Samsung Electronics Co., Ltd. (A005930) Earnings Call Transcript & Summary

Good morning, and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference call of fiscal year 2020 third quarter earnings results by Samsung Electronics. The conference will start with a presentation followed by a division and Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2020 third quarter earnings results by Samsung Electronics.

Good morning. This is Ben Suh from Investor Relations. Thank you for joining our earnings call for the third quarter of 2020. With me representing each of the business units are: Mr. Han JinMan, Senior Vice President of the Memory Marketing team; Mr. Shin DongHo, Senior Vice President of the System LSI Marketing team; Mr. Han Seung Hoon, Senior Vice President of the Foundry Marketing team; Mr. Choi KwonYoung, vice President of Samsung Display; Mr. Lee JongMin, Vice President of the IT and Mobile business; and Mr. Kim Won Hee, Vice President of the Visual Display business. In addition, Mr. Kang TaeGyu from Investor Relations is present on this call as well. I would like to remind you that some of the statements we will be making today are forward-looking based on the environment as we currently see it, and all such statements are subject to certain risks and uncertainties that may cause our actual results to be materially different from those expressed in today's discussion. Before we begin and with great sadness, I would like to take a moment to reflect on our Chairman, Kun-hee Lee, who passed away on October 25, with his family at his side. Chairman Lee was a true visionary who drove the historic transformation of Samsung from a relatively small electronics company into the global IT leader that we are today. In particular, his new management initiative in 1993 was the driving force behind his vision of delivering the best technology to help advance global society. All of us at Samsung will cherish his memory and everlasting legacy. With that, I would like to discuss the results for the third quarter. Today is our third earnings call after the COVID-19 pandemic started. And unfortunately, its effects are still being felt heavily around the globe. As we continue to keep our employees' health as our top priority, the company's management and employees are also focused on overcoming challenges to ensure that we meet our customers' needs even under difficult-to-predict market conditions. This readiness has helped us achieve our highest ever quarterly revenue and our performance to exceed market expectations. Total revenue in the quarter was KRW 67 trillion, a 26.4% quarter-on-quarter increase. Demand for consumer products was much stronger than expected, and timely responses utilizing our global supply chain management capabilities was the key factor for the significant increase in sales. A recovery in component demand in the Mobile segment also contributed to the gain. On a year-on-year basis, total revenue grew 8% on the back of sales performances of multiple key products. Gross profit increased KRW 5.9 trillion sequentially to KRW 27 trillion, led by the Mobile business and CE division, and gross margin grew slightly to 40.3%. Both gross profit and gross margin also improved substantially year-on-year. SG&A expenses increased as a significant rise in sales resulted in higher marketing and other expenses. As a percentage of sales, however, they declined 2.5 percentage points to 21.9% due to efficient cost execution. Operating profit totaled KRW 12.4 trillion, up KRW 4.2 trillion quarter-on-quarter due to the dramatic revenue increase as well as thorough cost management efforts. Operating margin improved considerably to 18.4%. On a year-on-year basis, both operating profit and operating margin increased sharply backed by an improved environment for the Memory business and strong sales of consumer products. I will now briefly review the results for each business unit. The Memory business performed well despite a decline in ASP, with shipments exceeding prior guidance, thanks to solid mobile and PC demand and a continuation of cost improvements. System semiconductor earnings grew as demand improved from major mobile components for System LSI and orders increased from foundry customers for HPC and other products. In Display, earnings improved sequentially with growing sales of mobile panels for customers' newly launched products and an improved supply and demand environment for large panels. On a year-on-year basis, however, profits declined due to a later-than-usual launch of new smartphone models by a major customer. In the Mobile business, earnings grew considerably quarter-on-quarter as a nearly 50% increase in smartphone sales, which included flagship models, resulted in a significant economy of scale advantage on top of profitability gains from efficient cost management. The CE division also improved its earnings markedly both quarter-on-quarter and year-on-year as sales of premium TVs and digital appliances increased sharply. We were able to respond effectively to this surge in demand using our leading global supply chain management capabilities. Regarding currency effects, a weak U.S. dollar and strong euro against the Korean won was positive for the IM and CE divisions but negative for the Component business, resulting in a net neutral position. Next, I would like to share our business outlook. In the fourth quarter, we expect overall profitability to decline due to intensifying competition in the Mobile business and CE division alongside a continuation of soft demand from server customers. For Memory, despite an increase in node process migration and solid demand for mobile and notebook PCs, we expect profitability to decline due to weak pricing in the server segment as customers continue to adjust inventory. And there will also be initial cost increases associated with the ramp-up of our new lines. In system semiconductor, System LSI will start mass shipment of 5-nanometer 5G SoCs, while for Foundry, HPC and mobile SoC customer orders are expected to increase. For Display, mobile panel earnings should improve as we expect to see a significant quarter-on-quarter increase in sales. The large panel business will continue QD display preparations as planned as it also fully addresses LCD demand. We expect mobile profitability to decline due to a decrease in smartphone sales coupled with an increase in marketing costs in the upcoming seasonally competitive quarter. In CE, we anticipate seeing solid demand backed by strong year-end seasonality. However, profitability is likely to decrease due to increased competition and costs. Now let's move on to our outlook for 2021. Global demand is forecast to increase year-on-year, but uncertainties are unlikely to ease given the possibility of additional waves of the pandemic. The component business will focus on strengthening market leadership through next-generation node processes and timely investments. We believe there may be some risks regarding mobile inventory adjustment as a result of overlapping component demand for multiple customers that started at the end of the third quarter. We will continue to monitor this carefully. For the Memory business, we will enhance market leadership by expanding node migrations and by flexibly adjusting our product mix. For investments, we will continue to adhere to our strategy to be ready to meet mid- to long-term demand while maintaining flexibility regarding near-term demand. System LSI will actively address the growing demand for 5G SoCs and high-resolution sensors by offering differentiated products. And Foundry will accelerate growth by expanding into new applications within HPC and other areas as well as by attracting additional large customers. For Display, the mobile panel business will work to improve earnings by leveraging our differentiated technologies and cost competitiveness. The large panel business will focus on successfully launching QD display. For the mobile and CE products, we will strive to improve profitability by further strengthening premium lineups and operational efficiency. On top of the above, the Mobile business will expand its foldable and 5G smartphone offerings in an effort to increase sales and enhance profitability. The Network business will strengthen its global business foundation by continuing to expand 5G commercialization and explore new business opportunities. CE will strive to sustain growth by expanding its premium lineup and strengthening its online and B2B businesses. Now I will address capital expenditures. Third quarter CapEx was KRW 8.4 trillion, with KRW 6.6 trillion allocated to semiconductor and KRW 1.5 trillion to display. The cumulative total for this year as of the end of the third quarter is KRW 25.5 trillion, with KRW 21.3 trillion allocated to semiconductor and KRW 3.1 trillion to display. We expect full year CapEx to reach approximately KRW 35.2 trillion, with KRW 28.9 trillion allocated to semiconductor and KRW 4.3 trillion to display. As a reminder, the full year numbers are projections, and the actual figures may differ depending on factors such as market conditions and the timing of equipment deliveries. For the Memory business, CapEx should exceed last year's total due to investments in node migrations and capacity expansions to expand -- address future demand. Foundry CapEx will increase year-on-year as we expand capacity, including for 5-nanometer EUV. Display investments will also increase, mainly for QD display capacity and new technological processes for mobile panels. Next, I would like to address the third quarter dividend. The Board of Directors today approved a quarterly dividend of KRW 354 for both common and preferred stock. The total payout is the same as it was in the first and second quarters, which is KRW 2.4 trillion or 1/4 of the planned annual total of KRW 9.6 trillion. In closing, let me share some updates in our sustainability management. Samsung Electronics believes water management is the first step in environmental protection at our sites and is an integral part of a manufacturer's management activities. For more than 10 years, we have committed to water management by focusing on the 3 Rs, reduce, reuse and recycle and by including water reduction as a performance indicator. On September 22, Samsung Electronics was recognized for such endeavors, achieving another first in the semiconductor industry. Our Hwaseong Campus earned a water footprint certification from Carbon Trust, a U.K.-based entity that recognizes eco-friendly organizations or products. The certification is given to an organization based on a comprehensive evaluation of water use and management over a 3-year period. Next, I will address our activities over the past year regarding Cobalt for Development, an initiative to improve the living and working environment for communities involved with the artisanal cobalt mines in the Democratic Republic of Congo. Cobalt is a key component in the production of batteries for electronic devices and electric vehicles, and we are working to minimize the negative impacts that artisanal mining in Congo has on society and the environment, including human rights violations and environmental issues. After launching in September 2019 as a joint project between Samsung Electronics, the German Society for International Cooperation, Samsung SDI, BMW and BASF, Cobalt for Development has reached out to and helped more than 1,800 people in the communities by providing new learning facilities and a wide range of educational programs. We will continue to support the initiative to improve access to education on human rights, the environment and safety for the miners. On a separate note, Interbrand announced their Best Global Brand list on October 20, and our estimated brand value reached a new high of $62.3 billion. We are in the top 5 for the first time after having ascended to the sixth spot in 2017. Interbrand cited our rapid response to COVID-19 as well as our sustainability management activities as some of the factors that played a critical role in the growth of the Samsung brand. We will continue our efforts in sustainability management and will be sure to keep you updated. I will now turn the conference call over to the gentlemen from each business unit to present third quarter performances and outlooks for their corresponding business segments. Thank you.

Good morning. This is Han JinMan from the Memory marketing team. In the third quarter, server demand weakened somewhat relative to the strength it showed in the first half, while overall demand was higher than expected as mobile demand started to recover, mainly in the low to mid-priced segments. For DRAM, demand for mobile increased as strong seasonability -- seasonality and improved consumer confidence helped drive an increase in sales that centered on low to mid-priced smartphones, while effects of 5G expansion in Huawei's urgent orders also contributed to the rise. For server, demand was weak mainly from OEMs, while major customers utilized their inventories. But overall demand was relatively solid, backed by Huawei's inventory buildup. For PC, along with strong demand for laptops, such as Chromebooks, demand increased led by set deals ahead of seasonal events like Black Friday. Graphic demand increased as -- on top of strong seasonal effects. Demand from gaming expanded due to increased game access related to the stay-at-home trend and accelerated production of new game consoles. We expanded sales to mobile applications by preemptively converting our product mix, and we actively responded to PC demand mainly for laptops linked with an ongoing expansion of the number of people working from home and learning online. As a result, we exceeded our previous bit growth guidance. Next, I'll talk about NAND. For mobile, as was the case for DRAM, demand was strong, bolstered by launching some new models by major manufacturers, the recovery of consumer confidence and Huawei's urgent orders. For server, demand declined due to inventory adjustment at major customers related to the increased purchasing in the first half. For client SSD, demand was strong for low to mid-priced laptops as more people work and study from home, while demand for SSDs for new game consoles also increased significantly. Our bit growth exceeded that of the market due to increased shipments of -- shipments for overall applications, thanks to our active responses to strong mobile demand, which includes demand from the inventory buildup in Huawei and -- that related to expanded sales of SSDs for new game consoles. Next, let's talk about the outlook for the fourth quarter. For DRAM, mobile build demand is likely to see another quarter of growth, mainly led by Chinese manufacturers due to the release of new smartphones and the recovery of domestic demand in China. While for server, we expect demand to remain weak as customers continue to adjust inventory. For PC, we expect to see solid demand for low to mid-priced laptops, such as Chromebooks, but desktop demand will probably stay soft due to conservative IT investment from enterprises. For graphic, we expect demand for graphics cards to appear with the release of new higher-performance GPUs, while demand for new game console should stay solid. In the face of continued uncertainties, we will actively address rising demand from major mobile customers by optimizing our product mix, and we will continue to strengthen our cost competitiveness through a stable production ramp-up and timing sales of 1z nanometer DRAM. For NAND, in the fourth quarter, along with signals of an economic recovery such as improving economic indicators, we expect demand from mobile to increase, mainly led by Chinese mobile manufacturers. For server SSD, we expect demand to remain soft due to ongoing inventory adjustment at customers and effects of conservative CapEx at major customers caused by prolonged COVID-19, which should result in a slight decline in prices. For client SSD, we believe demand will be robust backed by continuing demand for low to mid-priced laptops, while content per box should increase. We will actively respond to increasing demand in the client SSD and mobile markets and continue to expand sixth-generation V-NAND conversion to enhance technology leadership and cost competitiveness. Now let's move to the outlook for 2021. First of all, I would like to ask you to understand that it is difficult to provide a detailed forecast given the current number of uncertainties, which include possibilities of prolonged pandemic as well as numerous geopolitical issues. However, I can provide our general outlook. For mobile, build demand, which has increased thus far in this fourth quarter, is likely to stay solid throughout the first half of next year as more low-end to mid-range smartphones adopt 5G technology. On the other hand, for server, we believe demand, which has been weighed on by inventory adjustments at customers in the second half, is highly likely to turn around in the first half of next year, influenced by impacts of a newly released CPU and the recovery of previously shrinking investment on top of healthy inventory levels. In this volatile market for overall applications, we believe that it is very important to quickly detect changes and respond accordingly. Therefore, while concentrating on flexibility in our product mix to increase responsiveness to changes in demand, we will keep adding to competitiveness by accelerating conversion to 1z nanometer DRAM and sixth-generation V-NAND. In addition, we will continue to develop next-generation products such as EUV-based 1a nano DRAM and seventh-generation V-NAND to strengthen competitiveness for a post-pandemic era in newly growing markets such as AI and edge computing. Thank you.

Good morning. This is DongHo Shin from the System LSI business. In the third quarter, our earnings improved due to the recovery in demand for mobile components such as image sensors and SoCs following increased production by global manufacturers and improved smartphone consumption sentiment, which had both been suppressed by effects of COVID-19. In particular, the performance of display driver issues improved significantly as the demand for tablet and laptops increased due to a growing momentum of contact-free environments such as telecommuting and remote education. In image sensors, we strengthened leadership in ultra small and high-resolution chip cells by establishing a line of various products based on 0.7 micrometer pixels. In the fourth quarter, we expect the demand for SoCs and other mobile-related components to increase as major smartphone manufacturers attempt to expand market share and add new 5G smartphone to their lineups. We will, under these conditions, focus on expanding the mobile SoC business by starting the supply of 5G integrated SoCs built on advanced 5-nanometer EUV process. In 2021, although external uncertainties such as the duration of COVID-19 outbreak will remain factors, we expect the market to recover due to increased demand following aggressive expansion strategies of major smartphone manufacturers. We will expand shipment centered on our 5G integrated SoCs, high-resolution image sensors and display products amid solid demand. In addition, we will increase our market share by diversifying applications for security products and by strengthening technology such as high frame rate for mobile DDIs. By doing so, we plan to achieve double-digit sales growth next year. Thank you.

Good morning. This is Shawn Han from the Foundry business. In the third quarter, we achieved a new high for quarterly sales on the back of improved consumer sentiment, a recovery of demand from mobile on resumption of production at manufacturers and an increased demand for HPC chips from major customers. In addition, we have solidified a foot forward for growth by providing the competitiveness of our advanced process technology with the start of shipments of 5 nano mobile products and mass production of 2.5D packages. In the fourth quarter, we aim to set an ever higher level for quarterly sales by expanding shipments of mobile SoCs and HPC chips to major customers, and we will continue our efforts to widen our lead in advanced processes by completing the design of second generation of 5 nano products and the first generation of mobile use for nano products. Moreover, we will continue to strengthen the foundry ecosystem both at home and abroad to optimize the reserves of our cooperation with our partners, utilizing events such as yesterday's SAFE Forum. We call it SAFE Forum 2020. In 2021, we will continue to diversify applications, not only in mobile but also in HPC, consumer products and network, and we will try to add more stability to our business structure by attracting additional large customers. In addition, we expect demand to stay strong for our entire process portfolio and we will do our best to ensure a stable supply of our products by expanding capacity and improving efficiency. Through this, we expect our growth rate to significantly exceed that of the market. Thank you.

Good morning. This is KwonYoung Choi from the team of Samsung Display. In the third quarter, despite the effects of the pandemic, earnings in the Display business improved driven by increased sales for smartphone, TVs and monitors. To be more specific, the Mobile Display business recorded earnings growth by increasing utilization and expanding sales of OLED panels to respond to new product release at major customers amid a growth -- gradual pickup of previously stagnant smartphone demand. In the large display business, the losses narrowed quarter-on-quarter supported by brisk demand and an increase in ASP under strong seasonality, led by sales of ultra large TVs and high-performance monitor panels as people spend more time at home. Next, let me share the outlook for the -- of the fourth quarter. For Mobile Display, we expect full fledge sales of our main customers' new products to keep demand at a solid level. In response, we will improve our sales and profitability by fully meeting our customers' demand and by enhancing our product mix. The large display business will continue to service customer demand and at the same time, accelerate the transition of business structure based on new technologies. Finally, I will share our outlook for the display market and our core strategies for 2021. For the Mobile Display business, we expect uncertainties regarding a demand recovery to linger given the chances of additional waves of COVID-19 and risks associated with the U.S.-China trade dispute. However, we expect to see a gradual recovery of smartphone market driven by the expansion of 5G networks. We'll ensure our OLED panels emerge as the mainstream display in the mobile display -- mobile product market by expanding our differentiated design and new technologies, which offer lower power consumption, high refresh rates alongside our efforts to reinforce cost competitiveness. Moreover, we will strengthen our market presence by spurring innovation in form factor with technology such as foldable, slidable and rollable displays and by adding new application areas such as notebooks and tablets. For the large display business, we will develop our differentiated QD display technology according to schedule and establish a strong foundation for QD display in the premium segment. Thank you.

Good morning. I'm JongMin Lee from the Mobile Communications business. I will now share our third quarter results and outlook for the IM division. In the third quarter, the market showed a gradual recovery led by positives such as economic stimulus packages, with demand rising quarter-on-quarter from levels caused by lockdowns in major regions. For the Mobile business, our smartphone sales increased sharply quarter-on-quarter, thanks to the launch of flagship models, the Galaxy Note20 and Z42, and a demand recovery for mass market models in many regions, including India. Alongside the increase in sales, profitability improved dramatically quarter-on-quarter as a result of improvement to our cost structure, including component standardization and efficient execution of marketing expense. In addition, rising sales of tablets and wearables also contributed to profit growth in the third quarter. We launched new Galaxy devices, such as premium Tab S7, Watch3 and Buds Live, along with Note20 in August. In September, we unveiled Z42, featuring refined hardware technology and user experiences as well as S20 FE, which is packed with the features tailor-made for our fans. We will continue to expand our Galaxy ecosystem based on competitive products that fully reflect the needs of our customers. For the Network business, domestic and overseas products were delayed due to COVID-19 impact. However, we strengthened our foundation for growth in the 5G business by signing a large-scale contract with Verizon to supply our network equipment. Now let me move on to the outlook for the fourth quarter. We expect market demand to increase quarter-on-quarter amid strong year-end seasonality as the market continues to recover. For the Mobile business, it seems inevitable that smartphone sales will decline, and our product mix will somewhat weaken compared to the previous quarter given seasonal factors such as subsiding new model effects over flagships. Furthermore, we expect our profit to decrease due to an increase in the marketing cost as we face intensifying market competition and year-end peak seasonality. For the Network business, we will continue to expand the 5G coverage in Korea and also push for expansion in the global 5G market, including North America and Japan. Last, let me share our outlook for next year. Mobile market demand is expected to increase amid gradual economic recoveries and full-scale migration towards 5G. However, it will take some time to recover to pre-COVID levels and uncertainties related to COVID-19 will remain. For the Mobile business, we will expand the smartphone sales by strengthening our 5G lineup for the mass market. We will further differentiate our flagship lineup by reinforcing the competitiveness of our foldable phones to have -- popularize them in the market. At the same time, we will continue our efforts to bolster profitability by enhancing both our product mix and operational efficiency. For the Network business, we will actively attract new orders for our global 5G business and continue our timely response to 5G commercialization in both the domestic and overseas market. Thank you.

Good morning, everyone. I'm Kim Won-Hee from Sales and Marketing Visual Display division. First, I'd like to review the market conditions and our performance in Q3 of 2020. The TV market in Q3 grew both year-on-year and quarter-on-quarter with the significant release of pent-up demand for advantaged markets. The TV replacement demand was boosted as consumers spent more time at home. We responded promptly to the growth in demand with our global SCM capabilities and capture the pent-up demand by strengthening cooperation with major channel partners and by preemptively preparing promotions. In response to the new noncontact era, we continue to foster online sales and enhance digital marketing. We proactively targeted consumers' needs for great picture quality in home cinema and the rising popularity of smart TVs with increased use of at-home services such as OTT. As a result, we expanded sales of new models and premium products such as QLED and super large screen TVs. With growing consumers' needs and desires to customize the home environment and interior, we also increased sales of our lifestyle TVs, which are designed to fit various styles and consumer tastes. These efforts led to our strong performance in Q3 and recovered sales decline in the first half of the year. For digital appliances, the market demand in advanced markets recovered after a temporary drop, helped in part by expansionary policies of governments. Revenue in Q3 grew considerably as we preemptively addressed pent-up demand, resulting in increased sales of our premium products, including bespoke refrigerators and Grande AI washer and dryers. Rising sales of dryers and air dressers also contributed to the strong results amid growing awareness of how home appliances can lead to better hygiene. Now let us look at our outlook for fourth -- Q4 and 2021. The TV market in Q4 is projected to grow year-on-year in the traditional peak season. However, the risks of COVID-19 and corresponding social and economic changes may continue to increase uncertainty. We believe Q4 will be very different from before as social distancing policies are likely to affect off-line consumption and peak sale season events will be spread over a longer period of time than before. With all these changes, we expect to see much fiercer competition. Also, entering year-end peak sales season after the flood of pent-up demand, the industry may face many challenges, including the risk of rising costs. Under these circumstances, we will work closely with our channel partners to overcome these challenges and secure profitability. We will continue to improve our online sales infrastructure to prepare for changes to off-line consumption and expand sales of premium products, including QLED and lifestyle TVs with online and O2O special promotions. We will also continue to lead the super large screen TV market by focusing on customers' needs for bigger TVs and encouraging size upgrades through effective marketing campaigns. For the digital appliances, we will run seasonal promotions flexibly based on demand, which is recovering mainly in advanced markets. We will also work to secure profitability by strengthening online marketing and optimizing operations with efficient logistics. The TV market in 2021 may see dynamic changes as a result of COVID-19. With our experiences from this year, we will implement a sales strategy to respond swiftly to any changes in the market and continue to expand sales of newly launched lifestyle TVs such as Terrace and The Premiere. In addition, we will continue to innovate cutting-edge technologies with a new level of QLED TVs as well as MicroLED products for home and lead the super large screen TV market as the industry leader. For digital appliances in 2021, it is expected that the market will recover gradually in advanced countries. We will continue to work in sustaining growth by improving our premium lineup like bespoke products and strengthening our online and B2B businesses through efficient marketing strategies that are tailored to the conditions for each region. Thank you.

Thank you. That sums up the third quarter results presentations. Before we move on to the Q&A session, I would like to share with you several data points in key business areas. For DRAM, in the third quarter, our bit growth increased in the mid-single-digit percentage range and ASP declined in the upper single-digit percentage range. For the fourth quarter, we expect market bit growth to be in the lower single-digit percentage range and our bit growth to be above the market level. For the full year, we expect market bit growth and our growth to be similar at around 20%. For NAND, in the third quarter, our bit growth grew to the high-teens percentage range, while ASP declined by about 10%. In the fourth quarter, market growth is expected to decline by a low single-digit percentage, but we expect to outperform the market. For the full year, market bit growth is forecast to be in the high 20% range, and our bit growth is expected to be slightly below that level. For the Display Panel Business in the third quarter, the OLED portion of sales was in the low 80 percentage range, and sales volume increased in the high-teen percentage range. In the Mobile business, in the third quarter, build volume totaled 88 million units for handsets and 9 million units for tablets. The blended ASP including tablets was USD 229, and the smartphone portion of handset sales volume was in the low 90% range. In the fourth quarter, we expect quarter-on-quarter shipments to decline for handsets but increase slightly for tablets. And we expect blended ASP to decline compared to the third quarter. The smartphone portion of handset sales should remain in the low 90s. In the TV business, sales volume in the third quarter increased in the low 70% range. We expect shipments in the fourth quarter to rise in the low single-digit percentage range. On a full year basis, we project shipments growth will be in the low-teen percentage range. With that, I will now move on to the Q&A session.

[Foreign Language] [Operator Instructions] [Foreign Language] The first question will be presented by Peter Lee from Citigroup.

[Interpreted] I have 2 questions. First question is about the shareholder return policy. I noticed that in today's conference call, you did not mention if there's any additional financial resources that will be used for the shareholder return for the 2018 to 2020 period or the shareholder return policy for the following period after 2021. Can you share with us any plans or details regarding that? Second question is about the EUV technology. I think Samsung is a bit special and differentiated in that it uses EUV in both the DRAM and the Foundry business. Is there any synergy effect in terms of technology or engineering that you think that you're enjoying because you're using EUV in both of these areas? It may be difficult to quantify, but can you at least describe on a qualitative basis if there are any synergies that you are experiencing?

[Interpreted] To answer your first question about our shareholder return policy. First of all, regarding the first part of that question, which was whether there is and the size of any additional financial resources that will be used for the current shareholder return policy or program, we thought that it was more appropriate to not mention that because we only have uncertain or undetermined numbers currently of any additional financial resources, and we thought it was more appropriate to mention that once the numbers have been finalized. And that's why we are planning to share with you and to execute the additional financial resources after we close the 2020 results, and we will share that with you during the earnings conference call in late January next year. Regarding our shareholder return policy for 2021 and after that, we are currently looking into various alternatives and plan. But given the high amount of macro uncertainty, we would like to take some more time in considering that. And we will announce our plans together in the -- our earnings conference call in late January next year.

[Interpreted] Many have been watching us closely as we have been adopting the EUV as a leader. And as we have mentioned, leveraging the experience of applying EUV successfully in the D1x node, we are currently applying the D1 EUV in the D1z process partially and currently in the process of sampling with a key customer. I think our experience of already applying EUV on the foundry side has definitely given us the advantage of being able to reach a higher level of technology and engineering perfectness in terms of applying EUV to DRAM. Also, it's given us an edge in terms of securing and bringing in the infrastructure. EUV is much more than just purchasing the equipment and using it to produce the product. Based on experience, it is critical in terms of EUV to have a strong ecosystem for all of the related technology areas such as mask, cleaning, inspection and material and to build the know-how and to internalize that know-how. And that is why we are currently operating EUV-dedicated organization in order to maximize the synergies in terms of the technology side of technology. Knowing the importance of having a strong EUV ecosystem, we are currently focusing on creating a differentiated EUV ecosystem by focusing on adding additional intellectual property and also building up our know-how in terms of software, hardware and the process technology. And that is why we are planning to apply EUV at full-scale from D1a. And also, this will give us the cost competitiveness and will give us the power to overcome the challenges of the cutting-edge nodes.

[Foreign Language] The next question will be presented by Nicolas Gaudois from UBS.

The first question is on smartphones. Looking into 2021, how should we think about foldable product strategy and expected volumes? And will the product category reach a point of maturity which actually will be sufficient so that you would actually consider fully emerging foldables into your high-end smartphone product segmentation and possibly replacing the Note in particular? And second question is regarding DRAM. It seems that some of your smartphone customers have engaged into long-term agreements for 2021. How are hyperscale customers reacting to this so far as they may need to secure capacity for server DRAM as they get into '21 as well? Could that lead altogether to a more positive momentum event for DRAM pricing in 2021 in your view? [Interpreted]

[Interpreted] To answer your first question about our foldable phones, as you know, the foldable phones have been receiving very strong responses from both the market and actual users by providing a totally new mobile experience through an innovative form factor, differentiated design and also the multitasking through a larger screen. Foldable phones as a category, we're expecting to record high growth in the future. Especially the Z Flip and the Z Fold2 actually recorded very solid sales trends despite the overall difficulties in the relatively weak demand for premium segments amid COVID-19. So even though as of yet foldables do account for a relatively small portion of our overall smartphone sales, we are planning to continue to increase our foldable portfolio and to widen the price ranges that we offer foldable options by leveraging the flexible technology that we have already built over several years. And therefore, we are expecting foldable phone sales to increase for several years going forward. Regarding our flagship portfolio plans, we continuously optimize our flagship portfolio depending on the technology development as well as customer needs. And foldables, in this case, will also be operated by considering various factors.

[Foreign Language] The next question will be presented by Dongwon Kim from KB Securities.

[Foreign Language]

Before we answer those questions, I think we did not answer the second question by Mr. Nicolas Gaudois. So we will answer that question first before moving on to the additional questions.

[Interpreted] The second question by Mr. Nicolas Gaudois was about the DRAM and the movements that we're seeing from different application customers as well as next year pricing implications. Before answering that question, I think a way of answering that question will be to just recap what we saw in the DRAM market in third quarter. Looking back at third quarter, I think the key highlight was the comeback -- the strong comeback of the mobile demand. Mobile demand was weak during the first half of this year. But in the third quarter, we saw a strong comeback, especially around the mass mobile or smartphone segment. This is explained mainly, first of all, due to the improvement in consumer sentiment, especially in the Chinese area, and also due to the launch of new products by our key smartphone customers. And on top of that, there was also the urgency -- urgent orders that were placed by Huawei during the third quarter. On the other hand, during third quarter, server demand turned around to a weaker direction. Server demand has been very strong in the first half, but part of that demand was to inventory. And as customers worked through their inventory, their actual memory purchases during third quarter decreased. But also closer to the end of the third quarter, Huawei came to the market with its orders. And overall, this reduced the amount of demand decrease that happened for servers in third quarter. Now about demand forecast going forward, first of all, mobile, it appears that in fourth quarter, the mobile customers will continue to expand their build demand. What we're seeing right now is that especially the Chinese customers, mobile customers are placing orders. And that with new smartphones being launched by the larger OEMs, the demand for mobile in fourth quarter was -- remained solid. Looking towards first half of next year, there would actually be a growth momentum being supported by the 5G rollout. And so even for first half of next year, we expect that mobile demand will stay stable. In the case of servers, it's difficult for us to mention exactly where our customers' inventories currently stand. But according to what we're observing, it seems that the inventory adjustment will probably continue until the fourth quarter. Looking towards first half of next year, we think that because -- as a result of the inventory adjustments, inventory levels would reach comfortable levels. And also some of the investments, which this year remained a bit conservative, will be resuming next year. So we think that on top of that, if we think -- consider the adoption of the new 8-channel server CPU, which would drive up content, we think that server demand would probably rebound and turn around during first half of next year.

And then to the new set of 2 questions, there were 2 questions. The first question was about the NAND prices and how the company plans to respond to that. NAND prices are continuing to decline. And even though there is -- the visibility of the data center demand and supply is restricted, unlike the DRAM side, where there is visibility of DRAM demand and supply is rather limited, in the NAND side, it seems that this oversupply will probably continue. So in that context, can you give us your outlook on the NAND situation next year in terms of the supply and the demand side? And about your strategies or whether you will continue to respond actively to the NAND market despite the price decline. The second question was about the LCD business. The company has announced that it will be exiting from the LCD business, but the LCD market has recently been rebounding. So is there a possibility that the company may extend its LCD business, keep it for longer? And would that have any impact on its plans of launching a QD display business?

[Interpreted] To answer your question about NAND, as we have already mentioned, it's very difficult to give you detailed outlook because of all of the uncertainties right now. But if we can share with you what we see in terms of NAND market by application next year, we do think that at least until the first half of next year, mobile demand, which is continuing to show signs of recovery, as well as PC-related NAND demand, which is being driven by increase of attach ratios as well as content, would remain solid. On top of that, on the server side, once the customers go through their inventory adjustments, we do think that server demand will start to show signs of recovery. However, in the NAND market, there will also be a continuous increase on the supply side. And that is why we think that it remains to be seen how the supply and demand situation will unfold. You've asked about our NAND business strategy. And our strategy is that we will actively respond to customer demand in the NAND market, which shows high price elasticity, and this strategy has not changed. In order to implement that strategy, we will continue to make the preemptive infrastructure investments to secure the supply capability so that we will be able to actively respond to fundamental demand increases, for example, that could be driven by an economic recovery in the future as well as a build-out of server infrastructure globally. Also, at the same time, we will be expanding our sixth-generation V-NAND migration in order to further enhance our cost competitiveness. Also, in terms of our future products, we are currently developing our seventh-generation V-NAND according to schedule. This will be the first V-NAND that uses a double-stack technology. Also, we would be leveraging the cell etching technology that we have already been developing to the top level in the industry using our existing single step. And so the seventh-generation V-NAND will be giving us a further cost competitiveness, and we plan to go into mass production of the seventh-generation V-NAND next year.

[Interpreted] Your second question was about the QD display business and the LCD business and our business strategies to these. As you know, we have -- we are in the process of changing our display business structure from LCD to QD display in order to strengthen our business competitiveness in the large display area. Currently, for the QD display business, we are bringing in the equipment and doing the setup as originally scheduled. Our top priority is to successfully launch the QD display product and to make it adopted in the market successfully. We're currently talking with customers, and we are keenly focused on launching the QD display successfully so that it becomes the new standard in the premium segment. That said, you've also asked about our plans, whether our plan for the LCD panel business has changed. As you mentioned, recently, there's been a very short-term rebound or pickup of both LCD -- the large LCD panel demand and ASP, which is driven by the pent-up demand of the COVID pandemic. We're also getting some inquiries from some customers about whether we can extend in the near term the panel supply. And so given this customer inquiry, we are currently considering the -- studying the possibility of extending our LCD panel supply short term by using the capacity of the lines that are not being converted to QD display, but we have not reached any decision as of yet. Regardless of what we would do with the LCD panel supply, there will be no impact to our overall business transition to the QD display. And whether we will extend the LCD panel supply will be decided by placing the company's interest as the top priority.

[Foreign Language] The next question will be presented by Kyung Min Kim from Hana Financial Investment.

[Interpreted] I have a question regarding Huawei. We've heard that you've applied for a license with the U.S. Department of Commerce about doing business with Huawei. Can you give us an update on what you've heard back from the U.S. government? And also without Huawei, do you think that other customers will be able to fill its space starting from the fourth quarter?

[Interpreted] First of all, what we applied for the U.S. Department of Commerce was an export license. We have not yet heard back and so we cannot share with you the developments that followed our application. Now regarding what we're seeing in terms of our DRAM and NAND business for the mobile side, since the announcement against Huawei, we're actually seeing that there's an upside in the demand by other Chinese mobile customers. Also, with the consumer sentiment recovering in the third quarter, there has been a demand recovery, especially around the mass tier mobile side. And so we think that even in the fourth quarter, mobile demand will remain solid for both DRAM and NAND. Looking towards next year, we do think that mobile demand will remain solid given the fact that -- or being driven by the recovery in the mobile handset demand and sales, as well as the rollout of 5G to the mass tier segment of the smartphones. But then that being said, there is the uncertainties of whether the license will be issued as well as the market situation changing depending on that timing. And so we will continuously monitor and check the impact to the market and our demand.

[Foreign Language] The next question will be presented by Hyunwoo Doh from NHI Securities.

[Interpreted] I have 2 questions. First about -- the first question is about the memory CapEx. It seems that with memory demand being a bit weak, you have been postponing new CapEx investments into DRAM. When do you think you will be resuming new investments in capacity? And also, can you share with us the amount or the size of new capacity investments you're planning for next year? Second question is for the CE side. According to our numbers, it seems that your TV side recorded double-digit margins in the third quarter, which is much better than what the market has expected. Do you think that this is mainly explained as a one-off, the pent-up demand kicking in, in third quarter? Or do you think that actually there's additional upside for your profitability given that fourth quarter is the peak season for TVs?

[Interpreted] To answer your first question about semiconductor-related investments, we are currently in the process of going through various simulations of what would be the optimal investment for not only next year, but from a mid- to long-term perspective. And so even our investment plan for next year is currently still slightly being revised. So because our next year investment plan is still being subjected to change, the exact investment size has not been finalized. But we start from the point that we're expecting in the mid- to long term, memory demand will be fundamentally strong. And so we need -- we will be executing our infrastructure investments preemptively so that we will be ready to respond to changes in demand by application in a timely manner. And so for next year, we are expecting our memory investments to increase versus 2020. And also because the actual investments into the equipment will be adjusted accordingly depending on what we see in the market, even if our total investment amount increases next year, we think that the possibility of, for example, an oversupply being created is very limited.

[Interpreted] Regarding your second question about our TV business, yes, as you mentioned, third quarter is usually a slow season for the TV market. But unlike previous years, this third quarter, we had the unusual demand due to the pent-up demand created by COVID-19. We were able to successfully capture that opportunity by predicting this pent-up demand ahead of time and cooperating preemptively with the distribution channel and also leveraging our global supply chain management capabilities to increase sales, especially around the premium segments, which explains the strong performance in the third quarter. However, looking towards the fourth quarter, which is a traditional peak season for the TV market, we do think that despite this seasonality, there may be various challenges in terms of business. One is the uncertainty that's still looming due to COVID-19 as well as probably the expected increase in market competition. For example, I think there's still a possibility that with the increase of COVID-19 cases in key markets such as U.S. and Europe, some of these countries may go back into lockdown. This may lead to economic contraction globally on a long-term basis. On the other hand, because this is the peak season, other companies will be entering the market so there will be more competition in sales. On top of that, because of the strong demand, there are some cost increase factors and risks in the TV market. Despite these challenges, in the fourth quarter, we will be focusing on defending our strong performance by continuing our collaboration with the channels and also strengthening our nonface-to-face infrastructure so that we are able to further improve our product mix around the premium products such as QLED, ultra large size TVs as well as lifestyle TV and also by continuing to optimize our operation.

[Foreign Language] The next question will be presented by Jong Woo Yoo from Korea Investment & Securities.

[Interpreted] I have 2 questions. The first question is about the NAND business. You may have heard, but a competitor recently announced that it will be acquiring the NAND business from Intel. Do you think that there will be any impact to the industry because of this deal? And would there be any changes to your NAND strategy? Second question is about the mobile business. Some research is saying that next year, the global 5G smartphone shipments would be above 500 million, close to 600 million, which means that 5G smartphones will become the mainstream. I do wonder what will be the difference from the user's perspective for using a smart -- 5G smartphone versus, for example, an LTE phone. From the company's perspective, what do you think is the key difference that users would experience? And also, can you give us some key features of the 5G smartphone market you're expecting to see next year?

[Interpreted] To answer your first question about the NAND, it's difficult for us to give specific answers regarding matters of other suppliers. I think a way of me answering that question is to describe in detail our NAND strategy. Based on our experience, NAND is a very price-elastic price-sensitive product. And so in order to actively respond and capture the opportunities in the NAND market despite various challenges, a company needs to have, as a precondition, the cost competitiveness and also the stable supply capacity. And so our NAND strategy is to continue stable supply of NAND products that meet the customers' requirement based on our cost competitiveness that comes from our differentiated technology, including the CTF technology. Also, we -- our strategy is to continue to strengthen our relationship with our existing customers and also to maintain our market leadership by launching new growth area products in a timely manner.

[Interpreted] To answer your question about the 5G, first of all, in terms of the user experience, 5G allows the users to experience and enjoy ultra high-quality services that were difficult to implement in a 4G environment because 5G has faster speed and also ultra low latency. For example, users with -- users of 5G smartphones are able to enjoy cloud gaming. Basically, this is playing a PC game on a smartphone. And they can also enjoy on a real-time basis video streaming of very high picture quality. In terms of market for 5G next year, as you mentioned, we also think that the 5G smartphone shipment next year will go above 500 million. I think a key change would be the rollout of the 5G option to be on the high-end segment so that next year, there will be 5G handsets available even at the entry level. So our approach for 5G next year is to expand our 5G offering from premium down to entry-level by leveraging the 5G optimized capabilities that we have developed up until now. Also, we will be operating a 5G lineup that addresses different regional needs so that we offer a wider range of choice to our customers. In addition to the expanded 5G product portfolio, we will be providing various 5G specialized services through strategic partnerships with the global top-tier companies in order to provide a differentiated customer experience and to drive greater sales.

[Foreign Language] The next question will be presented by S. K. Kim from Daiwa Capital Market.

[Interpreted] I have 2 questions. First question is about the DDR5, which is expected -- the switch to DDR5 is expected to start from next year. Can you share with us the Samsung product strategy regarding DDR5? Especially around servers, can you give us an update on your activities for DDR5 on the server side? Especially, can you give us some details about connections with the new CPU or, for example, a node migration? Second question is about the network equipment business. Since Samsung announced the order from Verizon in September for the 5G equipment, I think the market is starting to have high expectations about Samsung's 5G equipment business in the future. Can you give us some details about what you're expecting in your 5G equipment business next year around not only the U.S. but other key overseas markets?

[Interpreted] To answer your question about DDR5, DDR5 is the next-generation DRAM solution that enables a faster and more stable server environment. We're currently preparing a major DDR5 marketing campaign in collaboration with major industry leaders such as Intel to build excitement and energize the demand in the pipeline. So our DDR5 product strategy is, number one, to focus on developing and mass-producing the products on schedule, in time and also to focus on collaboration with other partners so that the excellence of our DDR5 product is widely known in the market, which will help us build competitiveness.

[Interpreted] To answer your second question about the 5G equipment business, the recent large order from Verizon has given us the position to further expand our market share in the North American market and also to develop additional business opportunities. And so we will build on this momentum to expand our 5G business in other key overseas markets such as India, Japan and Europe. And so while we expand our global 5G equipment business, we will be focusing on providing differentiated technology and products versus other vendors. For example, we have our massive MIMO radio or radio and baseband, which are key pieces of 5G infrastructure. We also have a very differentiated software-based solution. So this will be one of the advantages that we will be leveraging to increase our supply. At the same time, we will be continuing to invest in our 5G equipment and infrastructure R&D and also strengthen the cooperation with partners that have global technology leadership so that we are able to further increase our technology differentiation and a stable supply system.

[Foreign Language] The last question will be presented by Ricky Seo from HSBC.

[Interpreted] I have 2 questions. The first question is about the foundry. Can you elaborate on your foundry market outlook for next year? Also this year, your Foundry business won significant orders from major large customers, and we're assuming that your Foundry business would be increasing in market share this year. Do you think that this trend of increase of your Foundry business market share will continue next year? Also, we're hearing a lot of news about 8-inch shortages. Would this be able to have a positive or meaningful impact on foundry margins next year if this leads to higher utilization of the foundry next year? Second question is about the mobile business side. It seems that about 15% to 20% of your production is ODM production. Do you have any plans of increasing the smartphone ODM production next year? And if so, how high in the product segment, for example, would it come up? Because right now, it's probably the low-end handsets that are being produced through OEM. If ODM share does increase next year, how high up the product segment do you plan to expand ODM?

[Interpreted] To answer your first question about next year foundry market outlook, we do think that next year, the foundry market itself will be growing at around high single-digit levels, mainly driven by the further penetration of 5G and also the growth of HPC applications. However, because of the possibility that inventory adjustments may continue into the first half of next year, we think that the amount of growth or the degree of growth next year would be probably less than what we saw this year. Regarding whether we're expecting our market share to continue to increase, we are currently continuously receiving demand from our customers for higher performance and also the advanced node processes. And so looking at our current situation, we do expect to have a meaningful increase in our market share by outgrowing the market next year.

[Interpreted] Regarding your second question about the mobile and the ODM production, we do have ODM manufacturing for -- on a limited basis for certain models. The purpose of this is to better respond to customer needs and to respond to the rapidly changing market environment. And also, ODM does enable us to efficiently operate our internal resources and product lineup. It is difficult, though, to share with you the detailed share of ODM or whether we are planning to expand that because this is an area that was continuously changed depending on market environment and also our internal situation. And so our basic approach to ODM is that we will continue to operate ODM in a flexible manner by analyzing and comprehensively considering, on one part, the actual feedback that comes from ODM users and also the market competitiveness. That being said, we will minimize impact to our suppliers.

[Interpreted] With that, we will end our conference call here. Thank you very much for attending. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]