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

Hello, everyone, and welcome to the Samsung Electronics 2026 Third Quarter Financial Results Conference Call. I will be your coordinator. 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.

Welcome, everyone. I would like to thank our shareholders and analysts for joining us from all over the world for our third quarter 2026 earnings call. I'm Daniel Oh, Head of Investor Relations, and it is a great pleasure to have you all with me today. Please be advised that all materials from today's call, including the presentation slides, will remain accessible on our IR website. Also, please be aware that today's remarks may contain forward-looking statements that could differ from actual results. For the full legal disclaimer, please refer to the presentation slide. For our agenda today, I will start with our third quarter financial performance and an update on capital expenditures, followed by our CFO, Soon-Cheol Park, who will discuss our outlook and shareholder returns. The executive officers from our different businesses will then share their respective results and outlook. We will end the presentation with a Q&A session, and we anticipate the call will last about an hour. The executive officers with us today are EVP Soon-Cheol Park, our CFO; EVP, Jaejun Kim from Memory; EVP Jason Shin for System LSI; EVP, Sukchae Kang from Foundry; EVP Charles Hur with Samsung Display; EVP Daniel Araujo, representing MX; and VP Won Hee Kim for Visual Display. Now let's begin with our financial results for the third quarter, driven by record results in the Memory business, Samsung Electronics reached new highs in both revenue and operating profit for the fourth consecutive quarter, delivering total revenue of KRW 195.3 trillion and operating profit of KRW 107.4 trillion, both sequential increases of 14% and 20%, respectively. As a result, we became the first global tech company to post a quarterly operating profit of over KRW 100 trillion. Also, our operating margin improved to 55%, up from 52% in prior quarter. R&D expenses totaled KRW 14.4 trillion as we continued to actively invest in future growth. Net profit rose 5% sequentially to KRW 75.1 trillion, and earnings per share reached new heights of KRW 11,462 for common shares and KRW 11,492 for preferred shares, both up 6% from the previous quarter. In the DS division, memory set another quarterly record while expanding HBM4 sales and meeting strong server demand. System LSI faced headwinds from weak mobile demand, while foundry continued its earnings recovery, supported by growing sales from advanced nodes. In the DX division, the MX business recorded year-on-year revenue growth driven by new models such as Galaxy Z4 8 even as higher component costs kept business conditions challenging. On currency effects, weaker exchange rates for the U.S. dollar, euro and major other currencies had a negative impact of around KRW 10 trillion on operating profit compared with previous quarter, mainly in our component business. The executive officers with us today will discuss their results in more detail shortly. Moving on to capital expenditures. CapEx in the third quarter was KRW 29 trillion, an increase of KRW 12.2 trillion quarter-on-quarter and KRW 19.8 trillion year-on-year. Of this total, KRW 27.2 trillion was invested in the DS division, while KRW 1.1 trillion was invested in Display business. Over the first 9 months of this year, CapEx totaled KRW 56.9 trillion, up KRW 24.7 trillion year-on-year, of which KRW 52.8 trillion was allocated to DS division and KRW 2.4 trillion to the Display business. For the full year of 2026, we expect total CapEx to reach KRW 84.4 trillion or KRW 31.7 trillion increase from last year. Of this amount, CapEx is projected to rise by KRW 29.3 trillion to KRW 76.8 trillion for the Display DS division and by KRW 1.1 trillion to KRW 3.9 trillion for the Display business. By business, in memory, full year CapEx is expected to increase sequentially as we invest in new fabs and other infrastructure to meet strong AI demand and ensure readiness for the mid- to long term, consistent with our approach of aligning investment with customer demand. In the foundry business, we also expect annual CapEx to increase focused mainly on our tailor fab in the U.S., positioning us to meet the needs of fast-growing AI and HPC market and respond to customer demand in a timely manner. In the display business, full year CapEx is expected to increase, reflecting upgrades to existing production lines. Now I will hand the call to our CFO, Soon-Cheol Park, who will discuss our outlook for the fourth quarter and 2027 as well as shareholder returns.

Thank you, Daniel. Good morning, and thank you for joining our third quarter 2026 earnings call. I am Soon-Cheol Park, CFO of Samsung Electronics. Despite the rapidly shifting global market conditions, Samsung once again delivered record quarterly results backed by our differentiated technologies and nimble response to market changes. We also reached a historic milestone, becoming the first ever global tech company to exceed KRW 100 trillion in quarterly operating profit. This achievement demonstrates both the strength of our technologies and our ability to sustain growth. Our efforts remain fully focused on developing next-generation technologies and further advancing our leadership in the global market. Turning to the outlook for the fourth quarter and 2027. In the fourth quarter, we expect to continue delivering company-wide earnings growth, supported by strong performance in the DS division. However, the DS division is expected to face ongoing pressure from macroeconomic uncertainty and rising component costs. Starting with the DS division, we expect robust semiconductor market demand to continue driven by the rapid spread of agent AI. In memory, we solidify our market leadership by expanding sales of HBM4, high-performance DDR5, SSDs and server SSDs based on our industry-leading products and unmatched scale. In system RSI, we advance our flagship SoC and also shift our revenue mix towards higher resolution products by increasing sales of 200 megapixel image sensors. In Foundry, we aim to accelerate earnings growth through the scaling of mass production at our advanced 2M 4-nano nodes, while we continue to win new orders for 2-nano products. In the display business, while demand uncertainty is expected to persist due to rising memory prices and other factors, we will meet demand for premium products through our industry-leading mass production. In the DS division, our priority is overcoming profitability challenges by expanding premium product sales during the year-end peak season and improving operational efficiency. We will drive sales of our key products by offering distinct AI user experiences and a broad range of sales support programs while improving our sales mix by targeting premium demand. In addition, by quickly adjusting our sales and channel operations in response to market trends and cost pressures, we will improve our cost structure and drive greater efficiency across the entire value chain. Next, let me turn to our outlook for 2027. In 2027, we expect the semiconductor market to remain strong, supported by historic AI investment and supply constraints, driven by strong growth momentum in the DS division, we are positioned to exceed our 2026 performance and achieve another year of record results. Meanwhile, the DX division is expected to face continued profitability pressure from rising component costs and other business environment factors. In the DS division, memory demand will far exceed supply due to robust AI investment while growth in foundry is expected to accelerate. In memory, as AI infrastructure investment continues to grow, will lead the HBM market by expanding HB4 sales followed by mass producing HBM for Accor while also driving sales high-value products such as high-performance DDR5 high-capacity QLC and SSDs. With ditch efforts will bolster our market leadership through our superior technologies. In systems at side will secure new customers for customer associates and expanded sensor applications beyond mobile devices. In foundry, growth will be driven by the ramp up mass production at our tailor fab in the U.S. and for nano, AI and HPC products. In the display business, we utilize our technologies to expand the sales of premium products, including foldables and solidify our market leadership by growing our IT OLED business based on our Gen 8.6 production line. In the DF division, innovation in AI product experiences and the stronger profitability structure will bolster the foundation for future growth. We expand the agency AI experiences across the spaces and the devices in everyday life and the combination of our hardware innovation and enhanced performance were reinforced our leadership in the premium market. Moreover, we'll diversify our revenue streams by growing high-margin businesses such as services and platforms and rapidly improve our begins fundamentals through AX driven innovation and improve the resource efficiency. Next, let me address the shareholder returns. Today the Board of Directors approved a third quarter cash dividend of KRW 4,601 for both common and pref shares including the regular dividend of KRW 3,076 core per share. As of now in August, the total dividend for the third quarter will be KRW 30 trillion, including the regular dividend on our shareholder return policy for 2024 and to 2026, and it is scheduled to be paid in November. Next, I will update our shareholder return plan for the rest of 2026. Of the estimated [indiscernible] in total shareholder results for 2026 and with KRW 35 trillion already planned or completed, including the KRW 30 trillion cash dividend approved by the Board today, we anticipate the remaining funds for shareholder returns to be KRW 55 billion to KRW 75 trillion. In detail, for this remaining resources, our commitment is to return the amount to shareholders through cash dividends as well as or soft share repurchase and cancellation problem. We are worth holding in-depth discussions on the next shareholder return policy which will take effect in 2027, aiming to achieve sustainable growth and enhance the shareholder value. In addition, we recognized the growing market interest in the price gap between common and preorder shares, and we are committed to actively consider and auto, the proportion of preorders in our share repurchase and cancellation program based on market conditions with a view of ensuring it created to all other shareholders, optimizing capital allocation and enhancing corporate value. The new shareholder return policy, along with the final amount of shareholder returns and the execution plan for the remaining for 2026 will be finalized at the Board of meetings scheduled for late January 2027 we do announce on to follow. Thank you.

Thank you, CFO. Now I would like to invite our executive officers from different businesses to provide updates on their respective business units. We will begin with Jaejun Kim, EVP of the Memory business.

Good morning. This is Jaejun Kim from Memory Global Sales and Marketing. In the memory market in the third quarter, although demand remained robust, driven by AI application. In particular, with the full-scale adoption of agent AI, there has been an additional demand increase, mainly for products related to the AI inflow structure expansion such as HBM IDMS and server access cities for AI and conventional service. Thus, in order to meet the increasing demand for we significantly expanded the sales of HVM or leveraging our industry-leading product competitiveness and also actively addressed the growing demand for survey of SSDs. Regarding our shipment in the third quarter, DRAM increased by a low to mid-single-digit percentage compared to the previous quarter and then increased by mid-single-digit percentages. Meanwhile in the third quarter, our market price rose across all applications are mainly driven by several applications with a strong demand momentum. Therefore, compared to the previous quarter, our DRAM AS below by 20% level, and our end also increased by the high-teens percentages. In the fourth quarter, our while infrastructure investments within the AI industry continued to grow, memory demand is further expanding, particularly for the products linked to CPUs and GPUs, which will be newly launched. On time of that on the NAND side, we have received additional QHC demand in large volume in conjunction with surge in storage demand triggered by the expansion of cloud-based personal AI agent services. Despite our effort to increase production, demand growth continued to outpace this. And we plan to maintain our supply response, focused on AI application where demand momentum is strong. In particular, we plan to address our market by additionally increasing the sales portion of HPM Supera SSDs. Therefore, in the fourth quarter, we expect our Q-o-Q big growth to increase by a mid- to high teen percentage for the RAM and mid-teens increase for NAND. Now let's move on to the outlook for 2027. In 2027, we expect some demand adjustment for mobile and PC applications. On the other hand, under the trend of expanding the AI ecosystem next year, we expect investment for AI server infrastructure to accelerate as major hyperscalers increased their data center investment and AI frontier customers build out their own data centers. In this situation, we aim to continue preemptively optimizing our product mix across both DRAM and NAND. Considering the changes in demand by applications as well as the voice of customers. First of all, for DRAM, while expanding sales of HBM 4 based on our technology leadership, we plan to start mass production of HPM 4E in the first half year and proceed to ramp up our mass volume in the second half. Also, we will continue to lead the high-end product market by proactively responding to the server demand for high-speed DR5 with 8,000 megabit PS above performance. For NAND, we will continue to strengthen our portfolio, our focus on AI-related products, also PCI Gen 6 SSDs, high-density SSDs and so on. Thank you.

Good morning. This is Jason Shin from the System LSI business. In the third quarter, overall demand in the mobile and the IT market declined as the impact of set price increases, driven by the rising component prices persisted. However, we continued our quarterly revenue growth, driven by the adoption of our SoC in new models and expanded sales of 200 megapixel image sensors. In Customer SoC, we established business partnership with new customers and achieved a tangible results by securing projects. Looking ahead, the slowdown in mobile demand is expected to continue through the fourth quarter and into next year, with the smartphone market projected to decline the trend towards fewer mid- to low-end models expected to persist. Even in such challenging market conditions, we will focus on improving our business fundamentals and securing profitability by diversifying applications and expanding our customer base. For SoC, we will focus on enhancing our performance, competitiveness and driving stable sales of new flagship products while pursuing new customers for customers to see. For image sensors, we will advance our high-resolution focus business portfolio by expanding the adoption of 200 megapixel sensors and pursue mass production of new products for next year's major flagship projects as well as expansion into nonmobile applications. Overall, we will continue to evolve towards higher value-added business by leveraging our competitiveness in mobile and to explore new business opportunities to accelerate sustainable growth. Thank you.

Hello, everyone. This is Sukchae Kang from the Foundry business. In the third quarter, revenue increased quarter-on-quarter driven by growth in nano HBM based sales and maximized advanced node sales to global customers, while earnings improved significantly. We also continued to secure turn orders centered on HPC customers, including large hyperscalers. In the fourth quarter, we will begin test production of new mobile products on our second-generation tuna process and ramp up first car for NANO NPU production for our major customers. Together with expanded memory sales and sales growth at key U.S. and Chinese customers, we expect double-digit revenue growth both quarter-on-quarter and year-on-year. Growth in high-value advanced node revenue and improved utilization across all nodes are expected to drive continued earnings improvement. From an order perspective, we expect our tunnel project orders to more than doubled in 2026 versus the prior years. year, further solidifying our foundation for B2 long-term growth. Looking ahead to 2027, backed by sustained AI demand we expect revenue growth centered on our Funan and Tuna advanced nodes. In particular, for nano revenue is projected to increase driven by expanded AI HPC sales to major U.S. customers and solid memory demand. In addition, we will commence best production of new products for major tuna customers in the second half of the year. Together, these factors are expected to significantly improve advanced node utilization. Furthermore, as demand across all notes below a nano is projected to substantially exceed production capacity, we expect them to be learning at over 100% utilization to meet this explosive demand, we are pursuing continuous capacity expansion for our ANANO, FANO and 2NANO node and we plan to strengthen our global supply capability with the start of operations at our first fab in Taylor, Texas. In advanced node, we will pursue yield stabilization for the 2NANO node and the development of future process nodes in parallel while continuing to develop next-generation base optimized for AI memory. In mutual nodes, we will enhance profitability by expanding high-value specialty areas such as silicon photonics and high-capacity silicon competitors. Furthermore, we will strengthen our advanced packaging competitiveness, including the development of 3D stacking technology. Thank you.

Good morning. This is [indiscernible] from Samsung Display. I will now brief you on our results for the third quarter. For the mobile display business, Revenue and profit increased quarter-on-quarter, driven by timing supply for major customers, new products. For the large display business, earnings improved quarter-on-quarter, supported by high-end product and cost reduction. Now I will share our outlook for the fourth quarter and 2027. In the fourth quarter, we anticipate year-end seasonal demand and new product launches. However, external factors such as exchange rates may affect earnings improvement. In the mobile business, we'll expand our sales by actively responding to customer demand. In the large display business, we will improve profitability through expanding gaming monitors. In 2027, while market demand is likely to be weak with ongoing uncertainties will strive to increase revenue by focusing on high value-added products. For smartphones, as premium demand is projected to be relatively stable, we will expand our premium product mix such as foldable it we plan to increase sales volume through the ramp-up of our 8.6 generation IT OLED line and strengthened product lineup continuously. For QLED, we'll strive to enhance profitability through ultra-large TV and gaming monitors. We also aim to expand supply to handle the gaming and automotive markets which will contribute to our performance next year. In addition, we'll strengthen productivity and cost reduction to secure profitability despite the challenging environment.

Hi, everyone. This is Daniel Araujo from the MX division. Let me share our Q3 results and future outlook. In Q3, continued memory price increases led to a quarter-on-quarter decline in smartphone market volume, mainly in the mid to entry segments, while market revenue grew driven by higher ASP and a greater mix of premium products. For the MX business, Q3 revenue reached KRW 37.3 trillion, and our combined operating loss across the MX and network businesses was KRW 0.6 trillion. New flagship launches drove revenue growth both quarter-on-quarter and year-on-year. In particular, the timely expansion of the foldable lineup with form factors tailored to users' lifestyles increased foldable sales volume and revenue year-on-year. Although profit declined year-on-year, it improved quarter-on-quarter supported by higher ASPs from an improved flagship sales mix. Next, let me share our outlook for Q4. Overall smartphone demand is expected to increase quarter-on-quarter due to seasonality, while mid-to-entry segments continued to decline and flagship competition intensifies. For the MX business, we expect Q4 revenue to decline quarter-on-quarter. We will drive sales centered on flagship products through a range of promotional activities for the year-end peak season. sustaining solid sales of the S-26 series and foldables. For Eco products, we will drive sales growth with new premium products during the peak season and bring a new form factor experience for the AI era with the launch of Intelligent Eyewear. While profit is expected to decline amid the challenging business environment, we will focus on mitigation through expanding flagship sales and improving operational efficiency. Next, let me share the market and business outlook for 2027. In the smartphone market, higher prices to offset the impact of rising material costs are expected to cause unit volumes to decline mainly in the mid to entry segments, while premium segment growth drives overall market value higher. Amid this uncertain environment, we aim to capture growing demand in the premium segment and maintain our smartphone leadership by focusing on 3 strategic priorities. First, we will improve our product mix centered on flagship models by delivering differentiated experiences tailored for each target customer segment. For the next-generation S Series, we will sharpen the distinct identity of each model based on the detailed analysis and understanding of segmented customer needs. For foldables, building on this year's timely supply -- timely lineup expansion we will refine the user experience of each lineup in 2027. We will also advance user-centric Galaxy AI features to deliver richer agentic AI experiences that understand users' context and intent. Second, we will enhance desirability and deliver tangible value through innovation in hardware and form factors. We will enhance everyday use through improvements in privacy display, battery and AP performance. while maintaining our leadership in thin and light foldables. We will continue to drive research and new experiences to as glass, the trifold and other innovative form factors. Third, we will responsively to market changes and improve operational efficiencies to minimize profit declines. We will adapt our sales strategy with consideration for the cost environment, shift our mix towards high capacity models and streamline business processes to minimize disruptions to our earnings. With rising costs expected to keep business conditions challenging in 2027, we will strengthen our product competitiveness with a focus on customer experience and pursue efficiency initiatives across our operations to minimize the impact on profitability. Thank you.

Hello, everyone. I'm WonHee Kim, Game Head of Sales in Group of Visual display. Let me begin with market conditions and our results for the third quarter. In the third quarter, overall TV demand declined farrowing the end of the major sporting e-band despite lower sales and ongoing memory supply constraint we minimized the profit decline by expanding premium sales and improving cost expansion. For the first quarter, TV demand is focused to grow as we enter year-end peak season, will strengthen [indiscernible] partnership with key channels and deploy appreciated marketing strategies to capture bigger system demand. At the same time, we will continue to expand premium sales to mitigate the impact of rising costs. Now let me share our outlook for 2027. Next year, why we expect overall TV demand to remain flat or decline slightly. We anticipate growth in the share of our focus segments such as RGB, warranty and lag of semi and above. Against this spectrum, we will focus on securing profitable growth engines by delivering unique experience beyond AI as well as strengthening service and platform businesses. This is end of my speech. Thank you for your time and attention. .

Thank you all speakers. This brings our third quarter performance review to a close, and we will now proceed with the Q&A, which will be conducted in Korean. Our CFO Soon-Cheol Park will address any company-wide questions, while questions regarding business segments will be answered by respective business representatives. Operator.

[Operator Instructions] The first question will be made by Dongwon Kim KB Securities.

[Interpreted] First of all, congratulations on record high performance. I have a question on your Autoport memory market. For 2027, I think the dominant view is projecting that there will be a memory shortage next year. How about looking beyond 2027, what is your outlook for memory in 2028?

[Interpreted] Yes. Let me answer your question. In 2027, we saw competition accelerate surrounding the AI infra build-out and also the spread of personal AI agents will also mean that memory will likely see continued unprecedented rise in demand. On the supply side, our new capacity additions are unlikely to boost pit production in the short term, and supply constraints are expected to continue as we suggested in during our Q2 conference call. So based on the views of various market research firms, tight supply conditions are expected to continue in 2028. Thanks to strong performance in the industry in 2026, CapEx is expected to see a significant increase in 2027 across the broad market over due to various factors, likely it will be difficult for this higher CapEx to drive a bit production growth. First of all, much of the CapEx increase will be budgeted toward acquiring new space. also higher construction costs may be making the CapEx numbers bigger than they actually are. Also considering the long lead time from new fab construction to actual wafer production. The increase in CapEx in 2027 is unlikely to result in a meaningful boost to bit production in 2028. Similarly, for facility investments, higher equipment pricing due to supply constraints plus upfront payments that are required to lock in supply may be making CapEx appear bigger. Also longer order lead times on equipment may also make time procurement more difficult and this can constrain the capacity ramp-up plans of the memory suppliers. Also as HBM 4E and HBM 5 ramp, and become more core products, their die sizes will be larger versus the previous generation, and there will be a significant increase in beta process layers and also meet the growing shift in bit production from conventional DRAM to HBM. I think this will act as a physical constraint on supply. It will be inevitable. So on balance, with all things considered, we expect tight supply conditions to continue in 2028. However, various macro events can also impact market conditions. So we intend to make preemptive investments to secure clean rooms in advance and then be flexible in terms of equipment installations as we closely observe and monitor demand changes in the market. So this will remain our basic approach to supply.

So the next question will be by Mr. Sun Woo Kim from Meritz Securities.

[Interpreted] This is Kim Sun Woo from Meritz. I also have a question on memory as well. So at your second quarter earnings call, I think you did provide a detailed status update on multiyear contracts. So I imagine there may have been many changes since then. So as far as -- or to the extent possible produce share some more details?

[Interpreted] Yes. As we mentioned during our last earnings call, we seek to build a stable foundation for our business in the long term and have executed multiyear supply contracts with certain customers and are in negotiations with several others. So in terms of the number of customers under multiyear contracts, we've already concluded contracts with 10 major accounts. And the number of other customers seeking more substantial long-term memory supply are increasing as well. So at present, we are in talks with 10 other major accounts for multiyear contracts. And we're near the final phase for several of these clients. What is most noteworthy is that there's growing need among the clients, our clients for long-term stable supply and the scope of customers are interested in multiyear contracts is increasing beyond hyperscalers or server OEMs and SoCs who are directly related to the growing AI services sector is now expanding to other diverse applications like mobile, automotive and network. As a result, our target of increasing our multiyear contract mix to 60% to 70% of our mid- to long-term capacity is gaining greater visibility. And as we ramp up multiyear supply agreements further, they will help us significantly in ashore stable contract-backed business model over the long term. And let me update you a little bit on our existing rolling -- multiyear rolling contracts. As explained before, our multiyear contracts are structured on a rolling basis, which means the contracts can be extended through annual negotiations after the initial contract term. We are close to finalizing discussions on additional contract extension periods with some of our customers that we've already signed contracts with. We're also seeing much stronger demand for additional extensions that we had initially expected. Also, we have been receiving requests for additional supply for periods that are already covered under existing contracts. We are reviewing our production capacity over the mid- to long term. But given the limitation of our current capacity, we're exploring diverse scenarios from different angles, including a potential shift in our product mix across applications to meet demand.

[Interpreted] The next question will be by Giuni Lee from Goldman Securities.

[Interpreted] Yes. Thank you for the opportunity to ask a question. I have a question on foundry and SEC as well. And congratulations by the way. For foundry, first, do you please provide an update on your advanced node design wins from large customers? And also, the market response has been quite strong for your new foldable smartphone products this year. Many are expecting an increase in foldable panel shipments next year. So what is your outlook on the SCC market and your business strategy?

[Interpreted] Yes, let me take your foundry question. To update you on our customer awards. Same as in the second quarter, we have secured 2 nano projects from large DSPs and AI HPC customers in Q3 as well as we continue to expand our contract wins and our design win portfolio across advanced process nodes. There will be among advanced node projects, our 2 nano awards have increased significantly. We expect the number of 20 projects to grow by more than double year-on-year. In the future, we intend to strengthen our LTA-based strategic partnerships with major advanced node customers to build a more stable business portfolio. We will diversify across more applications as well. And so demand for AI, HPC products is strong and growing. And we expect HPC share to increase to more than 50% of our total sales mix.

[Interpreted] I'll answer the question on display. Of the new foldables launched this year have received positive market feedback for their slim designs and improved durability and our foldable panel sales have remained strong. In 2027, through continued tick innovation, including increases and strength. We are preparing to bring foldable smartphones once the closer to mainstream adoption. However, concerns over higher device prices due to memory supply issues continued to pose a risk of weaker demand. Nevertheless, with the wider adoption of AFEs, we expect demand for foldables, which offer both large screens and portability to keep growing. Based on the technologies we've built since we began mass producing foldables in 2019. We'll keep widening the technology gap with competitive also through a stronger customer base and stable panel supply capabilities will continue to lead the growth of the foldable market.

[Interpreted] The next question will be by Mr. Sei Cheol Lee from Citi Securities.