Samsung Electronics Co., Ltd. (KS:005930.KS) announced its first-quarter financial results for 2024, showcasing an increase in revenue and profits, with a particular boost from the Memory business due to strong sales of high value-added products.
Revenue for the quarter reached KRW 71.9 trillion, marking a 6% increase from the previous quarter, while the operating profit rose to KRW 6.6 trillion. The company also reported a gross profit of KRW 26 trillion and a gross margin of 36.2%. Samsung's focus on sustainability and shareholder returns was evident with the announcement of a quarterly dividend of KRW 361 per share.
Key Takeaways
- Samsung's Q1 revenue increased by 6% quarter-over-quarter to KRW 71.9 trillion.
- Operating profit for the quarter was KRW 6.6 trillion, with a 9.2% operating margin.
- The Memory business experienced a return to profit, driven by high value-added product sales.
- Capital expenditures were KRW 11.3 trillion, focusing on memory, foundry, and display sectors.
- The company announced a quarterly dividend of KRW 361 per share.
- Outlooks from various business units included strong demand for generative AI in the memory market and challenges with increased material costs in the System LSI business.
Company Outlook
- Samsung plans to expand its 32-gigabit DDR5 memory supply and enhance its position in the AI server-related high-density DDR5 market.
- In the second quarter, sales are expected to rebound in the foundry business, with a focus on advanced technologies.
- Samsung Display aims to increase sales of premium monitors and meet the demand for TV panels.
- The mobile experience division saw revenue and operating profit growth in Q1, with plans for new foldable devices and wearables expansion.
- The visual display business solidified its premium market leadership, with expectations for a gradual TV demand recovery in the second half.
Bearish Highlights
- Profitability in the visual display business decreased year-on-year due to lower overall market demand and increased competition costs.
- Samsung anticipates a continued decrease in overall TV market demand but remains optimistic about opportunities linked to global sporting events.
Bullish Highlights
- Generative AI demand surge led to improved profitability in Samsung's DRAM and NAND products.
- The company expects the business cycle to keep improving in the second quarter, with rising average selling prices (ASPs).
- Samsung is focused on expanding the QD-OLED market in premium TVs and monitors.
Misses
- Despite solid demand for premium products, profitability was affected by the overall decrease in TV market demand and heightened market competition.
Q&A Highlights
- Samsung discussed strategies to address cost increases and geopolitical risks, emphasizing cost competitiveness.
- The company is committed to investing in AI R&D to bolster its Galaxy AI ecosystem and drive long-term growth.
- Customer feedback on the S24 smartphone was positive, particularly regarding its AI functionality, which will continue to be a focus for future device optimization.
Samsung Electronics continues to navigate the challenges presented by macroeconomic and geopolitical uncertainties while capitalizing on the growing demand for AI-driven products and services. With a strategic focus on AI innovation and connectivity, the company is positioning itself to lead in various technology segments and meet the evolving needs of consumers.
InvestingPro Insights
Samsung Electronics Co., Ltd. (SSNLF (OTC:SSNLF)) has demonstrated financial resilience in its first quarter of 2024, supported by key metrics that indicate a strong financial position and potential for growth. Here are the latest insights based on real-time data from InvestingPro:
InvestingPro Data:
- Market Cap (Adjusted): 369.92B USD, reflecting the company's substantial value in the market.
- P/E Ratio (Adjusted) for the last twelve months as of Q4 2023: 35.85, showing that investors are willing to pay a premium for Samsung's earnings.
- Gross Profit Margin for the last twelve months as of Q4 2023: 30.33%, which is a testament to Samsung's ability to maintain profitability despite market challenges.
InvestingPro Tips:
- Samsung holds more cash than debt on its balance sheet, indicating a solid financial foundation and the ability to invest in growth opportunities or weather economic downturns.
- The company is a prominent player in the Technology Hardware, Storage & Peripherals industry, which aligns with the company's strategic focus on AI innovation and connectivity mentioned in the article.
For readers who are keen to delve deeper into Samsung's financial health and future prospects, there are an additional 10 InvestingPro Tips available, which provide a comprehensive analysis of the company's performance and outlook. To access these insights, visit https://www.investing.com/pro/SSNLF and remember to use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Samsung Electronics PK (SSNLF) Q1 2024:
Operator: Good morning and good evening, everyone, and welcome to the Samsung Electronics 2024 First Quarter Financial Results Conference Call. I'll be your coordinator. [Operator Instructions]. Now I'd like to turn the conference over to Daniel Oh, EVP and Head of Investor Relations. Please go ahead.
Daniel Oh: Thank you, coordinator. Greetings, everyone, and welcome to Samsung Electronics' 2024 Fourth Quarter Earnings Call. Thank you for joining us today. For today's call, the following representatives from business units are participating. Starting with the EVP, Jaejune Kim representing Memory, VP Tommy Kwon for System LSI during the call for the first time for Foundry, VP Taejoong Song. For Samsung Display Corp, EVP Charles Hur. For the Mobile eXperience business, VP Daniel Araujo. And last but not least for VP -- Visual Display VP KL Roh. We also have other business representatives during the call to answer any questions if necessary for the Q&A session later. Please also note that on Samsung Electronics Investor Relations website at www.samsung.comglobalIR, you can find our earnings press release and presentation deck which are intended to supplement our prepared remarks during today's call. I want to remind you that some of the statements we'll be making during today's call are forward-looking based on the environment we currently see. They are subject to certain risks and uncertainties that may cause our actual outcomes to differ materially from those expressed in today's discussion. Our webcast of this call will be also archived on our website, and the information we are giving you on today's call is as of today's date. First, I will start with our 2024 first quarter consolidated financial performance. Our revenue came in at KRW 71.9 trillion, 6% quarter-on-quarter thanks to strong sales of flagship Galaxy S24 smartphone series and the effects of higher ASPs in memory, led by improved memory market conditions. Our gross profit was KRW 26 trillion, up KRW 4.4 trillion sequentially, attributable mainly to improvements in the cost of goods sold in memory and the smartphone mix in the MX business. Gross margin was up 4.2 percentage points to 36.2%. SG&A expenses increased KRW 0.6 trillion quarter-on-quarter to KRW 194 trillion, as R&D expenses increased. However, as a percentage of sales, SG&A expenses decreased by 0.8 percentage points to 27% due to the increase in sales. Operating profit increased KRW 3.8 trillion sequentially to KRW 6.6 trillion, many thanks to improving IT market conditions and operating margin increased by 5 percentage points quarter-on-quarter to 9.2%. We attribute the gains mainly to the Memory business returning to profit as it achieved strong growth by addressing the demand for high value-added products such as LPDDR5X and enterprise SSD and to the MX business booking higher profits driven by robust sales of chip smartphones. In addition, the Visual Display and Digital Appliances businesses recorded higher profitability, while display saw profit decline quarter-on-quarter due to weak seasonality. Regarding currency effect, the Korean won showed overall weakness against major currencies during the quarter, resulting in approximately KRW 0.3 trillion of consolidated operating profit compared to the previous. Now moving on to capital expenditures. CapEx in the first quarter increased by KRW 0.6 trillion from the same period last year to KRW 11.3 trillion, of which KRW 9.7 trillion was invested in the T.S. division and KRW 1.1 trillion was invested in display. For Memory, we continue to invest in R&D to solidify our technological leadership. In the quarter, our investments focused on facilities and packaging technology to address the demand for HBM DDR5 and other advanced products. For Foundry, investment focused on establishing the infrastructure to medium- to long-term demand and on advanced R&D while we adjusted the facility investment in line with the market conditions. In Display, we continue to invest in preparations for IT OLED products and advancing technology and flexible displays. I will now share some of our key activities in sustainability management. First, Samsung Electronics zoned on overall rating of AA in the MSCI ESG ratings during this quarter, the highest level among peers in the Korean ICT industry. We improved our overall rating by 1 notch as our commitment to sustainability management led to improvements in the social and governance categories. Specifically, we made substantial gains in the areas of human capital development, raw material sourcing and corporate governance. Second, regarding our water resource management and building on last year's achievement at the Hwaseong campus, our manufacturing site in Kilo, Pantech, Sohan, Kumi and Guangzhou,, along with the China achieved Platinum Certification from the Alliance for Water Stewardship, which is a testament to our outstanding water station. Furthermore, we continue to progress on numerous other front in water resource management, including signing MOUs with government agencies and local governments to achieve 0 increase in DX division's order intake and restore water 100% for the amount used by DX division by 2030. As a responsible corporation to our stakeholders, we maintain committed to strengthening sustainability management and expanding ESG initiatives throughout our business. Next, I would like to address the first quarter dividend. Today, the Board of Directors approved a quarterly dividend of KRW 361 per share for both common and preferred stock. Based on current dividend policy, the total quarterly payout is KRW 2.45 trillion which will be paid towards the end of May. Now without any further ado, I will turn the conference call over to the representatives of each business unit to present first quarter performances and outlooks for their respective business segments in more detail. The Memory business will start the next session, followed by System LSI Foundry, Samsung Display, Mobile eXperience and Visual Display. We will start with EVP Jaejune Kim of the Memory business.
Jaejune Kim: This is Jaejune Kim from Memory Global Sales and Marketing. In the memory market in the first quarter, we saw customers' overall purchase demand was strong due to market expectations that price will keep rising. For server and storage, the demand for generative AI showed solid trend and the demand for DDR5 and high-density SSD stayed strong, following the previous quarter. In particular, although high-density assets linked with generative AI showed additional demand growth as customers upside demand surged. In the case of PC and mobile, content per box continued to grow for both DRAM and NAND. Furthermore, our demand remained strong following the previous quarter, thanks to an active selling mainly driven by Chinese mobile OEM customers. Along with this increase in ASP, we achieved this qualitative growth of the business by addressing the demand by focusing on high value-added products such HBM, DDR5, [indiscernible] SSD and UFS 4.0 and so on. As a result, our Memory business returned to profit. Now let's move to the outlook for the second quarter. We expect the industry recovery trend to continue throughout the quarter, mainly led by the demand for generative AI. In particular, the continuous increasing supply of AI servers and subsequent expansion of our associated cloud services should increase the demand for HBM, which is directly linked with AI, but also conventional servers and storage in parallel. Therefore, we expect overall server-related demand to remain strong. And for mobile, as the [indiscernible] drive mainly led by Chinese OEM customers continues, demand is expected to be stable in the second quarter as well. However, for PC under the effects of low seasonality, it appears that in the second quarter, customers are likely to temporarily adjust. They have finished good inventory in the distribution channels in preparation for new product launches focused on on-device AI in the second half of the year. Thus, in the second quarter, it is expected that the demand centering on server and storage products will be getting strong. And in addition to this, as supply constraints for cutting-edge products are expected in the second half of the year though overall increase of market price is predicted, although there might be differences by application. In this market environment, in order to optimize our business portfolio, we plan to allocate production more to serve and storage-related products such as HBM, DDR5 and high-density SSD than to our PCM mobile product. From our product deployed standpoint, we started mass production of HBM3E 8-high this month to address the demand for generative AI. And we plan to produce 12-high products within the second quarter. Also, in the second quarter, we plan to strengthen our leadership in the server market, mass producing 128 gigabyte product based on the 1 billion-nanometer to sold DDR5 and shipping it to customers. Also for NAND, we plan to expand SSD sales for server and a timely response to AI demand by developing and providing samples of ultra high-density 64 terabyte SSD during the second quarter. In addition, we will enhance our sustainable technology leadership by mass-producing V9 for the first time in the industry. Now I will share our outlook for the market in the second half of the year. We expect business conditions to stay positive despite some volatility related to macroeconomic trends, geopolitical issues and so on. As the industry supply of HBM improves in the second half, we expect a spread of AI servers to accelerate and thanks to this, associated cloud services are also expected to expand further. Sequentially, this should lead to increased demand from nano and servers, but also conventional servers and storage, and we expect these purchase to occur to clearly outcome. As for PC, a replacement cycle of some products that showed a significant sales growth during the pandemic is expected to be approaching. In addition, we expect to see positive impact on such shipment and content per box, thanks to growth in the number of on-device AI features models, which will be newly launched in the second half. For mobile, we expect the demand in terms of content per box to be robust with the spread of on-device AI, but there are chances that our growth in set demand will be limited in the second half as customers inventory in our distribution channel have increased at due to the customers' activity setting in the first half of the year. Likewise, we expect memory demand to stay strong in the second half, mainly around generative AI. However, on the supply side, we expect to see constraints in overall bit production as capacity concentrate on HBM in DRAM. And industries limited execution of CapEx in NAND has continued since last year. Therefore, we plan to flexibly adjust our product mix in accordance to demand for each application and actively respond to demand for high value-added products for AI. In the case of HBM, we will continue increasing supply and expanding our capacity in order to respond to growing demand for generative AI. In addition, we also plan to accelerate our ramp-up of our industry first developed HBM3E 12-high product in line with the increasing needs for high-density products in the industry. In DRAM, we plan to accelerate our 1b-nanometer based 32-gigabit DDR5 supply with fast ramp-up speed and further strengthen our competitiveness in the high-density DDR5 major market, which is linked with the AI servers. In NAND as well, with the growth of AI demand, we will improve our profitability by proactively addressing the demand for high value-added server products such as VA-based SSD high density [indiscernible] and so on. In addition, based on our industry-first experience entering the UFS 3.1 market with OLC technology, we plan to introduce a QLC solutions further to the UFS 4.0 market in the second half, thereby strengthening our product competitiveness in the mobile market. For V9 following the industry first mass production of QLC in the second quarter, we plan to further enhance our technology leadership by mass-producing QLC in the third quarter. We will continue to strengthen our market leadership based on our leading-edge technology and timely execution of investment. Thank you.
Tommy Kwon: Good morning. This is Tommy Kwon from the System LSI business. In the first quarter, the U.S. manufacturing PMI exceeded 50, indicating a rebound in market sentiment in manufacturing industries as well. This, along with the reduced semiconductor inventory levels has helped stabilize component prices upward. However, macroeconomic uncertainty have been exacerbated by global complex, volatile oil prices and fluctuating exchange rates. Although smartphone production increased in the fourth quarter, all indicators this year suggested a slowdown in sellout rates. During the first quarter, we increased our supply of SoCs and sensors for key product launches. Demand for on-device AI and high regulation features continue to drive our production. However, displayed driver IC sales have dropped due to a decrease of panel demand, and overall performance improvement has been slower than anticipated. In the second quarter, the external economy pressure on consumer spending could challenge smartphone manufacturers in passing increased bill of material costs on to consumers. The need to reduce component prices is becoming more acute as manufacturer may use only slow sellout rate to justify price negotiation. Despite a slow start, smartphone sellout is now showing sign of recovery, highlighting on device AI as a significant growth opportunity for us. We remain committed to ensuring a stable supply of flagship SoCs. We are gearing up to deliver more advanced process product for new wearable device. For mobile sensors, channel inventory is at a healthy level, and major set manufacturer selling target continues to grow year-over-year. We anticipate high utilization rate in the second quarter as well, including the mass production of 50 megapixel sensors. Our [indiscernible] strategy will bolster our ability to meet timely pixel wafer demand. Regarding DTIs, we are focused on maintaining market leadership with 22 nanometer low-power chips, expecting performance enhancements from upcoming IT and TV product releases. Looking at the year as a whole, the increased bill of material costs associated with the adoption of on-device AI, we are encountering intensified pressure for component pricing. The impact of this pricing pressure are likely to be uneven across components, influenced by selective specification downgrade within the smartphone lineup. We are proactively planning to adjust our product mix to navigate these challenges effectively. Thank you.
Taejoong Song: Hello, everyone. This is Taejoong Song from Found business. In the first quarter, weaker market demand due to seasonal effects could to delay in sales improvement in addition to the continued inventory adjustment at major customers. Even so, we narrowed our losses slightly by operating fab efficiency. Advanced technologies such as 3 and 2 nanometers are under development smoothly. And in particular, yield of 4-nanometer technology has been stabilized and significantly expanded product offer of Tier 1 customers. Thanks to this improvement in advanced technologies, we achieved our highest-ever order backlog for the first quarter. In the second quarter, our middle likely gradual recovery in market conditions, the winding down of inventory adjustment at customers and increases in our line utilization should lead sales to rebound and reach double-digit quarter-to-quarter growth after bottoming in the first quarter. In addition, we will strive to keep expanding business in advanced technologies by completing the development of 2-nanometer design infrastructure and preparing for 3D IC-based 4-nanometer technology. For the module technologies, we will also strive to enhance the infrastructure for various applications. To be specific, 14- and 8-nanometer technologies. Meanwhile, in June, we plan to hold a Samsung Foundry Forum event in the U.S. to share our vision for Samsung AI solutions. In the second half of this year, uncertainties are likely to eased in finished goods market. We expect limited growth for foundry market. Despite the uncertainties, we expect to outpace the market growth rate in annual sales, thanks to increased sales of leading edge technologies. In addition, we will start mass production of the second generation of GAA 3-nanometer technology and improve the maturity of 2-nanometer technology to expand the orders focusing on AI, HPC and mobile application. That concludes the key message from Foundry business. Thank you.
Charles Hur: Good morning. This is Charles Hur from corporate strategy team at Samsung Display. I will now brief you on our results for the first quarter of 2024. For the Mobile Display business, even though our performance declined quarter-on-quarter due to intensifying competition, we responded to the launches of major customers' high-end smartphones with a timely supply. In visual displays, we improved our utilization rate based on our sales increase. For the large display business, despite weak demand and up season effects, we narrowed our losses by introducing new QD-OLED monitors and strengthening our customer base. Next, I will share outlook and strategies for second quarter and second half. For the Mobile Display business in the second quarter, it is expected for sales to increase ahead of the launch of major customers for double smartphones and growing demand for IT products. However, intensifying competition among panel makers is likely to limit earnings growth. For the large display business, we'll address demand for TV panels from major customers. Also, we strive to boost the sales of premium monitors where market expansion is expected. For the Mobile Display business in the second half of this year in regards to the smartphone market, we expect the market to grow moderately and in particular, the OLED penetration rate is likely to keep rising. For flexible displays, we remain committed to maintaining our competitive edge and expanding sales through our differentiated technologies, which deliver low power consumption, enhanced durability and more. In rigid displays, we'll continue to replace LCD by acceleration cost reductions. In addition, we strive to diversify our business portfolio by increasing IT and auto business, thereby strengthen operational stability. Finally, for the large display business, we expect to achieve year-on-year revenue growth Firstly, we will increase capacity without additional investments, but instead, we'll focus on improving production efficiency. Secondly, we'll enhanced our product mix around high value-added offerings. Thank you.
Daniel Araujo: Hi, everyone. This is Daniel Araujo from the Mobile eXperience division, and I'll be sharing our results for Q1 and discussing the outlook for the MX business. As the smartphone market entered into the seasonally lower Q1, the premium and mass segments decreased sequentially in both volume and value. The MX business recorded smartphone and tablet shipments of 60 million units and 7 million units, respectively. And smartphone ASP was $336. Despite the market decline, we achieved revenue and operating profit growth due to strong sales of our first AI phones, the S24 series. In particular, Galaxy AI features in the S24, such as Circle To Search, have seen continued high usage rates and contributed to sales expansion. Through this, MX' overall revenue grew, and even as we see component prices beginning to rise, we maintained solid double-digit profitability with our efforts to streamline resources. Moving forward to Q2, the overall demand for smartphones will decrease quarter-on-quarter due to continued seasonality effects. The MX business in Q2 expects to see a decrease in smartphone shipments and ASP, while tablet shipments should stay similar sequentially. We plan to maintain our flagship-oriented sales and upselling approach as we apply the S24's AI experience to other flagship models and maximize product competitiveness, and we'll push for continuing sales of the Galaxy S Series by strengthening communication especially around Galaxy AI functionality. Externally, with escalating geopolitical instability as well as price hikes and key components that are likely to materialize, we'll strive to secure solid profitability by continuing to streamline operations. At the same time, even in this difficult environment, we remain committed to investing in R&D, including in AI. Looking further ahead to the second half of the year. While the smartphone market is contracted in 2022 and 2023, amid prolonged economic uncertainty, it's expected to turn around this year, thanks to stabilizing consumer sentiment following the Fed's signaling of interest rate cuts this year and expansion of AI products and services and economic growth in emerging markets. Similarly, the tablet market is expected to bounce back after contracting in 2022 and 2023 following the surge in demand related to remote work and education in 2021. Both volume and value are projected to rise in 2024 in line with replacement cycle. For wearables, a double-digit increase in value is expected in the smart watch market, driven by consumers looking to upgrade given the increased interest in health-related features since the pandemic. Meanwhile, TWS is expected to experience double-digit growth in both volume and value due to continued mass market volume growth as well as the release of new models from major vendors in the second half. In the MX business, we are aiming for annual smartphone sales growth as we maintain sales momentum by applying Galaxy AI beyond the S24 to existing flagship products. For our new foldable devices in the second half, we're planning to once again drive forward with the mainstreaming of foldables by improving the user experience and optimizing AI functionality for these form factors. In tablets, we started providing Galaxy AI functionality in the Tab S9 series, and we will continue to improve the user experience as we pursue sales growth focused on premium devices. For wearables, we plan to strengthen the Galaxy ecosystem experience by expanding sales of new models that will be launched in the second half. First of all, we plan to release the Galaxy Ring, a product with a new form factor designed to be worn comfortably 24/7. With the Galaxy Ring, we expect to improve our customers' sleep and overall daily health care. We also plan to release new premium smart watch models, which will meet upgrade demand. And in TWS, we aim to expand sales with new products in the second half that have highly improved competitiveness thanks to an innovative design and exceptional sound performance. To address rising component costs, we will continue to make efforts to realize operating efficiencies so that we can secure solid annual profitability. And even if the external situation is not favorable, we are committed to our role as a first mover pioneering the mobile AI experience. We will continue R&D and proactive AI investments in order to advance and expand Galaxy AI as we prepare for the future. Thank you.
KL Roh: Hello, everyone. This is KL Roh from the Samsung Marketing team of Visual Display. Let me brief you on the market condition and our result in the first quarter of 2024. TV market demand decreased quarter-on-quarter after the peak year-end peak season, but the demand for QD-OLED, OLED and big TV above 75 inches remained solid. Samsung solidified its leadership in the premium market and increased profitability quarter-on-quarter by focusing on premium products such as OLED, OLED and big TV above 75 inches. However, profitability decreased year-on-year due to segment TV market demand overall and increased cost quoted by intensified market competition. Next, I will share our market outlook and strategy for the second quarter and 2024. We expect overall market demand to continue to decrease as TV demand is projected to decline in emerging markets However, we believe there are still chance to achieve sales growth via opportunities such as global sporting events. We will work to secure profitability by increasing sales of strategic products with our differentiated launch of 2024 model and also by strengthening operational management in each business segment. As for the second half of this year, we believe overall TV demand will recover gradually, but macroeconomics and geopolitical uncertainties are likely to continue. Despite the uncertainties, we will continue to target the demand in various segments, while promoting AI screen leadership, driven by the innovation of premium TV and lifestyle screen. Also, we will provide a differentiated customer experience through synergies with connected device. To reach the market growth, we will actively promote our advanced features, involving security and sustainability and boost our competitiveness in service business, such as TV plus. Thank you.
Daniel Oh: Thank you, everyone. That wraps up our prepared remarks. The following Q&A session will be held in Korean and translated simultaneously to English. With that, let's open the line for questions. Operator.
Operator: [Operator Instructions]. First question will be Mr. Sung Kyu Kim from Daiwa Securities.
Sung Kyu Kim: Congratulations for your good performance. I have one question for memory and each. Could you provide more details about first quarter performance for memory? And then what is your outlook for second quarter performance as well? And also for display, recently, it seems that for foldable display, there are some concerns that the gap between you and the next competitor is narrowing. So can you explain your strategy in terms of how you intend to maintain that competitive gap?
Unidentified Company Representative: So let me answer your question on our memory performance first. In the first quarter, we saw a surge in demand from generative AI. And so we expanded our mix of high value-added products. including HBM and server SSD, and we focus mostly on improving profitability through improved ASP over bit shipment growth as we undertook in a qualitative improvement of our business portfolio. So for bit growth, DRAM declined by mid-10%, NAND by a low single digit, but the rising ASP was actually above-market expectations, nearly 20% for DRAM, low 30% for NAND. So this helped turn around the memory business to profit for both DRAM and NAND. And due to rising pricing, we were able to write back positioning on inventory valuation loss, which also contributed to our profits. In the second quarter, we expect the business cycle to continue to improve, and the rising ASP trend is also expected to continue, and so we will maintain the same operational stance as we did in the first quarter. As inventory levels improve and amid limited available supply, we also expect most of the production capacity to be focused on HBM. So we expect additional supply constraint for advanced known processes for DRAM. So we intend to focus mostly on addressing real demand. So bit growth for the company, we are expecting to be in the low single digit to mid- to high single-digit range for DRAM, maybe similar to prior quarter for NAND. In terms of the P mix, to a lesser surge in demand for advanced products driven by generative AI, we intend to expand our sales of advanced products for server application. And so DRAM bit growth is expected to be over 50% Y-o-Y, over 100% for server SSD. And so we hope to maintain our momentum for improved earnings into the second quarter.
Unidentified Company Representative: I'll take your second question on SDC. We started mass production of foldable displays in 2019, an industry first and has since been growing by accommodating launches of new products by various customers, including Samsung Electronics. One of the most crucial points requested by our customer is to minimize decrease. We are developing various ways to reduce decrease, such as by improving materials and optimizing the curvature, radios and foldable spec structure. The foldables to be released this year will reflect our latest technologies, bringing visible effects to the products. As you see, we'll reduce the crease, increase durability against scratches and marks and improved functions such as low power. Through this, we will expand the quality gap between our competitors. We are developing new form factors beyond existing products, including out folding in and out folding and slidable. Through discussions with our customers, we will timely launch new products. Thank you.
Operator: Yes. Thank you. We'll move on to the next question, please. The next question will be by Mr. Sei Cheol Lee from Citi Securities.
Sei Cheol Lee: Yes, this is Sei Cheol Lee from Citigroup. I have a question on memory and your foundry business as well. First, on memory, recently regarding HBM, there's a lot of market interest. So for next year, what is the size in terms of your HBM supply? How much supply expansion are you planning? And could you provide us an update on in terms of your HBM3E business? And the second question still is foundry. So your U.S. investment in the foundry fab, what is the direction for that investment? And what is your mass production time line for the w Taylor fab in the short term?
Unidentified Company Representative: Yes. Let me address your question on HBM first. In 2024, our HBM bid supply actually has expanded by more than threefold versus last year. And we have already completed discussions with our customers with that committed supply. In 2025, we will continue to expand supply by at least 2x or more year-on-year, and we're already in smooth talks with our customers on that supply. For HBM3E business initiative for everything is moving along smooth in line with customer time lines. Commenced early mass production for 8-layer, and we expect revenue to start recognize -- to be recognized at the end of the second quarter at the early end. And the main trend in generative AI is an increase in parameters and multi-modality service expansion, leading to greater needs for high-density HBM. So we have already shipped samples of our 12-layer HBM3E, which was the first in the industry with planned mass production for the second quarter of the year. And for our 12-layer product that supports high capacity, 36-gigabyte capacity, while we are deploying TCNCS technology, which is very strong in stacking, so this gives us a very leading product competitiveness. So with this product lineup, including the 12-layer, we intend to address the surge in demand as we expand our HBM business more quickly. We're going to make a quick transition to 3E in the second half of the year and focus on capturing the preemptively capturing high-capacity HBM demand. We expect the HBM 3E mix to account for more than 2/3 of the total HCM sales volume by the end of the year. We will continue to build on our HBM capacity -- supply capacity and established strong leadership in HBM.
Unidentified Company Representative: Let me take your second question on our foundry investment in the U.S. The purpose of the investment is to respond to demand for leading-edge semiconductor chips and also to contribute to global supply chain stability, which is why we decided on the Taylor fab investment in '21. We have signed a preliminary agreement with the U.S. government, and the scope investment was expanded to include R&D and advanced packaging lines. We're expecting to execute USD 40 billion going forward. However, final talks with the U.S. government still remain and so things are subject to change. So we are mindful of changing market conditions in foundry. And given our approach of gradual investment in line with customer orders, we expect mass production to begin maybe 2026.
Operator: The next question will be made by Mr. Nicolas Gaudois from UBS Securities.
Nicolas Gaudois: The industry has perceived DRAM as being the main beneficiary for generative AI in memory, but we recently see hyperscale customers asking for high-density fast right solid-state drive solutions for AI servers, in particular, to support training. Could we use a Flash for AI training and inference become a more meaningful demand driver? And how is Samsung preparing for it?
Unidentified Company Representative: The impact on NAND demand from expansion of generative AI was your question. Well, recently, genital models continue to evolve in both training and influence, we're seeing an increase in request for SSD supply. First, for training. So as AI promoters increase, the size of training data becomes proportionately bigger, leading to higher performance and data storage needs. So we're seeing a lot of incoming requests from the customers for Gen 5, 8 terabyte, 16 terabyte solutions, which have more than doubled the IO performance and capacity of Gen 4 for terabyte SSD. In insurance, in order to improve coherence, vast amounts of database storage is required, so we're seeing increase in inquiries from customers for 64-terabyte 128-terabyte, ultra-high density SSD solutions. Traditionally, we are very strong in server and storage SSD with strong market leadership. So we will be -- we expect to be able to address this demand as a priority. And so as the generative AI market grows, leading to demand growth not only for HBM, DDR5 and DRAM products we see clearly that it is impacting the rise in SSD demand as well. So we have a full line up of SSD products, including TLC, Gen 5 and Ultra high-density QLC. So we will respond to rising demand using our products. Our server SSD shipments this year is expected to grow 80% Y-o-Y and also bids sales volume for QLC server SSD is expected to search 3x in the second half versus the first half of the year.
Operator: The next question will be presented by Gil-Hyun Baik from Yuanta Securities.
Gil-Hyun Baik: I'm Gil-Hyun Baik from Yuanta Securities. Second quarter has shown a trend of having the lowest profitability. How about this year? How do you think about the profitability and sales this year? Will BOM stay on its trend? And can you reach double-digit profitability?
Daniel Araujo: So profitability in Q2 is expected to be down slightly compared to Q1 and Q3, which is when we release new flagship products each year. In Q2, continuing from the first quarter, we expect to see cost increases of major components for memory in particular. And there are also risks of rising geopolitical instability. In response, we're focusing on cost competitiveness throughout the R&D, manufacturing and sales processes to achieve solid profitability. At the same time, we're continuing to work on mix improvements including by boosting flagship sales through the expansion of models that support the LC AI, promoting upselling within our smartphone man and expanding sales of ecosystem products. Despite the difficult environment, we will continue to invest in AI, including AI R&D to strengthen and further mainstream Galaxy AI, all aimed at securing sustainable growth in the mid- to long term. Thank you.
Operator: The next question will be Mr. Dongwon Kim from KB Securities.
Dongwon Kim: One on memory and one on display. So this year, in your view, what is the outlook for supply and demand. And we're seeing a recovery in the business cycle. So what is your strategy on the supply side? And then for Samsung Display, large-sized QD-OLED business, what is your overall strategy for this business this year?
Unidentified Company Representative: So in terms of our supply-demand outlook, let me start there. demand this year is expected to continue to recover. Driven by strong generative AI demand, we think server will continue to show solid demand also AI-based storage as well. And then conventional server replacement has actually been postponed for many years, but that is set to accelerate late transfer to new CPUs and we'll reach the replacement cycle. Likewise, for PC and mobile, a lot of the products that were sold early on during the pandemic are going to need replacement, and it will drive a decrease in on-device AI driven demand. For mobile, due to aggressive selling by customers in the first half of the year, there is a bit of increase in distribution inventory. So this may act as a constraint on set demand growth in the second half. On the supply side for the industry bit growth is likely to be limited for DRAM as most of the advanced process capacity is focused on HBM from generative AI demand, we think that non-HBM products will likely see constrained bit growth. Also for NAND, there is, there was a constraint from CapEx starting last year. And there's a natural production decrease from node migration of legacy product lines. So this will also an additional constraint on production bit growth. Now as we see a rapid surge in advanced process demand, we are seeing for certain leading products or shortfall in supply relative to demand. And likely, supply conditions may see additional tightening. Given the current market conditions, we want to -- we expect the profitability of conventional DRAM products like DDR and LPDDR to continue to improve. For NAND, as we see growing demand for server SSD, we expect sales to increase amid rising ASP, we expect performance improvement as well. So building on the CapEx initiatives over the years, we want to continue to reinforce our capacity to supply so that we can smoothly capture and respond to customer demand.
Unidentified Company Representative: I'll take your second question on display. For QD-OLED, we plan to expand the scope of the self-emitting market, especially in premium TVs and monitors. Based on talks with key customers, we are building a sales base for TVs. And for monitors, we focused on tapping new markets by continually expanding functions in the lineup. To give more details on QLED TVs, our products are positioned in the top segment of customers' lineup based on superior picture quality and functionality. We are diversifying the lineups with our customers. Our monitor offer excellent low gradation, wide color gamut and high response speed, necessary for switch changes and clear representing in darker [indiscernible] for immersive gaming experiences. Third is we are leading expanding the gaming monitor market. We plan to go beyond that and enter the B2B market by further improving the after image and the lifespan of the product.
Unidentified Company Representative: Due to the time, we will accept our last question.
Operator: The last question will be from Mr. Jay Hyun Kwon from JPMorgan Securities.
H. Kwon: I also have two questions. First, regarding the image sensor market. It seems that the downturn is winding down, and we're seeing some improvement in market conditions. So what is the strategy in terms of your image business? There is growing interest in AI in the electronic appliance space. So what is your business strategy in terms of AI-enabled appliances?
Unidentified Company Representative: So let me answer the question regarding image sensors. Well, channel inventory has largely been depleted. And since then we have seen increased utilization rise among major camera module providers and say, for us in the first and second quarter and more set makers are demanding more differentiated camera functionality. So we're seeing rising demand for our 1-megapixel 2-megapixel type solutions. Through a fab-light transition, for the pixel line, we are expanding our own production capacity while expanding our supplier base for larger lines through outsourcing. So regarding pixel wafer, we will be able to benefit from better production efficiency and also cost efficiency as well to allow for more added supply flexibility.
Unidentified Company Representative: Based on for Digital Appliances, will answer the questions. I'll take the second question. According to market research firm, as technology continues to develop and more people are changing their lifestyles, their prioritize convenience and connectivity at home, the AI appliance market is anticipated to grow an average of 10% annually. Our connected appliances can detect situations and learn patterns, providing consumers with optimal [indiscernible]. We globally launched new bespoke AI product featuring such AI functionality on April 3. Reliable security lies at the core of AI appliances for book AI appliances in order for our customers to safely use products and services, we apply Samsung Knox and Knox Matrix, a blockchain-based security solution to build safer ecosystem. In the second half, through Samsung for service, our consistent software upgrade service based on smart things, we will implement a large language model to realize natural voice control similar to conversations between people and elevate AI functionality. We'll also lead the AI market and fortify leadership with unique connectivity experiences across mobile, TV and digital appliances.
Unidentified Company Representative: Finally, we will answer questions. There was limited online in advance, we received a wide variety of questions for this quarter as well. And I believe the majority of the submitted questions were sufficiently answered during the Q&A session. We will answer one more question on a topic that's garnered a high level of interest from our shareholders but was not addressed during Q&A. The question is are the strong sales of S24 due to AI functionality? Which AI functions the customers usually use and what are some new AI features that will be introduced to the future?
Daniel Araujo: [Indiscernible] volume and sales and the consumer response has been positive, thanks to the series differentiated AI functionality. We're spreading about Galaxy AI given the elevated customer interest in the technology and its utility and the overall past experience. We assess consumer interest to be higher in the S24 than it was in its predecessor and that Galaxy AI is driving this uptrend. We ran a customer survey and found that almost half of F24 buyers purchased the device with the intention of using AI functionality. Of course, the improved AP display camera, gaming experience and design also contributed to the S24 strong sales. Around 60% of S24 customers regularly use AI functionality. And the most used feature is circled to search and intuitive start experience. Next most of these features are photo assist, which provides convenient photo editing and live translate. And in particular, we observed that Gen Z is more receptive to Galaxy AI and use the new features more often than other age groups do. Looking at used growth by age group for the S24 compared to a predecessor, Gen Z shows growth that is much higher than the average for all age groups, and their usage rate of AI features also exceeds the average. We're using big data analysis and consumer research to assess user satisfaction and use patterns of AI feature. And we're looking to use these findings to improve AI functionality and introduce new experiences. We're also preparing to introduce AI features that are optimized to the form factor of each device, including foldables, large screen tablets and wearables. Thank you.
Unidentified Company Representative: Thank you, everyone, who share their valuable opinion and we will be sure to refer to them in our decision-making process. That completes our conference call for this quarter. We wish all of you and those close to you stay strong and in good health. We thank everyone for joining us today. Thank you.
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