion will include forward-looking statements based on current environment. These statements are subject to certain risks and uncertainties, and actual outcomes may differ materially from the views expressed in today's call. Please note that, information we are giving you on this call is as of today's date. I will start with an overview of our third quarter performance and outlook for the fourth quarter and 2025. We will then discuss CapEx, quarterly dividends, sustainability management and other current topics. Afterward, we will turn the call over to executive team members, who will comment on their respective business areas before starting the Q&A session. For today's call, I'm joined by following executives

Jaejune Kim: Good morning. This is Jaejune Kim from Memory Global Sales and Marketing. In the Memory market in the third quarter, for server, as major datacenter and tech companies continue to invest, demand for AI and conventional servers was strong. However, in the case of Mobile segment, demand was relatively soft due to inventory adjustments by some customers and the supply-demand situation was impacted somewhat by the increasing supply of legacy products in China market. Thus, in the third quarter, as demand focus on server application and cutting edge products was strong, our market decoupling by each application and product seem to be intensified. In this situation, we focused on adjusting the business portfolio, mainly toward cutting-edge and high value-added products, aiming to strengthen our business fundamentals. To accomplish this, we focus on depleting aging inventories, mainly consisting of legacy products to further improve our inventory level mix. On the other hand, in the case of cutting-edge products, we actively responded to the demand for high profitable products for AI and servers. Thus, compared to the previous quarter, we achieved sales revenue growth of over 70% for HBM, the mid teens for server DDR5 and mid-30s for server SSD. As a result, compared to the previous quarter, despite the impact of depleting aging inventory, both DRAM and NAND ASPs increased by high single-digits and sales increased by mid single-digits in dollar terms, thanks to the sales of high profitable products. However, our performance decreased due to reduced reversal of inventory valuation loss compared to the previous quarter. One time charges such as incentive provisioning and currency effect due to a weak dollar. Now, let's move on to the outlook for the fourth quarter. In the Memory market, we expect the trends experienced in the third quarter to continue in the fourth quarter. Specifically, while demand for AI is likely to remain strong, we expect some mobile customers to continue adjusting inventory following the previous quarters. On the other hand, we will continue to monitor factors that influence demand, such as geopolitical issues and interest rate and stimulus package in key countries. In the fourth quarter, as this market decoupling trend remains, we plan to continue improving our business portfolio focusing on profitability. On top of that, we are flexibly rolling down our production for some legacy DRAM and NAND products, in line with market demand in order to accelerate the conversion of cutting-edge nodes in our legacy lines. In addition, following the previous quarter, we aim to strengthen our business fundamentals by completing the normalization of inventory level and mix, by the end of the year. For DRAM, we plan to expand sales in line with the increase in HBM capacity, accelerate the transition to 1b nano for server DDR5 and actively expand the sales portion of high-density module based on 32-gigabit DDR5. In addition, we will secure leadership on high value-added products with mass volume business of 10.7 gigabps LPDDR5X and GDDR7, which are developed for the first time in the industry. For NAND, while server SSD demand continue to stay strong, we will actively respond to the demand for TSG SSDs, which accounts for the main portion of the market and further expand the sales of V8 based TCI Gen 5. Especially for QH market that has a high growth potential. We plan to mass produce the 64 terabyte product and sample the 128 terabyte product in this quarter. Therefore, by the first half of next year, we expect to mass produce up to 128 terabyte in QH SSD lineup. Now let's move on to the outlook for 2025. For server, our data center and enterprise investments are likely to remain strong in association with AI and build demand for conventional server as well as AI servers is expected to be strong and stable. In particular, we are anticipating that the size of general type AI data will dramatically increase and the trends toward high density in HBM, DDR5 and server SSDs will be constantly accelerated. For Mobile, as major customers launch more and more on device AI smartphones and the higher specs are required mainly in the flagship segment, we expect memory contents per box to increase. And also for PC, we expect a gross momentum in demand due to the discontinuation of Windows 10 services and the arrival of the replacement cycle for PCs that was sold during the early period of pandemic. But we will continue to monitor some uncertainties such as the macroeconomic recovery trend and potential for the launch of killer application for device AI. Likewise, although demand in 2025 is focused to be robust overall, we expect the demand increase to be driven primarily by high density and high-end products based on cutting-edge nodes rather than legacy products. Therefore, in the next year, we plan to accelerate to process conversion of our existing lines to reduce the portion of luggage products and to expand the portion of cutting-edge nodes. Considering the bill loss during the conversion process, we expect production de-growth to be limited for both DRAM and NAND. But we will focus on the portion of differentiated product based on advanced node rather than short-term pressures, preparing for a competitive business portfolio focused on profitability. For DRAM, we plan to further expand the sales of HBM3E, and we are scheduled to develop and mass produce HBM4 in the second half of the year. In addition, by accelerating the transition to 1b nano in the legacy lines, we plan to reduce the portion of DDR4 and LPDDR4 products based on legacy process that are seeing intensifying competition and to expand the portion of high-end products such as 128 gigabyte or higher DDR5 server modules and LPDDR5x for mobile PC server and so on. For net, while expanding server SSD sales, we will proactively respond to the high-density trend, based on QH products, including 64-terabyte and 128-terabyte SSDs. Also, we will solidify our leadership in the PCIe Gen5 market by accelerating the tech migration from V6 to V8. Focusing on improving our portfolio towards cutting-edge products and strengthening our business structure, we will secure sustainable business competitiveness. Thank you.

Tommy Kwon: Good morning. This is Tommy Kwan from the System LSI Business. Smartphone shipments are expected to grow by around 2.5% this year with a roughly 5% increase in the first half, a slowing growth in the second half, leading to increased debt inventory levels and vehicle purchasing demand. In anticipation of vehicle purchasing demand in the second half and fourth quarter, we have increased third quarter sales through effort to reduce inventory, but earnings have declined due to increased one-time costs such as incentives. SoC sales rose as flagship products were designed in a new project, sensors are being adjusted due to customers' inventory accumulation in the first half, and DDI sales expanded due to the launch of new projects. Throughout the fourth quarter, SoC will continue to increase supply of Exynos 2400 and sensor will reinforce new product development verification and reduce work in process inventories amid weak market demand. DDI is focusing on growth area in a stagnant Display market through the commercialization of mobile OLED TDDI products and support for the expansion of OLED for IT. Although, there is little chance of recession in 2025, the smartphone market is expected to grow by less than 1% next year, compared to 2.5% this year. However, the momentum of on-device AI is expected to be strong. The impact of China's economic stimulus could be an upside opportunity in the smartphone market. In our business division, we plan to focus on supplying our SoC to major customer flagship products, while preparing for next generation tonometer products. Image sensors are expected to expand camera function differentiation, as smartphone component prices stabilize. We aim to strengthen our leadership with high dynamic range capability, low power consumption and zoom functionality. Satellite's strategy to improve yield and secure cost competitiveness in the logic side remain valid. DDI plans to develop advanced low-power products and integrate PDDI and T-COM. Thank you.

Taejoong Song: Hello, everyone. This is Taejoong Song from Foundry Business. In the third quarter, the overall market showed continued growth in advanced technology nodes, largely driven by rising demand for AI and HPC application. However, recovery in mobile and PC applications was slower-than-anticipated. As a result, our overall earnings declined compared to the previous quarter due to the impact of a one-off cost related to employee incentive and inventory provisions of engineering run wafers. Despite these short-term challenges to our business, we successfully met our order targets, particularly in 5 nanometer technologies. To be specific, we have released our 2 nanometer GAA PDK, enabling our customers to proceed with their product design. Our mature technology portfolio has been diversified with improvement in RF, EMN technology and design infrastructure. Looking ahead to fourth quarter, a delayed rebound is expected in Mobile and PC market, leading to potential customer demand weakness. However, HPC and AI related market will continue to show robust growth. Although inventory adjustments among our customers may continue beyond this quarter, we are committed to improving our business performance by focusing on streamlining operations, targeting high gross products of key customers. In this quarter, we will also strive to acquire customers by improving the process maturity of 2 nanometer GAA technology. Furthermore, we'll continue to develop competitive technology and design infrastructure for additional business opportunities. For 2025, the Foundry market is expected to show double digit growth driven by HPC and AI application in advanced technology. Samsung Foundry aims to spend revenue through ongoing yield improvement in advanced technology, while securing major customer demand through successful 2 nanometer mass production. In addition, we are enhancing the comparativeness of our 4 nanometer technology and design infrastructure to address the growing demand for mobile and HPC. Finally, I would like to highlight Samsung Foundry's close collaboration with the Memory division. Integrating advanced technology and packaging solution to develop HBM prototype will help us acquire new customers in AI and HPC sectors. Our major technologies continue to evolve, focusing on specialty technologies, such as RF and automotive, further diversifying our business portfolio. This concludes the key message from Foundry Business. Thank you.

Charles Hur: Good morning, everyone. This is Charles Hur from the corporate strategy team at Samsung Display. I will now brief you on our results for the third quarter of 2024. For the Mobile Display business, we performed sequential improvements in both sales and profit, thanks to the launches of a major customer's flagship products. The sales contribution of Mobile Display business exceeded over 90%, which is similar to the previous quarter. In addition, the Smartphone segment achieved double-digits sales growth. For the larger display business, sales volume has increased compared to the previous quarter, driven by stable demand of both TV and monitors. However, earnings has underperformed compared to previous quarter. Next, I will share our outlooks and strategies for the fourth quarter. For the Mobile Display business, sluggish demand for smartphone is expected to continue into the first quarter, along with the sales growth in IT and automotive business. However, our performance outlook is quite conservative considering the rising competition among panel makers. For the larger display business, we'll continue to address the demand from major customers by improving production efficiency and keep striving to expand sales compared to the previous quarter. Also, we'll respond to the demand for 2025 new products with a timely supply. Next, I'll share our outlooks and strategies for the Mobile Display business in 2025. We expect overall growth in the smartphone market will be limited. However, OLED penetration rate is predicted to keep rising, as more smartphones with OLED panels are projected to be released. As high performance display is required with the spread of AI devices, OLED adoption trend will continue to increase. We will maintain our leadership in foldable and high-end smartphones with our innovative OLED technologies, such as low power consumption and high resolution, which is optimized for AI devices. Additionally, we'll accelerate the expansion of IT and automotive sectors to diversify our business portfolio further. Finally, for the larger display business, we continue to leverage the performance advantage of OLED panels to strengthen our position in premium TV market. And for monitors, we'll broaden our lineup by adding new high resolution product and diverse refresh rate options. Consequently, we'll not only solidify comparative edge in gaming monitor market, but also actively enter the B2C market in 2025. Thank you.

Daniel Oh: Many thanks to our DS Division representative. We will now move on to the second section, which will cover DX division. First, EVP, Jongmin Lee from the CX MDE Center will discuss the company's overall AI strategies followed by other DX Business representatives.

Jongmin Lee: Hi, everyone. Before we move on to performance of DX Business, I'd like to discuss our multi-device AI strategy, driven by Samsung's extensive product lines and cutting-edge technologies. Every year, Samsung delivers over 500 million diverse products to our consumers around the globe, with the tailored application of AI in each product, helping to secure our position as a market leader. Samsung devices are becoming more and more connected each day, and we are striving to deliver AI functionalities that bring practical benefits to daily life, making it safer, more convenient and more efficient, so you can reclaim your time and effort, while saving energy in the process. At the base of this is SmartThings, our platform with 360 million users using the capabilities that we have developed so far, which include product intelligence, spatial intelligence and personalization, we will establish our presence in the future home, where AI is the norm. First, we believe security is the key priority in the AI era, and Knox Samsung Account is core. We have expanded and applied our proven support technology across our product lines from mobile to TVs and home appliances. In fact, our home appliances recently received a diamond-level rating, the highest level of security in the industry. Increasing device connectivity also carries increased risk. To further protect against such threats, we have applied NOx Matrix, our trust chain based solution that creates a safer AI home. Second, I'd like to address convenience. Devices in your home will not only automatically connect to SmartThings, they will also evolve to understand your lifestyle. When you power on a newly purchased Samsung product, it will automatically connect to SmartThings, allowing you and your family to easily use it along with other previously connected devices. This is made possible through our AI-based Calm onboarding technology, a stepping stone to convenient life. Samsung TVs and home appliances come equipped with hub functionality right out of the box, enabling seamless connections with various products from partner companies without having to buy a separate hub device. In addition, our technology can automatically create a map of your floor plan, allowing you to arrange devices and furniture in 3D. This provides a visual for you to ensure that air quality and power consumption are maintained at optimal level throughout your home. Furthermore, Samsung's voice assistant, Bixby, can recognize different users and offer tailored experiences to each individual. Third, our intelligent saving technology makes our customers wiser. It helps them to reduce energy cost, reduce time spent on household chores and even supports environmental protection. For example, our technology can detect when no one is at home and power down unnecessary appliances, which saves the energy and helps to protect the environment. Last, our technology can help you to take care of your health and well-being of loved ones. We will expand the AI connectivity experience from the home to health with the ability to monitor sleep quality, health metrics and your diet through diet coaching, providing multiple ways to help you to take care of yourself and your family. In June, we introduced a Family Care, a service that analyzes device usage patterns of elderly parents or those under your care, helping you ensure their well-being even when you are apart. With kid care, we are currently in the process of expanding this service to include the children. Given our customer first approach, we will keep working to build a warm, welcoming home AI environment centered on well-being of everyone in this space. In addition, we are continually advancing dedicated solutions for the B2B sphere, such as SmartThings Pro, aiming to expand in commercial space like public housing, hotels, stores and offices and contribute to growth in our B2B businesses. Now let's discuss the performance and traction of each business unit. Thank you.

Daniel Araujo: This is Daniel Orajo from the MX division. I'd like to share our results for Q3 and the outlook for Q4 and next year. The smartphone market in Q3 was affected by lingering global inflation, which delayed the recovery in consumption. Despite major vendors releasing new products, demand only increased slightly. The MX division recorded shipments of 58 million smartphones and 7 million tablets in third quarter with a smartphone ASP of $295. We achieved growth in both revenue and operating profit compared to the previous quarter, due to the release of new smartphone, tablet and wearable products. Although material costs rose as product specifications improved to enhance their competitiveness, our expanded sales focused around flagship models drove profitability close to the double-digits. Now let me move on to our outlook for Q4. The smartphone market in Q4 is forecast to grow quarter-on-quarter due to seasonality, but competition in the mass market segment is to intensify amid an increase in demand, especially in emerging markets. The MX division expects shipments of smartphones and tablets to decrease and ASP to decline compared to Q3 when many new models were released. With the holiday season in mind, we will implement various sales programs to continue the solid sales of AI smartphones such as the Fold 6, Flip 6 and S24 series aiming for double digit growth in annual flagship sales. For tablets and wearables, we aim to expand sales linked to year-end seasonality with a particular focus on new premium products, featuring significantly enhanced performance in order to contribute to MX's sales and profits. Next, I'll share our outlook for 2025. We expect the macroeconomic environment to stabilize somewhat in 2025, due to the impact of interest rate cuts, and the smartphone market should grow slightly. In particular, we expect the mass market segment to grow, given the expansion of AI functionality from primarily premium products in 2024 to midrange products, along with overall improvements in hardware performance. Market demand for ecosystem products is also likely to increase. The tablet and Note PC markets will grow due to demand from the product replacement cycle and increasing AI functionality. The Smartwatch and TWS markets will also see applications of AI functionality and expansion of premium demand. And as for the Smart Ring, rising demand for new wellness experiences such as sleep management should lead to continued market growth. In the MX business, we plan to drive sales growth centered on flagship products, based on further advancements of Galaxy AI. The S25 Series scheduled to be released in the first half of next year, will offer an even more complete Galaxy AI experience, driving innovation around real use cases in everyday life. We also aim to expand sales through strengthened marketing and hands on experiential programs in that spreading Galaxy AI. For foldable phones, we will strengthen product competitiveness with design innovations and AI specialized for foldables, further solidifying our leadership in AI phones from 2024 onwards. Galaxy Tab and Book will offer more advanced Galaxy AI features, and we will focus on expanding sales of premium products. In wearables, we aim to increase sales by further differentiating products by refining them and improving usability. We will expand the Galaxy Watch's position in the premium market by focusing on AI functionality. And for the Galaxy Buds, we will bolster premium sales by establishing an AI specialized line-up while also enriching sound quality. The Galaxy Ring, which launched this year, will contribute to expanding the Samsung Health ecosystem by enhancing our sleep management experience, and we will improve the connectivity between our products, including upcoming XR devices to further elevate user experiences in the Galaxy ecosystem. Lastly, in 2025, we anticipate seeing an increase in the prices of major components due to improved product specifications, as we strengthen product competitiveness. However, we aim to improve profitability by further enhancing Galaxy AI, as well as expanding sales centered on flagship products. Thank you.

KL Roh: Hello, everyone. I am KL Roh from the sales and marketing team of Visual Display. Let me brief you on the market condition and our result in the third quarter of 2024. TV market demand increased quarter-on-quarter, thanks to seasonal effect, but it declined slightly year-on-year, mainly due to global sporting events pulling demand into the first half. For Samsung, we improved profitability both year-on-year and quarter-on-quarter by focusing on sales of strategic products, such as Neo QLED, OLED and BIG TV. At the same time, we expanded sales in the service business and optimized the resource management. Now let me go over the outlook for the first quarter and for 2025. In the first quarter, TV market demand is expected to recover, thanks to year-end peak seasonality, although competition is likely to intensify. To preemptively capture peak season demand, we will enhance our sales program focusing on premium model, big TV and lifestyle screen, through strategic collaboration with major retailer. Also, we will focus on expanding sales and securing profitability by emphasizing the non-price competitiveness of our TV related to security, design and contents, which have recently emerged as important consumer value. The TV market in 2025 is projected to grow slightly, with strategic products such as QLED, OLED and Big TV continuing to gain share. We will continue to differentiate AI functionality and innovate our product, centering on premium and live lifestyle screen to solidify our position as #1 player in the global market. In particular, we will actively employ AI technology to not only advance core TV performance, such as picture and sound quality, but also enhance the overall customer experience with the SmartThings ecosystem, thus expanding the role of TV to become the hub of the AI home in the era of hyper connectivity. By product, for Neo QLED, the backbone of our premium TV lineup, we will sustain our key differentiator and related communication. And for OLED, we will improve the picture quality of our main model and reinforce regional lineups to drive dual premium sales of Neo QLED and OLED. Furthermore, we will strengthen our lineup in nine inches above Super Big TV to target growing demand in this segment. As for lifestyle screen, we plan to make full use of our competitive edge over later commerce products to solidify our position at the forefront in this category. Lastly, by leveraging our extensive installed base secured with our leadership in hardware, we will keep expanding our service platform business, driven by advertisement and media, such as TV Plus. Thank you.

Daniel Oh: Thank you, everyone. With that, we have concluded our prepared statements. Let's open the line for questions. The following Q&A session will be conducted in Korean.

Operator: The first question will be by Mr. Sung-kyu Kim from Daiwa Securities. Please go ahead. Mr. Dong-Won Kim from KB Securities will make the first question please.

Dong-Won Kim: Yes. Thank you for the opportunity to ask some questions about Memory and MX. You already -- what is your outlook in terms of bit growth for DRAM and NAND in the fourth quarter? And also, what do you intend in terms of innovating or reinforcing your foldable lineup for 2025 as well?

Jaejune Kim: Let me take the first question regarding fourth quarter bit growth first. First, for DRAM, we will be expanding HBM production and sales. And so, we expect that DDR5 and LPDDR5X products will likely see limited production growth. Meanwhile, amid inventory adjustments by Chinese mobile clients, mostly for legacy products, plus the base effect from sales of aging inventory in the third quarter, we expect our DRAM bit growth to decline to a mid single-digits level in the fourth quarter. For NAND, as we see continued solid demand for server SSDs and boosted by an upside in QLC SSD sales, we expect server SSD revenue to increase by an additional 10% Q-on-Q on a bit basis. However, on the weaker mobile demand, we expect demand growth to be constrained. And this, when combined with the base effect from low bit shipments in the third quarter, overall NAND bit shipment is expected to see limited growth at around the low single digit level. We aim to offer a differentiated foldable experience, that actually transforms our users' mobile lifestyles. We try to create these new mobile experiences by improving the product itself on the one hand, while at the same time incorporating AI functionality tailored to the form factor. We will continue to further differentiate our premium products, as we make the fold slimmer and lighter with a powerful camera experience and enhance the Flip's unique design and cover screen experience. Since customers of our foldable devices have high-levels of product satisfaction, we're also considering ways to ease the purchase barriers so that more people can experience foldable products firsthand. We are preparing a new form factor for consumers seeking an even more powerful and innovative mobile experience, aiming to introduce it when we can ensure that the quality and the real life experience meets our users' expectations. Thank you.

Daniel Oh: Thank you for your answer. Next question, please.

Operator: The next question will be by Mr. Sung-kyu Kim from Daiwa Securities. Please go ahead.

Sung-kyu Kim: I have two questions on semiconductors. First is on the Memory side. Third quarter performance was actually below market expectations. So can you explain more on the memory business results in terms of both sales and profit? And second, regarding your flagship SoCs, could you provide a status update on the development of the Exynos flagship SoC and comment on possible application on next gen flagship models?

Daniel Oh: Okay. Let me take the question on the performance for DS. In the third quarter, we boosted the share of sales from high value-added products as we focused on improving profitability. Also, to normalize inventory in volume and quality, we also expanded sales of aging inventory. Third quarter bit growth was flat Q-on-Q for DRAM, down to single digit growth for NAND. The increase in ASP was also slightly more constrained versus budget from the impact of aging inventory. Overall, DRAM and NAND ASP both saw high single-digits growth compared to the second quarter. Also, total revenue for the Memory business in dollar terms posted mid single-digits growth quarter-on-quarter. And for DRAM, we saw HBM sales grow by more than 70% Q-on-Q as we ramped HBM3E mass production. Meanwhile, as production was focused around HBM, there was limited supply capacity for DDR5 products based on advanced nodes. Nonetheless, server ASP increased by more than DRAM ASP, while DDR5 sales accounted for more than 80% of total server DRAM sales. Notably, as AI models become bigger in size, we have been seeing an increase in demand for high capacity DDR5. Our 128-gigabyte product, which is the first time in the industry, based on 1b nano, 32-gigabit technology has increased as a percentage of the sales mix now, accounting for high single-digits percentage of total server DDR5 sales. NAND also continued to see a rise in server SSD sales, and we reported a record high in the third quarter and now accounts for 50% of total NAND sales. Amid inventory adjustments by some mobile customers, however, there was a slight decrease in purchasing demand, and coupled with our operational focus on profitability, NAND sales volume came in below our bit guidance. For earnings, despite the Q-on-Q increase in sales, third quarter operating profit was down on a quarter-on-quarter basis, as write back of provisions for inventory valuation loss was lower versus the second quarter, also impacted by one-off costs, such as incentive provisioning and weakening USD.

Tommy Kwon: So, let me take your question on system LSI. While I cannot comment on details concerning customer projects, we are in close collaboration with the foundry side to secure sufficient supply capacity for our next gen flagship SoCs, as we look to start application on flagship series models next year. We're also looking to expand adoption of current generation SoCs in our current upcoming flagship models for next year. As AI spreads further, building on our experience and capabilities in the flagship SoC space, we're working to move beyond smartphones to expand into on-device related business opportunities. We're focusing on acquiring relevant technologies, including on-device AI software, xPU link technologies, also telecommunications, sensor display, security power to identify further business opportunities in the solutions space. Thank you.

Operator: The next question will be by Mr. Nicolas Gaudois from UBS Securities. Please go ahead with your question.

Nicolas Gaudois: In your recent statements, alongside the Q3 '24 prelims, you mentioned experiencing delay with one of your major customers for HBM3E commercialization. What's the business that you spend plan for HBM of all and specifically HBM3E from here? Thank you.

Jaejune Kim: Yes. First, let me take you through the status of our HBM business. In the third quarter, total HBM sales grew by more than 70% Q-on-Q with both HBM3E 8 and 2 stacked layer products in mass production and generating sales. The share of HBM3E increased to low-to-mid 10% of total HBM sales. But, of course, there were some commercialization delays, and so those figures will likely be below guidance that we provided in Q2. But still, we expect HBM3E to account for about 50% of HBM sales in the fourth quarter. As explained together with our preliminary results, while we did experience some delays in the supply of HBM3E for a major account, we have nonetheless made a meaningful advance. As we have now completed an important phase in the qualification process, we expect to start expanding sales in the fourth quarter. Additionally, we are working to increase and expand into more number of projects, as we seek to expand supply for both HBM33E 8 and 12 stacked products for multiple customers to broaden our revenue base. Additionally, we are preparing an improved HBM3E offering for several of our key customers optimized for their next gen GPU programs. Mass production of these enhanced products is planned for some time in the first half of next year. We're currently in talks with our clients on scheduling. So we're looking to expand supply of existing HBM3E products to previously-awarded projects while driving additional sales of enhanced HBM3E products to supply for new projects to expand the addressable demand pool. For HBM4, development is underway according to plan as we target, starting mass production in the second half of 2025. We're working on custom HBM business development for multiple clients. And for custom, because meeting customer requirements is key, choosing -- when choosing a foundry partner for production at the base side, customer requirements will be the priority. We'll be flexible in our approach regardless of whether it involves an internal or external partner.

Operator: The next question will be by Mr. Sei Cheol Lee from Citigroup.

Sei Cheol Lee: This is Sei Cheol Lee from Citi. I have a question for Memory and also Foundry. First, regarding Memory. I would like to hear more about your outlook for memory in 2025. You did mentioned some, but, could you elaborate more on decoupling and other developments that you expect? In a related question, could you share more on your CapEx plans for next year as well? Next question has to do with your Foundry business. I'd like to ask about the current status of your advanced process node development for Foundry, and I'd like to hear an update on development of your 2 nano process nodes, which we've heard will enter mass production next year.

Jaejune Kim: So we will start with the memory question first. Next year, in terms of overall industry-wide supply conditions, we expect Chinese memory makers to increase supply of their legacy products, while conversion to more advanced process nodes is likely to accelerate among existing players, mostly around DRAM. Amid continued supply constraints for clean rooms across the industry, increasing the share of advanced nodes will likely be achieved not so much through capacity expansion but by conversion of existing lines to more advanced nodes. Considering the bit loss that can occur during this kind of line conversion, I think supply bit growth will likely be constrained to a certain extent for next year. In addition, for DRAM, as production is concentrated on HBM, the existing outlook that production bit growth for conventional products would be constrained, I believe this outlook still holds valid today. For NAND, when CapEx was constrained across the board for the industry during the downturn, we did see supply still increase in 2025 from higher utilization rates. However, as we do not see further scope for further utilization upside next year, we expect supply growth to slow down to a certain extent in terms of the pace or extent. On the demand side, market decoupling is expected to continue at least up to the first half of 2025. For server applications, solid demand is expected to continue for AI related HBM, server DRAM and server SSD. We expect enterprise demand to also see some growth momentum as Windows 10 services are discontinued for PCs, and PCs sold during the pandemic reach their replacement cycle. On the other hand, for mobile applications, due to inventory adjustments from some clients, we expect limited demand conditions to continue for the time being. But, potentially, we may see some recovery in purchasing demand in the first half of next year once the inventory adjustments wind down, and as on device AI is deployed on flagship models around that time as well. As demand is expected to vary between different use cases, there may be a bipolarization of demand between different end use applications. As production bit growth for advanced node products continue to be constrained, we believe the decoupling of supply/demand dynamics between advanced process nodes versus legacy products are likely to continue for some time. Based on this outlook, we are setting CapEx at level similar to this year. Our priorities will include building next gen semiconductor R&D complex, investing into HBM packaging, making advanced investments to secure clean rooms for the mid-to-longer term as we focus on strengthening our future competitiveness. For facility investments, our focus will be on investing in conversion to advance process nodes rather than capacity expansion. We plan to accelerate conversion of existing lines to 1b nano DRAM and V8, V9 NAND processes so that we can focus on the high value-add markets enabled by advanced process nodes to benefit from strong demand momentum. For DRAM and NAND, rather than simply targeting bit share, we'll focus on tapping the high margin market, strengthening the competitiveness that the market demands. We'll manage production and CapEx in a flexible manner as a baseline position. Now let me address Foundry. Our two nano process is under development designed to be an enabling technology platform that is optimized for mobile and HPC applications. Based on improved process maturity and expansion of our IP portfolio, development is currently underway targeting mass production in 2025. We're doing PPA analysis for performance, power consumption and area, mindful that our 2 nano GAA all around PDK and design infrastructure will be used to customize different products for our key accounts. Other evaluation work is also underway for certain customers to assess IP content and to characterize silicon through MPW. To acquire additional sources of competitiveness for our 2 nano GAA process, we've been developing several fabrication processes and design technologies like BSPTN and automotive technologies. Customers are not just looking at the competitiveness of process knowledge, but seeking a total solution that includes advanced packaging technologies. So based on our 2 nano GAA process with competitive PPA, we're aligning with customers on differentiated packaging, aligning with them on our roadmap for differentiated 2.5D, 2.3D and 3D packaging technologies and seeking strategic partnerships to secure more diverse customers, not only for mobile but also HPC and AI automotive.

Operator: The next question will be by Giuni Lee from Goldman Sachs.

Giuni Lee: Thank you for the opportunity to ask. I have a question for Foundry and one for VD as well. Could you provide more color in terms of CapEx investments for Foundry this year and next year? What will be your main areas of investment for foundry as well? For VD, it seems that competition is getting more intense, mostly in the mid-to-low end markets. How does the company intend to respond?

Taejoong Song: Yes. Let me answer your question on Foundry. In Foundry, our Foundry investments were mostly focused on customer demand for mobile and HPC. However, in light of market conditions and investment efficiency, conversion of our existing lines for reutilization was our biggest priority, and we expect the amount of CapEx executed this year to decrease. For 2025, we will maximize utilization of our existing production infrastructure to provide a timely response to customer orders for advanced process and legacy products. Apart from R&D for cutting-edge process notes, any investments into capacity expansion will be considered thoughtfully and efficiently considering utilization and profitability.

KL Roh: Here's the answer for VD. Demand for strategic products like QLED and large TVs continues to grow, while entry level demand is also rising within each category. This expands the mid to low range market and intensifies competition. In response, we will strengthen our leadership in the premium segment, while expanding entry level lineups across key product categories to capture mid-to-low range demand, focusing on cost efficiency and manufacturing competitiveness. Also, we will emphasize marketing security ESG content to deliver unique customer experiences by promoting customer value through differentiated products and services like Knox Security Solution with high stability and slim and high resolution design achieved through advanced technology, we will expand sales in the volume zone and secure profitability at the same time.

Daniel Oh: I'll take one more question due to time constraints.

Operator: The last question will be by Dong-je Woo with Bank of America. Please go ahead, sir.

Dong-je Woo: Thank you for the opportunity. My first question is for MX, about smartphone enhancement and their functionality enhancement and how will they evolve in the future? And the second question will be on SSD. Could you provide the time line for the 8.6 generation fab utilization and revenue outlooks? And any plans for capacity expansion?

Daniel Araujo: As our AI phones rapidly evolve, product hardware specs and AI functionality are expected to further develop. So we aim to provide our customers with first rated AI features. So we're analyzing adopting APs and memory that can meet these requirements. To run a generative AI model on device requires high performance APs and memory, which is also expected to increase heat generation and battery consumption. So we are also considering various technologies and solutions to address these issues. Regarding Bixby, Samsung introduced the upgraded Bixby AI voice assistant to home appliances and televisions beginning at the end of August. In the future, we also plan to release a smartphone version capable of performing more complex functionality. Thank you.

KL Roh: I'll take your second question for display. In April 2023, to support rising demand in notebooks and tablets, we announced investments in our 8.6 generation IT OLED line, which is on track for mass production in 2026. The facility has completed receiving its main equipment, and we are now setting up the fab, fine-tuning specifications and boosting overall technical maturity. In IT markets like notebooks and tablets, demand for high-resolution, high-performance display is driving OLED adoption. With our extensive technology and early investments, we will achieve economies of scale ahead of our competitors, enabling us capture the IT market, maximize utilization and drive sales growth as well. For capacity expansion, we will focus on the previously invested 8.6 generation IT line, ensuring stable technology and supply. Expansion timing and scale will be evaluated based on the market conditions and customer demand in the future. Thank you.

Daniel Oh: Thank you for your answer. Finally, we will answer questions that were submitted online in advance. We received a wide variety of questions for this quarter as well, and I believe the majority of the submitted questions were sufficiently answered during the Q&A session. We will answer one more question on a topic that garnered a high level of interest from our shareholders, but was not addressed during the Q&A session. The question is, do you anticipate a rebound in consumer demand for home appliances in 2025? If so, what is Samsung's plan to expand sales of major home appliance accordingly? VP, Jaejune Kim, representing Digital Appliances, will answer the question.

Jaejune Kim: Here is the answer for your question. In 2025, demand is expected to return to growth due to easing inflation, increased investments in emerging markets and rising international trade. Consumer sentiment in North America and Korea, which are our primary markets, is always expected to improve slightly, easing the pace of negative growth. The demand in Southeast Asia, Southwest Asia and Latin America is like likely to grow, thanks to recovery in production and export and expansion in infrastructure. With rising interest in AI technology for its convenience, demand for premium products, especially AI-powered home appliances, is expected to increase. In 2025, with our reliable security service, we will offer voice ID recognition for tailored experiences and appliances equipped with screens for home monitoring. We'll also enable easy AI controls to simplify household tasks and keep upgrading the AI connectivity experience. Furthermore, we will boost global sales with innovative AI products like hybrid refrigerators and the bespoke AI combo focusing on premium segments. And to expand our B2B business, we will strengthen product lineups and sales capabilities, driving revenue growth with a focus on profitability. Thank you.

A - Daniel Oh: Thank you very much. I would like to thank everybody who shared their valuable opinion, and we will be sure to refer to them in our decision-making process. That completes our conference call for this quarter. We wish all of you and those close to you stay strong and in good health. We thank everyone for joining us today. Thank you.