The wave of AI infrastructure investment continues to deepen, and Samsung Electronics issued its strongest supply-shortage warning yet on its latest earnings call 鈥?the tightness in the memory market will not only run through 2027 but could extend into 2028. At the same time, the boundary of AI demand is expanding across the board from high-bandwidth memory to server SSDs, pushing Samsung to rebuild the underlying commercial logic of its memory business.

On the third-quarter earnings call on October 29, Jaejune Kim, Executive Vice President of Global Sales and Marketing for Samsung's Memory Business, made it clear that although industry capital expenditure will rise sharply in 2027, new capacity will be difficult to convert effectively into bit output in the short term because of multiple constraints including construction cycles, longer equipment lead times, larger HBM die sizes and more process layers, and that "supply tightness will continue into 2028." Samsung's 2027 HBM supply has already sold out at target prices, yet it continues to receive additional demand requests from major customers.

Earlier financial data showed that Samsung broke through KRW 100 trillion in quarterly operating profit for the first time in the third quarter, with revenue of KRW 195.3 trillion and operating profit of KRW 107.44 trillion both hitting record highs, marking the fourth consecutive quarter of record results. The company expects full-year 2026 capital expenditure to reach KRW 84.4 trillion, up about 60% from 2025, with chip capital expenditure accounting for more than 90% of that, a bet on the long-term growth of AI memory and advanced processes.

The storage shortage window extends to 2028

Responding to analyst questions, Jaejune Kim systematically explained why supply tightness is unlikely to end in 2027.

First, a considerable portion of the 2027 CapEx increase will be used to acquire new sites rather than directly for capacity expansion; second, rising construction costs make the CapEx figure look larger than it actually is; third, there is a long construction cycle from building a new wafer fab to actually producing wafers, so investment in 2027 will be hard to turn into effective bit output in 2028.

The equipment side also faces constraints. Jaejune Kim noted that equipment prices are rising because of supply tightness, and combined with prepayment requirements to lock in capacity, this further inflates the capital expenditure figure; longer equipment lead times will also constrain the pace of memory makers' capacity ramps.

Structural factors run deeper. As HBM4E and HBM5 gradually become mainstream products, their die sizes will be larger than the previous generation, and the number of metal process layers will also increase significantly; at the same time, the shift of conventional DRAM production toward HBM will create a physical supply constraint, and "this is unavoidable."

Jaejune Kim said that after comprehensively considering the above factors, Samsung judges that 2028 will still be in a state of relatively tight supply. The company's response strategy is to "lay out cleanrooms in advance, but maintain flexibility in equipment installation and closely observe changes in demand."

AI demand spreads from HBM to SSD, and Agentic AI opens a new storage track

Another signal worth the market's attention from the call is that AI's pull on NAND/SSD demand is rapidly escalating, and Samsung gave a relatively specific demand logic for this.

Jaejune Kim said the spread of Agentic AI is boosting server SSD demand from two dimensions.

First, as AI models grow in size and context windows expand, KV cache demand is growing exponentially; compared with simple conversational AI, Agentic AI generates far more KV cache during inference, which drives additional demand for high-performance, high-capacity TLC SSDs.

Second, the rise of cloud-based personal AI Agent services has spawned a new model of allocating dedicated virtual machines to individual users. Operators tend to adopt QLC SSDs to reduce service latency and increase throughput, and as the number of personal AI Agent users grows, QLC SSD demand will grow proportionally.

In the third quarter, Samsung received a large batch of additional QLC SSD orders, a trend directly related to the explosion of cloud-based personal AI Agent services. The company said its V10 TLC product based on bonding technology reached mass-production readiness in the third quarter, and a 256TB V9 2Tbit TLC product with 32-layer stacking technology is expected to launch commercially early next year.

Samsung believes that in the Agentic AI era, it can not only meet customer demand in HBM and server DRAM but also provide complete solution capabilities in storage, which will help further diversify and stabilize its NAND business.

The memory business model is accelerating its restructuring, with a multi-year contract coverage target of 60%-70%

Against the backdrop of continuously strengthening expectations of supply shortages, Samsung is systematically advancing the transformation of its memory business model from short-cycle spot-market driven to long-term contract locked.

Jaejune Kim disclosed that as of now, Samsung has completed multi-year supply contracts with 10 major customers, and negotiations with another 10 major customers are underway, with several already close to the final stage.

More notably, the group of customers seeking long-term stable supply is expanding rapidly. In addition to hyperscale cloud service providers, server OEMs and SoC customers directly related to AI service growth, customers in diversified application areas such as mobile, automotive and networking have also begun actively seeking multi-year contracts, an expansion beyond Samsung's initial expectations.

In terms of contract structure, Samsung adopts a rolling renewal mechanism, meaning contracts are extended through annual negotiations after the initial term expires. Jaejune Kim said some signed customers have demand for contract extensions far exceeding expectations, and the company has also received requests for additional supply within the existing contract period.

Samsung's medium- to long-term goal is to raise the share of multi-year contracts to 60%-70% of capacity. Jaejune Kim said that as the scale of multi-year supply agreements expands, it will help establish a "more stable contract-supported business model."

HBM4 sales tripled quarter on quarter in Q3, and 2027 supply is sold out

In the HBM business, Samsung delivered a clearly improved scorecard in the third quarter and re-established its competitive position in the high-end HBM market.

Jaejune Kim revealed that thanks to the differentiated performance of HBM4, third-quarter HBM4 sales more than tripled quarter on quarter, and HBM4's share of total HBM sales rose to 60%. This result was in line with the HBM4 sales target Samsung set on its second-quarter earnings call.

More importantly, Samsung said it had achieved ahead of schedule the goal of "aligning HBM market share with overall DRAM market share" 鈥?actually reached in the third quarter, earlier than the original second-half plan.

On next-generation products, Samsung said it took the lead in shipping HBM4E samples globally in May and received positive initial feedback, and plans to start mass production of HBM4E in the first half of next year and enter a large-scale ramp in the second half.

Jaejune Kim said 2027 HBM supply has been fully sold at target prices reflecting product competitiveness, but it continues to receive requests for additional supply from major customers, and the company will use its technology leadership and mass-production capability to respond to customer demand in a timely manner.

Foundry: 2nm orders double, Taylor fab enters equipment installation phase

The foundry business achieved both revenue and profitability improvement in the third quarter, advanced-process orders continued to accumulate, and construction progress at the U.S. Taylor fab also entered a key stage.

Executive Vice President Sukchae Kang said third-quarter foundry growth mainly came from higher 4nm HBM B-Die sales and maximizing advanced-node sales to global customers. The company continued to win 2nm project orders from large hyperscale cloud service providers and AI/HPC customers, and expects the number of 2nm project orders in full-year 2026 to more than double from the prior year.

Looking to the fourth quarter, Samsung expects the foundry business to achieve double-digit revenue growth both quarter on quarter and year on year, driven by the start of mass production of second-generation 2nm mobile products, a full ramp of 4nm MPUs for major customers, and expanded sales of memory-related products.

On capacity construction, Sukchae Kang said the cleanroom of Taylor Fab 1 has begun operating, equipment installation has started, wafer input for line construction is underway, headquarters experts have been dispatched to the site, and the project is progressing as planned. In response to future demand from global customers, the company is evaluating options to further add capacity, including building new wafer fabs.

On the technology roadmap, Samsung is expanding its 2nm product portfolio from mobile to HPC, and has held talks with multiple customers on the most advanced 1.4nm process, with test chip development plans with some of them being finalized.

Shareholder returns: up to KRW 110 trillion to be returned in 2026, and the preferred share buyback ratio will rise

On shareholder returns, Samsung's board approved the third-quarter cash dividend that day, at KRW 4,601 per share for both common and preferred shares, with total third-quarter dividends of KRW 30 trillion, expected to be paid in November.

According to company disclosures, total shareholder returns in 2026 are expected to be KRW 90 trillion to KRW 110 trillion, of which KRW 35 trillion is already planned or completed, and the remaining KRW 55 trillion to KRW 75 trillion will be returned through cash dividends and large-scale share buybacks and cancellations.

Samsung also formally responded to market concerns about the widening price gap between common and preferred shares, explicitly stating that in future share buyback and cancellation plans it will actively consider and adjust the buyback ratio of preferred shares according to market conditions, in order to "equally respect all shareholders, optimize capital allocation and enhance corporate value."

CFO Soon Cheol Park said the new round of shareholder return policy, as well as the final amount and execution plan for the remaining shareholder returns in 2026, will be finalized and announced at the board meeting in late January 2027.

The following is the full transcript of the call, translated with AI assistance.

Conference host:

Good day, everyone, and welcome to Samsung Electronics' third-quarter 2026 financial results conference call. I will be your coordinator for today's conference. All participants will remain muted until the presentation is complete and we move into the Q&A session. Please be reminded that this conference call is being recorded.

I will now hand the call over to the Investor Relations team.

Daniel Oh | Executive Vice President, Head of Investor Relations:

Good day, everyone. Thank you to shareholders and analysts around the world for joining Samsung Electronics' third-quarter 2026 earnings call. I am Daniel Oh, Head of Investor Relations, and it is a pleasure to speak with you today.

Please note that all materials for today's call, including the presentation, will remain available on our Investor Relations website. Please also note that today's remarks may contain forward-looking statements, and actual results may differ from those statements. Please refer to the relevant pages of the presentation for the full legal disclaimer.

The agenda for today is as follows. First, I will present the third-quarter financial performance and capital expenditure. Then CFO Soon Cheol Park will present the business outlook and shareholder returns. After that, the executive vice presidents of each business unit will present their respective results and outlooks. Finally, we will move to the Q&A session. We expect the entire call to last about one hour.

The executive vice presidents joining today include: CFO Soon Cheol Park; Jaejune Kim, who heads the Memory business; Jason Shin, who heads System LSI; Sukchae Kang, who heads Foundry; Charles Hur of Samsung Display; Daniel Araujo, representing the MX business; and Hun Lee, who heads Visual Display.

Let me now begin with the third-quarter financial results.

Third-quarter overall financial performance

Driven by record results in the memory business, Samsung Electronics set new records for both revenue and operating profit for the fourth consecutive quarter. The company posted total revenue of KRW 195.3 trillion and operating profit of KRW 107.4 trillion, up sharply by 14% and 20%, respectively.

As a result, we became the world's first technology company to exceed KRW 100 trillion in quarterly operating profit. The operating margin also rose to 55% from 52% in the previous quarter.

While continuing to actively invest in future growth, the company's total R&D expenses were KRW 14.4 trillion. Net profit rose 5% quarter on quarter to KRW 75.1 trillion. Earnings per share also hit new highs: KRW 11,462 for common shares and KRW 11,492 for preferred shares, both up 6% from the previous quarter.

The original text here refers to the "DX Division": the memory business once again set a quarterly record while expanding HBM4 sales and meeting strong server demand. Given the context, the division name may be a transcription issue, and the translation does not correct it on its own. The System LSI business was dragged down by weak mobile market demand; the foundry business continued to return to profit on the back of higher advanced-process sales.

In the DX Division, the MX business achieved year-on-year revenue growth driven by new models such as the Galaxy Z Fold 8, but rising component costs still made the operating environment challenging.

On exchange rates, compared with the previous quarter, movements in the U.S. dollar, euro and other major currencies had a negative impact of about KRW 10 trillion on operating profit, mainly from the components business. Later, each business head will provide further details on their respective results.

Capital expenditure

Third-quarter capital expenditure was KRW 29 trillion, up KRW 12.2 trillion quarter on quarter and up KRW 19.8 trillion year on year. Of that, the original text says KRW 27.2 trillion was invested in the DX Division, with another KRW 1.1 trillion in the display business.

In the first nine months of this year, capital expenditure totaled KRW 56.9 trillion, up KRW 24.7 trillion year on year. Of that, KRW 52.8 trillion was allocated to the DS Division and KRW 2.4 trillion to the display business.

Full-year 2026 capital expenditure is expected to reach KRW 84.4 trillion, up KRW 31.7 trillion from last year. Of that, the original text says DX Division capital expenditure will increase by KRW 29.3 trillion to KRW 76.8 trillion, while display business capital expenditure will increase by KRW 1.1 trillion to KRW 3.9 trillion.

By business, full-year capital expenditure in the memory business is expected to increase further, as the company invests in building new wafer fabs and related infrastructure to meet strong AI demand and prepare for the medium to long term. This is consistent with the company's principle of arranging investment according to customer demand.

Full-year capital expenditure in the foundry business is also expected to rise, with a focus on the U.S. Taylor fab to meet rapidly growing AI and high-performance computing (HPC) market demand and respond to customer needs in a timely manner. Display business capital expenditure is also expected to increase for the full year, mainly to upgrade existing production lines.

Next, I will hand the call over to CFO Soon Cheol Park, who will present the fourth-quarter and 2027 outlook as well as shareholder return arrangements.

Fourth-quarter and 2027 outlook

Soon Cheol Park | Executive Vice President, Chief Financial Officer:

Thank you, Daniel. Good morning, everyone, and thank you for joining Samsung Electronics' third-quarter earnings call. I am Soon Cheol Park, Chief Financial Officer of Samsung Electronics.

Despite rapidly changing global market conditions, Samsung once again delivered record quarterly results thanks to differentiated technology and the ability to respond flexibly to market changes. We also reached a historic milestone by becoming the world's first technology company to exceed KRW 100 trillion in quarterly operating profit. This achievement reflects both the company's technological strength and our ability to continue driving growth. We will continue to devote ourselves to developing next-generation technologies and further solidify our leadership in the global market.

Fourth-quarter outlook

Looking to the fourth quarter, we expect Samsung's overall earnings to continue growing, supported by the DX Division. However, the DX Division will still face persistent pressure from macroeconomic uncertainty and rising component costs.

Let me start with the DS Division. Driven by the rapid spread of agentic AI, we expect semiconductor market demand to remain strong. The memory business will leverage its industry-leading products and scale advantages to expand sales of HBM4, high-performance DDR5, QLC solid-state drives (SSDs) and server SSDs, consolidating its market leadership.

The System LSI business will advance flagship SoCs and, by increasing sales of 200-megapixel image sensors, shift its product mix toward higher-resolution products. The foundry business will accelerate progress on 2nm and 4nm processes while continuing to win new orders for 2nm products.

In the display business, demand uncertainty is expected to persist due to factors such as rising memory prices; we will rely on our industry-leading mass-production capability to meet demand for high-end products.

The top priority for the DX Division is to overcome profitability challenges by expanding sales of high-end products during the year-end peak season and improving operational efficiency. We will promote sales of key products by providing differentiated AI user experiences and diverse sales support programs, while targeting high-end demand and improving the product sales mix.

In addition, we will quickly adjust sales and channel operations in line with market trends and cost pressures, improve the cost structure, and enhance efficiency across the entire value chain.

2027 outlook

Looking to 2027, we expect the semiconductor market to remain strong, supported by historic AI investment and constrained supply. Driven by growth momentum in the DS Division, the company is expected to surpass its 2026 performance and set another annual record. At the same time, the DX Division is expected to remain under pressure on profitability due to rising component costs and other operating environment factors.

The original text here refers to the "DX Division": memory demand will far exceed supply; growth in the foundry business is also expected to accelerate. Given the context, the division name may be a transcription issue, and the translation does not correct it on its own.

In the memory business, as AI infrastructure investment continues to grow, we will lead the HBM market by expanding HBM4 sales and then driving large-scale mass production of HBM4 echo (as in the original text; possibly referring to HBM4E). At the same time, we will drive sales of high-value-added products, including high-performance DDR5, high-capacity QLC and enterprise SSDs (eSSDs). Through these measures, we will consolidate our market leadership on the strength of leading technology.

In System LSI, we will expand new customers for custom SoCs and drive the expansion of image sensor applications beyond mobile devices. Foundry growth will be driven by the mass-production ramp of the U.S. Taylor fab and growth in 2nm AI and HPC products. In the display business, we will use our technology to expand sales of high-end products including foldables, and rely on the 8.6-generation line to develop the IT OLED business and consolidate market leadership.

In the DX Division, innovation in AI product experiences and a stronger profitability base will support future growth. We will extend agentic AI experiences to various scenarios and devices in daily life, and further strengthen our leadership in the high-end market through hardware innovation and performance improvements. In addition, we will develop high-margin businesses such as services and platforms to further diversify revenue sources, and rapidly improve business fundamentals through AI-driven innovation and resource efficiency gains.

Shareholder returns

Now let me turn to shareholder returns. Today, the board approved the third-quarter cash dividend: KRW 4,601 per share for both common and preferred shares, including a regular dividend of KRW 376 per share.

As we announced in August, under the 2024-2026 three-year shareholder return policy, total third-quarter dividends will reach KRW 30 trillion, including the regular dividend, and are scheduled to be paid in November.

Next, an update on the shareholder return plan for the remainder of 2026. Total shareholder returns in 2026 are expected to be KRW 90 trillion to KRW 110 trillion. Of that, KRW 35 trillion is already planned or completed, including the KRW 30 trillion cash dividend approved by the board today. Therefore, we expect the remaining funds available for shareholder returns to be KRW 55 trillion to KRW 75 trillion.

Specifically, we are committed to returning the remaining funds to shareholders through cash dividends and a sizable share buyback and cancellation program. We are also in in-depth discussions on the next phase of shareholder return policy to take effect in 2027, with the goal of enhancing shareholder value while achieving sustainable growth.

In addition, we note the market's growing attention to the price gap between common and preferred shares. We are committed to actively considering and adjusting the proportion of preferred shares in share buyback and cancellation plans according to market conditions, in order to treat all shareholders equally, optimize capital allocation and enhance corporate value.

The new shareholder return policy, the final amount of shareholder returns for 2026, and the specific execution plan for the remaining funds will be finalized at the board meeting scheduled for late January 2027 and announced after the meeting. Thank you.

Business unit results and outlook

Daniel Oh | Executive Vice President, Head of Investor Relations:

Thank you, Soon Cheol. I would now like to invite the executive vice presidents of each business unit to provide updates on their businesses. First, Jaejune Kim, Executive Vice President of the Memory business.

Memory business

Jaejune Kim | Executive Vice President, Head of Global Sales and Marketing for the Memory Business:

Good morning, everyone. I am Jaejune Kim, Head of Global Sales and Marketing for the Memory business.

In the third quarter, memory market demand remained strong, driven by AI applications. In particular, as agentic AI began to be applied across the board, demand increased further for products related to AI infrastructure expansion, mainly HBM, RDIMM and server SSDs used in AI servers and conventional servers. To meet growing AI demand, we significantly expanded HBM4 sales on the strength of our industry-leading product competitiveness.

In terms of shipments, third-quarter DRAM shipments grew by a low-to-mid single-digit percentage from the previous quarter, while NAND shipments grew by a mid-single-digit percentage. At the same time, market prices rose across application areas in the third quarter, led mainly by server applications with strong demand momentum. As a result, compared with the previous quarter, our DRAM average selling price (ASP) rose about 20%, and NAND ASP also rose by a high-teen percentage level.

In the fourth quarter, as AI industry infrastructure investment continues to grow, memory demand will expand further, especially for products related to upcoming new CPUs and GPUs. On the NAND side, as the expansion of cloud-based personal AI agent services drives a surge in storage demand, we have also received a large number of new QLC requests.

Although we are striving to increase output, demand growth is still outpacing supply growth. Therefore, we plan to continue prioritizing supply to AI applications with strong demand momentum. Specifically, we will further increase the sales share of HBM, server DRAM and SSDs to meet market demand.

As a result, fourth-quarter DRAM prices are expected to rise by a mid-to-high teen percentage level quarter on quarter, and NAND prices are expected to rise by around a teen percentage level. (The original text here uses the phrase "Q-o-Q peak growth," and the exact indicator may be a transcription issue; the translation retains its expression of quarter-on-quarter price growth according to context.)

Looking to 2027, we expect some adjustment in demand in mobile and PC applications. On the other hand, as the AI ecosystem continues to expand next year, major hyperscale cloud service providers will increase data center investment, and frontier AI customers will also build their own data centers, so AI server infrastructure investment is expected to accelerate. In this environment, we will continue to optimize the mix of both DRAM and NAND products in advance, taking into account demand changes across application areas and customer feedback.

First, in DRAM, we will expand HBM4 sales on the basis of our technology leadership, and plan to begin mass production of HBM4E in the first half of next year and gradually ramp output in the second half. In addition, we will actively respond to server demand for high-speed DDR5 with speeds of up to 8,000 megabits per second, continuing to lead the high-end product market.

In NAND, we will continue to strengthen our product mix with a focus on AI-related products such as PCIe Gen 6 server SSDs and high-density QLC SSDs. Thank you.

System LSI business

Jason Shin | Executive Vice President, Head of System LSI:

Good morning, everyone. I am Jason Shin of the System LSI business.

In the third quarter, as rising component prices pushed up end-product prices, the impact continued to show, and overall demand in the mobile and IT markets declined. However, thanks to new models adopting our SoC and expanded sales of 200-megapixel image sensors, our quarterly revenue still grew. In custom SoCs, we established business relationships with new customers and successfully won projects, making substantive progress.

Looking ahead, slower mobile demand is expected to persist in the fourth quarter and continue into next year. The smartphone market is expected to contract, and the trend of fewer mid- to low-end models may also continue. Even in a challenging market environment, we will improve business fundamentals and achieve profitability by expanding application areas and broadening our customer base.

In SoCs, we will focus on improving performance competitiveness, driving stable sales of new flagship products, and winning new custom SoC customers. In image sensors, we will continue to advance our high-resolution product mix by expanding adoption of 200-megapixel sensors; at the same time, we will seek to mass-produce new products for major flagship projects next year and expand applications beyond mobile devices.

Overall, we will leverage our competitive strengths in mobile, continue shifting toward higher-value-added businesses, and explore new business opportunities to accelerate sustainable growth. Thank you.

Foundry business

Sukchae Kang | Executive Vice President, Head of Foundry:

Good day, I am Sukchae Kang of the Foundry business.

In the third quarter, revenue rose quarter on quarter and profitability improved significantly, driven by higher 4nm HBM B-Die sales and maximizing advanced-process sales to global customers. We continued to win 2nm orders centered on HPC customers, including large hyperscale cloud service providers.

In the fourth quarter, we will begin mass production of new mobile products using the second-generation 2nm process and scale up full mass production of 4nm MPUs for major customers. Together with expanded memory sales and growth from major customers in the United States and China, we expect revenue to achieve double-digit growth both quarter on quarter and year on year. Higher revenue from high-value-added advanced processes and improved capacity utilization across nodes are expected to drive further profitability improvement.

From an order perspective, the number of 2nm project orders in 2026 is expected to more than double from the previous year, further solidifying the foundation for medium- to long-term growth.

Looking to 2027, with continued support from AI demand, we expect revenue growth to come mainly from advanced 4nm and 2nm processes. In particular, expanded AI/HPC sales to major U.S. customers and solid memory demand are expected to drive 4nm revenue growth. In addition, we will begin mass production of new products for major 2nm customers in the second half of next year. These factors are expected to significantly raise capacity utilization for advanced processes.

Because demand for all sub-8nm processes is expected to far exceed capacity, we expect capacity utilization for these processes to exceed 100%.

To respond to explosive demand, we are continuing to expand capacity for 8nm, 4nm and 2nm processes, and plan to strengthen global supply capability as the first wafer fab at Taylor in Texas, United States, comes online.

In advanced processes, we will simultaneously stabilize 2nm yields and develop future process nodes, and continue developing next-generation base dies optimized for AI memory. In mature processes, we will improve profitability by expanding high-value-added specialty areas such as silicon photonics and high-capacity silicon capacitors. In addition, we will continue to strengthen advanced packaging competitiveness, including developing related component technologies for 3D stacking. Thank you.

Samsung Display

Charles Hur | Executive Vice President, Head of Samsung Display:

Good morning, everyone. I am Charles Hur of Samsung Display. Let me present our third-quarter results.

In the mobile display business, revenue and profit both rose quarter on quarter thanks to timely supply for major customers' new products. In the large-size display business, high-end product sales and cost reductions drove quarter-on-quarter profitability improvement.

Next, let me present the outlook for the first quarter and 2027 (the original text says "first quarter"; however, it later mentions the year-end peak season, which may be a transcription error). In the fourth quarter, we expect year-end seasonal demand and new product launches to create opportunities, although external factors such as exchange rates may affect profitability improvement.

The mobile display business will actively respond to customer demand and expand sales. The large-size display business will improve profitability by expanding the gaming monitor business.

In 2027, although market demand may be weak and uncertainty will persist, we will still focus on high-value-added products and strive to increase revenue.

In smartphones, high-end product demand is expected to be relatively stable, and we will expand the mix of high-end products such as foldables. In IT, as the 8.6-generation IT OLED line gradually ramps output, we plan to expand sales scale and continue enriching the product lineup. In QD-OLED, we will improve profitability through super-large TVs and gaming monitors.

We also plan to expand supply for handheld gaming devices and the automotive market, which will contribute to next year's performance. In addition, even in a challenging operating environment, we will safeguard profitability by improving production efficiency and reducing costs. Thank you.

MX business

Daniel Araujo | Executive Vice President, Head of MX:

Good day, I am Daniel Araujo of the MX Division. Let me present our third-quarter results and future outlook.

In the third quarter, continued memory price increases led to a quarter-on-quarter decline in smartphone market shipments, mainly affecting the mid-range and entry-level markets; however, market sales still grew, driven by higher average selling prices and a higher share of high-end products.

MX third-quarter revenue reached KRW 37.3 trillion. MX and networking combined posted an operating loss of KRW 0.6 trillion. Revenue rose quarter on quarter and year on year as new flagship products launched. In particular, we expanded the Fold8 foldable lineup in a timely manner and designed different form factors for users' lifestyles, driving year-on-year growth in foldable phone sales and revenue. Although profit declined year on year, it improved quarter on quarter on the back of a better flagship sales mix and higher average selling prices.

Fourth-quarter outlook

Due to seasonal factors, overall smartphone demand is expected to grow quarter on quarter, but the mid- to low-end market is still contracting and competition among flagship products is intensifying.

For the MX business, we expect fourth-quarter revenue to decline quarter on quarter. During the year-end peak season, we will use various promotional activities to focus on flagship products and maintain solid sales of the S26 series and foldable products.

In ecosystem products, we will drive sales growth with new premium products launched during the peak season, and bring a new product form experience for the AI era with the launch of Intelligent Eyewear. Although the operating environment is difficult and profit is expected to decline, we will do our best to ease pressure by expanding flagship product sales and improving operational efficiency.

2027 market and business outlook

In the smartphone market, price increases aimed at offsetting higher material costs are expected to lead to lower handset shipments, mainly affecting the mid- to low-end market; at the same time, high-end market growth will drive up overall market value.

Facing this uncertain environment, we hope to seize opportunities from high-end demand growth and maintain our leadership in the smartphone market through three strategic priorities.

First, improve the product mix with a focus on flagship models. We will provide differentiated experiences for different target customer groups. For the next-generation S series, we will further strengthen the distinct positioning of each model by carefully analyzing and understanding segmented customer needs. For foldable products, building on this year's timely lineup expansion, we will further optimize the user experience of each product line in 2027. We will also advance user-centered Galaxy AI features to provide richer agentic AI experiences, enabling devices to understand users' context and true intent.

Second, enhance appeal through hardware and product form innovation and deliver tangible value. We will improve privacy display, battery and application processor (AP) performance to enhance daily use experiences, while maintaining leadership in thin and light foldables. We will also continue exploring new experiences and innovative product forms such as Glass and TriFold.

Third, respond quickly to market changes and improve operational efficiency to minimize profit decline. We will adjust sales strategies in line with the cost environment, increase the sales share of high-capacity models, and streamline business processes to minimize the hit to profitability. Given that rising costs are expected to keep the 2027 operating environment under pressure, we will strengthen product competitiveness with a focus on customer experience and drive efficiency improvements across operations to reduce the impact of cost pressure on profitability. Thank you.

Visual Display business

Hun Lee | Executive Vice President, Head of Visual Display Sales Strategy:

Good day, I am Hun Lee, Head of Sales Strategy for the Visual Display business.

Let me first present the third-quarter market environment and results. After major sporting events ended, overall TV demand declined in the third quarter. Although sales weakened and memory supply remained constrained, we minimized profit decline by expanding high-end product sales and improving cost efficiency.

In the fourth quarter, TV demand is expected to grow as we enter the year-end peak season. We will strengthen strategic cooperation with major channels and adopt differentiated marketing strategies to capture peak-season demand. At the same time, we will continue expanding high-end product sales to mitigate the impact of rising costs.

Looking to 2027, we expect overall TV demand to be flat or slightly lower, but the share of key segments such as RGB, OLED and 75-inch-and-above large-screen TVs is expected to rise. Against this backdrop, we will create a new engine for profitable growth by providing unique experiences beyond AI features and strengthening service and platform businesses.

That concludes my remarks. Thank you for your time and attention.

Q&A session

Daniel Oh | Executive Vice President, Head of Investor Relations:

Thank you to all the speakers. That concludes the third-quarter results review, and we will now move to the Q&A session. Questions and answers will be conducted in Korean. Questions about the company as a whole will be answered by CFO Soon Cheol Park, and questions about individual business units will be answered by the relevant business heads.

Host, please begin.

Conference host:

We will now begin the Q&A session. (The host explained how to ask questions.) The first question comes from Kim Dong-Won of KB Securities.

Question 1: 2028 memory market supply-demand outlook

Kim Dong-Won | KB Securities:

Thank you. First, congratulations on the record results. I would like to ask about the memory market outlook. For 2027, the market broadly believes there will be a memory shortage next year. If we look beyond 2027, how does the company view the 2028 memory market?

Jaejune Kim | Executive Vice President, Head of Global Sales and Marketing for the Memory Business:

Okay, I will answer that. In 2027, competition around AI infrastructure construction will intensify further; at the same time, the spread of personal AI agents also means memory demand is likely to continue growing at an unprecedented pace.

On the supply side, however, new capacity is unlikely to significantly increase bit production in the short term, and supply constraints are expected to persist, consistent with the view we expressed on the second-quarter earnings call. According to forecasts from multiple market research institutions, supply-demand tightness is expected to continue into 2028.

Because industry performance was strong in 2026, the overall market is expected to increase capital expenditure sharply in 2027. However, due to a variety of factors, higher capital expenditure may be difficult to convert into corresponding bit output growth.

First, a large part of the CapEx increase will be used to acquire new fab space. In addition, rising construction costs may also make the book amount of capital expenditure look higher. Considering the long cycle from building a new wafer fab to actually producing wafers, the increase in 2027 capital expenditure is unlikely to significantly raise bit output in 2028.

On facility investment, supply constraints are pushing up equipment prices; prepayments required to secure supply may also make capital expenditure amounts appear larger. In addition, longer equipment order lead times may make it difficult to complete equipment procurement in time, thereby limiting memory makers' plans to increase capacity.

At the same time, as HBM4E and HBM5 gradually expand production and become more core products, their die sizes will be larger than previous generations, and the number of metal interconnect process layers will also increase significantly. Combined with the gradual shift of bit output from conventional DRAM to HBM, this will create a substantial supply constraint that is difficult to avoid.

Taking all these factors together, we expect supply and demand to remain tight in 2028.

Of course, various macroeconomic events may also affect the market environment. Therefore, we plan to invest ahead of time, secure cleanroom space in advance, and flexibly arrange equipment installation while closely observing and monitoring changes in market demand. This will remain our basic approach to managing supply. Thank you very much.

Daniel Oh | Executive Vice President, Head of Investor Relations:

Thank you. Next question, please.

Question 2: Progress on multi-year memory supply contracts

Conference host:

The next question comes from Kim Sun-woo of Meritz Securities.

Kim Sun-woo | Meritz Securities:

I am Kim Sun-woo of Meritz, and I would also like to ask about the memory business. The company discussed the progress of multi-year contracts in detail on the second-quarter earnings call. I imagine there have been many changes since then. Within what can be disclosed, could the company provide more details?

Jaejune Kim | Executive Vice President, Head of Global Sales and Marketing for the Memory Business:

As we said on the previous earnings call, we want to build a stable foundation for the long-term business, so we have already signed multi-year supply contracts with some customers and are negotiating with others.

In terms of the number of customers that have signed multi-year contracts, we have completed signings with 10 major customers. At the same time, more customers want larger-scale long-term memory supply. We are currently negotiating multi-year contracts with another 10 major customers, and several are in the final stages.

Most notably, customer demand for long-term, stable supply continues to rise. The range of customers interested in multi-year contracts is expanding from hyperscale cloud service providers, server OEMs and SoC customers directly related to AI service growth to more diverse application areas such as mobile devices, automotive and networking.

As a result, our previously stated goal of having multi-year contracts cover 60%-70% of medium- to long-term capacity is becoming increasingly achievable. As multi-year supply agreements increase further, they will significantly help us build a more stable long-term business model supported by contractual demand.

Let me add a point about the existing rolling multi-year contracts. As explained before, these contracts use a rolling arrangement: after the initial contract term ends, the two sides can extend the contract through annual negotiations. We are close to finalizing additional contract extension periods with some existing signed customers. The demand we are receiving to extend contract terms is also clearly stronger than initially expected.

In addition, customers are also requesting additional supply volumes during periods already covered by existing contracts. We are reviewing medium- to long-term capacity, but given current capacity constraints, we are also evaluating multiple options from different angles, including adjusting the product mix across application areas, to meet demand.

Daniel Oh | Executive Vice President, Head of Investor Relations:

Thank you. Next question.

Question 3: Advanced-process customer progress and foldable display outlook

Conference host:

The next question comes from JuHeon Lee of Goldman Securities.

JuHeon Lee | Goldman Securities:

Thank you for the opportunity to ask questions. I have two questions, one on foundry and one on Samsung Display. First, please provide an update on the foundry business's progress with major customers' advanced-process projects.

In addition, the new foldable phones launched this year have received a fairly good market response. Many people expect foldable panel shipments to increase next year. How does the company view the Samsung Display market and what business strategy will it adopt?

Sukchae Kang | Executive Vice President, Head of Foundry:

Let me first answer the foundry question. On customer project progress, similar to the second quarter, in the third quarter we continued to win 2nm projects from large cloud service providers (CSPs) and AI/HPC customers, while continuing to expand our advanced-process order and design project portfolio.

Notably, among advanced-process projects, the number of 2nm project wins increased significantly. We expect the number of 2nm projects to more than double year on year.

In the future, we plan to strengthen long-term agreement (LTA)-based strategic partnerships with major advanced-process customers and build a more stable business portfolio. We will also expand into more application areas. Demand for AI/HPC products is strong and growing, and we expect HPC to rise to more than 50% of the total sales mix. Thank you.

Charles Hur | Executive Vice President, Head of Samsung Display:

Let me answer the display business question. The new foldable products launched this year received positive market feedback for their thin design and improved durability, and foldable panel sales remained strong.

In 2027, we will continue to advance technological innovation, including improving screen creases and enhancing screen strength, and work to push foldable phones further into the mainstream market. However, memory supply issues may push up end-device prices, which remains a risk for weaker demand.

Nevertheless, as AI features become more widely used, we expect demand for foldable products that combine a large screen and portability to continue growing. Since beginning mass production of foldable products in 2019, we have accumulated relevant technology. In the future, we will continue to widen the technology gap with competitors and keep leading growth in the foldable market by expanding our customer base and ensuring stable panel supply capability. Thank you.

Daniel Oh | Executive Vice President, Head of Investor Relations:

Next question, please.

Question 4: HBM4 sales, market share and 2027 supply

Conference host:

The next question comes from Seicheol Lee of Citi Securities. Please go ahead.

Seicheol Lee | Citi Securities:

I am Seicheol Lee of Citi. Congratulations to Samsung on achieving the world's first quarterly operating profit of more than KRW 100 trillion in the third quarter.

I would like to ask Jaejune Kim about the HBM business. Unlike last year, sample feedback for HBM this year, especially HBM4, seems quite good, and the market also expects HBM sales to remain strong going forward. Could you provide an update on the HBM business? In addition, how are negotiations for 2027 HBM supply progressing?

Jaejune Kim | Executive Vice President, Head of Global Sales and Marketing for the Memory Business:

Thank you for your question. Thanks to the differentiated performance of HBM4, our third-quarter HBM4 sales grew more than threefold quarter on quarter, and HBM4's share of total HBM sales rose to 60%. This result was in line with the HBM4 sales target we announced on the second-quarter earnings call.

Thanks to the solid performance of HBM4, we already achieved a goal in the third quarter: HBM market share reaching a level comparable to the company's overall DRAM market share. This was earlier than originally planned; we had expected to achieve it only in the second half of this year.

For the next-generation HBM4E, we took the lead in delivering samples to customers in early May this year and have received positive initial feedback.

As our HBM products continue to gain customer recognition, 2027 HBM supply has been fully sold at agreed target prices reflecting product competitiveness. However, major customers are still requesting additional supply.

We will continue to leverage our leading technology and mature mass-production capabilities to prepare and deliver products that meet customer needs in a timely manner, further consolidating our leadership in the HBM market.

Daniel Oh | Executive Vice President, Head of Investor Relations:

Thank you very much. Let's move to the next question.

Question 5: Agentic AI demand for server SSDs and MX profitability

Conference host:

The next question comes from Jay Kwon of J.P. Morgan Securities.

Jay Kwon | J.P. Morgan Securities:

Congratulations on the outstanding results. I have two questions, one on the memory business and one on the MX business.

Recently, agentic AI products such as OpenAI's Dots, Meta's Muse and Gemini Spark, as well as customized AI agents, are expanding across the board toward personalized AI. How does the company view the boost such developments will give to server SSD demand?

In addition, key components including memory continue to face cost pressure. What measures has the company taken to improve profitability? What results have been achieved so far? Given various challenges, how does the company view the 2027 market? Please provide the related outlook, strategy and key initiatives.

Jaejune Kim | Executive Vice President, Head of Global Sales and Marketing for the Memory Business:

Let me first answer the NAND question. As agentic AI has recently continued to spread, we have seen significant growth in server SSD demand. We believe agentic AI affects NAND demand mainly in two ways.

First, as adoption of agentic AI becomes more widespread, demand for key-value cache (KV cache) is also growing rapidly. As is well known, larger AI models and expanded context windows bring more KV cache. But with the rise of agentic AI, KV cache grows much faster during computation than with traditional simple chatbot-style AI services.

As a result, the explosive growth of KV cache is creating additional demand for high-performance, high-capacity TLC SSDs to carry the ever-increasing volume of KV cache data.

Second, with the launch of cloud-based personal AI agent services, we have observed a new trend: the cloud is beginning to allocate dedicated virtual machines to each user. To reduce service latency and improve throughput, market preference for QLC SSDs is strengthening. Therefore, as the number of personal AI agent service users increases, we expect QLC SSD demand to grow accordingly.

We expect demand growth to benefit not only the TLC-type Gen 6 SSDs where we have already established an early advantage, but also to drive demand for high-density QLC SSDs. As the NAND product mix becomes more diversified, this is expected to improve business stability. We have been expanding sales of both product types: TLC-based PCIe Gen 6 SSDs that combine high performance and high density and can improve KV cache usage efficiency, and high-density QLC SSDs needed for personal AI agent services.

Notably, our V10 TLC product based on bonding technology reached mass-production readiness in the third quarter. We are also preparing to launch a 256 TB product early next year, based on V9, using 2 Tb TLC and 32-layer stacking technology.

Entering the agentic AI era, we can not only meet customer demand through HBM and server DRAM but also provide diverse storage solutions, further strengthening business competitiveness.

Daniel Araujo | Executive Vice President, Head of MX:

Let me answer the MX business question.

Since the fourth quarter of last year, surging memory demand from AI servers has caused a shortage of memory supply for mobile devices, and prices have continued to rise. This cost burden continued into the third quarter and affected our profitability. However, the successful launch of high-end products such as Fold8 and Watch Ultra 2, together with continued cost-reduction measures, improved our profitability compared with the previous quarter.

Looking to the fourth quarter, with memory prices remaining high, we expect the operating environment across the industry to remain challenging. To minimize risk as much as possible, we plan to prioritize high-end products and improve the product mix while continuing various cost-reduction measures.

We expect high raw material prices to persist into 2027. We also expect the trend seen in 2026 鈥?lower shipments but market value growth 鈥?to continue in 2027.

We are working to outperform a market that is contracting in shipment terms. In the second half of this year, the low-end market shrank and competition intensified, making the overall operating environment more difficult. Therefore, in 2027 we want to achieve growth in both volume and quality and improve the profit structure, focusing especially on high-end flagship models.

First, in flagship products, we will provide truly differentiated experiences to encourage existing customers to repurchase and attract users from competitors, thereby expanding our high-end user base.

For the mid- to low-end market, we are redefining the positioning of each product within different price bands. In addition, by ensuring stable supply of entry-level models and strengthening cooperation with carriers and distribution partners, we can create more opportunities to guide customers toward mid- to high-end devices. Thank you.

Daniel Oh | Executive Vice President, Head of Investor Relations:

Thank you. Next question, please.

Question 6: Foundry additional capacity plans

Conference host:

The next question comes from Dong-Je Simon Woo of Bank of America Securities. Please go ahead.

Dong-Je Simon Woo | Bank of America Securities (BofA):

I am Dong-Je Woo of BofA. I would like to ask about the foundry business. As the company wins significantly more orders, capacity shortages may emerge. Does the company plan to further expand capacity in Korea or the United States? I would greatly appreciate more detail if possible.

Sukchae Kang | Executive Vice President, Head of Foundry:

Thank you. Let me answer the foundry question.

On capacity expansion, demand for advanced processes is actually growing faster than capacity expansion. As the 2nm AI/HPC market and customer demand grow rapidly, we are considering increasing investment in new wafer fabs in the United States and Korea to respond to demand in a timely manner.

We want to expand not only logic wafer fab capacity in a timely manner but also advanced packaging capacity, building a more complete integrated ecosystem from leading process technology and further process scaling to packaging, thereby improving our ability to respond to market demand in the AI era.

For the U.S. Taylor fab, the first building has begun cleanroom operations, equipment installation has started, and wafer input work needed for line setup is also underway. Headquarters has dispatched experts to the site, and the entire project is progressing as planned.

To meet future demand from global customers, we are evaluating different options to further increase capacity, including building more wafer fabs.

Daniel Oh | Executive Vice President, Head of Investor Relations:

Thank you. Next question, please.

Question 7: FX risk management and System LSI business fundamentals

Conference host:

The next question comes from Tony Han of SK Securities. Please begin.

Dong-Hee Han | SK Securities:

I am Han Dong-Hee of SK Securities. I have two questions, one about the company as a whole and one about System LSI.

First, the recent weakening of the U.S. dollar has pressured the company's performance. Could you explain the company's foreign exchange hedging strategy and how it manages FX risk?

Second, as mobile market growth slows and competition intensifies, major SoC vendors are restructuring their businesses. What strategies is Samsung considering to improve the fundamentals of the SoC business and lay the foundation for medium- to long-term growth?

Soon Cheol Park | Executive Vice President, Chief Financial Officer:

Let me answer the first question. Exchange rate volatility in the U.S. dollar and other major currencies has increased, and the company is closely monitoring the impact of FX changes on earnings and financial condition. Rather than relying mainly on costly derivatives for artificial hedging, we focus on using natural hedging mechanisms in the global value chain to structurally reduce the impact of exchange rate volatility.

If we used derivatives such as FX forwards in Korea to fully hedge U.S. dollar receivables amounting to hundreds of trillions of won each year, it could disrupt the domestic Korean foreign exchange market; transaction costs alone could also create considerable opportunity costs.

Therefore, we try to match currencies of inflows and outflows as much as possible and make assets and liabilities in each currency correspond to each other. Through these natural hedging methods, we strive to minimize unhedged FX exposure. For remaining exposure, we sell dollars in advance and take other measures to shorten the duration of FX risk exposure as much as possible.

Under this hedging strategy, we will continue to manage FX risk systematically and work to reduce uncertainty in earnings caused by exchange rate volatility. Thank you.

Jaejune Kim | Executive Vice President, Head of Global Sales and Marketing for the Memory Business:

Let me answer the second question, which concerns System LSI.

First, we fully recognize that the mobile market is changing: growth is slowing and competition is intensifying. Therefore, we are working on multiple fronts to improve the overall business as well as the product and customer mix.

In mobile, the AI gaming performance of Exynos 2700 has already improved; related new product development and production work are proceeding as planned.

We will continue to strengthen the competitiveness of flagship SoCs to increase market share. We have established custom SoC business relationships with new customers and won new orders. We will leverage our strength as an end-to-end total solution provider covering design, foundry, memory and packaging to attract new customers, uncover business opportunities and strengthen the foundation for future growth. Thank you.

Daniel Oh | Executive Vice President, Head of Investor Relations:

Thank you very much. Next question.

Question 8: Advanced-process roadmap and foldable competition

Conference host:

The next question comes from Sung-Kyu Kim of Daiwa Capital Markets.

Sung-Kyu Kim | Daiwa Capital Markets:

Thank you for the opportunity to ask questions. I have two questions, one on foundry and one on MX.

First, could you provide an update on the roadmap progress for advanced and more mature processes? With intensifying competition, where does the company's technological differentiation lie?

For the MX business, some competitors have also begun entering the foldable phone market. The market is growing, but competition is intensifying along with it. How do you think this change will affect the MX business? What differentiated strategy will the company adopt to maintain leadership in the foldable market?

Sukchae Kang | Executive Vice President, Head of Foundry:

Let me first answer the foundry question.

In advanced processes, we are expanding our 2nm product portfolio beyond mobile applications to HPC. The next-generation 2nm process will center on DTCO, or Design Technology Co-Optimization, to improve performance and energy efficiency.

At the same time, we are exploring options that make full use of existing infrastructure. On the most advanced 1.4nm process, we are in talks with multiple customers and maintain close cooperation with several of them. Currently, we are finalizing a test chip development plan with one customer.

In mature processes, we will gradually phase out process nodes with lower margins and inactive customer demand, streamline the product portfolio, and seek opportunities with higher entry barriers and greater value-added. Specifically, we will focus on the 5nm automotive application business; for the 8nm process, we will support multiple applications for Tier 1 customers; the 14nm process will focus on memory interface solutions, while the 17nm process will focus on CIS (CMOS image sensors).

We are building differentiated competitive advantages through synergies between the foundry and memory businesses. The two sides jointly developed the HBM4 base die based on the 4nm process, already achieving industry-leading HBM4 performance.

Notably, although mass production is still at an early stage, our base die yield has also reached the foundry industry's leading level.

In addition, leveraging our accumulated experience in memory electrical technology, we are also accelerating development of silicon capacitor technology. We expect to achieve industry-leading performance in the near term, and we have already received volume purchase demand from multiple major customers.

Our goal is to become a specialized foundry supplier providing integrated services that combine advanced logic, memory and advanced packaging. Thank you.

Daniel Araujo | Executive Vice President, Head of MX:

Let me answer the foldable question.

As more manufacturers enter the foldable market, it is inevitable that competition will heat up and the overall market landscape will change. But we believe this is also an opportunity to prove the value of the market we pioneered in 2019 and to use the expansion of the overall market to drive our own sales growth.

We recently launched the Fold8 series, expanding the lineup in a timely manner when customers needed it. As a result, the product mix improved and the share of foldable products increased. We also attracted many younger users and customers switching to Samsung from competitors' products.

In the future, we will continue to make foldables lighter and thinner, develop product forms suited to real lifestyles, and provide differentiated user experiences that other manufacturers find difficult to replicate. In addition, we will offer support such as installment payment plans to reduce the burden on consumers and expand the high-end customer base around the S26 and Fold8. Thank you.

Daniel Oh | Executive Vice President, Head of Investor Relations:

Given time constraints, we will take one last question.

Question 9: Drivers of Harman's performance improvement and sustainability

Conference host:

The last question comes from Lee Su-rim of DS Securities. Please go ahead.

Lee Su-rim | DS Securities:

I am Lee Su-rim of DS Securities. Today I would like to ask about Harman. Harman seems to have continued to deliver relatively solid results recently. Could you explain the drivers of the improvement and whether the company expects this trend to continue?

Jaejune Kim | Executive Vice President, Head of Global Sales and Marketing for the Memory Business:

Let me answer this question.

Despite tariff risks and rising memory prices, Harman has continued to deliver results through synergies with Samsung Electronics, mainly benefiting from growth markets such as automotive and audio.

In the automotive business, we are actively expanding growth areas such as telematics, automotive displays and central controllers. In particular, starting this year, we gradually increased supply of telematics products to Volkswagen and other customers, supporting stable performance.

At the same time, amid intensifying competition and a more challenging operating environment caused by rising costs, we continue to improve operational efficiency and take various measures to improve profitability.

In lifestyle products, sales of portable speakers led by JBL remain strong. JBL celebrates its 80th anniversary this year, and new product launches have further enriched the lineup, supporting continued revenue growth in the consumer audio business.

Harman is actively exploring the wireless earphone and headphone market, areas with strong growth potential. We are also using globally recognized brands acquired last year, such as Bowers & Wilkins, Denon and Marantz, to expand our high-end product mix.

Looking ahead, we will continue to strengthen the brand portfolio on the basis of solid profitability, expand the range of high-growth products, and further consolidate our leadership in audio through continuous technological innovation. Thank you.

Conference host:

That concludes this quarter's conference call. We wish everyone and their families good health. Thank you very much for joining today's call.