Robert Yi - SVP of IR Sewon Chun - Senior VP, Memory Marketing Ben Hur Gok - VP of System LSI Sang Hyun Lee - VP, Foundry Marketing Tae Kwon Young - VP, Samsung Display Lee County - VP, IT & Mobile Kyung Chull Park - VP, Visual Display Business Kwonyoung Choi - Planning Department, Samsung Display KyeongTae Lee - Mobile Communications Business

Ricky Seo - HSBC JongWoo Yoo - Korea Investment and Securities SK Kim - Daiwa Capital Markets Nicolas Gaudois - UBS Peter Lee - Citigroup Global Market Securities Hyunwoo Doh - NH Investment & Securities Claire Kyung Min Kim - Daishin Securities J.J. Park - JPMorgan

Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the Fiscal Year 2018 Second Quarter Earnings Results by Samsung Electronics. This conference will start with a presentation, followed by division Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2017 second quarter earnings results by Samsung Electronics.

Good morning. This is Robert Yi from Investor Relations. Thank you for joining our earnings call for the second quarter of 2018. With me representing each of the business units are Mr. Chun Sewon, Senior VP of Memory Marketing; Mr. Hur Gok, VP of System LSI; Lee sang Hyun, VP of Foundry Marketing; Tae Kwon Young, VP of Samsung Display; Lee County, also VP of IT & Mobile; and Mr. Park Yeong Chul, VP of Visual Display business. I'd like to remind you that some of the statements we'll be making today are forward-looking based on the environment as we currently see it, and all such statements are subject to certain risks and uncertainties that may cause our actual results to be materially different from those expressed in today's discussion. Before we go over the results, I would like to address the second quarter dividend announcement. The Board of Directors today approved a second quarter dividend of 354.1 per share to be paid in August for both common and preferred shares. On a pre-split basis, the dividend is 17,700 per share, same as that of the first quarter. As was the case, the total dividend payout for the second quarter will be KRW 2.4 trillion. With that, I would like to walk you through our second quarter results. In the second quarter, despite a strong performance by Memory business, the total revenue decreased slightly year-over-year to KRW 58.5 trillion mainly due to a decline in sales of smartphones and display panels. Gross profit decreased approximately KRW 1.4 trillion year-over-year to KRW 27.2 trillion, and gross margin is down. Compared to the last year, SG&A expenses fell in both absolute terms, as well as the percent of sales due to a decline in advertising expenses. Operating profit increased to KRW 0.8 trillion year-over-year to KRW 14.9 trillion despite struggles in the IM and EP division, thanks to a strong performance in the Memory business as well as a reduction in SG&A expenses. Operating margin rose 2.4 percentage points year-over-year to 25.4%. Operating profit and operating margin decreased slightly on a quarter-over-quarter basis. In the second quarter, positives from a weak Korean won against the U.S. dollar were eclipsed by FX of a strong won against the other currencies, such as the euro and Brazilian real, negatively impacting operating profit Q-on-Q by approximately KRW 400 billion, with effects felt mostly by the SET businesses. I'll now briefly review the operating profits by business. In the Memory business, we continue to generate solid earnings as demand remained strong from data centers for DRAM and strong demand for high-capacity storage amid a strong softening of prices for NAND flash. We solidified product competitiveness by focusing on sales of high-density, high value-added products such as 64 gigabyte, and higher server DRAM based on 1X nano technology and 128 gigabyte and higher for NAND mobile storage. For the display business, earnings decreased year-over-year and Q-on-Q due to the weak demand for flexible OLED panels and a dip in both sales volume and ASP for LCD TV panels. For the IM division, earnings in the Mobile business slid considerably year-over-year as well as Q-on-Q due to weak sales of Galaxy S9 amid a stagnant high-end market. In the Network business, earnings improved thanks to increased LTE investments by overseas customers. For the CE division, earnings in the TV business improved year-over-year and quarter-over-quarter with a major global sporting event boosting sales of premium products such as QLED TV. In the Home Appliance business, earnings decreased year-over-year due to weak demand for air conditioners despite strong seasonality. Now I'd like to share our business outlook. For the second half, we expect earnings to grow half-over-half, led mainly by the Component business on the back of favorable memory market conditions and an increasing shipment of flexible OLED panels. In the SET business, we will focus on high-end segments via early launches of 8K TVs and the Galaxy Note 9 amid rising competition and new model launches by other players. For the Component business, we expect memory market conditions to remain favorable thanks to strong demand for server, PC memory and launches of new mobile products. We will proactively address growing demand for differentiated products, such as high-density server memory and high-bandwidth memory. We will also strengthen our technology leadership by increasing our portion of 10-nano class products through 1Y production ramp-up and by expanding mass production of SET generation vertical NAND. The System LSI and foundry businesses are expected to achieve solid earnings as strong seasonality in the smartphone market boost demand for application processors and image sensors. For OLED panels, we expect the flexible panel business to improve its earnings as shipment rises, but the rigid panel business may face intensifying competition with LTPS products. In the LCD panel business, despite rising demand, we expect increased supply from competitors to keep weighing on earnings. Moving on to SET business. New model launches and intense price competition in the Mobile business are likely to keep conditions challenging. To address rising competition, we plan to launch Galaxy Note 9 early and add new features to our mid- and low-end lineups while continuing to work - find ways to enhance cost competitiveness. We expect earnings of the TV business to keep improving as we expand sales of new models, including QLED and 8K TV. For the Home Appliance business, we plan to secure profitability by focusing on sales of our expanded lineups of premium products. In the mid- to long term, as new areas like IoT, artificial intelligence and 5G transform the IT landscape, we expect to see new demand in Component business and widening opportunity for the SET business on introduction of new form factors and technologies and increasing connectivity of digital devices. In the Component business, we will use our cutting-edge semiconductor technology to capitalize on new demand for chipsets used in automotive and artificial intelligence applications and leverage our strength and that strength in OLED panels to take advantage of expanding applications in the IoT and automotive industry. In the IM business, we will seek to sustain growth and solidify our leadership by introducing innovative form factors, such as foldable displays and leading the move to 5G technology. The total capital expenditure in the second quarter was KRW 8 trillion, including KRW 6.1 trillion for the semiconductor and KRW 1.1 trillion for the display. The total capital expenditure for the first half was KRW 16.6 trillion, with KRW 13.3 trillion allocated to semiconductor and KRW 1.9 trillion to display. Before we move on to presentations from each business units, I would like to share several data points in key business areas. For the second quarter, our DRAM bit growth was mid-single digit, and we saw our ASP increase by low single digit. And for the third quarter, we expect DRAM market bit growth to be mid-teens, and we will slightly outgrow that of the market growth. And for the year, we expect the market DRAM bit growth to be roughly 20%, and we expect to grow in line with the market. And for the NAND flash in the second quarter, our bit growth came in mid-teens while the ASP declined low teens. For the third quarter, we expect market NAND bit growth to be mid-teens. And again here, we will slightly outgrow that of the market. And for 2018, we expect NAND market growth to be low 40%, and we will grow in line with the market. And for panel business, the OLED sales of panel was roughly high 60% of our total display of sales. And for the Mobile business, in second quarter, we shipped 78 million handsets and 5 million tablets. The blended ASP of the handsets was about $220 range, and the smartphone mix of the total handset sales was low 90%. And in the third quarter, we expect both smartphone - I'm sorry, that both handsets and tablet shipment to be similar to that of the second quarter, while we expect blended ASP in the third quarter to increase from that of the second quarter. And the mix of the smartphone within our total handset will remain at low 90%. And for TV business, for LCD TV in our second quarter, shipment declined mid-single digit. And for the 2018 in total, we expect total shipment to decrease by low single digit year-on-year. Now I'll turn the call over to the gentleman from each business unit to present their performance and outlook.

Good morning. This is Sewon Chun from the Memory Marketing team. In the second quarter, under weak seasonality, in spite of weakness in the smartphone market thanks to increasing software demand for data center, overall demand growth was solid For NAND, with price being softened, demand spend mainly for high-density products from continuation of high-density trend for smartphone, as well as continued increase in software demand, due spending pending server cloud infrastructure and growing portion of all flash array. We have grown solid earnings growth by actively responding to Chinese mobile demand for high-density e-storage as well as concentrating on expansion of 8 and 16 terabyte high density for all flash array. We have stable supply with 64 layer of free NAND at Pyeongtaek campus. For DRAM, thanks to high density trends and expansion of data center infrastructure, server demand remained strong. Key shipment also remained solid demand from large OEMs. Meanwhile, graphic demand was solid as well thanks to strong gaming demand. With growing demand for TV set field and 5G network infrastructure, as well as increasing high-density memory demand led by ranging UHD set-top box portion. Solid demand from the consumer segment has also continued since last quarter. For the mobile market. Despite concerns about the slowdown in smartphone set growth, content growth has continued due to the need for high-density memory component for their product differentiation. We continue to drive solid earnings growth following the previous quarter through strengthening cost competitiveness by proceeding 1 nanometer product transition and managing product elastically according to each market application conditions. Next, I will comment on the Memory Market outlook. In the second half of 2018, overall demand is also expected to be solid because while server demand remains strong, demand for mobile will also be increasing revenue from new model launched in region and content growth. For NAND, as [indiscernible] was relieved thanks to softened processes may focus more on improving set top performance. We anticipate that SSD adoption will take place in more areas and all segment will use more high-density storage. For server, strong cloud service SSD demand mainly for data center continues. Along with this, in the enterprise market, addition of high-density SSD over 8 terabyte will continue as well especially from large OEM companies. For mobile, demand for high-density storage such as 128 gigabytes is expected to continue mainly from newly launched smartphones and high-end orders. As for the supply side, even though supply and demand conditions may vary depending on qualification status, overall supply of 64 products for solution demand, including server is expected to expand. While closely monitoring the changes in demand for each application, we will secure production competitiveness through expanding 64 layer pre-NAND portion. At the same time, we will concentrate on strengthening our competitiveness in the premium market by fully satisfying all flash array replacement demand where 10K HD now prevails, meeting Chinese mobile demand adapting high-density UFS and pre-empting high-density demand through new MCP. Our fifth-generation pre- NAND announced last July is expected to be supplied this year starting from SSD, and we will keep leading the high-density trend in server and mobile application. For DRAM, due to peak seasonality, strong demand for all application is expected to continue. For server, as data center demand is spent from the U.S. market to the Chinese market and as high performance cloud service launch increases, demand growth is anticipated to continue. For mobile, with new flagship smartphone model launches, every content will increase in midrange models because smartphone makers support high specification mobile games on device AI and dual camera as differentiation point. Therefore, we expect a positive effect on memory demand. In addition, thanks to back-to-school effect for PC and game console buildup, PC and graphic demand is expected to rise continuously. Demand for high-performance HBM products will also rise due to the increasing necessity of data analysis fully utilizing AI and machine learning. On the other hand, in terms of the supply side, in spite of supply in qua two - expanded supply, supply growth is more likely to be limited compared to demand growth due to increases in difficulties of 10-nanometer mass production. Therefore, overall supply and demand is expected to remain tight. We will stick to our policy of a flexible investment and production in accordance with market conditions. We will steadily increase mass production of 1Y nanometer product and push ahead expansion of design in for all applications, and we will also focus on strengthening our product competitiveness via expansion of 1X nanometer portion continuously. We will also intensify our competitiveness in high value-added markets by expanding sales of our differentiated products, such as high-density server DRAM, HVM-2 and LPDDR4X, and effectively respond to market that require ultra-high-speed and low-power and super slim feature by using LPDDR5, which was developed for the first time in the industry. In the mid and long-term view, the server trend of high-performance and high-density mainly for data center is expected to continue due to expanding AI services based on machine learning and adoption of in memory database. The expansion of mobile demand is anticipated to continue, thanks to the spread of high-density content, as well as increasing need for high-performing devices. For the supply side, next-generation technology is becoming more difficult. And on top of this, capital intensity has greatly increased. Therefore, we expect that there may be some difficulties of supply expansion. We will actively respond to customers demand, as well as concentrate on managing capacity effectively by monitoring and focusing each applications market along with supply and demand conditions more closely. In addition, we will try hard to strengthen the sustainable business foundation in the mid to long-term by actively responding not only to the existing business area, but also to the needs of newly emerging markets, such as automotive, which will drive the next semiconductor generation via industry chip technology. Thank you.

Good morning. This is Ben Hur from System LSI business. The second quarter of this year, overall earnings in the System LSI business slightly decreased quarter-over-quarter, which is negligible as weak seasonality, slow demand for mobile apps and DDIs. Nevertheless, image sensor demand continued to rise, thanks to increasing adoption of dual cameras by Chinese smartphone makers. In the second half of this year, our earnings are likely to return to growth quarter-over-quarter as smartphone makers enter strong seasonality. With respect to the growth will be backed by strong demand for OLED DDIs and high pixel image sensors, the former for use in flagship smartphones and the latter amid increasing adoption of dual camera and triple cameras. In addition, we plan to diversify our customer base by securing orders for mobile apps from China and to expand our solution offerings by developing chips for use in automotive and IoT applications. With a view to the mid to long term, we will focus on developing cutting-edge chipset for use in 5G, multiple cameras and display panels. By doing so, we will try to lead the market and establish a stable business structure by achieving high growth compared to the market. Thank you.

Good morning. This is Sung Hyun Ryan Lee from the Foundry business. In the second quarter, total earnings continued to grow quarter-over-quarter, thanks to the strong demand for high-performance continuing chipsets, mobile LPs and image sensors. In addition, our efforts to diversify our customer base are paying off by securing orders for 8-inch specialty products. We have established our foundation for achieving stable earnings. In the second half of this year, despite uncertainty of demand for high-performance computing chipsets, we expect our earnings to be favorable, thanks to rising demand for high mobile apps and image sensors. Also, we will continue to strengthen our process technology leadership by starting 8 nanometers production and the 7 nano production. On a full year basis, following sales of $9.8 billion in 2017, we expect 2018 sales to exceed $10 billion and to secure strong second place in the foundry market. For the mid- long term, by strengthening our process portfolio, including advanced nodes FD-SOI and 8-inch, we will strive to expand the customer base by more than twice by 2021, and Foundry business will become the new growth of engine of Samsung Electronics. Thank you.

Good morning. This is Kwonyoung Choi from the planning department of Samsung Display. In the second quarter, total earnings in the display business decreased quarter-over-quarter due to weakened profitability in both the OLED and SSD business. For the OLED business, earnings decreased quarter-over-quarter despite increased utilization for [indiscernible] product and demand from major customers for flexible displays continue to slow. In the HD business, earnings declined quarter-over-quarter due to a decline in shipments alongside continued slide in panel ASP. In the second half of 2018, we expect sales in the OLED business to increase half-over-half, an increase in shipments led by rebounding demand for flexible displays. Under these circumstances, we plan to increase our market share by actively addressing customer demand, enhancing our cost structures and strengthening our technology competitiveness. At the same time, we will strive to secure new growth engines by embedding more value-added features into our panels, such as fingerprinting technology, and reinforcing our competencies in new applications such as OLED displays. Now for the LCD business, under peak seasonality in the back half of the year, we expect demand to keep growing for premium TV panels for high-resolution and ultra large TVs. However, we expect improvement in profitability to be muted due to both intensified competition and capacity expansion by Chinese manufacturers. In preparation for such conditions, we will strive to secure profitability by further differentiating our value-added products, such as panels for quantum dot and 8K resolution TVs, and reinforcing strategic partnership with our major customers. Thank you.

Good morning, everyone. This is KyeongTae Lee from the Mobile Communications business. I would like to share our second quarter results and the outlook for the IM division. For the second quarter of the mobile communication business, market demand for both smartphone and tablets increased slightly compared to the previous quarter amid weak seasonality. For the smartphones, the overall market ASP declined as the demand focused on low end and midrange product. Our shipment and revenue decreased Q-o-Q due to weaker-than-expected sales of flagship models, including the Galaxy S9, and then the effect of having discontinued production of older low-end model. Sales of Galaxy S9 and S9 plus fell short of our target amid a slow premium smartphone market and rising competition among flagship models. These factors considerably affect the Q-o-Q decline in revenue in the second quarter. Moreover, operating profit also decreased significantly as marketing cost as a percentage of total revenue increased with intensified marketing activities to expand the sell-out. The Network business achieved solid sales, thanks to increased investment in LTE expansion by our major overseas partners. Next, let's move on to the outlook for the second half of 2018. Market demand for smartphone and tablet is expected to grow half-on-half, as we enter a period of strong seasonality. However, we expect that the environment to remain challenging as our launch of new products featuring higher spec and intensified pricing - price competition in order to increase the demand. We aim to expand the sales of flagship models via an earlier-than-usual release of a new Galaxy Note, which offers exceptional performance for a reasonable price. Detailed information's about the new Galaxy Note will be revealed at our Unpacked event on August 9 in New York. We will also strengthen price competitiveness and actively tap - advanced the technology in our mass model to aggressively respond to the market condition. Offering more sophisticated specs throughout our line-up will make it difficult to maintain profitability. In response, in order to secure our profitability, we will focus on expanding sales of our competitive new models in all segment from flagship to mass models and secure well organized and effective marketing campaigns through its recent seasonality. As for the Network business, we will supply our major partners with the next-generation network solution for 5G commercialization and continue our investment and preparations to becoming a global leader in next-generation network provision. IM division will probably secure for the upcoming years based on new technologies, such as 5G, IoT and AI. From a product perspective, we will regain our leadership in hardware technology by enforcing core features to the ultimate level which we have the strength and aggressively adopting cutting-edge technologies, creating innovative form factors and taking leadership in 5G technology. Furthermore, our Bixby ecosystem will expand application over AI service to a diverse range of products that includes not only smartphones for those consumer electronics, such as TVs, refrigerators, air conditioners and IoT devices. At the same time, we will strengthen cooperation with third-party partners. Based on this development of our ecosystem, we will improve user satisfaction via personalized services and amplify synergies with the services such as Bixby and Samsung Pay, laying the foundation for the monetization of our services business. Thank you.

Good morning. I am Kyung Chull Park, Vice President of Visual Display sales and marketing team at Samsung Electronics. Let me start with the current market conditions and our results for 2018 Q2. The TV market in Q2 has decreased from last quarter due to continuous - continued global economic slowdown, but the market has grown Y-o-Y due to sports events of this year. Samsung's results significantly improved due to a full-scale start of Samsung's new model sales, especially driven by expanded sales and strategic products like QLED and ultra large screen TV. Marking second year of its release, Samsung QLED was evaluated as the best TV of all time by the German and U.S. prestigious tech media. In addition, the QLED also received positive reviews from customers and consumers. As for the ultra large screen line-up of 75 inches and above, Samsung is expanding and leading the market while recording high market share far above 50%. Also, Samsung is leading the large screen TV market around by expanding 82 inches line up. With this trend, sales of both QLED and ultra large screen TV tripled Y-o-Y, and the average prices significantly increased in the course of innovative product mix restructuring, contributing to profitability increase. The Digital Appliances market in Q2 has shown a moderate growth in advanced economies, but the overall market demand has decreased Y-o-Y due to economic instability in emerging markets. Samsung continued to expand sales of premium products, like family hub refrigerator and cube air purifier. However, the result has slightly decreased Y-o-Y due to weak demand for seasonal products like air conditioner. Now I will share the market prospect for the second half of the year 2018. The TV market in the second half is projected to grow Y-o-Y mainly in the advanced market. Samsung's strength leadership in the premium TV product marked by actively responding to year-end peak season mainly with the QLED and ultra large screen TV. Based on largely raised awareness of QLED, Samsung will complete a trend of QLED terminals [ph] by maximizing each peak season sales through advanced partnership with main customer. For ultra large screen line-up of 75 inches and above, we will promote ultra large screens benefit and consumer communications that ultra large screen is not that big. This way, Samsung will build its strong brand awareness that is associated with ultra large screen TV. Also, by releasing industry-first, AI-based QLED AK that delivers a new sense of realism experience enabled by integration of our picture quality, sound quality, ambient mode and smart feature technologies, we will be a market leader that paves a new way for ultra high picture quality TV. We will achieve high profits by continuing our market leadership in the premium TV market. As for Digital Appliance business, demand is projected to show a stable growth in the advanced markets like North America and Europe. But in emerging markets, demand could decrease due to economic instability. Samsung's strength promotion for seasonal peak season, like Black Friday, also expand sales of new premium products like Chef Collection and large capacity dryer and reinforce sales of a builder and built-in home appliances to focus on securing profitability. Thank you.

Thank you. This concludes the management's presentation. Now we will turn the call over to questions and answers.

[Foreign Language] [Operator Instructions] [Foreign Language] The first question will be presented by Ricky Seo from HSBC. Please proceed with your question.

[Foreign Language] I have first question regarding the Memory business. There is talk in the market that Samsung Electronics will focus its strategy more on expanding its market share given the fact - especially around servers, given the fact that it's making movements to increase supply and also making quite a lot of investments. Can you confirm whether your company's strategy for the Memory business has indeed shifted from the profitability focus to a market share focus? And can you share some direction, strategic direction in your Memory business going forward?

[Foreign Language] As we have mentioned during previous conference calls, our focus is on mid to long-term profitability rather than short term growth in volume and size, and that strategy has not changed. In the second half, there is seasonality, as well as a strong demand expected, especially around data centers and smartphones for high-density and solution-based products. That's why we expect the supply and demand to remain tight in the second half. [Foreign Language] That is why we're focused on meeting and responding to the customer demand, especially around the 64 gigabyte server DRAMs, the 8 terabyte SSDs and HBM, too.

[Foreign Language] Go ahead Ricky for the next question.

[Foreign Language] Question for the System LSI was regarding the image sensors. A lot of the smartphones are now adopting triple cameras. So I would like to hear your view regarding the image sensor market and an update on how you're preparing to meet the image sensor market demand. Recently, you've converted some of your DRAM capacity to image sensors. Would it be possible for the company to convert even more capacity to image sensors?

[Foreign Language] I'll answer that question first by giving you an update on the market as well as our outlook and then share our plans about capacity management. [Foreign Language] First of all, regarding the triple camera, the triple camera offers various advantages, such as optical zoom or ultra-wide angle, also extreme low-light imaging. And that's why we're expecting more and more handsets to adopt triple cameras not only in 2018 but next year as well. But by next year, about 10% of handsets are expected to have triple cameras. And triple camera adoption will continue to grow even after that point. [Foreign Language] Given this market outlook, actually, we've already completed quite a wide range of sensor line-up that can support the key features, such as optical zoom, ultra-wide viewing angle, bokeh and video support so that we're able to supply image sensors upon demand by customers. [Foreign Language] At the same time, we will continue to develop higher performance image sensors that would be able to implement even more differentiating and sophisticated features based on triple camera. [Foreign Language] To answer your second part of your question about capacity plan from the Foundry business side, given the expected increase of sensor demand going forward, we are planning additional investments to convert Line 11 from Hwaseong DRAM to image sensors with the target of going into mass production during first half of 2019. The actual size of that capacity will be flexibly managed depending on the customers' demand.

[Foreign Language] Following question will be presented by JongWoo Yoo from Korea Investment and Securities.

[Foreign Language] I have two questions. The first question is about memory. Your second quarter memory performance, some were saying, was a bit below what markets were expecting. A bit growth - second quarter bit growth was a bit below to what you had originally provided as guidance. Can you give us a bit more detail about your second quarter Memory business and its performance? Second question is about the TV business regarding micro LED TVs or displays. Currently, the ones that exist are commercial applications. Do you think it's possible to develop micro LEDs for consumer applications? And if so, when would such a product be available? And do you have ways of addressing the cost, which is one of the limiting factors of micro LED in consumer application?

[Foreign Language] To explain the Memory business performance in the second quarter, well, the NAND actually increased its shipment because there was demand driven by stable prices. On the DRAM side, there was weaker demand on the mobile application side and also the issues on the 1X nano production for servers also had an impact so that we were under the guidance that we provided last quarter. Due to this change in product mix and also because of the initial cost related with the ramp-up of Pyeongtaek upper level, there were limitations in how much cost savings we could realize. [Foreign Language] To give a bit more detail about the 1X nano production, there was a temporary increase in the effect for 1X nano during the second quarter. But given the territory of technical difficulty we are working in, I think this was something that - could cu be normally - that could normally occur in the process of ramp up. We have been able to normalize the situation, and we do not expect this to have impact further down the road.

[Foreign Language] To answer your second question about the micro LED, micro LEDs are displays that do not have a color filter, and therefore, they're able to emit the colors itself. And in terms of color recreation as contrast of viewing angle and the fact that it's a modular design, it's a totally new concept of display. We're actually preparing micro LED-based products for both commercial and home entertainment applications. The commercial product, which is the wall, is actually orderable based on a reservation basis. We are planning for mass production of the wall starting from around October. The home entertainment version of micro LED, we're currently targeting the product launch for first half of next year. It will be a slimmer version than what you can see currently. And the - in terms of price ranges, the Samsung micro LED products will be launched at a price range where customers are able to accept and also what will be viewed as a reasonable price range.

[Foreign Language] The following question will be presented by SK Kim from Daiwa Capital Markets.

[Foreign Language] I have two questions. First question is about the mobile business, about the DRAM, demand-and-supply situation. There's a lot of talk in the market of whether the DRAM demand has already reached the peak or has not yet. So can you share your view about the DRAM supply and demand situation not only for the second half but also for next year 2019? And in the mid- to long term, do you think that in the DRAM industry, there will be a supply reduction in supply volatilities so that overall, this stable supply would continue in the mid- to long term? Do you think that's a possibility? Second question is about the Mobile business. S9, in particular, I'm sure the company has studied the reasons why S9 sales were below what expected. So what were the main causes, do you think? And regarding with that, if the company continues to compete on specifications that would probably further increase the BOM cost burden and there's concerns in the market that this would reduce margins further. Given this scenario, how does the company plan to respond in terms of its high-end flagship?

[Foreign Language] To answer your first question, at least for the second half, there's seasonality. And also, there are strong demand expected from data center as well as mobile applications. And therefore, despite the industry's efforts to increase supply, we expect the industry situation to remain solid because the increase in supply would not be - it would not be easy for the increase in supply to catch up with the growth and demand. [Foreign Language] Regarding the outlook for 2019, even though it's early for us to say specifically, first half usually is a weaker season. So there could be some seasonality effects in the first half. But for the full year 2019, we're expecting the industry to remain stable, especially with strong server demand continuing until next year. But there could be some changes or volatility in the supply-demand situation depending on how the industry is able to complete the migration to 10-nano class technology. [Foreign Language] So even though there could be some short-term fluctuation in supply and demand due to factors, such as seasonality, we think that in the mid to long term, given the fact that there are major drivers for increase in server demand, especially applications such as AI, machine learning and 5G. On the other hand, the supply side, given the fact that we're in very difficult process territory. And also, going forward, there will be greater capital intensity required to add on new supply, given these two factors, we expect mid- to long term, the industry to remain quite stable.

[Foreign Language] To answer your second question regarding the S9 and the reasons for its weak sales, first of all, overall, in the premium smartphone segment, the demand remains weak. We also see that as smartphones become a more high spec and product differentiation is becoming less clear, the global handset replacement cycles are getting longer. Also, the higher price points of premium products appears to be driving market resistance. [Foreign Language] To overcome these challenges, we implemented financing programs to ease initial consumer burden, including trade-in programs. But due to fierce market competition and also differences country by country in terms of situation, it was difficult to reap immediate effects. [Foreign Language] And to answer the second part of your question, which was about what we plan to do, you - we have noticed that for some time, we have been focusing on ensuring high level of completeness in the actual user experience and ensuring seamless and convenient user experience, which may have resulted in a conservative approach to adopting new technologies on our models. [Foreign Language] However, in the future, especially around the premium products, we will be enhancing the core functionality while also actively adopting leading technologies to provide differentiated value to our customers. Also, given the fact that we expect 5 GNU form factors to bring new energy to the market, we will be preparing easily to tap this breakthrough technology. [Foreign Language] This is the approach that we will take to not only increase sales but also to improve profitability.

[Foreign Language] The following question will be provided by Nicolas Gaudois from UBS. Please go ahead with your question.

Good morning and thanks for taking my question. I have two related to memory. The first one is coming back to server DRAM demand, there have been a lot more debate recently on demand from hyperscale and the inventory level at some customers. Have you seen, on your side, any changes of behavior recently from either Chinese or U.S. customers? And how do you expect overall server bit DRAM demand growth to change in 2019 versus 2018? Again, this is for total server bit DRAM demand. Second question. You have approximately half of your floor space on the second floor of Pyeongtaek fab still available. When do you expect to reach full capacity? And how should the remaining capacity be split between DRAM NAND flash? Thank you [Foreign Language]

Given the very dynamic changes in the cloud service market, it's difficult to give you a specific outlook towards next year 2019. But we do expect a very strong demand especially around the 64 gigabyte and plus products for the higher density and for server applications to remain strong. Especially from the Chinese data center companies, we expect that demand to continue in the second half to be solid. Also, in addition to the Chinese server customers, the U.S. server customers, which are larger in scale, we expect that demand to remain strong as well. [Foreign Language] So as we mentioned during the presentation, regarding 2019 server DRAM demand, we expect the DRAM demand for servers to continue solid growth next year. Regarding customer inventory levels, even though there will be differences customer by customer, given the fact that the inventory levels were very low at start of the year, it's higher than where it was earlier in the year but still lower than what customers would find to be normal inventory levels. [Foreign Language] Regarding your second question about the upper level of Pyeongtaek, we haven't decided yet what to do with the remaining space. We will be using it flexibly depending on the market situation.

[Foreign Language] The following question will be provided by Peter Lee from Citigroup Global Market Securities.

[Foreign Language] I have two questions. First question is about the DRAM side. In the first half, there was a bit of an oversupply of NAND and the NAND, which drove a decrease in prices for NAND in the first half. Do you think the price softness will continue in the second half? And do you think this will lead to greater demand? And if so, how? Also, can you share with us the supply and demand outlook for NAND in 2019? Second question is about the IM business. I'm wondering if there was any reversal of provisioning related with the Apple litigation, which came to a close. Was there a reversal of provisioning that was included in your second quarter IM performance? And if so, can you share with us the size of that provisioning reversal?

[Foreign Language] To answer your first question, as you can see in the NAND performance, actually, because prices stabilized, there was an increase or greater increase in demand especially around the high-density products. We expect this continue in the second half so that there will be greater adoption of SSD as well as 128 gigabyte mobile storage. [Foreign Language] Looking forward to 2019, we think that the same factors will be in play, greater adoption of SSD as well as mobile devices trying to differentiate by adopting more storage. Those would - we believe will keep demand solid. However, the variables for next year would be how the ramp-up to 90 layer levels actually unfolds as well as qualification situations for specific customers and applications. Depending on how these two factors play out next year, we think that the demand-and-supply situation may be different depending on product and also application.

[Foreign Language] Regarding your second question, yes, there was the impact from the end of the Apple patent litigation. That did reflect in our second quarter earnings. But due to confidentiality clauses in the agreement, we are not able to disclose details. I can also share that there will not be further impact on our performance in the following period.

[Foreign Language] The following question will be presented by Hyunwoo Doh from NH Investment & Securities. Please go ahead with your question.

[Foreign Language] I have one question about the display business. There was a recent media article about Samsung going into QD OLED, about installing lines and starting pilot production. Can you comment regarding these news reports and share with us, if possible, your business direction regarding QD OLED?

[Foreign Language] In the display business, our key focus is on gaining competitiveness and maintaining competitiveness in both the mid- to small size as well as large size segment. Given the investments in China in 10.5G, we expect, especially in the large size segment, the competition and industry situation would worsen. And therefore, we want to actually move away from the existing capacity competition and focus more on quality rather than scale. [Foreign Language] Therefore, our focus on quality rather than quantity translate into a short-term strategy of time to achieve quality or quality (inaudible) by focusing on high-end differentiated products, such as ultra, large-size, quantum dot, 8K, as well as frameless products. On the mid- to long term, this means that we are looking into various technologies for the large TV segment, and QD OLED is one of many technologies we are currently considering and researching and developing to meet the more sophisticated customer needs in the mid - in the large TV segment. So we are looking at various technologies as candidates and we will continue to closely collaborate with customers so that we are able to deliver products that satisfy customer need on a timely basis.

[Foreign Language] We will take questions from two more attendants.

[Foreign Language] The following question will be provided by Claire Kyung Min Kim from Daishin Securities.

[Foreign Language] I have two questions. First question is for DRAM. As all of the DRAM manufacturers move on to higher process technology, the migration is becoming more and more difficult. And I think cost saving is becoming quite a challenge. In that context, can you share with us your road map in terms of process migration at the 10-nano class? And my second question for the mobile side is the Note 9 launch which will be coming. Compared to the previous Note product or the S9, what are your - what are the differentiating features of the Note 9? Also, how do you plan to expand the sales of it? And also, how much of the sales volume are you expecting from the Note 9?

[Foreign Language] Well, first of all, to answer your question about our migration. Regarding 1Y, we've already started sampling and are in the process of receiving peer reviews and assessments from our customers. We have started the 1Y mass production in the first half, and we'll continue to increase the supply going forward. [Foreign Language] Regarding 1X, actually, it's counting for more than 50% in terms of wafer count. So combining our 1Y and 1X, we expect that the 10-nano class processes would be accounting for around 70% of our capacity by year-end - or production by year-end. Regarding the next 1Z, it's difficult to give you details about our mass production schedules, but we are developing 1Z according to plan. And we are planning on maintaining the technology leadership in the industry.

[Foreign Language] To answer your second question about the Note 9 and how we plan to differentiate that, as you know, Note customers are known to appreciate and use a lot of the S Pen-based productivity features, such as note-taking and drawing. Also, they watch a lot of videos and also use the multimedia functions, for example, by playing games. [Foreign Language] So given this insight into the Note 9 customer base, in Note 9, we have focused on, first of all, providing the best ever level of performance for these core features and functions. Also, we've built in more functions around the distinguishing S Pen. Also, we are offering new experiences by combining hardware, software and services. [Foreign Language] Also, we have increased the product value around these key essential user features, therefore improved product competitiveness, but would be offering the Note 9 at reasonable prices in order to maximize sales. Of course, the details of Note 9, please look forward to the Unpacked event, which is scheduled for August 9. [Foreign Language] You've also asked about how much sales we're expecting from the Note 9. Given the fact that Note 9 is being launched earlier in the year versus previous models; also that we have put in a lot more value, offering it at reasonable price points, we expect in the second half, Note 9 to sell more than its previous models. Also, to ensure the successful launch, for each phase, we will be supporting the product by mobilizing all of our sales and marketing resources.

[Foreign Language] Last question please.

[Foreign Language] The last question will be presented by J.J. Park from JPMorgan. Please go ahead with your question. J.J. Park: [Foreign Language] My first question is for the memory. Some are saying in the market that the issues that you've had with the 10-nano processes have actually resulted in delay of investments for second floor of Pyeongtaek. Regarding these rumors, can you share with us your investment plan for the upper floor of Pyeongtaek in the second half? Also, can you share with us your targets regarding when you are going to mass production for number two line in Xian [ph] as well as number 2 line in Pyeongtaek that's currently being constructed?

[Foreign Language] Regarding your first question about the investment plans for upper level of Pyeongtaek, actually, if the investment plans and expansion plans are originally - following original plans, the process migration or other issues have not impacted our investment plans for upper level of Pyeongtaek for 2018. For 2019 investments, we are currently in the process of reviewing that, but we will decide the investment plans depending on customer demand as well as market situation. Regarding number two line of Xian, as we have originally mentioned, our target still are to start operation around late 2019, with target mass production in 2020. For Pyeongtaek, we are doing the ground works, but it takes about 2 years from where we are now for actual lines to be in operation. And we have not yet decided specifically regarding mass production schedule or product mixes. J.J. Park: [Foreign Language] My last question is for the IM, the foldable phone factor. In a foldable and making a foldable form factor, what do you think is the greatest challenge or the stumbling block? Is it more price? Is it a UI? Is it a specific technology that needs to be overcome to produce and supply a foldable phone? Can you share with us some of the challenges that you see?

[Foreign Language] In terms of developing the foldable smartphones, the foldable smartphones need not only innovation in terms of the display but other parts as well, including battery as well as cases. At the same time, there needs to be UX as well as user scenarios developed to optimize - to match the new form factor. And that's why we have been engaged in research and development of the foldable smartphones for several years. [Foreign Language] The introduction of this new form factor is expected to bring new energy to the rather stagnated mobile market. To give you an update on where we stand, we're in the process of stabilizing the performance as well as durability by working together with a parts company. Also, we are, at the same time, focused on servicing software and services optimized for this new form factor in order to raise the level of completeness. [Foreign Language] We will prepare a very good product and share details of these products, including launch schedules, at a future opportunity.

[Foreign Language] And that ends today's conference call. Thank you very much.