Samsung Electronics Co., Ltd.

Operator: Hello, everyone, and welcome to the Samsung Electronics 2026 First Quarter Financial Results Conference Call. I will be your coordinator. [Operator Instructions] 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. ??? ?: Good morning, good afternoon and good evening, everyone around the world, and thank you for joining Samsung Electronics' First Quarter 2026 Earnings Call. I'm Daniel Oh, Head of Investor Relations. As a reference, all materials presented today, including the slide deck and this webcast, are available at samsung.com/global/ir, and they will be accessible for your convenience even after the call. Please note that certain aspects of today's discussion may contain forward-looking statements from which actual results may vary. Please refer to the associated slide for our full legal disclaimer. For our meeting agenda, today's call agenda, EVP Soon-Cheol Park, our Head of Corporate Management Operations and Chief Financial Officer, will lead off the discussion with the company's first quarter 2026 financial results and outlook. I will then follow up to address capital expenditures and shareholder returns before handing over to our executives for their own business segment updates. We will then hold a Q&A session before completing the call today. The executives joining us today are as follows: EVP Soon-Cheol Park, our Head of Corporate Management Operations and Chief Financial Officer; EVP Jaejune Kim, Head of the Global Sales and Marketing Office Representing Memory; EVP Jason Shin, Head of the Sales team for System LSI; EVP Sukchae Kang, Head of Sales and Marketing Office for Foundry; EVP Charles Hur, Head of the Corporate Strategy Team for Samsung Display Corporation; EVP Seong Cho, Head of Strategic Marketing Office for Mobile Experience; and finally, VP Wonwoo Kim, Head of the Sales Strategy Group for Visual Display. Now I would like to invite our CFO, Soon-Cheol Park, to present the first quarter financial performance and our outlook. Soon-Cheol Park: Good morning, and thanks to our investors from around the world for joining us today for our first quarter 2026 earnings call. I am Soon-Cheol Park, CFO of Samsung Electronics. In the first quarter, we delivered our highest ever quarterly revenue and operating profit driven by continued AI technology innovations and our proactive market response. Amid the challenging macro environment, this performance reflects the strength of our technology leadership within core businesses and successful execution focused on our high value-added product portfolio. Looking ahead, we will continue to strengthen our competitive edge through innovation and lead the global market. Let me now go into the details of our first quarter 2026 results. Please be advised that the figures I'm about to present have been rounded for clarity. Total revenue reached a new high -- a new record high of KRW 134 trillion, up by 43% from the record set 1 quarter ago. Operating profit also reached a new all-time high of KRW 57 trillion, up 185% Q-o-Q and operating margin expanded from 21% in the previous quarter to 43%. Net profit recorded KRW 47 trillion, 2.4x that of the previous quarter. Earnings per share came in at KRW 7,123 for common shares and KRW 7,124 for preferred shares. In the DS division, revenue increased from the previous quarter, driven by stronger sales of high value-added AI products and higher ASPs and the Memory business posted its second straight quarterly earnings record. Operating profit rose sharply, led by the Memory business, while system semiconductor delivered improved results, thanks to expanded sales of flagship SoCs. In the DX division, revenue grew from the previous quarter, supported by the launch of new flagship smartphones. Despite higher cost pressures, we limited the profit decline through expanded sales of high value-added products across businesses and improved resource efficiency. On the currency front, the appreciation of major currencies, including the U.S. dollar, had a positive impact of approximately KRW 1.8 trillion on operating profit quarter-on-quarter, mainly component businesses. Additional details for each business will be provided shortly by the executives. Let me now turn to our outlook. In the second quarter, despite geopolitical headwinds such as Middle East tensions and rising oil prices, semiconductor demand is expected to remain strong, supporting continued improvement in overall earnings. In the DS division, we expect memory price to stay on the current upward trend driven by ongoing expansion in AI infrastructure. In memory, we will continue to increase sales of HBM4, high-density DDR5 and eSSD to expand profitability. System LSI will look to offset earnings pressure through volume driven project with a key customer. Foundry will drive earnings improvement through increased sales in advanced processes while continuing to secure orders for leading-edge technology based on our 2-nanometer technology. In display, amid demand uncertainties, we target performance improvement by ensuring stable supply to key customers with our leading technology and mass production expertise. In the DX division, we expect profit to decline due to rising cost pressures. To mitigate the earnings impact, we will enhance the product mix with the sales expansion of the S26 series and the launch of premium lineups, including Micro RGB TVs and AI combo while improving our cost structure and driving efficiencies. To strengthen our core businesses, we will expand our market share and presence while enhancing our mid- to long-term competitive position. At the same time, we aim to secure future growth drivers, including through M&A. In the second half of this year, we expect a mixed business environment with growth in semiconductor demand driven by AI expansion on one hand and the rising cost for IT products on the other despite continued external uncertainties such as geopolitical risks and global tariffs. Against this backdrop, we will remain agile in responding to market changes while maintaining a profitability focused approach and expanding high value-added products to deliver stable business performance. Thank you. ??? ?: Thank you, CFO Park. Let me now walk you through our capital expenditures. CapEx in the first quarter totaled KRW 11.2 trillion, down KRW 9.2 trillion quarter-on-quarter, of which KRW 10.2 trillion was allocated to the DS division and KRW 0.6 trillion was allocated to Display business. Now I will discuss the CapEx by business segment in more detail. The business -- in the Memory business, CapEx declined quarter-on-quarter, reflecting the front-loaded nature of certain investments made last year, including the addition of new clean room space at the Pyeongtaek site. By strategically utilizing the fab and premium space secured through our forward-thinking investment, we anticipate a significant increase in equipment expenditures as we progress with the deployment of this newly acquired capacity. This planned expansion is expected to contribute to a comprehensive increase in CapEx throughout the entire fiscal year, thereby reinforcing our commitment to sustainable growth and operational efficiency for the Memory business. In the Foundry business, CapEx declined from the previous quarter due to the base effect set by major infrastructure investments at the Taylor Fab in the fourth quarter of 2025. However, investments to support the ramp-up of the Taylor Fab are expected to increase steadily throughout the year, starting in the second quarter. In the Display business, CapEx remained roughly flat sequentially with investments focused on enhancing existing lines after completion of the Gen 8.6 line last year. Let me now turn to our full year CapEx outlook. In 2026, we anticipate a substantial year-on-year increase in CapEx driven by sustained demand related to AI. We'll further expand preemptive R&D investments in next-generation processes and core technologies to solidify our technology leadership. Additionally, we will strengthen strategic production hubs and secure additional infrastructure to stay ahead of future demand. As a result, our investment decisions will remain flexible, carefully adjust to the rapidly evolving market conditions. Moving on to shareholder returns. The Board of Directors today approved a quarterly dividend of KRW 372 per share for both common and preferred shares. Under our 3-year shareholder return policy for 2024 to 2026, we are committed to ensuring an annual minimum payout of regular dividends totaling KRW 9.8 trillion through quarterly dividends of KRW 2.5 trillion. The distribution for the first quarter is scheduled for payment in May. Let me also address treasury shares. Following a Board resolution in November 2024, the company announced a KRW 10 trillion share repurchase program aimed to enhance shareholder value, which was completed by September 2025. Of this amount, the first tranche worth KRW 3 trillion was canceled in February 2025. Subsequently, during the first quarter of this year, the Board convened to deliberate on the remaining shares and ultimately reserved to proceed with their full cancellation. This resolution was made in accordance with the commitments communicated during the previous earnings call, thereby reinforcing the company's dedication to transparency. Notably, the Board decided to retain only the KRW 1.6 trillion worth of shares specifically allocated for employee compensation. The cancellation of the remaining shares was completed earlier this month, marking a significant milestone in the company's ongoing efforts to enhance shareholder value. To put in a perspective, the cancellations in this round totaled 73.4 million common shares and 13.6 million preferred shares, representing 1.2% and 1.7% of total shares outstanding in each respective class. Based on the closing price on the date of the Board resolution, the valuation of the canceled shares amounts to approximately KRW 14.6 trillion. Now let's turn to our executives for commentaries on their respective business units. We will begin with Jaejune Kim, EVP of Memory Business. Jaejune Kim: Good morning. This is Jaejune Kim from Memory Global Sales and Marketing. In the memory market in the first quarter, robust demand focus on server application became increasingly visible with the hyperscalers' CapEx expansion to secure AI infrastructure and the initial demand for agentic AI. Under the strong demand from AI, while concentrating on expanding sales focus on server products, we started shipping industry's first mass-produced HBM4 and SOCAMM2. In addition, after the on-time development of PCIe Gen 6 SSD in the first quarter, we are now undergoing customer qualification. Also, we already got a positive feedback on our outstanding performance competitiveness. In the second quarter, we expect growth in the AI industry will drive demand for memory products following the previous quarter. Therefore, in order to maintain our technology leadership in the rapidly growing AI market, we will provide the first samples of HBM4E in the second quarter. In addition, from a product mix perspective and within the limited supply capability, we will continue our supply operation focusing on AI products for both DRAM and NAND, while planning to proactively respond to the initial demand for GPU and CPU that will be newly launched in the second half. In the second half, as hyperscalers expand their AI services, and major LLM providers speed up the introduction of B2B services, the spread of agentic AI is likely to accelerate at a much faster pace than initially expected. Therefore, in addition to AI servers, the role of general servers tailored for various workloads also will be getting more important. And we expect that the demand for DRAM and SSD for conventional servers will increase more sharply than previously anticipated. On the other hand, for mobile and PC, we expect some impact on demand due to price increases in end products and changes in memory content per box, which is driven by the price increase of key components. However, due to the server-oriented product mix execution in the industry, we expect that overall supply shortage situation will continue. Considering the additional increase in server demand for DRAM and NAND, we plan to actively accommodate the market changes through the flexible PMIC operation. For DRAM, we plan to expand HBM4 supply to multiple key customers and keep increasing the portion of AI-related products such as high-performance and high-density DDR5 and SOCAMM2. For NAND, while focusing on addressing the rising demand for key value cache storage, we plan to lead the early PCIe Gen 6 server SSD market with the outstanding product performance. Thank you. Jason Shin: Good morning. This is Jason Shin from the System LSI business. In the first quarter, despite weak demand in the smartphone market, our overall earnings improved quarter-over-quarter driven by SoC sales on the back of flagship product launches from major customers and favorable seasonality. In the second quarter, revenue is expected to be lower compared to the previous quarter due to seasonal factors. In response, we will continue to focus on sales of SoCs and imaging sensors for high to mid-range smartphones for our major customers. In the second half, amid persistent cost pressures stemming from rising component prices, overall consumer market demand is expected to soften. In the light of this external environment, we will continue to strengthen our market leadership based on our technological edge. In particular, we plan to increase sales by securing new design wins for our flagship SoC and reinforce our product lineup centered on the 200-megapixel sensor. Looking ahead, we will concentrate on expanding high-value products and securing new growth drivers. We will continue to strengthen our image sensor competitiveness based on our ultra-high resolution and fine pixel technologies and pursue growth opportunities in new business areas with a primary focus on custom SoC. Thank you. Sukchae Kang: Hello, everyone. This is Sukchae Kang from the Foundry business. In the first quarter, although our earnings declined quarter-on-quarter due to seasonally weak customer demand, aligning with the industry pattern of first half low, second half high, we achieved double-digit year-on-year revenue growth, maintaining the momentum of our business improvement. From an order perspective, we continued to expand our customer base and deepen engagement across high-performance computing applications, sustaining our solid order momentum throughout the quarter. Notably, we secured a strategic project from a leading optical communication module player, marking a significant milestone in establishing the foundation of our silicon photonics business. In the second quarter, our advanced nodes are expected to reach full utilization rate. We anticipate our sequential improvement in earnings supported by robust demand for leading-edge products, including HBM4-based die. The development of the 1.4 process is progressing as planned, ensuring the readiness for future technology. Additionally, we are actively engaging with major customers for the 2-nano process. In the second half, we will start mass production of the second-generation 2-nanometer process. Additionally, we will expand the application of the 4-nanometer process for memory products and MPU products for AI applications. Through these initiatives, we expect to achieve double-digit revenue growth and earnings improvement. Furthermore, we are actively pursuing structural transformation by diversifying our application portfolio beyond mobile into AI/HPC, automotive and aerospace sectors. Thank you. ??: Good morning. This is Charles Hur from Samsung Display. I will now brief you on our results for the first quarter of 2026. For the mobile display business, our performance declined quarter-on-quarter due to seasonality and memory price pressure. For the large display business, we maintained stable sales, thanks to strong demand in gaming monitors. Next, let me share the outlook for the second quarter and the second half. In the second quarter, the smartphone and IT market demand is likely to be weak, mainly due to memory supply and price. In response, we will focus on high-end products where demand is expected to be relatively stable. For the large display business, we anticipate the demand increase supported by sports events and our major customers' new product launches. In the second half, market environment is expected to be uncertain and difficult to predict. However, we aim to maintain profitability by focusing on premium product strategy. For smartphones, we will secure a stable demand of differentiated technologies such as low power consumption and privacy solution, which are aligned with the major customers' premium smartphones. For IT products, we will increase revenue through the ramp-up of brand-new 8.6 generation IT OLED line. For QD OLED, we will continue to strengthen our positioning in the premium segment while expanding our monitor business into the consumer and enterprise market. Lastly, 2026 will be a challenging year due to geopolitical risk, unpredictable market conditions and memory supply issues. We strive to achieve revenue growth by strengthening our premium portfolio based on our technology leadership. Thank you. Seong Cho: This is Seong Cho from the MX division. Let me share our first quarter results as well as the future outlook. The smartphone market declined quarter-over-quarter due to seasonality with volume and revenue decreasing across premium and mass segments. For the MX business, Q1 revenue reached KRW 37.5 trillion, and we delivered a combined operating profit of KRW 2.8 trillion across the MX and network businesses. Despite numerous launch schedule adjustment and geopolitical uncertainties, we delivered Q-o-Q growth in both revenue and operating profit. On a year-on-year basis as well, we achieved solid ASP and revenue growth driven by a higher contribution from ultra models. While memory costs increased, we secured single-digit profitability through proactive resource efficiency improvements. Next, let me share the outlook for Q2. Overall, smartphone demand is expected to decrease quarter-on-quarter due to seasonality. For the MX business, we expect Q2 revenue to decline quarter-on-quarter. We plan to sustain flagship-centric sales, supported by continued momentum of the S26 series, along with the solid sales of the foldable and M-1 and $3 models. Also, through the successful launch of the new A Series models, we will drive growth across all segments. However, cost pressure on key components in Q2 are expected to intensify. While we will ensure stable supply through strategic partnership with suppliers, a decline in profitability appears inevitable. Next, let me share the outlook for the second half. The smartphone market is expected to decline in shipments due to rising costs, while revenue are projected to grow driven by expansion of super premium products. Tablets are expected to decline in volume and value due to cost pressures and reduced promotions. The note PC market is projected to see value growth driven by ASP increase, but shipments are expected to decline. MX will maintain our strategy focused on expanding flagship sales through our leadership in advancing AI capabilities and form factor innovation. For foldable devices, we plan to strengthen our product development to stay ahead of evolving customer needs. For eco products, we will drive premium sales with even more advanced Galaxy AI capabilities and health features and expand our TWS liner. We also plan to deliver immersive multimodal AI experiences through diverse form factors such as AI glasses. 2026 will be a challenging year with ongoing geopolitical uncertainties and profitability impacted by rising cost pressures across the industry. Nevertheless, we will maintain our focus on expanding flagship sales powered by AI leadership and pursue cost efficiency initiatives to minimize the impact on profitability. Thank you. Louis Kim: Hello, everyone. I'm Wonwoo Kim, Head of Sales Strategy Visual Display. I'd like to briefly explain the market conditions and share our first quarter results along with the outlook for the rest of the year. In the first quarter, our TV demand declined after year-end peak season, the demand for QLED, OLED and 75 inch have overall remained solid. We focus on premium products such as Neo QLED, OLED and large size TV, thereby solidifying our market leadership. However, in terms of profit, despite showing improvement versus last quarter, declined year-on-year due to stagnant demand and rising raw material cost. For the second quarter, while uncertainties in the external environment are likely to persist, TV demand is forecast to grow year-on-year, driven by a major international sporting events. Against this backdrop, we will capture related demand by deploying differentiated marketing strategies and maximize the launch effect of new models such as Micro RGB TVs to secure both sales and profitability. In the second half of 2026, following the sporting event, the market may see a downward trend compounded by macroeconomic and geopolitical risks. On this front, we aim to reinforce sales leadership by expanding AI features to pioneer the AI TV market. On top of that, we drive growth momentum and elevated profitability by expanding advertising services such as TV Plus and performance-based advertisement while also strengthening OS competitiveness to further broaden our licensing business. This is the end of my speech. Thank you for your attention. ??? ?: Thank you, all presenters. That brings our presentation on the first quarter performance of 2026 to a close. And we'll now start the Q&A session, which will be conducted in Korea. Our CFO, Soon-Cheol Park, will address company-wide questions, while questions regarding the business segments will be answered by the respective business representatives. Thank you for your attention. Operator: We will now begin the Q&A session. [Operator Instructions] The first question will be made by Lee Sei Cheol from Citigroup. Sei Cheol Lee: Yes, this is Lee Sei Cheol from Citigroup. First, I'd like to congratulate you on record high quarterly performance. I have a question for semiconductor and then a company-wide question as well. The first question is about semiconductors versus specific specifically memory. There's a lot of talk in the sector about multiyear contracts and LTE. So are you also seeking this kind of multiyear contracting for your memory products? And the second question is general. I do understand you're in talks with the labor union on bonus payouts. So will the payout be reflected in first quarter provisions? If so, what would be the expected size? Jaejune Kim: Yes. Let me take your first question regarding multiyear contracting for memory. First, due to our NDAs with customers, we are not able to go into too much detail on our multiyear contracts with customers. So I seek your kind understanding. That said, major customers are quite confident in future AI and AI-related demand. And they have been approaching us, seeking supply volume commitments for the mid- to longer term. Based on these requests we have been pursuing multiyear supply agreements, of course, within our available supply capacity and have already signed finalized contracts with some customers. Unlike existing supply contracts which are based on mutual trust, these multiyear contracts present a higher level of binding commitments. Compared to the past in today's environment where investment size, time line and technical complexity have all increased significantly, investments and capacity-related operational risk are much more challenging. We expect multiyear agreements to help enhance business stability and visibility for both us and our customers. We will manage the size of our investments flexibly depending on the mid- to long-term demand we see from our customers and react proactively to changing market conditions. Soon-Cheol Park: Let me address the question on provisions for 1Q. The incentive-related provision you mentioned is under discussion between labor and management. And as the specific amount -- payment conditions and amounts have not been finalized, it hasn't been reflected in this quarter's results. Depending on the outcome of the negotiations, the related costs may be recognized in the future. And once finalized, it will be appropriately reflected in the financials. Operator: [Interpreted] Thank you. We will move on to the next question, please. Simon Woo: Yes. I'm Woo Dong-je from Bank of America. I would also like to congratulate you on delivering very strong performance despite the challenging business environment. So in the first quarter, I think your solid performance was in large part driven by the Memory business. So if you could provide more color or more details on the memory performance. And the second question is company-wide. As the CFO mentioned, just now, there does seem to be a lot of labor union issues. According to the media report, a general strike has been announced for May. So do you anticipate any disruptions to production or otherwise, any negative impact on performance, any other management issue? Jaejune Kim: Yes. So let me provide the answer to the first question on first quarter memory performance. The adoption of Agentic AI drove further growth in relevant demand mostly for HBM, server DRAM and server SSD. That said, despite this rising demand, because of the industry-wide constraints in expanding capacity, the supply shortage has actually become more intense relative to robust demand. Under these circumstances, in line with growing AI demand trends, we focus on expanding sales for mostly server applications in the first quarter, resulting in server bit shipment growth in the low teens percentage Q-on-Q for DRAM and low 20% Q-on-Q for NAND as we posted record high quarterly sales in the server segment. So consequently, we met our bit growth guidance for DRAM, while exceeding guidance for NAND with NAND bit growth increasing by a high single-digit percentage Q-on-Q amid a sharp price in market pricing and the effect of our improved product portfolio following expanded server application sales, our blended ASP rose by low 90% range Q-on-Q for DRAM, high 80% Q-on-Q for NAND. So overall, in the first quarter, thanks to strong market demand and the strength of our products, our Memory business set another all-time high in quarterly performance following the previous quarter. We will continue to do our best to preemptively anticipate and identify market needs while developing products in a prompt timely manner that meets customer requirements to deliver continued strong performance. Sei Cheol Lee: [Interpreted] Let me address this question. The labor union on April 23 held a rally at the Pyeongtaek site and has announced a general strike from May 21 to June 7. While it is difficult to comment further at this stage or even in the event of a strike, the company plans to respond to dedicated teams and response system within the legal framework to minimize potential production disruptions. Also, separately from our response to their potential strike, the company is addressing labor management issues in accordance with laws and procedures and will continue to prioritize dialogue with the union to reach an amicable resolution. Operator: We'll move on to the next question. The next question will be made by Kim Sun Woo from Meritz Securities. Sunwoo Kim: I'd like to ask about the shareholder return policy. This year marks the final year of the 3-year shareholder return policy. Will the company execute the previously announced policy as committed? Also, could you share the direction of the next shareholder return policy? And lastly, can you explain the details on the corporate value enhancement plan announced in March? Sei Cheol Lee: [Interpreted] Let me address your questions on shareholder returns. As previously committed to our shareholders, the company will faithfully execute its current shareholder return policy, which is one of our key management priorities aimed at enhancing shareholder value. Also, management and the Board are currently gathering various views and engaging in deep discussions on the next shareholder return policy. Centered on the Board, we will continue to carefully review and develop the optimal policy to enhance shareholder value, and we'll share details once the direction is decided. Regarding our corporate value enhancement plan, the company plans to invest over KRW 110 trillion in facilities and R&D to strengthen our strategic production basis for future, including the Pyeongtaek site, the U.S. Taylor Fab and the Yongin semiconductor cluster as well as to advance R&D in next-generation technologies. Also in terms of M&A, to drive continued future growth and enhance shareholder value, we will continue to reassess our business portfolio. Also, we'll proactively pursue inorganic growth strategies to ensure mid- to long-term growth. In addition to M&A, to identify new technologies and businesses and to discover and collaborate with promising tech companies, we are pursuing a wide range of investments, including venture and equity. Through these efforts, the company aims to strengthen the competitiveness of its established businesses, while also responding to rapidly evolving global tech trends. In HVAC, automotive electronics, medical technology, robotics and other future growth drivers, we'll continue investing to secure future technology leadership. We'll share updates as these initiatives progress. Operator: [Interpreted] The next question will be made by Nicolas Gaudois from UBS. Nicolas Gaudois: With the prolonged conflict in the Middle East, there are growing concerns about potential supply disruptions for raw materials that heavily depends on regions such as naphtha and helium gas. In addition, importing energy and oil remain crucial for electricity supply for your fab in South Korea. Are there any company-wide issues related to these? And what measures is the company taking to address them? And secondly, we're raising semiconductors costs and Inflating market headwinds expected in Q2, how does the company plan to secure profitability for MX specifically? Soon-Cheol Park: [Interpreted] Let me address the Middle East related risks. Our semiconductor production lines are operating normally, and there have been no supply chain issues to date. While we source some process gases from Israel and the Middle East, we have secured sufficient safety stock and respond in line with local logistics conditions. Also, we have secured alternative logistic routes and diversified suppliers, including the U.S. and Japan. So the overall risk remains limited. Based on our past experience with export controls, natural disasters, trade disputes and wars, we are managing supply-demand balance flexibly from mid- to long-term perspective. Regarding power supply, we are closely monitoring utility cost trends amid rising oil prices. And through close coordination with the government, we will maintain a stable power supply system. However, oil price increases driven by the war are impacting global ocean and air freight costs, which is expanding the risk of higher shipping rates. In response, we are closely monitoring global inventory levels while optimizing supply chain operations to minimize cost burden from international transportation. Also, based on the mid- to long-term partnerships with shipping and air freight providers, we're engaging in negotiations and utilizing alternative transportation options to mitigate the impact of high logistics costs. Also in case the war is prolonged, we are developing diverse scenarios and through long-term contracts with logistics providers and fuel-linked freight rates, we plan to maintain cost competitiveness and supply capacity while strengthening our response capability to volatility. Thank you. Seong Cho: [Interpreted] I will take the MX question. With the growing demand for AI server memory, memory supply shortages for mobile and upward trend in prices have persisted. In 1Q 2026, memory prices surged, weakening profitability year-on-year. Also in 2Q, prices are expected to rise further, adding to cost pressures. We will leverage our stable supply to expand sales of S26 and new A-Series. At the same time, across development, procurement and sales, we will enhance cost efficiency to mitigate the impact of rising memory prices on profitability. Thank you. Operator: [Interpreted] The next question will be by Mr. Kim Dongwon from KB Securities. Dongwon Kim: [Interpreted] Yes, I would like to congratulate you on your all-time high performance as well. I have a question for memory and then company-wide question. The memory sector is expected to see a continued up cycle. So what is your business outlook for the second quarter? Also, if you could provide a bit growth guidance for Q2? Also, the second question. Humanoid robotics and physical AI are sectors expected to see high growth. So could you explain your strategy in addressing these growth markets? Jaejune Kim: [Interpreted] Yes. So let me address your question on the Memory business outlook. We do expect AI-related demand to continue to drive growth momentum for memory for the time being. With the spread of agentic AI, token processing is increasing in volume and technologies improving the efficiency of data processing are being introduced, and the AI ecosystem is growing even faster than ever. That said, although advancements in AI technology are a structural driver of increased memory demand, when you consider the lead time involved for new fab expansions, supply growth is expected to remain constrained within the industry for the time being. We also have very tight inventory and available supply is far short of customer demand. In fact, our demand fulfillment rate is now at a record low. And unlike previous years, customers who are concerned about supply shortages are actually bringing forward their demand for 2027 already. So currently, just based on prebooked demand alone, the supply-demand gap is looking to widen further in 2027 versus this year. With available capacity under such constrained conditions, we plan to maintain our product mix focus on servers in the second quarter, and we're expecting DRAM bit growth to increase by single-digit percentage Q-on-Q. While for NAND, considering limited available capacity from a reduced inventory level in the first quarter, bit growth is expected to be constrained at the low single-digit level Q-on-Q. Soon-Cheol Park: [Interpreted] Let me address our fiscal AI strategy. Over the past year, under the leadership of Jun Ho Oh, a leading robotics expert in Korea, we have made meaningful technological progress and established a foundation to catch up with global leaders. Also, we are internalizing key robotics components and building capabilities to develop customized parts optimized for our own robots. The robotics industry driven by technological developments such as physical AI is becoming increasingly viable. Through the development of humanoid robots, the combination of advanced robotics technologies, we aim to innovate manufacturing productivity and daily experiences. With our manufacturing production basis, we plan to develop manufacturing robots. And then by leveraging the technologies we accumulate, we will expand into home and retail applications. Also to accelerate technology advancement and deployment, we will focus on securing our own technological capabilities. And at the same time, we'll cooperate with competitive global partners as part of a 2-track strategy. And where appropriate, we will consider strategic investments or acquisitions. Operator: [Interpreted] Our next question will be by Mr. Kim Sung Kyu from Daiwa Securities. S. K. Kim: [Interpreted] And also congratulations on strong performance as well. I have a question on memory and display. So let me start with HBM. In the first quarter of this year, you were the first in the industry to commence HBM4 mass production and shipments. I understand you've already been receiving quite good feedback in terms of performance. So how much sales growth do you expect for HBM4 this year? Also, could you provide a status update on not only HBM4, but the HBM4E business as well? For display, amid shortages in memory supply, also, I think downward pricing pressure is likely to increase for displays. So what measures are in place to defend against those trends and also to maintain profitability? Unknown Executive: I guess let me address the HBM question first. First of all, as we explained at the last quarterly earnings call, we expect HBM sales to increase substantially by more than threefold year-on-year in 2026 leveraging our cutting-edge 1C nano processes, we have secured industry-leading product competitiveness. This has allowed us to play a leading role in raising the bar on performance requirements for HBM4. As customers adopt these enhanced specifications, our outstanding performance has been translating into actual premium on pricing. The differentiated performance of our HBM4 led to concentration of demand and our production-ready capacity is fully booked and sold out. So after we became the world's first to commence commercial shipment of HBM4 in February, we are now proceeding with ramp-up as scheduled with supply volume expected to scale meaningfully in the second half of the year. And HBM4 sales are expected to exceed 50% of total HBM sales from the third quarter onwards and also account for roughly half on a full year basis. Going forward, based on the competitiveness of our 1C nano technologies accumulated through HBM4 mass production, we've been accelerating development of next-gen HBM4E products with pin speed of 16 giga bps and bandwidth of 4.0 terabytes per second with samples set to start shipping within the second quarter. We will continue to build on our leading technology to provide HBM products optimized to customer needs on a timely basis as we carry forward our market leadership. Thank you. Unknown Executive: [Interpreted] I'll take the display question. Rising memory prices driven by supply-demand imbalances have increased cost burdens for [ set ] manufacturers, which is expected to reduce overall set demand. Accordingly, display demand is likely to weaken and downside ASP pressure is expected to persist. We'll respond to such conditions by enhancing operational efficiency and strengthening competitiveness across our business. First, we'll drive extreme productivity improvements to strengthen cost competitiveness and accelerate the development of differentiated technologies. On the business side, our portfolio centered on premium products with relatively robust demand will be strengthened and also we will expand our customer base. In particular, the performance of a new privacy protection technology introduced in smartphones this year, which is MPP, will be further enhanced, and we will broaden its applications. We'll continually develop differentiated technologies to strengthen our leadership in high-end products, thereby securing stable profitability. Operator: [Interpreted] The next question will be by Mr. Lee Giuni from Goldman Sachs. Giuni Lee: [Interpreted] Congratulations on a very good performance. I have a question on foundry and VD. First, for foundry, I think the -- I would like to hear an update on new order wins for advanced 2-nano 4-nano nodes and legacy processes. And for VD business amid reduced profitability, I do believe there have been growing concerns over performance. So what kind of countermeasures are you getting ready? Sukchae Kang: [Interpreted] So let's cover the foundry question first. We have been diversifying our portfolio looking out to the mid- to longer term across more end markets, and we have been working to expand project awards across diverse application areas, including AI, HPC, automotive, robotics and aerospace as well. Amid recent increase in AI and data center demand, memory supply remains limited. And clearly, we're seeing demand for turnkey solutions that cover both memory and foundry together. In line with these market dynamics, we are in active talks with multiple large-scale AI and HPC customers on 2 nano projects, expect to secure more visible results in the near future for certain accounts. Our HBM4 baseline, which is built on 4 nano processes, has been gaining recognition for differentiated and competitive performance, leading 4-nano demand. And we have been actively considering possible expansion of supply and response. We are also in discussions with many automotive or robotics customers in the U.S. and wider China on adoption of 2 or 4 nano processes and leveraging our products delivered to major large accounts, we have been validating our technology and establishing stronger reliability. For data centers, we are seeing growing demand for high bandwidth and low power data transmission which is set to a rapid rise in demand for silicon photonics. We are developing not only silicon photonics components, but also technology for the CPO, or co-packaged optics business, based on advanced processes and 3D packaging, and in parallel are engaged in discussions with several large-scale global accounts on commercialization projects. We will be starting mass production for major optical communications module player starting in the second half. Louis Kim: [Interpreted] This year, the TV market amid rising raw material costs and among certain external business environment is expected to face challenges in securing both revenue and profitability. The company will average differentiated product marketing strategies and proactive measures in its service business to further solidify its #1 position. This year, the TV market amid rising raw material costs and an uncertain external business environment is expected to face challenges in securing both revenue and profitability. The company will leverage differentiated product marketing strategies and proactive measures in its service business to further solidify its #1 position in the global TV market. To this end, we will reshape the Micro RGB, OLED and mini LED centered competition landscape with a successful introduction of new models while maximizing launch effects. The premium segment in addition compared to previous years, this year's World Cup will feature more participating teams on extended tournament period and a higher total number of matches, which is expected to drive TV demand in the second quarter. Accordingly, to capture this demand, we will use our differentiated marketing strategy to strengthen collaboration with key retail partners and expand strategic SKUs and promotions. Lastly, based on its leadership as the global #1 TV brand, the company will proactively address market shift toward the service business as well as consumer trends. The TV Plus as well as Samsung Art store will be further advanced so that we can secure differentiated competitiveness. Operator: [Interpreted] The next question will be by Chae Minsook from Korea Investment Securities. Dana Chae: [Interpreted] This is Chae Minsook from Korea Investment Securities. I have a question on Memory and System LSI each. First, regarding memory. Recently, there's been a rapid rise in conventional DRAM prices. And some have been suggesting that focusing on conventional DRAM sales over HBM may be better in terms of margins. So what are your plans for product mix between HBM versus conventional DRAM? And regarding System LSI, can you provide an update on development of Exynos 2700? Do you believe that you will be able to increase market share on the next-gen model? And any plans to expand beyond mobile into AI applications? Jaejune Kim: [Interpreted] Yes. Let me comment on the question for DRAM sales mix. Recently, we have seen a rise in lower-spec legacy memory prices. And it is true that conventional DRAMs have higher margins versus HBM. And we are aware of certain outside views that focusing our sales mix on conventional DRAMs may be more beneficial in terms of short-term performance versus HBM. So per industry practice for HBM, we negotiate projected pricing in events on an annual basis, considering the lead time required to prepare back-end capacity for HBM, whereas for conventional DRAM, the negotiations are done on a quarterly basis. As conventional DRAM pricing has continued to rise sharply every quarter, this has resulted in inversion of margins between HBM and conventional DRAM. However, given the constrained supply conditions for HBM with a sustained widening of the supply-demand gap, the margin differential versus conventional DRAM is expected to be significantly reduced in 2027. With the spread of [ inference ] services and also agentic AI, the importance of not only AI servers, but conventional servers has also been growing in terms of AI infrastructure, which is an indication of the close connection between HBM and conventional DRAM demand. If we were to focus our product portfolio on conventional DRAM looking to achieve a short-term performance only, this could potentially pose constraints on the build-out of the underlying AI infrastructure itself, which is why we believe a balance in supply between HBM and conventional DRAM is necessary in order to continue to generate AI-driven demand. So in conclusion, we intend to take various factors into consideration, including mid- to long-term growth potential, long-term customer engagements, technology competitiveness to execute a balanced product mix. Jason Shin: [Interpreted] Yes, let me answer from the System LSI side. First, regarding Exynos. Exynos 2700 is under a smooth development as planned, building on the flagship technological competitiveness of the predecessor 2600 model, and we expect to be able to expand market share further by offering enhanced AI performance. In terms of expansion into new business areas, AI market trends are shifting quickly from training to inference with a market for specialized inference solutions and customized offerings growing. In response to these market changes, we are advancing our business so that we can offer customer-optimized solutions and architectures from data center to on-device applications in order to shape differentiated competitiveness in the AI market. Operator: [Interpreted] The next question will be made by Young Ryu from NH Investment Securities. Young Ho Ryu: [Interpreted] I'm Young Ryu. I'd like to ask about the MX and DA businesses. Rising component costs and an overall slowdown in smartphone demand and raising concerns over a market contraction. And under such unfavorable conditions, what are the company's strategies to defend market share and secure sales growth momentum? And for the DA business, I have 2 questions. Recently, there have been multiple media reports on profitability-driven transformation in DA business. Can you share an update on the current initiatives? Additionally, the importance of the cooling solutions market is rising, and you acquired FlaktGroup last year. Could you elaborate on your business strategy? Seong Cho: [Interpreted] I'll take the MX question. In value terms, the 2026 market is expected to see slight growth year-over-year, while volume is projected to decline significantly. Despite a contracting market, the company aims to expand flagship sales to drive revenue growth and leverage its full price tier portfolio to outperform the market in both value and volume. Despite price increases for new model launches, we improved performance and key customer experiences, thereby enhancing perceived consumer value with S26 series -- with S26 sales already expanding year-on-year in value terms. Alongside the S26 series, leveraging foldable showing strong sales predecessor and FE models, we will drive revenue growth while promoting growth across all segments based on A57 and A37 launched in April. The impact of rising component costs will be mitigated through premium-focused sales and upselling. And through mobile AI leadership and a stable supply chain, we will pursue sales expansion. However, we expect to see a decline in profitability compared to the previous year. Unknown Executive: [Interpreted] First, I will address the question regarding the structural improvement of the DA business, and then the question on cooling solutions will be answered by EVP [indiscernible] Head of Sales Marketing team of the DA business. Amid intensifying global competition, tariffs, geopolitical risks, followed by shifts in external environments, the DA business is facing increasing profitability pressure. In response, we are taking a selective and focused approach across the business. We are concentrating resources on core businesses with competitive advantages to build a foundation for sustainable growth while reviewing diverse measures to diversify our profit structure. We'll share further details with our shareholders once these plans are developed. Unknown Executive: [Interpreted] I'll proceed with the answer. The demand for generative AI and high-performance computing is growing rapidly. Accordingly, global data centers are expected to continue expanding through 2030. And the data center cooling market is projected to grow from $4.7 billion in 2024 to $16.6 billion by 2030, growing at an average annual rate of around 24%. In response, the company successfully acquired FlaktGroup, a Germany HVAC specialist last year, thereby establishing a strategic foothold for entering the data center cooling market. Currently, the company is operating the business centered on FlaktGroup in Europe and plans to expand into the largest global data center market in North America. Also, we plan to establish a Korean subsidiary and factory of FlaktGroup to enter the Korean market. We'll strive to secure leadership in the data center market by expanding our product portfolio and diversifying our geographical footprint. Operator: [Interpreted] The next question will be by Mr. Jay Kwon from JPMorgan. H. Kwon: [Interpreted] Thank you for the opportunity to ask a question on NAND. So amid expansion of AI infrastructure, it's mostly been DRAM and HBM drawing great interest. But recently, NAND has been gaining attention as well. So your outlook on the NAND market for AI applications. Unknown Executive: [Interpreted] So let me take the question on NAND for AI. So with proliferation of AI, this has led to higher data capacity and memory requirements to run large language models. And to respond to these trends with high-priced HBMs and DRAM structure only, this will increase the cost and capacity burden, prompting the need to broaden the scope of use cases for storage. Recently, at GTC, NVIDIA proposed an architecture such as CMX that extends AI inference data storage beyond HBM to NAND-based storage rather than relying solely on HBM. This will likely lead to rising demand for high-performance storage such as TLC-based PCIe Gen 6 SSDs. Further, as storage use cases increase in AI systems in the future, there will likely be growing requirements to reduce data transfer latency resulting from performance differences between HBM, DRAM and storage. For large-scale inference and data-intensive workloads, in particular, requirements for high-performance low latency solutions are becoming more critical. We are production ready for super high-performance NAND storage solutions, not only Gen 5, but Gen 6 as well, offering enhanced features. And for Gen 6, we have received positive feedback from major customers for early sample shipments. We will be focusing on AI server and data center segments and we will lock in preemptive lead in the early Gen 6 market in the second half of the year. Also, we're focused on capturing QLC demand, which has been growing consistently while accelerating V9 migration within QLC as well. In March, we finished development of 2-terabit QLC, delivering differentiated performance and reliability features with plans to strengthen our market response by expanding our super high capacity lineup, including the 256-terabyte server SSDs. So based on high-performance TLCs built on advanced nodes and the high capacity of QLC NAND, we will work in close collaboration with our major customers to proactively address and respond promptly to AI-driven NAND demand. Unknown Executive: [Interpreted] Because of the limited time, we will accept just one final question. Operator: [Interpreted] The final question will be by Mr. Lee Jong Wook from Samsung Securities. Jong Wook Lee: [Interpreted] Yes. I have a question on VD and foundry. The TCL and Sony recently established a joint venture. How will it impact the TV industry? And what's your response? And the next question is on foundry. Driven by recent increase in orders, there are growing expectations for increased investments. Could you provide an update on the expansion status of the U.S. Taylor Fab and whether the company is considering the construction of new fab too? On the other hand, mature nodes seem to have relatively low utilization rates. Could you elaborate on your operational strategy? Unknown Executive: [Interpreted] Amid intensifying competition due to market stagnation, the TV industry continues to see shifts in the competitive landscape. The establishment of a joint venture between TCL and Sony, combining their manufacturing capabilities and brand strength is a scenario that could have been expected based on past precedents. Across all segments from premium to entry level, the company aims to strengthen its competitiveness to proactively reshape the competitive landscape and lead the market. Starting this year, we will introduce Micro RGB and other new form factor products to strengthen differentiated premium leadership. Also in volume zone where competition is intense, we will launch new mini LED to expand our response capabilities to the market. Moreover, the company plans to further advance consumers' AI experiences and further complete a differentiated device experience with competitive services so consumers can be satisfied and make purchase decisions. Sukchae Kang: [Interpreted] Yes. Let me answer the question on foundry. So for Taylor Fab, as of last week, April 23, to be exact, we had a successful ceremony with the local community for Fab 1 commemorating the move-in of the equipment and lines. As scheduled, we plan to start operations in 2026 and commence mass production in 2027 and gradually expand 2-nano capacity. Fab 2 is in the early review phase in parallel with discussions with global customers on potential awards. For mature process lines, we will focus capacity on high value-add specialty demand, which have higher entry barriers while boldly closing out uncompetitive processes. That is the baseline strategy. More specifically, for CIS and DDI product family where process migration is expected to continue, capacity will be transitioned to the advanced 17 nano nodes while for PMIC, DDI, CCIS, which are currently in mass production on 8-inch wafers, well designs are scheduled for phased closeout. We will optimize our product portfolio, reflecting profitability, investment efficiency to continue to improve our business fundamentals while focusing on developing new specialty products to expand our share of global customers. ??? ?: [Interpreted] Thank you for the answer. I'd like to thank everybody who shared their valuable opinion. 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 your participation today, and we look forward to speaking with all of you soon. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]