Operator: Good morning, and good evening. First of all, thank you all for joining this conference call, and now we'll begin the conference of the fiscal year 2018 first quarter earnings results by Samsung Electronics. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2018 first quarter earnings results by Samsung Electronics.

Robert Yi: Good morning.

This is Robert Yi from Investor Relations. With me representing each business units are Mr. Chun Sewon, Senior VP of Memory; Hur Gok, VP of System LSI; Lee Sang-Hyun, VP of Foundry Marketing; Choi Kwonyoung, VP of Samsung Display; Lee Kyeongtae, VP of IT & Mobile; and Cho Seong Yok, VP of Visual Display business, and as well as Mr. Kim Sang-Hyo and TaeGyu Kang, both from the IR. I would 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 will address the first quarter dividend and stock split. The Board of Directors today approved a first quarter dividend of KRW 17,700 per share for both common and preferred stock. As a part of our shareholder return policy for 2018 through 2020 that we announced last October, we set the minimum annual dividend of KRW 9.6 trillion in each of the 3 years covered by the policy. Accordingly, the quarterly dividend for the first quarter to be paid in May is KRW 2.4 trillion, 1/4 of the annual total. Regarding the stock split, the original shares will be suspended from trading for 3 business days over April 30 through May 3, and the new shares will start trading from May 4.

Now I would like to walk you through our first quarter results. In the first quarter, total revenue rose roughly 20% year-over-year to KRW 60.6 trillion, thanks to the strong performance by the Memory business and an increase in sales of flagship products in the Mobile business. Gross profit increased approximately KRW 6.3 trillion year-over-year to KRW 28.7 trillion, and gross margin improved 3 percentage points over the same period. SG&A expenses grew slightly year-over-year but, as a percent of revenue, it declined 3.2 percentage points. Operating profit set a new high, increasing KRW 5.7 trillion year-over-year to KRW 15.6 trillion, driven by significant profitability improvements in the Semiconductor business and the early global launch of the Galaxy S9.

Operating margin rose 6.2 percentage points year-over-year to 25.8%. In the first quarter, a strengthening of Korean won against the U.S. dollar negatively impacted operating profit quarter-over-quarter by approximately KRW 600 billion, with effects felt most by the Component business. In the Semiconductor business, earnings increased significantly year-over-year, thanks to favorable memory market conditions driven by a strong demand for server and graphic memory, as well as earnings improvements in both the System LSI and Foundry businesses, led by increasing demand for chips using flagship smartphones and cryptocurrency mining. For the Display business, profitability weakened due to decreased flexible OLED demand and intensifying competition from LTPS LCD on our rigid OLED.

In the LCD market, an imbalance between supply-demand caused by increased production capacity at competitors further weighed on profitability. For the IM Division, earnings in the Mobile business grew considerably as sales of flagship products increased due to the early launch of the Galaxy S9 and a solid performance by the Galaxy S8. In the Consumer Electronics business, despite growing sales of premium products, including ultra large-sized and UHD TVs, earnings in the TV business edged down year-over-year as we reshaped our lineups by removing certain models in the mid- to low segments. In the Home Appliance business, profitability declined slightly due to -- due mainly from rising raw material prices. Next, I would like to share our business outlook.

For the second quarter, we expect the Memory business to stay strong, but generating companies total earnings growth will be quite challenging due to weakness in the display business and decline in profitability in the Mobile business caused by weak demand in the high-end segment. Regarding the Component business, we expect demand for server mobile DRAM to remain strong and demand for high density storage to grow as the price of NAND softens. For the System LSI and Foundry business, we forecast that the supply of 10-nano application processors and cryptocurrency mining chips will expand, but earnings may decrease quarter-over-quarter due to a slow demand for smartphone components. The OLED business will focus on securing profitability by reducing costs and boosting yield amid weak demand for flexible products. In the LCD business, oversupply is expected to persist even as major sporting events boost demand.

Moving on to the set business. Profitability in the Mobile business is expected to decline quarter-over-quarter due to stagnant sales of flagship models amid weak demand and an increase in marketing expenses to address the situation. In the Consumer Electronics business, we expect earnings to improve in the second quarter, led by expanding sales of new models, including those of our QLED TV lineups and strong seasonality in the air conditioner market. In the second half of 2018, we expect earnings to grow over the first half, mainly driven by the Component business with increasing OLED panel sales and strong DRAM demand. For the set business, we will strive to sustain profitability by solidifying our market leadership with greater sales of premium products amid softer demand and intense competition in the high-end segment.

In the mid- to long-term, as new areas like artificial intelligence, automotive technology and 5G transform the IT landscape, we expect to see rising demand in the Component business and widening opportunities for the set business as digital devices show increasing connectivity. We will strive to strengthen our business capabilities by delivering differentiated technology in the Component business and solidifying our leadership in cutting-edge technologies like artificial intelligence and 5G, to name a few. Now I would like to turn to capital expenditure. Total CapEx in the first quarter was KRW 8.6 trillion, including KRW 7.2 trillion for the Semiconductor business and KRW 0.8 trillion for the Display business. Although our plan for 2018 has yet to be finalized, we expect CapEx to decline year-over-year considering that it rose substantially in 2017 due to our efforts to respond to market growth and emerging technologies, which included expanding production capacity of flexible OLED panels.

Before we move on to presentations from each business unit, I would like to share several data points in key business areas. For DRAM, our bit growth in Q1 declined low single digit while ASP increased mid-single digit. And for the second quarter, we expect DRAM market bit growth to be high single digit and our bit growth will be similar to the market growth. And for 2018, we expect the market DRAM bit growth to be roughly 20%, and we will grow in line with the market. For NAND Flash, in Q1, our bit growth declined mid-single digit while our ASP declined low single digit.

And for the second quarter, we expect market NAND bit growth to be low teens and our bit growth will be similar to that of the market. And for 2018 for the year, we expect the NAND market bit growth to be roughly 40%. And again, we will grow in line with the market. For Display business, the mix of OLED panel sales was roughly mid-70% of total revenue. And for the wireless business, the total sales of handsets in Q1 was 86 million units, and tablet, 5 million units.

And blended ASP for our total handsets was mid-$250. And of the total handset sales, the smartphone mix was low 90%. And for the second quarter, we expect the handset sales to decline quarter-over-quarter, while tablet sales will be similar to that of the Q1. And blended ASP for our handsets will see small increase quarter-over-quarter, and the mix of the smartphone within total handsets will remain at low 90s. And for TV business, our LCD TV sales in Q1 declined by 20% quarter-over-quarter, while in second quarter, we expect the TV shipment to decline mid-single-digit.

But for the year for 2018, our TV sales unit is expected to be similar to that of 2017. Now I'll turn the conference call over to the gentleman from each business units, starting with memory.

SeWon Chun: Good morning. This is Sewon Chun from the Memory Marketing team. In the first quarter, in spite of weak seasonality, thanks to strong demand mainly for server, a solid market environment continued.

For NAND, although demand for mobile slowed down due to overall low seasonality, along with some weakness in smartphone, stable demand continued as expansion of cloud infrastructure and high density trend for solution further continued. For the supply side, supply has been gradually increased as the supplies began mass production of 64-layer products. However, supply increase was disproportionate due to delays in qualification of some applications. As a result, more supply increase was made in channel market and OEM. We have gathered solid earnings growth by concentrating on sales of high density mobile storage and value-added solutions, such as SSD over 2 terabyte for data center and over 8 terabyte for enterprise with a stable 64-layer V-NAND ramp-up at Pyeongtaek.

For DRAM, despite weak seasonal effects, strong demand continued, thanks to increasing demand from server and graphics. Server demand remained strong due to continuous expansion of data center infrastructure and high-density trend because of fast adoption of new CPUs. Demand from mobile also increased stably, along with content growth in all segments. PC demand was descending up showing general seasonal pattern. For graphic, in spite of game console share yield decrease, total demand increased, thanks to strong demand from graphics card and cryptocurrency mining.

Although shipments decreased against the previous quarters due to the transition of Line 11 capacity to CIS, we continuously improved our earnings by concentrating on high value-added product markets such as high-density server DRAM over 32 gigabytes, HVM-2 and uMCP based on low-power LPDDR4X. Next, let me comment on the memory market outlook. In the second quarter, along with continuous strong demand for server, overall demand is expected to be strong with increased demand from mobile expected. For NAND, with price being softened, total demand mainly for high density storage is expected to increase. For server, data center will remain to be a main driver for strong SSD demand.

On top of this, in enterprise market, strong demand for high density SSD over 8 terabyte will continue as well, especially from large OEM companies. For mobile, as high-density trend mainly for high-end smartphone continue, overall demand will be strong. While closely monitoring each application market status, we will continue to increase high-density sub-SSD supply and to drive more e-storage strategies based on our solution products' competitiveness and stable -- stability of 64-layer V-NAND. For DRAM, strong server demand is anticipated to continue because expansion of data center is now taking its place, not only in the U.S. but also in the Chinese market.

Moreover, high-density DRAM portion will also increase with the fast spread of new CPU. For mobile, thanks to expansion of the high spec gaming smartphone market and spreading dual camera adoption to the volume segment, mobile demand driven by content growth is expected to remain solid. While we will concentrate on strengthening cost competitiveness by expediting qualification process of 1Y nanometer and continuously expanding 1X nanometer product, we will also continue to deploy our flexible product mix strategy according to individual application market conditions. Next, I will comment on second half of year 2018 market outlook in our strategy. For NAND.

Solid demand mainly for server and mobile will be maintained in second half of year 2018. As condition of softened price continues, the trend of SSD replacing HDD will be accelerated and storage size will get bigger for all smartphone segments, resulting in demand increase both from server and mobile market. As for the supply side, due to expansion of suppliers transition toward the 64-layer, tight market condition will be moderated and supply and demand status for each application may differ, depending on the level of supply increase and qualification status. We are focusing on mass production and expanding conversion to 64-layer mainly at Pyeongtaek campus. At the same time, we will focus on strengthening our product competitiveness and cost leadership via flexible investment according to market condition and introducing and ramping up the next-generation products in a timely manner.

For DRAM, demand from all application will increase as data center companies continuously invest in infrastructure. Because of exponential increase of regular data and irregular data, strong server DRAM demand will continue. Moreover, in analyzing these data in real-time using AI and motion running, high-performance HVM demand is also expected to grow. For graphics, console demand and VGA card for cryptocurrency mining demand are anticipated to be strong consistently. Mobile demand is also expected to grow as content per box increases for their product differentiation, especially for flagship and high-end model, which will support high-performance mobile games and on-device AI vis-a-vis the trend for high performance and high-density memory.

On the other hand, in spite of industry effort to increase the supply, extending bit growth is more likely to be limited due to space constraint and increase in technology difficulty. Therefore, DRAM market remain to be tight continuously. To cope with this market circumstance, we will adhere to our policy of flexible supply and investment in accordance with market condition. And also, while strengthening our cost competitiveness, we are expanding sub-1X nanometer class technology migration. At the same time, we will also solidify our position in value-added market to the future extent by focusing on sales of our high-density server DRAM and differentiated products, such as HVM-2, LPDDR4X and creating new solution market with uMCP products.

Thank you.

Ben Hur: Good morning. This is Ben Hur from the System LSI business. The first quarter of this year, on a quarter-over-quarter basis, mobile digital earnings declined due to the slow OLED panel demand. But overall earnings increased and strong demand for the mobile processors and image sensors led by the launch of this year's premium smartphones.

In the second quarter, we expect earnings to remain flat quarter-over-quarter due to slowing growth in demand for the premium smartphone components. Nevertheless, we will try to continue favorable earnings by focusing on the stable supply of mobile processors and image sensors for flagship models. In 2018, we expect demand for the image sensors to grow as many smartphone makers are projected to increase production of the dual camera and the 3-step fast reader sensors. In addition, we believe we will continue to positively show earnings backed by sustained growth of the mobile processor sales. Also in 2018, we plan to expand our solution offerings for mobile to include areas such as IoT, VR and automotives.

And we'll collaborate closely with our customers and ecosystem partners. Thank you. Sang-

Hyun Lee: Good morning. This is Ryan Sang-Hyun Lee from the Foundry business. In the first quarter, despite slowing demand for mobile chips and weak seasonality, total earnings grew quarter-over-quarter due to increased demand for high-performance computer chipsets.

We broke ground for the EUV line in Hwaseong to address future demand for 7-nano and the below semiconductors and expanded our foundry ecosystem by launching SAFE, the Samsung Advanced Foundry Ecosystem program. In the second quarter, demand for high-performance computing chipsets is expected to remain solid. Accordingly, we will expand supply of HPC and 10-nano mobile products to continuously generate favorable earnings. Also, we plan to actively promote FD-SOI and 8-inch processors, aiming to increase both the number of customers and applications that use related products. For 2018, despite slowing demand for mobile chipsets, we are targeting generating favorable earnings once again, thanks to our efforts to diversify our customer and application bases.

In addition, we will continue to offer derivative processes, including those for 8 and 11 nano chips to satisfy the needs of our customers, while also laying the foundation for mid- to long-term growth and technological process leadership via EUV 7 nanometer production. The Foundry business unit was launched as an independent business unit in May last year and is pursuing pure-play foundry business. In 2018, we expect to achieve over $10 billion sales, including the sales from the System LSI business and maintain the strong second place in the future -- in the foundry market. We will strive to maintain this growth in the future. Thank you.

Kwonyoung Choi: Good morning. This is Kwonyoung Choi from the planning department of Samsung Display. In the first quarter, total earnings in the Display business decreased quarter-over-quarter because of weakened profitability of OLED TV panels. For the OLED business, earnings decreased quarter-over-quarter due to a slowdown in demand from major customers and intensified competition with LTPS LCD. As the weak demand seems likely to persist throughout the second quarter, the OLED business will work to strengthen competitiveness and expand our customer base by reducing cost and improving production efficiency.

On the other hand, with the decreasing demand, the LCD business kept its profit at a similar level quarter-over-quarter by reducing cost and expanding our value-added proportion of sales such as UHD and large-sized products. In the second quarter, the supply-and-demand dynamics in the LCD business, LCD industry are likely to remain unfavorable due to continuous expansion of capacity. So we will strive to secure our profitability by developing value-added and differentiated products and strengthening activities to reduce cost. Now I would like to present our outlook for the second half of 2018. For the OLED business, we expect OLED panels for smartphone to see a rebound in demand and, in particular, flexible OLED panels to strengthen their market position in the high-end segment.

Under these segments -- or circumstances, we will make an effort to increase our market share by expanding our customer base and developing products with new technology. At the same time, we'll work to diversify our business portfolio into new product categories such as IT. For the LCD business, we're still facing increasing uncertainties caused by fierce competition with Chinese manufacturers. We will improve our fundamentals on a qualitative basis by reinforcing strong strategic partnership with major customers and increasing differentiation of our value-added products, such as quantum dot and 8K resolution TVs. Thank you.

KyeongTae Lee: Good morning, everyone. I'm Kyeongtae Lee from the Mobile Communication business. I would like to present the IM division's first quarter results and outlook for the second quarter and second half of this year. For the Mobile Communications business, market demand for smartphone and tablet decreased Q-o-Q as we move into a seasonally weak period. Our smartphone shipment increased Q-o-Q, thanks to the early release of the Galaxy S9 and S9+ and solid sales of existing models like the Galaxy S8.

Our revenue and operating profit grew considerably both Q-on-Q and Y-o-Y due to an increase in sales, driven mainly by premium models. On March 15, we launched the Galaxy S9 and S9+, equipped with advanced camera features such as super slow motion, dual aperture mode and AR emoji while their Infinity Display and premium sound quality provide a rich and immersive multimedia experience. The popularity of the Galaxy S9+ due its dual camera have improved the first model portion of Galaxy sales while the sales portion of Galaxy models with the higher memory capacity also increased. These factors significantly contributed to the solid first quarter earnings. Regarding the Network business, revenue and profit both improved Q-o-Q, led by investments in LTE by major overseas partners and expanded offerings of new solutions for network optimization.

I'll now present our second quarter outlook. Under continued weak seasonality, we expect overall demand for smartphone to increase slightly Q-o-Q due to the launching of new smartphone models in the market. Our smartphone shipment, however, are likely to decline Q-o-Q as we discontinued production of old midrange models. We also expect our earnings to decrease Q-o-Q due to the slowdown in our flagship model sales and increased marketing expenses result from flagship demand for premium market. We will give our best effort to maintain a sales trend of the Galaxy S9 and S9+ by expanding experiential marketing, strengthening the cooperation with our business partners and utilizing promotional programs like trade-in.

For the Networks business, we expect earnings to grow Q-o-Q on supply and LTE commercial network in North America and expand the offering of network solutions for 5G commercialization in advanced market. Finally, I will share our outlook for the second half of 2018. We aim to strengthen our sales performance in the premium market by launching new flagship model in second half and maintaining longtail sales of the Galaxy S9, S9+ and last year's flagship models. For the midrange segment, we are planning to expand the sales and increase contribution to overall performance by continuing to improve lineup efficiency with the new model designs for target market while also sustaining both offline and online channel. Moreover, we will reinforce our service business by expanding our Bixby 2.0 open ecosystem to provide the customers with a smarter and more convenient multi-device experiences using our various devices and services.

As for the Networks business, we will extend the LTE business by attracting new business partners and lead the world's first commercialization of 5G success story. Thank you. Nam

Seong Cho: Good morning. I am Seong Yok Cho, 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 Q1.

The TV market in Q1 has decreased from last quarter due to the slow season following the year-end holiday, but the market has grown Y-over-Y due to increased demand in CIS, Middle East and Latin America. Samsung's results was slightly down Y-over-Y in the course of sales restructuring with a defocus on entry lineup. However, Samsung has been improving the product mix by expanding QLED and ultra large screen sales and accelerating the transitioning to UHD. Samsung continues to record a high market share following last quarter in the premium segment, including 2,500 and above segment, backed by a full expansion of the flagship premium QLED and ultra large screen TV sales. This way, Samsung further solidified leadership in the premium TV market.

The Digital Appliance market in Q1 has shown a moderate growth due to increased demand in both developed and emerging economies. Samsung continues to show sales growth Y-over-Y due to strong sales in premium products like the Flex Wash washing machine, Cube air purifier and system air conditioner. But Samsung's results are slightly down Y-over-Y because of the increase in the raw material price and operating cost of new factory in North America. Now I'll share the market prospects for Q2 and the whole year of 2018. For Q2, the TV market demand is projected to grow Y-over-Y mainly driven by the global sports event and the demand growth in emerging markets.

Samsung will focus on improving Y-over-Y result by fully expanding new model sales, as well as driving sales during the soccer event. We have a big improvement in our new lineup this year, innovating new features and expanding lines in premium, thus gaining greater traction from the customers. As for QLED, the picture quality has greatly improved with the enhanced color and black expressions. QLED continues to receive positive reviews for new features like Ambient Mode, which enables TV screen to be perfectly blended into home interior when it's off, while showing useful information such as news and/or whether. One Invisible Connection, which includes not only data transmissions but also power supply is also well received by the customers.

In addition, Samsung expanded the ultra large screen lineup of 75-inch and above from entry to premium segment to provide more options for consumers. With these newly upgraded lineups, Samsung will accelerate new model sales and improved result in Q2. As for Digital Appliance business. For Q2, Samsung will increase air conditioner sales during the peak season and accelerate business growth by expanding premium lineup like the QuickDrive washing machine and the POWERstick PRO vacuum cleaner. The 2018 TV market is projected to slightly grow, thanks to global sports events, sales and demand growth in the emerging markets.

This year, Samsung prepared a solid foundation for growth by strengthening and expanding the QLED and ultra large screen lineup. New features like Ambient Mode and One Invisible Connection will provide a whole new customer experience in lifestyle, which TV sets have never tried before. With this addition of Samsung's launch of 8K and micro LED in second half, Samsung will solidify premium leadership with innovative products and focusing on ensuring sustainable and profitable growth in the mid- to long-term. As for the Digital Appliance business, Samsung will continue to strengthen premium sales in developed markets, reinforce the B2B business for built-in appliance system air conditioner and expand the online business. Thank you.

Robert Yi: Thank you. This completes the -- our part of the presentation, and we'll move on to Q&A sessions.

Operator: [Foreign Language] [Operator Instructions] [Foreign Language] The first questions will be presented by Mr. Peter Li from Citigroup Global Market Securities.

Peter Li: [Foreign Language] I have 2 questions.

The first question is about the second half memory demand-supply situation outlook that you have that will be for both DRAM and NAND. Even though currently, the supply and demand situation is overall fair at the industry level, there is more capacity being brought on, on the DRAM side, and so some are expecting that the supply-demand situation may become a bit looser in the second half. Likewise, for NAND, with increased supply of 3D NANDs, what do you think will be the supply-and-demand situation for both DRAM and NAND in the second half? Second question is the System LSI question. Recently, as a part of the trade sanctions regarding [ GTE ], some are saying that it may be difficult in the future for Chinese companies to import semiconductors from the U.S. Does the System LSI division believe that, that may actually be a positive for its business in selling APs system or image sensors to Chinese companies?

Unknown Executive: [Foreign Language] Regarding the second half outlook for the DRAM supply situation.

Even though there is increased supply, given the very strong demand that's driven, especially from the server side, as well as the increased technical difficulties, we think that there will be a limit to the bit growth in the DRAM industry in the second half. And so even though the supply situation may loosen a bit from the current situation, it would still remain tight according to our outlook. As we have always said, the company focuses on maintaining a sound and healthy memory market. And therefore, we try to avoid competing over market share and focus more on maintaining sustainable profitability and maintaining our capacity flexibly to achieve those things. [Foreign Language] Regarding the second half NAND situation, NAND prices have stabilized but that has actually created more demand from both the server and mobile applications.

And so even though 3D NAND supply increased and that would ease the tight supply situation a bit, we think that the supply-and-demand situation in the second half for NAND would depend per application depending on each company's qualification timing and whether qualification comes through.

Unknown Executive: [Foreign Language] From the second question, the System LSI question. We are actually watching very carefully how the actual conclusion is reached because depending on the actual final conclusion, the impact on the market would differ. So we are carefully watching and preparing for different conclusions. [Foreign Language] If it's a SoC related business opportunity, we will of course actually -- actively respond to those opportunities.

Regarding image sensors, we actually think that, that's not affected by the scope of the current discussion over the trade sanctions. Also, we have a very tight relationship with many of the SOC suppliers. So we are not expecting any impact on our image sensor business.

Operator: [Foreign Language] The next questions will be presented by Mr. Nicolas Gaudois from UBS.

Nicolas Gaudois: The first one is on the display side. You have installed new capacity in the L7-1 building i.e., the fab called A4. When do you actually expect to start mass production? And can you redirect some of underutilized space in the A3 fab to Chinese smartphone vendors as well? Second question is back to semis. You're currently ramping up DRAM capacity in Pyeongtaek. There are also discussions about possible capacity conversion in Line 13 from DRAM to image sensors.

So overall, could you bring some light on the current status, i.e., when would that conversion start? How long would it take? And what is the net impact on total DRAM wafer capacity of all of these versus incremental CMOS sensors capacity you deploy? [Foreign Language]

Unknown Executive: [Foreign Language] To answer your first question regarding the 7-1 line, the A4 fab. That is being prepared according to the schedule that we have consulted and agreed with the customer, and we will be operating on schedule. Regarding the utilization of the A3 capacity to supply to Chinese customers, that question will pertain to a specific customer so we would not be able to answer that. However, as we have always mentioned, we are doing our best to minimize the impact of the decreased utilization, and we will maximize the -- leverage the resources that we have on hand as much as possible. [Foreign Language] For full year, our capacity operation strategy as well as plans have not changed.

We will maintain the plan that we have started out with. So the focus of the Hwaseong campus will be for DRAM, Pyeongtaek for V-NAND. On the second half, we are planning to use the capacity available at the upper floor of Pyeongtaek to do DRAM, but the amount of production will be at a level to compensate -- offset the bit loss that comes from conversion of some of the 11 -- Line 11 capacity to CMOS and other bit losses that happened during the process migration process. [Foreign Language] There were some media reports of possibilities of us further converting our DRAM capacity to image sensors. However, other than the conversion of Line 11 to CIS, we do not have additional plans, for example, of converting Line 13.

Operator: [Foreign Language] The next questions will be presented by Mr. Yoo Jong Woo from Korea Investment & Securities. Jong

Woo Yoo: [Foreign Language] I have 2 questions. The first question is for the mobile division regarding smartphones. What is your outlook for the sell-through for the S9 in the second quarter as well as the second half outlook? Also, during the speech you mentioned that you're expecting to have significant increase of marketing expenses in the second quarter versus the first quarter.

And so how much impact do you expect that to have on your profitability in Q2? Regarding memory, we do know that we're approaching the areas of processes where it's becoming technically very difficult to migrate. Can you give us an update on your 1Y mass production preparations -- excuse me, 1Y mass production update as well as a migration on NAND as well?

Unknown Executive: [Foreign Language] Regarding your first question about the outlook for the S9 sales. Recently, we've seen an overall sluggishness in premium smartphone demand overall in the market in order to counter the expected leveling off of our premium segment sales. We are planning active marketing in the second quarter, especially focusing on providing more experienced type marketing opportunities at the store end, so that consumers can actually feel and experience the differentiating features of S9 and S9+ such as AR emoji, super slow mo and low light photo taking so that they have an experience -- they have the opportunity to experience and choose. [Foreign Language] Also, we will strengthen collaboration with business partners and expand periods as well as channels that offer trade-in programs in order to lower the initial burden of consumers with a practical financing program to generate aftersales.

[Foreign Language] For the second half, the focus of our sales as well as marketing activity would be to successfully launch our new flagship in the second half as well as maintain an active longtail sales of existing models, including S9 and S9+ [Foreign Language] But as we mentioned during the speech, because of the increased marketing in the second quarter versus first quarter, our earnings will decrease versus first quarter.

Unknown Executive: [Foreign Language] Regarding the DRAM, D 1Y nano, we are currently focusing on the D 1Y nano with a target of mass production within the year. The current process is going smoothly as we had done in the D 1X nano, and we're expecting a bit crossover to occur within 2019. The actual timing of pilot production would differ, but we're expecting second quarter PC and then to move on to other applications such as server and mobile. [Foreign Language] Regarding the NAND migration, our target is to have the mass production of 5G V-NAND within 2018, but this year, our focus will be expanding the 4G V-NAND that's currently in production.

Operator: [Foreign Language] The next questions will be presented by Mr. Kim Dongwon of KB Securities.

Dongwon Kim: [Foreign Language] I have a question regarding first, the display and then the CE business. In the display side, in the large panel sizes, there are various competing technologies that are being used, QLED, microLED and other technologies. So can you give us your strategy, your technology strategy in terms of the next-generation large-sized panels? Second question is about the high-end TV segment where it seems OLED is taking on a larger share of the high-end large-sized TV market.

And so I would like to ask what is the differentiating strategy of Samsung Electronics VD division? And regarding that, you've introduced the 142-inch microLED screen size. Do you have plans of introducing smaller sizes, for example, a 65- or 75-inch microLED?

Unknown Executive: [Foreign Language] Regarding your first question about our strategy for the next-generation large-sized display technology, we are actively meeting the needs of the high-end large-sized TV customers. Our technology development focus is on quantum dot as well as 8K. In order to meet these needs, we are closely cooperating with our customers in order to deliver a product that meets high standards of completeness. Also, we are, at the same time, closely watching the developments of the next-generation display technology, including microLED but other technologies as well.

And we will be fully prepared so that we do not miss any opportunities in the display technology evolution. [Foreign Language]

Unknown Executive: [Foreign Language] I will answer the second question which was about our TV business, especially the first question was what is our strategy of differentiating our TVs, especially in the high-end segment. [Foreign Language] Actually, in the ultra large-sized TV segment, we have been maintaining the leadership in the premium segment, especially with our QLED and ultra large-sized TVs. We have market share of plus 40%, number one, in the $2,500-plus market segment. Also, we're noticing that there is a strong growth happening in the ultra large-sized market at 75-inch-plus, the strong growth on a year-on-year basis.

Here, we are maintaining market share of the upper or high 50% ranges with our large-sized TV offerings. [Foreign Language] We will continue to focus on the QLED as well as the ultra large-sized segments in our TV strategies. Also expand and strengthen our lineup as well as offer differentiating features in the ultra large-sized TV as well as QLED TV segment. For example, the new QLED TV model that we have launched this year not only has the best picture quality, both in terms of black expression as well as color expression, but we've also expanded the lineup, made the lineup even stronger. Also, we have added some differentiating features including Ambient Mode as well as One Invisible Connect that actually enhances the lifestyle value of the TV within the home setting.

Also, we will continue to focus on the 75-inch-plus ultra large segment. We will be expanding this to the entire lineup so that people who want to enjoy high-picture quality but also in ultra large screen sizes would choose Samsung and would equate ultra large size, that's meaning a Samsung TV, to maintain the leadership that we have in the premium TV segment. [Foreign Language] You've also asked about whether we have plans of developing different sized microLED TVs. We are planning to start sales of microLED displays from the second half of this year, we'll start from in-house -- indoor premium applications such as media rooms, museums, boardrooms or high-end hotels. But our basic strategy is that we will use microLEDs for the ultra large-sized segment, whereas we will focus on the QLEDs for the large-sized segments.

Operator: [Operator Instructions] [Foreign Language] The next questions will be presented by Mr. Doh Hyunwoo from NH Investment & Securities.

Hyunwoo Doh: [Foreign Language] Yes. My question is about your second half high-end smartphone strategy. There was -- Samsung has always been considered the dominant player in the high-end segment, especially on the Android app -- Android OS smartphones.

But recently, we have seen many Chinese companies, including Huawei, come out with high-quality as well as very cutting-edge feature smartphones on the high-end side. For example, triple cameras or on display fingerprint sensors are being introduced by these Chinese companies. It seems these are threats to your position in the high-end Android segment. And that is why I think what you will introduce in your second half in Note 9 will be a critical -- would have a critical meaning in terms of keeping your position in the high-end. How are you planning to differentiate yourselves in the high-end premium segment in the second half?

Unknown Executive: [Foreign Language] Oh, yes.

As you have mentioned, we have been introducing cutting-edge new features to the high-end segment of the smartphone market, including the Edge display, iris recognition, Infinity Display, as well as cutting-edge cameras, dust proofing, waterproofing, wireless charging and all of these new features have added to values that customers actually appreciate. And we will continue to do that. Regarding what we are preparing for the Note 9, the second half. As you know, the Note series has a very strong and loyal following especially around people who appreciate the S Pen and the productivity that they gain by that interface. And that's why we will continue to strengthen and enhance the basic features of the Note series, at the same time develop new value and new experiences to the S Pen interface.

Operator: [Foreign Language] The next questions will be presented by Ms. Claire Kyung Min Kim from Daishin Securities.

Claire Kim: [Foreign Language] Yes, I have one question regarding the results of the IM division in the first quarter. Were there any one-off reversal provisioning related with royalty payments that were reflected in your first quarter results? If so, what would be the size of that one-off? And also, would there be any impact to future ongoing earnings?

Unknown Executive: [Foreign Language] I'm assuming you're referring to the cross-licensing agreement with Qualcomm, and that was announced at the end of January. The 2 companies amended a cross-licensing agreement on mobile devices to strengthen cooperation.

And we're looking forward to this opening the new chapter for long-term win-win business collaboration between the 2 companies. However, due to the confidentiality clause of the agreement, details cannot be disclosed, but the effect will be limited to future revenue, and there was no one-off reversal of provisioning.

Robert Yi: [Foreign Language] We will take 2 more questions.

Operator: [Foreign Language] The next questions will be presented by Mr. SK Kim from Daiwa Capital Markets.

S. K. Kim: [Foreign Language] I have 2 questions. The first question is for the IM division. As you know, the demand for the high-end smartphones are becoming stagnant, and this is resulting in sluggish sales as well as demand for the flagship models.

And I think that is actually increasing the market expectations for the next form factor, the foldable phone. You've been asked this question before, but can you give us a bit more updates in detail of not only the hardware size, display as well as batteries to launch a foldable phone as well as the software preparation updates. Also, could you be able to give us a bit more detail as to the time when the market can expect to see this new form factor? Second question is for the foundry business. You've mentioned the demand related with cryptocurrency mining. Last week, a Taiwanese competitor mentioned that they're expecting or they're expecting demand related with cryptocurrency to become uncertain in the second quarter.

And so we would like to see your view from your side what do you see in terms of cryptocurrency-related foundry demand in second quarter, as well as outlook in the second half.

Unknown Executive: [Foreign Language] Regarding the foldable phone, we have been continuing our R&D efforts for several years to commercialize the foldable smartphone. And currently, we're focused on collaborating with companies in various fields to enhance the level of completeness of the product. [Foreign Language] Rather than focusing on just the title of being the world's first, we are focusing on delivering truly -- a truly well-made product that offers real value to the consumers. [Foreign Language] So before we can announce a timing of when a foldable phone will be commercialized, we want to see the components' performance as well as durability to be further enhanced and stabilized.

Also, we want to see various use cases to justify the new form factor to be prepared.

Unknown Executive: [Foreign Language] Regarding demands related with cryptocurrency mining, actually inquiries related with cryptocurrency mining applications are continuing to come in from customers and many of these inquiries are leading to actual order and production. And we're expecting cryptocurrency-related demand to contribute to overall earnings this year. [Foreign Language] Especially, we're focusing on providing the cutting-edge process as well as low power platforms so that our customers can produce products that offer great value. [Foreign Language] Even though yes, cryptocurrency is a market that's very difficult to project in the long term, we believe given the potential of the blockchain technology, in the long term, blockchains will go beyond the cryptocurrency and spread to different applications.

Robert Yi: [Foreign Language] We'll take the last question.

Operator: [Foreign Language] The last questions will be presented by Mr. Hwang Min Seong from Samsung Securities. Min

Seong Hwang: [Foreign Language] Now to put everything together that was mentioned related with demand during this conference call, it seems while overall you're expecting demand from mobile applications to be weak, the server-related demands will continue to remain strong this year. Can you then give us an update to your views before on your demand? Because I think before, we're assuming DRAM demand will grow by about 20%, NAND by about 40%.

So given the changes that you've seen up 'til this year, how would that change, how much and in which direction?

Unknown Executive: [Foreign Language] To recap the overall demand outlook that we have for memory. For DRAM demand, we share the same view that -- with the market that the DRAM demand will grow around 20%, and we actually think that, that demand will come strong from both the server and mobile side. [Foreign Language] The reason why we're expecting strong demand to continue from the server side is that, as you referred, hyperscale companies have continuously announced their plan for new data centers. Also, considering how they are buying new land as well as securing new submarine optical cables, we're expecting that there may be additional new construction announcements to come down the road. And therefore, based on those, we expect demand from the server side will continue to remain strong.

Especially these hyperscale companies have been increasing the type of services that they offer, the level of services going -- increasing, we're also seeing an increase of the content because of AI, machine learning, on-device AI support, also the increase of cloud. All of this has led to the increased adoption of 64-gigabyte DRAM. And also, in order to process all this data on a real-time basis, we're also seeing stronger demand on the HVM side as well. [Foreign Language] Even for the mobile applications. Even though demand was weak in first quarter, that was due to seasonality, and that seasonality was not beyond what we usually see in other usual years, rather looking forward to the second half, there are new mobile products planned to be launched.

Also, Chinese handset makers are increasing their content. And so we expect second half mobile-related memory demand to also remain strong. [Foreign Language] So looking forward to the full year 2018. Even though mobile set growth may decline overall, DRAM demand from the mobile side, we are expecting will increase as there is greater content, DRAM content, especially from the high end side of this segment as more and more smartphone users, use their phones for applications such as game applications that require higher specifications and more memory. [Foreign Language] On the NAND side, we are expecting prices, NAND prices to stabilize in the second half but this will drive greater demand from both server and mobile.

So we're expecting market bit growth for NAND to be in the 40% range. [Foreign Language] For SSD demand, we're expecting actually greater demand from OEMs that's because with the lower BOM cost, more OEMs will go for an all Flash array that will substitute the FDD so that conversion we think will accelerate. Also on the data center side, there will be a greater preference for SSDs that can process data more stably and quickly. [Foreign Language] On the mobile storage side, actually, smartphone makers have started to use a large capacity storage as a differentiating point of their end device. And so we're actually seeing demand for 64 GB as well as 128 GB storage.

Also, the Chinese smartphone makers have actually been starting to offer an e-storage as a main feature to their phones.

Robert Yi: [Foreign Language] And that completes this quarter's earnings conference call. Thank you very much.