Samsung conference: Storage supply is insufficient, "next year will be tighter than this year," 60-70% of capacity has been allocated to long-term agreements, HBM4 revenue will account for 60%

Author: Dong Jing

Driven by the strong demand for Generative AI and Agentic AI, Samsung Electronics delivered an explosive report for the second quarter of 2026.

According to the financial report, Samsung Electronics achieved revenue of 171.5 trillion won in the quarter, a staggering year-on-year increase of 130% (28% quarter-on-quarter growth); operating profit soared to 89.5 trillion won, a year-on-year surge of 1814% (56% quarter-on-quarter growth), with the operating profit margin jumping from 43% in the previous quarter to an astonishing 52.2%. The net cash position nearly doubled to 167.6 trillion won, and ROE (return on equity) jumped from 5% to 56%. The semiconductor (DS division) became the absolute core engine, accounting for about 99% of the company's total profit. Currently, Samsung's HBM4 has completed large-scale production and has taken the lead in shipping HBM4E samples.

In the face of surging computing power demand, Samsung Electronics' management sent a clear signal during the earnings call:

The supply-demand gap is widening, and the revenue share of HBM4 in the second half will exceed 60%, with sales targeting to surpass traditional DRAM; at the same time, Samsung is signing five-year rolling long-term agreements (LTAs) with the world's top ten tech giants, locking in 60% to 70% of the company's total capacity with large upfront payments. The long-term agreement model will become a "ballast" for future performance, and the company is fully launching into high-value areas such as customized SoC, AI OS, and humanoid robots.

Notably, after the earnings report was released, Samsung Electronics' stock price surged, rising over 8%, but quickly fell back to near flat as the conference call took place.

Storage Supply Shortage to Last Until 2028, "Tighter Than This Year Next Year"

The explosive data from the financial report essentially reflects the evolution of AI infrastructure demand to a deeper level. The highly anticipated storage supply-demand cycle received clear guidance from management during this earnings call.

Jaejune Kim, head of the storage business, pointed out that with the accelerated adoption of Agentic AI, token consumption is growing exponentially, leading to unprecedented demand for AI servers and robust demand for general computing servers.

Facing the future supply-demand landscape, Jaejune Kim made a market-attention-grabbing judgment:

"Even as Agentic AI continues to accelerate, the available storage supply in the industry is still significantly insufficient relative to demand. New wafer fabs take more than three years to start actual production, so we believe that there is unlikely to be a significant increase in new supply before 2028."

On the supply side, he further emphasized the severity of the shortage: it takes more than three years from building a new wafer fab to actual mass production, and significant new supply is unlikely before 2028. Unmet demand this year will carry over to the next year, and "supply constraints in 2027 are expected to be more severe than in 2026," with shortages possibly lasting until 2028.

Analysts believe this judgment directly supports Samsung's strong enthusiasm for long-term agreements (LTAs).

Locking in Giant Capacity: "We Plan to Allocate 60-70% of Total Capacity to Multi-Year Agreements"

In the face of long-term structural shortages, tech giants are locking in Samsung's capacity with real money in advance. To hedge medium- and long-term business risks, Samsung is vigorously promoting binding multi-year storage supply agreements (LTAs).

"Since almost every customer is seeking LTAs, we are struggling to meet all supply requests within the available capacity," Jaejune Kim stated frankly.

When discussing specific capacity allocation and long-term agreement structures, he revealed key data:

"To maintain sufficient supply flexibility, we plan to allocate about 60-70% of total capacity to LTAs. Once the agreements currently under negotiation are finalized, we expect LTA supply to easily reach this proportion of our medium- to long-term production plan."

He also disclosed that the company has completed agreements with the top five data center customers globally and is in the final stages of negotiations with another five major customers. The number of agreement customers is expected to increase over time, "once the current pending contracts are finalized, the supply covered by multi-year agreements for DRAM and NAND will easily reach 60% to 70% of planned capacity."

Regarding contract structure, Samsung disclosed specific frameworks:

The basic term is five years, with annual rolling negotiations, and both parties can agree to extend for one year, forming a "five-year rolling" mechanism;

Includes large upfront payments distributed throughout the contract period, "we have already received about a quarter of the agreed total upfront payment," and the total is expected to increase as more agreements are signed;

Sets minimum price clauses (price floors) for mainstream products to fully hedge against investment risks from market price fluctuations;

Specific upfront payment amounts cannot be disclosed due to confidentiality agreements.

Samsung's strategic intent is very clear: "Historically, the storage industry has been affected by fluctuations in consumer application demand, repeatedly experiencing up and down cycles. By increasing the proportion of long-term order-driven business, we hope to significantly enhance the stability and visibility of future operations."

HBM and Foundry Dual-Line Sprint: Q3 HBM4 Sales Expected to Surge Over 3 Times, 2nm Orders Double

In the high-end storage HBM and foundry sectors, Samsung has also released positive expansion signals, dispelling market concerns about its HBM progress.

Regarding expectations for HBM capacity and market share, Jaejune Kim clearly stated:

"We expect HBM4 sales in the third quarter to grow more than three times quarter-on-quarter. We believe that the company's HBM market share will roughly recover to a level comparable to the overall DRAM market share in the second half."

In response to HSBC's Ricky Seo regarding HBM business issues, Sooncheol Park stated that HBM4 is expected to account for significantly over 60% of total HBM revenue in the second half.

At the same time, the once-pressured foundry business has also seen a breakthrough. Foundry head Sukchae Kang pointed out that advanced processes of 8nm and below have reached "full load levels."

"Based on current order momentum, we expect the number of 2nm projects obtained in 2026 to more than double year-on-year." When mentioning the profitability turning point, he stated, "Although it is difficult to accurately predict due to the customer order-driven nature of the foundry business, we believe there is a possibility of achieving a (profitability) turning point in the near future."

Samsung Electronics expects that by 2026, the proportion of AI and high-performance computing applications in the foundry business will jump from a high single-digit percentage in 2025 to over 30%.

Reconstructing Endpoints and Seeking New Engines: Creating "AI OS" and Entering Humanoid Robots

In addition to upstream semiconductor efforts, Samsung has also provided imaginative guidance on mobile terminals (MX) and future frontier businesses.

In the face of cost pressures from rising memory prices on the mobile business, MX business head Daniel Araujo stated that Samsung is not only increasing AI capabilities but also undergoing a fundamental reconstruction:

"We are not just adding AI features; we are redesigning the system architecture into what we call 'AI OS,' making AI the core of how the system operates. This involves not only smartphones; we will leverage our vast ecosystem, including TVs and home appliances, to enhance the AI experience that covers users' overall lifestyles."

In terms of more long-term growth points, Chief Financial Officer Soon-Cheol Park first detailed Samsung's ambitions in the robotics field. Samsung has established a robotics business office that reports directly to the CEO. "We will first focus on B2B applications such as manufacturing and logistics, acquiring core technologies and data, and developing highly intelligent, multifunctional humanoid robots, gradually expanding into the B2C market. Leveraging our semiconductor, software, AI, and manufacturing capabilities, we aim to establish a differentiated competitive advantage in the robotics field and cultivate it as a future growth engine."

MX Mobile Business: Q2 Total Loss of 700 Billion, Continued Pressure from Rising Memory Prices, Betting on Foldable Screens and Galaxy AI OS

Mobile experience business head Daniel Araujo admitted that the enormous demand for storage from AI servers has directly driven up mobile storage prices, "We have already seen this impact in Q2, and we expect this cost burden to continue in the second half." The combined operating loss for Q2 MX and network business reached 700 billion won, with annual smartphone shipments expected to decline.

However, Samsung's response strategy is clear: The Z8 foldable series, Tab S12, and Watch Ultra 2 will all be launched in the second half, while pushing mid-range product upgrades through A57/A37; a new form factor product, smart glasses, will also be introduced this year.

Strategically, Samsung claims it is restructuring the entire system architecture into "AI OS":

"AI OS makes AI the core of how the system operates. This will enable Galaxy AI to develop into the foundation that integrates all mobile intelligent experiences. With close cooperation with Google, we are driving it towards Agentic AI, allowing the system to understand user contexts, automatically execute tasks, and even proactively make suggestions."

Full Transcript of Samsung Electronics Q2 2026 Earnings Call (AI-assisted Translation)

Company Participants

• Charles Hur, Executive Vice President and Head of Corporate Strategy Team
• Daniel Araujo, Vice President, Mobile Experience Business
• Daniel Oh, Head of Investor Relations Hun Lee, Executive Vice President, Visual Display (VD) Business
• Jaejune Kim, Executive Vice President, Storage Business
• Jason Shin, Executive Vice President and Head of System LSI Sales Team
• Sooncheol Park, Executive Vice President, Head of Corporate Management Operations and Chief Financial Officer
• Sukchae Kang, Executive Vice President, Foundry Business
• Unnamed Speaker

Other Participants

• Dong-Hee Han, Analyst, SK Securities Co., Ltd.
• Jay Kwon, Analyst, JPMorgan Chase
• Kim Dong-Won, Analyst, KB Securities Co., Ltd.
• Ricky Seo, Analyst, HSBC
• Ryugyong Woo, Analyst, NongHyup Financial Group
• Seicheol Lee, Analyst, Citigroup
• Seok Jae Lee, Analyst, Korea Investment Corporation
• Unnamed Participant
• Woo Dong-je, Analyst, Bank of America

Presentation Segment

Operator:

Hello everyone, welcome to Samsung Electronics' Q2 2026 financial performance earnings call. I will be the coordinator for this meeting. Before we open the Q&A session after the presentation, all participants will be in listen-only mode. Please note that this call will be recorded. Now, I will hand the meeting over to the investor relations team. Please begin.

Daniel Oh:

Welcome everyone, thank you very much for taking the time to join our Q2 2026 earnings call. We sincerely appreciate your continued attention and support for the company. I am Daniel Oh, head of investor relations at Samsung Electronics, and I am honored to host today’s call.

For those joining us today, we sincerely invite you to visit samsung.com/global/ir, where all materials from today’s call, including slides and live streaming, are available and will remain accessible after the meeting. First, before we officially begin, I would like to briefly outline our important legal disclaimer.

As per our usual practice, please note that today’s discussion may contain forward-looking statements that may differ significantly from actual results. For reference, our complete disclaimer has been provided in the relevant slides. In today’s call, Executive Vice President Sooncheol Park, our Chief Financial Officer and Head of Corporate Management Operations, will review the financial performance, shareholder returns, and business outlook for Q2 2026.

Following that, I will follow up with the latest on capital expenditures and sustainability initiatives, and then hand the call over to the executive officers of each business unit to introduce their respective performance and outlook. Finally, we will conduct a Q&A session. The call is expected to last about an hour. The executives joining us today include: Executive Vice President Sooncheol Park, Chief Financial Officer and Head of Corporate Management Operations; Executive Vice President Jaejune Kim, Head of Global Sales and Marketing for the Storage Business; Executive Vice President Jason Shin, Head of the System LSI Sales Team; Executive Vice President Sukchae Kang, Head of Sales and Marketing for the Foundry Business; Executive Vice President Charles Hur, Head of Corporate Strategy Team at Samsung Display; Vice President Daniel Araujo, Head of Strategic Planning for the Mobile Experience Business; and Executive Vice President Hun Lee, Head of Sales and Marketing for the Visual Display Team. Now, I will hand the call over to our Chief Financial Officer Sooncheol Park for his comments on the Q2 financial performance.

Sooncheol Park:

Thank you, Daniel. Good morning, and thank you to all shareholders, investors, and analysts for joining today’s earnings call. I am Sooncheol Park, Chief Financial Officer of Samsung Electronics. Building on our record performance in the first quarter, we achieved new highs in both revenue and operating profit in the second quarter, thanks to our continued technological leadership in artificial intelligence and our ability to respond to the changing market environment.

Despite ongoing macroeconomic and geopolitical uncertainties, we have achieved these results, demonstrating our differentiated technological strength established in our core businesses.

Looking ahead, we will continue to strengthen our future growth engines through software technology innovation, further consolidating our leading position in the global market. Now, please allow me to review the financial performance for the second quarter.

Our total revenue reached 171.5 trillion won, a quarter-on-quarter increase of 28%; operating profit grew by 56% to 89.5 trillion won; and the operating profit margin improved from 43% in the previous quarter to 52%. We also continued to invest actively in maintaining our technological leadership for the future, with R&D expenses reaching a quarterly record high of 15 trillion won, up from 11 trillion won in the previous quarter. Quarter-on-quarter, net profit increased by 52% to 71.6 trillion won; earnings per share for both common and preferred stock grew by 52% to 10,849 won, which I believe is among the highest levels in global tech companies.

The DX division continued its record performance from the previous quarter, with both DRAM and NAND Semi driven by strong market demand and product system advantages, both achieving historic highs. The random access memory-related business faced headwinds in the mobile market. On the other hand, the foundry business benefited from higher capacity utilization and growing demand for all advanced nodes, while continuously expanding orders from major customers, including in the 2nm high-performance computing field. The DX division achieved year-on-year revenue growth supported by strong sales of high-end and AI products, but operating profit declined due to rising component costs impacting profitability. To minimize profit decline, we will strengthen our product mix with more high-value products and continue to optimize our cost structure, improve processes, and enhance operational efficiency.

In terms of exchange rate impacts, the strengthening of the dollar against the won had a positive quarter-on-quarter impact of about 3.1 trillion won on operating profit, primarily reflected in our components business.

The executives joining us today will provide more detailed business updates later. Now I would like to talk about shareholder returns. The board approved the second-quarter dividend, with both common and preferred stock at 374 won per share. According to our three-year shareholder return policy from 2024 to 2026, we commit to distributing a regular dividend of 98 trillion won annually, paid in quarterly installments of 24.5 trillion won. The second-quarter dividend is scheduled to be paid in August. Our current shareholder return policy continues to receive high attention from shareholders, consistent with what we communicated in the last earnings call. We remain fully committed to fulfilling this plan as promised and will provide further updates soon.

Now let me turn to the outlook for the second half of the year. We expect growth momentum to continue to accumulate in the second half, supported by sustained strong semiconductor demand. For the DX division, despite new terminal products being released, macroeconomic uncertainties persist, and cost pressures from components and materials may continue, the division will continue to focus on maintaining profitability. The DX division will strive to overcome profitability challenges by strengthening the fundamentals of each business. Our goal is to establish a leadership position in the intelligent AI market by providing hyper-personalized AI experiences through open platforms and expanding high-end product sales across business segments. At the same time, we are improving business fundamentals through AI-driven innovation and better resource efficiency, laying the foundation for the DX division to respond to market changes.

We expect that the storage business will continue to achieve growth driven by strong demand propelled by the rapid adoption of Agentic AI. The storage business will further strengthen its technological leadership and lead the market by expanding sales of HBM4 (including HBM4E), DDR5, SOCAMM2, and eSSD high-performance products. The system LSI will develop high-value businesses by advancing new customized FVOC businesses while broadening applications for sensors and Power ICs. The foundry business will improve profitability by increasing orders for advanced node products and orders related to high-growth AI and high-performance computing. In the display business, due to tight memory supply leading to increased overall prices, sales may decline, but we will achieve revenue growth by expanding high-end product sales and fully ramping up production on the Gen 8.6 production line.

Finally, the DX division will continue to strengthen core technologies through optimized capital expenditures and active R&D investments. The DX division will also continue to support new growth businesses such as robotics, HVAT, automotive electronics, and medical technology, laying the foundation for medium- to long-term growth.

Thank you.

Jaejune Kim:

Thank you, Sooncheol Park. Now let me report on our latest capital expenditures. Capital expenditures for the second quarter were 16.8 trillion won, a quarter-on-quarter increase of 5.5 trillion won. Of this total, 15.4 trillion won was allocated to the DX division, and 0.7 trillion won was invested in the display business.

By business segment, capital expenditures in the storage business increased quarter-on-quarter due to expanded investments in the new Pyeongtaek wafer fab and other infrastructure projects to meet the sustained strong demand for AI. We also continue to invest in advanced R&D to maintain our technological leadership.

Capital expenditures in the foundry business also increased quarter-on-quarter as we expanded investments to support the ramp-up of capacity at the U.S. wafer fab, which is currently progressing smoothly. In the display business, capital expenditures increased quarter-on-quarter due to continued additional investments in the Gen 8.6 production line.

Next, I would like to briefly introduce our significant achievements in sustainability. In June of this year, we released our 2026 Sustainability Report, which details our progress. In terms of the environment, we are continuously advancing the acquisition of renewable energy by signing several important Power Purchase Agreements (PPAs) with major sites globally. As a result, the company achieved a renewable energy transition rate of 32.5% by 2025, an increase of 1.1 percentage points from the previous year. We also increased the proportion of recycled plastics used in our products to 33.7%, a year-on-year increase of 2.7 percentage points, further fulfilling our commitment to a circular economy.

In terms of social responsibility, we have achieved four consecutive years without major workplace accidents, reflecting our strong commitment to workplace safety. For more details on our sustainability progress, please refer to our 2026 Sustainability Report published on our official website. We will continue to commit to further advancing related work.

Now, I invite the executives to provide updates on their respective business units. First, we will hear from Executive Vice President Jaejune Kim of the storage business.

Jaejune Kim:

Good morning, I am Jaejune Kim from the global sales and marketing department of the storage business. In the second quarter, demand in the storage market was significantly strong, primarily driven by AI applications. Especially with the proliferation of Agentic AI, there has been a sustained increase in additional supply demand from major hyperscale cloud service customers based on AI, driving both DRAM and NAND.

With strong AI demand, we focused on expanding sales in the server application area, where demand momentum is strong, under the existing capacity conditions. As a result, our storage business achieved historic highs in both DRAM and NAND shipments in the second quarter, with server applications reaching the highest proportion of overall shipments.

Additionally, in HBM, we expanded performance-differentiated HBM4 supply and were the first to ship the industry's first HBM4 samples to major customers, further strengthening our technological competitiveness.

In the second quarter, DRAM shipments grew in the low teens percentage range quarter-on-quarter, exceeding our previous guidance; NAND shipments grew in the low single digits percentage range, in line with our guidance. Furthermore, our average selling price (ASP) for DRAM increased by mid-40% quarter-on-quarter, and NAND increased by high 60%.

Thus, with strong market demand and our product competitiveness, we once again set a record for the highest quarterly performance, continuing the excellent performance of the previous quarter.

Looking ahead to the second half, hyperscale cloud service providers are continuing to increase infrastructure investments to seize opportunities in the AI market, and the proliferation of Agentic AI is accelerating. We are observing not only strong demand for AI servers but also robust demand for general computing servers. Looking ahead, we expect this trend to accelerate further.

In mobile and PC applications, although demand has slowed due to customers raising terminal product prices, the additional demand for server DRAM, SSD, and HBM is growing much faster than this slowdown. Therefore, next year, the supply-demand gap will further widen, and this trend seems quite clear. Despite our efforts to increase capacity, the growth rate of customer demand still exceeds our supply capacity.

As a result, we plan to optimize the product structure of DRAM and NAND in advance, taking into account changes in demand across application areas and customer feedback.

Regarding the outlook for third-quarter shipments, as inventory levels for DRAM and NAND are significantly low, we expect DRAM to grow in the mid-single digits quarter-on-quarter, and NAND in the high-single digits. We will actively respond to AI-related demand across product lines, leveraging our industry-leading technological competitiveness and diverse product lines to continue leading the market. Thank you.

Jason Shin:

Good morning, I am Jason Shin from the System LSI business unit. In the second quarter, overall demand slowed due to seasonal factors for flagship smartphones and a weak Chinese mobile market. However, we maintained quarterly revenue by driving sales of SoCs and image sensors in the high-volume mobile segment, achieving the highest revenue in the first half. We have also secured next-generation flagship SoC orders and continue to gain new projects from major customers across various categories, enhancing business momentum.

In the second half, overall consumer market demand is expected to further slow due to ongoing cost pressures from rising component prices. Even in such an unfavorable market environment, we will strengthen the competitiveness of our core business and further expand into high-value segments.

In terms of SoCs, we are securing next-generation flagship orders, driving stable sales, and exploring more custom SoC new business opportunities. In image sensors, we are enhancing the competitiveness of 200-megapixel sensors and expanding into more application areas. In LSI, we will continue to solidify our leading position in high-end DDI and expand our power IC business. Thank you.

Sukchae Kang:

Hello everyone, I am Sukchae Kang from the foundry business. In the second quarter, revenue grew due to increased demand for memory HBM-type products and product demand centered around U.S. customers.

Before incentives, profitability also showed significant improvement. From an order perspective, we continue to expand our 2nm order pipeline around major HPC customers (including cloud service providers). In the second half, we will initiate mass production of new products for mobile based on the second-generation 2nm process while accelerating the ramp-up of LPU products for major 4nm customers and expanding sales of memory-type products. With revenue growth from major U.S. and Chinese customers across various process nodes, we expect to achieve double-digit or higher year-on-year revenue growth.

Notably, revenue contribution from advanced process nodes is expected to exceed 50%, and the proportion of AI HPC applications is expected to expand significantly from nearly 20% in 2025 to over 30% in 2026. Against this backdrop, we expect to accelerate profitability improvement by strategically shifting our business toward high-growth segments. Additionally, we will continue to solidify the foundation for medium- to long-term growth by expanding advanced process nodes and orders related to AI HPC products. Thank you.

Charles Hur:

Good morning, I am Charles Hur from Samsung Display. Now I will briefly introduce our performance in the second quarter. In the mobile display business, our performance improved quarter-on-quarter due to strong demand for high-end mobile products. In the large-size display business, sales and revenue both achieved quarter-on-quarter growth driven by the growth of the gaming monitor market.

Next, I will share the outlook for the second half. Due to tightening supply-demand relationships in memory, market uncertainties are expected to persist in the second half. However, we will maintain profitability and new product launches through strong customer support and high-value products.

In the smartphone market, we will focus on high-end segments based on competitive technologies with low power consumption and diverse forms. In the IT field, we plan to expand revenue by ramping up production on the next-generation Gen 8.6 IT OLED production line to ensure timely supply of panels.

QD-OLED products will expand sales by broadening the customer base in the gaming monitor market and strengthening the product lineup. We will also extend differentiated OLED products to tablets, gaming, and automotive markets. In the second half, we will continue to strengthen cost competitiveness and accelerate the R&D of differentiated technologies to solidify our leadership position in the high-end market and strive for stable performance. Thank you.

Daniel Araujo:

Hello everyone, I am Daniel Araujo from the DX division. Let me share our performance in the second quarter and future outlook. Due to memory shortages, smartphone shipments have declined year-on-year, mainly concentrated in the price-sensitive mass segment, while market value has increased due to higher average selling prices and an expanded share of high-end products. In the MX business, second-quarter revenue reached 32.3 trillion won, with a combined operating loss of 0.7 trillion won for MX and network businesses.

Driven by strong sales of the S26 series flagship models and robust momentum in the A series, our smartphone sales volume grew quarter-on-quarter, and revenue also achieved year-on-year growth. However, due to overall industry factors including rising component costs, profits have declined.

In the second half, as macroeconomic uncertainties increase and rising memory prices lead to softening demand, annual smartphone shipments are expected to decline. Nevertheless, supported by the expansion of AI features and form factor innovations, demand in the high-end segment is expected to remain resilient.

Therefore, annual sales volume and average selling price are expected to increase. Despite the current exceptionally challenging operating environment, we remain committed to strengthening our AI leadership through personalized, intuitive experiences. To this end, we are focusing on two strategic pillars.

First, we will drive overall market share growth through a "flagship-first" expansion strategy. In our flagship product lineup, we are enhancing the sales proportion of high-value products, including the top-tier Ultra models and the newly launched foldable Z8 series—this series embodies seven years of innovation, providing an optimized mobile experience and featuring designs that cater to users' diverse lifestyles.

We will maintain the market heat of the S26 through continuous marketing and the launch of the new S26 FE, while expanding upgrade sales in the mid-to-high-end segment by introducing core AI experiences into the A series, aiming to seize market opportunities arising from component supply shortages and drive growth in shipment market share.

In the broader Galaxy ecosystem, we will focus on increasing the proportion of high-end product offerings while introducing smart glasses later this year to bring a new form factor experience to the AI era.

Second, we will continue to promote end-to-end efficiency improvement initiatives while maintaining flexibility to respond to market changes, including dynamically adjusting sales mixes and channel operations based on profitability. Thank you.

Hun Lee:

Hello everyone, I am Hun Lee, Head of Global Sales and Marketing for the Visual Display (VD) division. I will briefly introduce the market situation and share our performance in the second quarter as well as the outlook for the second half.

In the second quarter, overall TV demand showed moderate growth compared to last year due to a major global sporting event, but declined compared to the previous quarter. Against this backdrop, we achieved revenue and profitability improvements compared to the same period last year by successfully launching new categories and preemptively capturing demand for major sporting events. However, due to rising costs of raw materials such as memory, profitability saw a slight decline quarter-on-quarter.

Now let me introduce the outlook for the second half of 2026. In the second half, as the sporting events conclude, TV market demand is expected to slow, and macroeconomic and geopolitical uncertainties may persist. Against this backdrop, we will leverage product competitiveness and highlight differentiated experiences to expand sales of new categories.

On this basis, we will strengthen strategic cooperation with core channel partners to capture peak season demand. Additionally, we will explore the AI TV market by providing differentiated viewing experiences driven by Vision AI and continue to advance AI feature upgrades to solidify our sales leadership in an increasingly competitive environment.

At the same time, we will ensure future growth engines and enhance profitability by expanding our advertising services business while strengthening our operating system competitiveness and further expanding our licensing business. My remarks conclude here, thank you for your attention.

Daniel Oh:

Thank you to all the speakers. This concludes the Q2 performance review meeting, and we will now enter the Q&A session, which will be conducted in Korean. Questions at the company level will be answered by our Chief Financial Officer Sooncheol Park, while questions related to each business segment will be answered by the respective business representatives. Thank you for your attention.

Q&A Session

Operator:

(The operator prompts) The first question comes from Dong-Won Kim of KB Securities, please go ahead.

Questioner - Kim Dong-Won:

I am Kim Dong-Won from KB Securities. Thank you for the opportunity to ask a question, and congratulations on your record performance. I have two questions: First, the three-year shareholder return policy has now entered its final year midpoint; can you provide us with the latest situation regarding shareholder returns and the direction of the next phase of the policy? The second question is about memory. The supply shortage in the memory market persists; do you expect the supply shortage to continue into next year? If possible, could you share the medium- to long-term outlook for memory demand?

Responder - Sooncheol Park:

I will answer the question about shareholder returns. As mentioned in the last earnings call, we remain committed to executing the current three-year shareholder return policy as promised. The board and management are actively discussing specific implementation plans for the current shareholder return policy, including this year's special dividend.

At the same time, they are also engaged in in-depth discussions regarding the next phase of the shareholder return policy. Regarding our current policy of using 50% of free cash flow for shareholder returns, it should be noted that upfront payments made by customers for long-term agreements (LTAs) in the memory business, as well as stock buybacks for employee compensation, may impact free cash flow. We will continue to provide updates on this progress.

Regarding the next phase of the shareholder return policy, we are striving to maintain an optimal balance between reinvesting for future growth and continuously delivering long-term value to shareholders, thereby driving shareholder value enhancement. We look forward to sharing specific details with shareholders soon.

Responder - Daniel Araujo:

Okay, I will address your question about memory supply and demand dynamics. With the accelerated adoption of Agentic AI, the number of tokens consumed is also growing exponentially. This has not only driven unprecedented growth in AI server demand but has also led to a rise in broader computing server demand. As many developers of cutting-edge AI models struggle to secure sufficient cloud capacity from hyperscale cloud service providers, they are increasingly turning to emerging cloud service providers for additional service capacity.

As emerging cloud service providers become major buyers for server OEMs, OEMs are also continuously seeking large memory supplies to meet the growing demand. Nevertheless, due to memory supply constraints limiting the expansion capabilities of hyperscale cloud service providers and emerging cloud service providers in AI infrastructure, developers of cutting-edge AI models are increasingly reaching out to us directly to ensure memory supply. These customers are sharing their medium- to long-term demand forecasts and requesting to sign multi-year supply agreements to secure sufficient capacity.

Therefore, while the proliferation of Agentic AI is accelerating the growth of memory demand, the existing supply in the industry is still severely insufficient relative to actual demand. Furthermore, despite widespread increases in capital expenditures across the industry, considering that the delivery cycle from building new fabs to actual wafer production exceeds three years, this means that any meaningful increase in supply capacity will take a considerable amount of time. Thus, we believe that significant incremental supply is unlikely before 2028. Based on the ongoing customer demand applications we are receiving, unmet demand this year is likely to carry over into next year, further exacerbating future supply tightness. Supply constraints in 2027 are expected to be more severe than in 2026, which further confirms our belief that supply shortages will persist until 2028.

After 2029, due to limited visibility, it is currently difficult to make judgments. However, with the expected surge in token numbers likely to drive demand exponentially in the medium to long term, customers seeking to ensure large-scale AI service infrastructure are increasingly looking to us for multi-year supply collaborations. These multi-year arrangements are actually highly aligned with our goal of hedging medium- to long-term risks. Therefore, we have been actively engaging in discussions with customers and prioritizing those who can guarantee future certainty in demand.

Through this approach, we expect to transform the company's business structure from a previously overexposed supply-demand cycle model to a more stable and predictable model. Multi-year supply agreements will provide stronger predictability for medium- to long-term demand, allowing us to deploy investments with greater flexibility. Under these improved conditions, we will continue to adhere to strict supply management practices, prioritizing cleanroom capacity through preventive investment deployment, and then flexibly arranging equipment installation based on changes in demand conditions.

Operator: The next question comes from Mr. Ricky Seo of HSBC Securities.

Question - Ricky Seo: Thank you, and congratulations on your good performance. I have a question about the DRAM supply structure. I remember in the last earnings call, you explained that you wanted to maintain a balanced product mix between HBM and traditional DRAM. Is this position still valid now? Additionally, I have heard some good news regarding your HBM performance; could you provide us with an update detailing the latest progress in your HBM business?

Answer - Sooncheol Park: Okay, let me answer this question. In the last earnings call, we indeed explained that to support the demand driven by AI, regardless of the profitability differences between HBM and traditional DRAM, we intend to maintain a balanced supply structure. We are still adhering to the same practice in the context of rapidly growing HBM demand.

For the currently highly anticipated HBM4, product certification work for various customer projects is progressing smoothly, and as customer projects gradually land in mass production plans in the second half, we see demand rapidly increasing. Meanwhile, supported by our 1C nanometer process capacity expansion and yield improvement—both of which are progressing as planned—we are continuously expanding HBM supply capacity.

Therefore, we expect HBM4 sales in the third quarter to grow more than three times quarter-on-quarter. Based on our outlook for the second half, HBM4 is expected to account for over 60% of our total HBM revenue structure. We believe that in the second half, we will be able to achieve HBM market share roughly comparable to the overall DRAM market share, thus forming a more balanced business mix.

Looking ahead to next year, based on the 2027 HBM supply agreements we have signed with customers, as well as our technological leadership in HBM4E products—we are the first in the industry to provide HBM4E samples—we believe that we have established sufficient product competitiveness to commercialize with major customers as planned.

As mentioned earlier, with the proliferation of Agentic AI, we are also seeing exponential growth in general computing demand. We are closely monitoring the relative pace of growth in HBM and server DRAM demand while maintaining an optimal product mix to support the long-term growth momentum of AI demand.

Looking ahead to next year, we expect industry supply to remain tight, and we will manage HBM and traditional DRAM businesses in a balanced manner, keeping HBM market share consistent with traditional DRAM share.

Operator: Thank you very much. We will continue to the next question. The next question comes from Seicheol Lee of Citigroup, please go ahead.

Questioner - Seicheol Lee: I am Seicheol from Citigroup. I have two questions regarding the company's overall affairs. The first question is about bonus accruals. I remember there was no confirmation of bonus accruals in the first quarter; could you explain the amount of bonus accruals for the second quarter and the subsequent plans? The second question is about American Depositary Receipts (ADRs). Following a competitor's listing in the U.S., there has been growing interest in the possibility of Samsung issuing ADRs. Additionally, recent media reports suggest that the company is in the early stages of considering a U.S. listing. Could you comment on the likelihood of ADR listings?

Responder - Sooncheol Park: First, let me answer the question about bonus accruals. To provide reasonable compensation that matches operational performance while attracting and retaining top talent, the company has a performance incentive plan. Since negotiations for the first quarter were still ongoing and the incentive plan had not been finalized, no incentive accruals were confirmed for the first quarter. In the second quarter, we confirmed the cumulative accrual amount for the first half, which includes a special performance incentive equivalent to about 10.5% of the cumulative operating profit for the first half.

For clarity, it should be noted that there is a timing difference between recording bonus accruals in the financial statements and recognizing related expenses in the income statement according to accounting standards. A portion of the bonus accrual in the second quarter is capitalized as manufacturing labor costs included in product inventory costs.

Thus, the amount of expenses recognized in the second quarter's income statement is lower than the total bonus accrual. The remaining capitalized amount will be recognized as cost of sales when the relevant inventory is sold to customers. This is standard accounting treatment.

Therefore, the amount of bonus accrual recorded in a particular quarter does not necessarily align with the amount of expenses recognized in that quarter's income statement. From the third quarter onward, the relevant expenses will be recognized in sync with the sales of corresponding inventory. Consequently, the second quarter's profit results reflect this peculiarity in accounting treatment.

Next, I will address the question about ADRs. Listing ADRs is not just a simple matter of listing overseas; it requires careful consideration of financing needs, the effects of expanding the global investor base, and the additional disclosure and operational burdens that come with it.

Moreover, ADRs are a structure that trades limited shares of stock in an independent market. Therefore, liquidity and supply-demand conditions in overseas markets may lead to value discrepancies between ADRs and the underlying domestic stock. We need to carefully evaluate whether this can bring tangible benefits to all shareholders, including those domestic shareholders who have long trusted and continuously invested in the company.

Given the company's diversified business portfolio, which enables stable cash generation, the necessity of issuing ADRs as a means of raising new capital is not high. Although recent media reports have mentioned the possibility of a U.S. listing, we are currently not considering issuing ADRs. That said, from a medium- to long-term perspective on enhancing shareholder value, we view it as one of several options that may be considered in the future. Thank you.

Responder - Daniel Oh: Okay, thank you. Now let’s continue to the next question.

Operator: The next question comes from Mr. Han Dong-Hee of SK Securities.

Question - Dong-Hee Han: Hello, I am Dong-Hee Han from SK Securities. Thank you for the opportunity to ask a question. I have two questions, one about the foundry business and one about the MX business. First, could you provide an update on the latest orders from major customers regarding advanced process nodes? And how do you plan to enhance the profitability of the MX business, as well as the monetization plans for service products?

Answer - Sukchae Kang: Okay, I will answer the question about the foundry business. Regarding the latest progress in winning orders for advanced processes: In the second quarter, we secured 2nm project orders from major CSP customers and AI HPC customers and have begun entering the design phase for these projects. We are also in discussions with Broadcom and other major customers on various projects, continuously expanding our design order pipeline in advanced process nodes.

With this order growth momentum, we expect the number of 2nm project orders in 2026 to more than double year-on-year.

Answer - Daniel Araujo: Regarding the MX business, the enormous demand for AI servers is currently causing a shortage of mobile memory and driving prices up. We have already seen this trend in the second quarter, with memory prices rising quarter-on-quarter, placing pressure on our profitability, and we expect this cost burden to continue throughout the second half.

To address this situation, we are focusing on maintaining strong sales momentum for the S26 series while ensuring the successful launch of new high-end products in the second half, such as the new foldable series, Tab S12, and Watch Ultra 2. We are also actively promoting upward sales of the A series, particularly the A57 and A37 models.

In addition, we are tightening resource allocation across procurement, sales, and R&D to minimize the impact on profitability. We fully recognize the importance of expanding value creation beyond equipment sales, so we are actively exploring various ways to generate revenue leveraging our vast global user base.

However, we are not just pursuing short-term profits; we are focused on high-end value approaches—providing real value and practical convenience, such as hyper-personalized services tailored to each user's specific context, without compromising user experience. That said, we are taking a phased approach, considering service maturity and global user feedback. Thank you.

Answer - Daniel Oh: Okay, thank you. Please continue to the next question.

Operator: The next question comes from Mr. Jay Kwon of JPMorgan Chase, please go ahead.

Question - Jay Kwon: Thank you for the opportunity to ask a question. I have one question about the storage business and one about the company overall. First, regarding the storage business, it seems that AI-related demand is expanding from DRAM to NAND and server SSDs, raising market interest in the NAND sector. Could you provide an update on the latest developments in this area and discuss your unique competitive advantages?

My second question pertains to the acquisitions of Harman (Harman) regarding ZF and Sound United. What benefits are expected from these two acquisitions? How will your company strategize to fully leverage these assets?

Answer - Sooncheol Park: I will answer the first question regarding NAND. Previously, market attention was more focused on DRAM rather than NAND, but with the rapid proliferation of Agentic AI, we are now seeing strong demand growth for server SSDs across a wide range of segments, such as general computing servers and dedicated storage servers for KB caching.

NAND is also transitioning into a high-value business centered around server SSDs. In fact, NAND made a significant contribution to our strong storage business performance in the second quarter. We are also in discussions with major customers regarding multi-year agreements to further enhance the medium- to long-term predictability of our NAND business.

We are actively responding to the growth in server SSD demand driven by AI application scenarios. This year, server SSDs are expected to account for over 60% of our NAND sales mix, an increase of over 20 percentage points compared to the same period last year. To meet the market demand for high-performance TLC storage, our PCIe Gen 6 SSD has received positive feedback from major customers and is well recognized for its differentiated performance.

We expect to take a leading position in the early market for the next-generation Gen 6 AI platform, turning our technological leadership and solutions into tangible business results. In the QLC area, after completing the development of V-NAND TB (Terabit) level QLC in March this year, we have expanded our product lineup to include 256TB large-capacity server SSDs. We expect the bit shipment volume of QLC in the second half to more than double compared to the first half. The V10 V-NAND, which adopts bonding technology and a three-layer stacking architecture, is scheduled to start mass production in August. By increasing the proportion of advanced process nodes, we will enhance bit production efficiency, better respond to customers' growing demands, and ensure timely supply of V10 solutions suitable for high-speed input-output application scenarios. We will continue to develop new products in a timely manner to meet customer demands for new technologies, further solidifying our position in the NAND market for the next-generation AI platform.

Answer - Charles Hur: As a member of the Harman board, please allow me to answer your question. To actively respond to rapidly evolving market trends and enhance business competitiveness, Harman has recently completed two acquisitions in the automotive business. By acquiring ZF's ADAS business, we are extending from digital cockpit and in-car audio products into the ADAS field, providing intelligent camera sensors and high-performance controllers.

This acquisition will not only broaden our customer base and create new stable growth engines but will also strengthen the digital cockpit business by integrating ADAS capabilities, enabling Harman to proactively respond to the technological trend of integration around centralized controllers in future vehicles.

Looking ahead, Harman will leverage synergies with Samsung to provide better in-car IT and AI experiences and extend into the autonomous driving field, aiming to become a leading global company in automotive electronics. In the lifestyle business, the acquisition of Sound United will optimize our brand portfolio, enhance the visibility of our high-end audio brands, and further solidify our position as a global audio leader. Additionally, to respond to the evolving technological trends and customer demands in the audio market, we need to expand consumer connectivity and audio experiences.

To this end, we plan to strengthen cooperation with Samsung in the fields of AI and connectivity. Thank you.

Question - Jay Kwon: Thank you for your answer.

Answer - Daniel Oh: We will continue to the next question.

Operator: The next question comes from Mr. Seok Jae Lee of Korea Investment Securities, please go ahead.

Question - Seok Jae Lee: Hello, good morning.

Question - Anonymous Participant: I am Min Seok Jae, thank you for the opportunity to ask a question. I would like to ask a few questions about the overall storage market. Overall, we have heard a lot about multi-year contracts. I remember in the last earnings call, you mentioned that Samsung Electronics is promoting multi-year cooperation arrangements. Within the scope of what can be disclosed, could you provide us with the latest progress and discuss some aspects of the contract terms?

Answer - Sooncheol Park: Okay, let me answer the question about multi-year contracts in storage. As demand for AI service infrastructure continues to grow in the medium to long term, the market generally expects the storage supply shortage to persist for a long time. Therefore, many customers are seeking multi-year supply agreements from us.

These long-term cooperation arrangements actually align with our own interests in mitigating medium- to long-term future risks. Therefore, when negotiating contract terms, we prioritize customers willing to accept binding contract conditions and who can guarantee committed demand. We continue to see strong demand for additional supply of DRAM and NAND in the market. As market prices continue to rise, almost all major customers are looking for long-term supply, making it increasingly difficult to meet all customer demands under existing capacity constraints.

Initially, we planned to maintain a certain degree of flexibility in supply allocation, intending to allocate about 60% to 70% of total capacity to long-term supply agreements while reserving sufficient capacity to support customers without multi-year contracts. However, as more and more customers seek long-term commitments—including those with existing agreements—capacity allocation is becoming increasingly tight.

Currently, we have actually begun signing multi-year supply agreements with a five-year term, with contracts stipulating annual negotiations, and both parties can agree to extend for one year, effectively operating in a rolling manner. We hope to establish this business structure based on rolling contracts to gain better business visibility. We have completed agreements with the top five data center customers globally and are also in the final stages of negotiations with another five major customers regarding their AI-related needs.

Moreover, as more customers seek multi-year supply arrangements, we expect this number to continue to increase. Once the current pending contracts are finalized, we believe that the supply covered by multi-year agreements for DRAM and NAND will easily reach 60% to 70% of our factory capacity. According to our current medium- to long-term production plans, we will continue discussions with other customers also seeking additional supply and explore various feasible options in conjunction with potential medium- to long-term capacity expansion plans.

To emphasize the binding nature of multi-year supply commitments, we have set large upfront payment requirements in the contracts that must be fulfilled throughout the multi-year contract period. We have received a significant proportion of these payments, and the overall balance is expected to continue to grow—currently, we have received about a quarter of the total upfront payment. Due to confidentiality agreements, we cannot disclose further details about the upfront payments.

Regarding the pricing model for multi-year agreements, our goal is to establish a pricing structure that adequately compensates for a certain degree of future investment risks. We adopt differentiated pricing models based on customer types and product categories and advance contract negotiations. For mainstream products, through mutual coordination, we have set minimum price floors that are sufficient to hedge against future investment risks arising from market price fluctuations.

Through these multi-year supply agreements, we aim to establish a more stable and predictable business structure from a medium- to long-term perspective. By providing clearer supply expectations to core customers playing a key role in building the AI ecosystem, we will support the sustainable development of the entire AI industry. Importantly, we always maintain a balanced customer portfolio to avoid excessive reliance on any specific customer, and this principle also applies to our multi-year supply agreements.

Historically, the storage industry has repeatedly experienced cyclical fluctuations due to demand volatility in consumer applications. However, by increasing the proportion of long-term order-driven business, we hope to significantly enhance the stability and visibility of our operations. Looking ahead, we will continue to consolidate our leading position and further expand the focus on AI application areas in our business portfolio.

Operator: Okay, the next question will be posed by Mr. Seonggyu Kim from Daiwa Securities.

Questioner - Seonggyu Kim: Hello, I am Seonggyu Kim from Daiwa Securities. Thank you for the opportunity to ask a question, and congratulations on the company's good performance. I have a question regarding the foundry business, as well as a question about the VD (Visual Display) business. As customer commitments continue to increase, it is expected to put pressure on existing capacity; could you introduce your company's capacity expansion plans at the Taylor wafer fab in Texas? Additionally, is there a potential plan to convert old process lines to advanced processes at the Pyeongtaek facility? Regarding the VD (Visual Display) business, in the current challenging operating environment, I understand that there have been changes in management and leadership; what is the new leadership's medium- to long-term plan?

Answer - Sukchae Kang: Okay, let me answer the question about the foundry. Given that demand growth continues to exceed the pace of advanced process capacity expansion, we are actively taking measures to expand advanced process capacity at the Taylor wafer fab. The fab is on track to begin operations in 2026, with plans to gradually increase 2nm capacity while ensuring that capacity is ready in a timely manner to meet growing customer demand. Construction of Taylor fab 2 is set to begin by the end of this year, with the goal of achieving mass production by 2030.

We are also seeing an increase in customer inquiries regarding the 1.4nm process. Currently, we are evaluating various options to further secure additional wafer fab capacity. Detailed plans will be developed in phases based on customer negotiations, order developments, and ongoing discussions regarding mature process nodes. Our strategy is to optimize our product mix by transitioning to higher-value, higher-margin application areas and to focus on special technologies that require differentiated capabilities.

Specifically, we are expanding capacity in areas where customer demand is continuously growing, such as 8nm, 17nm, CIS (image sensors), and eNVM (embedded non-volatile memory), while also securing capacity for next-generation technologies such as ISC and silicon photonics.

Answer - Daniel Araujo: Thank you. Let me address the question regarding the VD business. With the recent changes in leadership, we plan to strengthen our growth strategy while consolidating existing advantages and actively responding to the industry's shift towards AI and service-centered business models, as well as changing customer demands. The overall TV market remains stagnant, while the CTV (Connected TV) advertising and services market continues to grow. From a medium- to long-term perspective, we are positioning ourselves around AI TVs to lead the next era, proactively responding to the trend of market transformation towards services and changes in consumer habits, while formulating device and platform strategies to scale up. By providing the best consumer experience across our entire product range, including content, we aim to extend our influence into a service platform company.

Through this initiative, we will enhance both growth capability and profitability. First, in the area of AI TVs, we will create differentiated user experiences based on user data and context awareness by understanding and remembering users, enhancing product competitiveness and market competitiveness. We will provide media and lifestyle experiences with context awareness and expand the role of AI TVs as everyday devices. At the same time, we will ensure that consumers can tangibly feel the value of Agent AI in their daily lives. Additionally, in terms of TV content, we will diversify our content layout, acquire popular IPs to strengthen content competitiveness, enhance usability, optimize content discovery experiences, and further enhance AI-driven hyper-personalized content recommendations to improve customer satisfaction. Thank you.

Answer - Daniel Oh: Thank you for the responses, and thank you all for your questions. This quarter's earnings call has concluded successfully. I wish you and those around you good health and safety. We sincerely appreciate your participation today and your continued support for Samsung Electronics. Have a great day, thank you.