Operator: Good morning, ladies and gentlemen. Thank you very much for joining us for the Third Quarter 2017 Earnings Conference Call of Samsung Electronics. The conference call will start with a presentation by the company followed by Q&A session. [Operator Instructions] Now we will start the presentation by Samsung Electronics.

Robert Yi: Good morning.

This is Robert Yi. Before we start our third quarter earnings call, our CFO, Sang-Hoon Lee, will announce the company's shareholder value enhancement strategy, including the 2018 to 2020 shareholder return program. 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 could cause our actual results to be materially different from those expressed in today's discussion. With that, I will turn the call over to Mr. Lee, our CFO.

Sang-

Hoon Lee: Thank you. This is Sang-Hoon Lee, CFO of Samsung Electronics. Thank you for your continued interest in and support of Samsung Electronics. At Samsung Electronics, we are working tirelessly to lead innovation and sustained growth amid the rapidly changing trends of the IT industry and uncertain business environment. We remain focused on efficiently deploying capital and securing right business opportunities through M&A, CapEx and R&D.

In the Component businesses, we have secured industry-leading competitive positions in semiconductors and flexible OLED by making strategic investments backed by cutting-edge technologies. Our set businesses secured global leadership through product differentiation on products such as smartphones and TV. We are strengthening our competitiveness in next-generation technologies, including IoT, AI and automotive electronics to drive future growth. The continued focus on our core competencies resulted in a recent record-setting quarterly profit as well as industry-leading operating metrics this year. ROE is also expected to increase significantly from 2016.

In addition to these business results, we have made significant improvements in our shareholder return program. In October 2015, we announced a 3-year initiative on shareholder return program, including $10 billion special share buybacks and cancellation. By the end of 2017, we will have returned more than KRW 20 trillion in share repurchases and more than KRW 10 trillion in dividends. Last April, we canceled 50% of common and preferred shares held in treasury. All of these efforts contributed to share account reductions of 12.4% for common shares and 20.1% for preferred shares over the last 2 years and resulting in per share value increases.

Our initiation of a quarterly dividend this year is a significant step in our commitment to delivering continuous and even distribution to our shareholders. Our strong business performance and the efforts to deliver higher value to our shareholders drove the company's share price, more than doubling over the past 2 years. The Board of Directors and the management does not rest on these achievements. We have been actively communicating with investors to seek diverse views and continue to review our shareholder return program to further improve clarity and predictability to match global top-tier standards. As one of the largest multinational IT companies, our footprint extends across the entire globe, and as a result, we are constantly compared with other global leading IT companies.

The global standards that we are measured by extend far beyond operating metrics, such as revenue, profits or market share and reaches to capital allocation policy as well. We aim to achieve global leading standards in all aspects to secure our position as a global top-tier company. As a part of this effort, the BOD has approved a 3-year shareholder return policy for 2018 to 2020 period. The core strategy of the policy enhancement is to provide investor communities with greater predictability on return. First, we will significantly increase dividends.

As our share price more than doubled over the last 2 years, we believe shareholder returns in the form of dividends will be the most beneficial in enhancing shareholder value. We believe that the company's shares remain undervalued compared to our global peers for various reasons. By sustaining a certain level of dividend, we expect the market to reevaluate the value of our shares and, thereby, contributing to a total shareholder value increase. Subject to approval of shareholders at our AGM, we will increase 2017 total dividends by 20% compared to 2016, which would result in a total dividend amount of KRW 4.8 trillion. We will further increase 2018 total dividends by 100% over 2017, which will bring a total dividend for 2018 to KRW 9.6 trillion.

Annual dividend for 2019 and 2020 will be capped at same level as 2018, which will bring the total dividend returns for the 2018 to 2020 period to approximately KRW 29 trillion. Second, future M&A investments will not be deducted from the free cash flow calculation. This policy change will increase the amount of capital available to return to shareholders and also results in greater transparency and predictability. The portion of free cash flow allocated for shareholder return will be set at minimum 50% over the 3-year period. However, this change may bring the free cash flow percentage distributed to shareholders higher than the free cash flow percentage calculated under the previous methodology.

Third, we will apply the minimum 50% of free cash flow on a 3-year basis. This is to prevent potential fluctuation of annual shareholder return resulting from computing based on the annual free cash flow. After dividend payout, any remaining portion of the 50% of free cash flow available for shareholder returns will be used either for additional cash dividends or share buyback, as deemed appropriate. Our strong balance sheet and healthy liquidity have equipped the company with the capability to continue investing in our core businesses while pursuing new growth opportunities. Therefore, we believe that it is essential to balance between a short-term return and future value-enhancing opportunities.

We believe that the most certain and effective way of shareholder return is to enhance the enterprise value by sustaining growth through strategic investments and M&A and to increase annual returns from free cash flow growth. Accordingly, the company's management, myself included, will work tirelessly to continue our strong results by focusing on enhancing the competitiveness and profitability through our differentiated technologies and strategic investments. These efforts, coupled with balanced capital allocation strategy, will result in enhanced shareholder value. Thank you for your continued interest in our business.

Unknown Executive: Thank you, Mr.

Lee. As you know, we still have to conduct the third quarter earnings call right after the Q&A. So with your understanding, we'll take 3 to 4 questions.

Robert Yi: This is Robert Yi. We can start our earnings call for the third quarter 2017.

With me, representing each business units, are Mr. Chun Sewon, Senior VP of Memory Marketing; [ Ben Hur ], VP of System LSI Marketing; Mr. Lee Sang-Hyun, Vice President of Foundry Marketing; Lee Chang-Hoon, VP of Samsung Display; and Lee Kyeongtae, VP of IT & Mobile; and Mr. Lee Yoon, Senior VP of Visual Display; as well as we have Mr. Kim Sang-Hyo, VP of IR group.

Again, 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 could 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 update you on the progress of our ongoing shareholder return program. We completed the third phase of our KRW 9.3 trillion share repurchase program last week. We have returned approximately KRW 7 trillion over the 3 phases by repurchasing 2.59 million common shares and 648,000 preferred shares, all of which are canceled. Today, the Board of Directors approved the fourth and final phase of the program in which we will repurchase 712,000 common shares and 178,000 preferred shares.

The final phase will start on November 1 and take approximately 3 months to complete. Also, the Board of Directors has approved a third quarter dividend of KRW 7,000 per share for both common and preferred shares. The dividends will be paid in November. Now I would like to take you through our third quarter results. In the third quarter, the company's total revenue grew 30% year-on-year and rose slightly quarter-over-quarter to KRW 62 trillion.

The gains mainly driven -- gains were mainly driven by robust memory markets and increased sales of flexible OLED panels. Gross profit reached KRW 29 trillion, an increase of approximately KRW 10.6 trillion year-over-year; and gross profit margin improved significantly, rising 8.3 percentage point over the same period. SG&A expenses increased by KRW 1.3 trillion year-over-year, mainly from consolidation of Harman results and a small increase in R&D and advertising expenses. However, as a percent of revenue, it decreased by 4.2 percentage point year-over-year. Operating profit in the quarter set a new record high, increasing KRW 9.3 trillion year-on-year to KRW 14.5 trillion, driven by strong profitability at the Semiconductor business and the recovery of the smartphone sales.

The operating margin also improved, rising 12.5 percentage point year-over-year to 23.4%. In the third quarter, the overall weakness of the Korean won against major currencies, including euro, positively impacted our operating profit of approximately KRW 470 billion Q-over-Q, mainly in -- affecting the set business. The Semiconductor business recorded significant earnings growth both year-over-year and Q-over-Q as memory ASPs stayed strong based on robust demand from the server markets for high-density server DRAMs and SSD and increased sales of high value-added System LSI products. With regards to the display business, despite revenue growth in the OLED business due to rising sales of flexible products, total display earnings decreased Q-over-Q due to a rise in initial ramp-up cost and a decline in rigid product -- rigid OLED sales. However, the magnitude of the profit decline Q-over-Q was smaller than we initially projected at the start of the third quarter.

For the IM business, total smartphone shipments increased from robust sales of the Galaxy Note 8 and J series products. However, quarter-over-quarter earnings declined as the mid- to low-end smartphone mix increased. In the Consumer Electronics business, strong sales of premium products, including QLED TVs, contributed to a Q-over-Q earnings improvement. However, profit declined year-over-year as a result of a rise in TV panel prices and B2B investments in Home Appliance businesses. Next, I would like to address our business outlook.

In the fourth quarter, we expect our earnings to continue to improve, driven mainly by the Component business as flexible OLED panel shipments are expected to increase significantly and tight supply and demand conditions should persist in the memory market. Regarding the set business, we believe competition will intensify in the smartphone market but expect to maintain solid earnings resulting from a rise in premium product sales amid strong seasonal demand. In 2018, we expect earnings growth to continue mainly on contributions from the Component business, again driven by continuing favorable supply and demand conditions in the memory industry as well as OLED growth. In the set business, we will focus more on securing profitability rather than increasing volume by differentiating flagship smartphone models and reorganizing TV lineups toward the high value-added products. Furthermore, we will aggressively strengthen our capability surrounding new growth engines in areas such as artificial intelligence and IoT.

Now I would like to comment on our capital expenditure plan. We expect the total capital expenditure for this year to be approximately KRW 46.2 trillion, a significant increase from last year. CapEx for the Semiconductor and display business is expected to reach KRW 29.5 trillion and KRW 14.1 trillion, respectively. In the third quarter, we invested KRW 10.4 trillion, including KRW 7.2 trillion for Semiconductor and KRW 2.7 trillion for the display. This brings the cumulative capital expenditure to KRW 32.9 trillion as at the end of the third quarter this year.

In the Memory business, investments are mainly focused on, number one, Pyeongtaek fab to expand capacity to address rising demand for vertical NAND; second, DRAM process migration; and third, supplementing any capacity loss resulting from the migration. For the Foundry business, we are increasing our 10-nano capacity to address rising demand for cutting-edge process technology. For the OLED, we have been concentrating our investments on expanding capacity for flexible panels to respond to growing demand. In the fourth quarter, substantial portion of investment will be made in the Semiconductor business to build infrastructure related to new sites and clean rooms. Before presentation of each business unit, I would like to share with you several data points for each of the key business areas.

For DRAM, in the third quarter, our bit growth came in high single digits and our ASP grew high single digit as well. For the Q4, we expect market DRAM bit growth to be low single digit, and we expect our growth to be similar. That will bring the 2017 market DRAM bit growth to be approximately 20%, and our bit growth will be mid-teens. For third quarter NAND, our bit growth came in at mid-teens, and we saw low single-digit ASP increase in the third quarter. In Q4, we expect the market NAND bit growth to be mid-teens, and we will grow in line with the market.

And for 2017, we expect the NAND market bit growth to come in at high 20s. For the display business, OLED revenue mix was about high 60% of total display panel business. For the mobile business, our shipment of total handsets in the third quarter came in at 97 million units; tablet, about 6 million. Our blended ASP of total handset was about $210, and the mix of smartphone within total handset was about mid-80%. In Q4, we expect the total handset shipment to decline Q-on-Q, but we expect to see tablet volume to increase Q-on-Q.

And we also expect the blended ASP of our handsets to increase in Q4, and the mix of the smartphone within total handset will be kept about mid-80%. And for our TV business, in Q3, we shipped about 10 million units. In Q4, we expect to see about mid-30% increase in volume shipment.

SeWon Chun: Good morning. This is Sewon Chun from the Memory Marketing team.

In the third quarter, the demand of memory for all applications, including PC, graphic, server and mobile, increased due to seasonal demand from Singles' Day and Black Friday and the trend for higher content [indiscernible]. As the overall restriction of industry supply stays, price continued to rise on the [indiscernible] supply-and-demand conditions. For NAND, following the launch of new flagship smartphones, set builder demand and content growth have driven strong mobile demand. In addition, demand for data center SSD remains strong due to expansion of the cloud infrastructure and trend for higher density. Therefore, overall NAND demand remained very solid.

For the supply side, in spite of the industry's mass production of a 64-layer mainly for applications, such as client and mobile, supply continued to be insufficient due to decreasing planar capacity during the process of 3D NAND transition. We continue to drive solid earnings growth by actively responding to demand for higher density NAND from smartphones and from value-added high-density markets, such as data center NVMe SSD and enterprise SSD over 4 terabytes via stable 64-layer 3D NAND ramp up at Pyeongtaek campus. For DRAM, due to peak seasonality, demand for all applications increased compared with the last quarter. Demand from server remains solid due to cloud services expansion, new CPU platform launches and trends for higher density. Demand from mobile also remains strong, thanks to new flagship models launches and content growth.

In addition, due to increased set build of consumer products under peak seasonality, PC demand and graphics demand from game console also increased over last quarter. We successfully focused on maximizing sales and profit by satisfying demand for differentiated products, such as server DRAM over 64 gigabyte and low power LPDDR4x through expanding supply of 1 -- the 1X nanometer products and effectively managing our profit-focused product mix while it takes the market circumstance into considerations. Next, I will comment on the memory market outlook. In fourth quarter, although industry supply of 3D NAND and server 20-nanometer DRAM products may increase, overall, supply-demand is expected to remain tight due to continuously increasing demand mainly from mobile and EDP. For NAND, insufficient supply situation will continue, thanks to strong demand for mobile and SSD on the peak seasonality.

For mobile, while expansion of a new flagship model launches, strong demand is expected to continue. For server, demand for SSD continues to be strong due to the expansion of new data center constructions as regulations for information security enhanced worldwide. Although the price of PC SSD increased, the SSD attach ratio is -- keep increasing. As a result, demand for client SSD is also expected to remain solid. As for supply, although suppliers production of 64-layer may expand, supply growth is expected to be limited compared to demand growth due to decreasing planar capacity and increasing technical difficulties.

However, supply and demand may vary according to each application depending on the industry strength and speed of 64-layer and design-in status. While closely monitoring market conditions, we will continuously improve profitability by expanding sales of differentiated products and managing [indiscernible] product mix. For DRAM, strong demand from data center is expected. At the same time, mobile demand is expected to remain solid thanks to continued increase in memory usage along with seasonality, new flagship launches and industry trend, such as reinforcing on-device AI and AR capabilities. In addition, demand of PC is also expected to remain solid due to seasonality.

We will continue to deploy flexible product mix strategy according to individual application market conditions. Moreover, we will concentrate on strengthening cost competitiveness by expanding 1X nanometer process production. Next, let me comment on 2018 market outlook and our strategy. For the NAND market, recently, data scientists began to draw meaningful business insight and create new services by analyzing and utilizing big data generated from various devices. Because of this trend, demand for servers with high performance will continue to increase.

As a result, SSD adoption is expected to increase rapidly in more wide areas. In addition, high-performance and high-density trend for mobile NAND are expected to be continue as on-device AI capability appears in smartphone market. We will expand the high value-added solution market via server SSD based on 64-layer V-NAND mainly from Pyeongtaek campus. At the same time, we will improve product competitiveness and strengthen market leadership by developing and introducing fifth-generation V-NAND product on a timely basis. For DRAM, solid demand growth is anticipated mainly from server due to incoming new data center builds and increasing memory usage, especially from processing big data at faster speed and using AI and motion-learning capabilities.

Mobile demand is also expected to grow as content per box increase due to the spread of dual camera, 3D sensors and on-device AI. On the other hand, bit growth will be made mainly from process migration. Therefore, tighter supply-demand conditions are expected to continue. We will maintain profit first rather than market share policy and strengthen cost competitiveness through expediting ramp-up of 1X nanometer and introducing finer process technology at a proper time. We will also try to strengthen our market leadership by expanding sales of our high-density differentiated products, such as HVM, high bandwidth LP4x and new MCP solutions.

Thank you.

Ben Hur: Good morning, everyone. Now moving on to the System LSI business. In the third quarter, we've achieved a favorable result due to an increased sales of mobile processors for the mid- to low-end smartphone image sensors for Chinese smartphones. In addition, the new flagship smartphone launches have also helped to increase the sales of OLED DDI.

In the fourth quarter, even though the supply of OLED DDI for the premium phones are expected to continuously increase, the earnings are projected to stagnate as the sales of mobile processors and image sensors decrease due to weak seasonality. In 2018, we will continue to lead our earnings growth through sustained growth of mobile processors and OLED DDI sales and increased growth of the image sensors sales due to larger adoption of the dual camera feature on smartphones. Furthermore, by utilizing our technological leadership in mobile devices, we will expand our solution offerings to various applications, including IoT, VR and automotive, and collaborate closely with our customers and ecosystem partners. Now moving on to the Foundry business. Following the previous quarter, we continued to a record favorable result in the third quarter, which was mainly from increased sales of 10-nanometer mobile product benefiting from stabilized yield ratio and strong seasonality.

In addition, the increase in demand for the differentiated products, such as 32 nanometers mobile DDI and 65 nanometers image sensors, have also contributed to the good earnings. As for the technological achievement, we've completed 8-nanometer process development 3 months earlier than initially planned. In addition, we've established [indiscernible] for the long-term growth by delivering the industry-first 28-nanometer FD-SOI embedded eMRAM test chip to the customers. In the fourth quarter, even though the earnings growth is expected to be limited, we project the 10-nanometer will be a long-lived node as it diversifies its application from mobile to cryptocurrency mining. In addition, we will promote the new 8-nanometer heavily while diversifying the customer bases through offering differentiated solutions, such as single-print eFlash processors and -- et cetera.

In 2018, we will continue to drive favorable earnings growth by increasing the supply of the 10-nanometer products and image sensors through mass productions in Line S3 and transformation of Line 11, respectively. We will focus on strengthening the 7-nanometer process competitiveness by investing in EUV-related infrastructures. We also -- we will also diversify the customer base by offering the total solutions combined with RF and embedded eMRAM technology for FD-SOI platform and packaging. And lastly, we will continue to drive the growth by actively addressing the new demand. Thank you.

Chang-

Hoon Lee: Hello. This is Chang-Hoon Lee from the Planning Department of Samsung Display. During the third quarter, total earnings for the Display business declined. This was driven by an increase in initial start-up cost for the new OLED product line as well as decreased ASPs of LCD panels. With the OLED business, in the third quarter, although our sales increased through increased shipment of flexible displays, led by launches of our major customers and new flagship model, our earnings declined Q-o-Q due to an increase in initial start-up cost of the new production line as well as intensified competition in rigid OLED products with LTPS LCDs.

With our LCD business, in the third quarter, our earnings declined under these decreased ASPs of LCD panels led by an imbalance between supply and demand based on set makers' inventory adjustment as well as capacity expansion in the LCD industry. Looking ahead, the first quarter, for the OLED business, we expect growth in sales led by an extended supply of flexible products. Under this circumstance, we plan to focus on securing profitability through increasing shipment of rigid products as well as enhancing productivity of flexible OLED panels. On the other hand, in the first quarter, we are concerned that the imbalance between supply and demand will continue due to capacity expansion in the LCD industry as well as a decrease in demand under weak seasonality. In response to these market conditions, we will make effort to improve profitability by focusing on cost reduction and yield improvement by expanding the portion of value-added products, such as ultra large, high-resolution and quantum dot products.

Now I would like to present the outlook for the display market and our core strategies for 2018. For the OLED business, we expect OLED to become mainstream products in the smartphone industry and, in particular, expect flexible panels to strengthen their market positions within the high-end product. Under this circumstance, we plan to focus on achieving continuous growth through actively addressing customers' demand for flexible displays with continuous -- continued effort to create technical differentiation from competitors. For the LCD business, we are concerned about the increasing uncertainty led by intensified competition among panel makers as well as capacity expansion in the LCD industry. However, at the same time, we expect that the market for premium TV, such as UHD and ultra large TV panels, will continue to grow.

In preparation for these market conditions, we will make every effort to improve profitability by reinforcing strategic partnerships with major customers as well as expanding our value-added product lineups, such as ultra large, high resolution, quantum dot and frameless panels. Thank you.

KyeongTae Lee: Good morning, everyone. This is Kyeongtae Lee from the Mobile Communications business. I would like to present the third quarter business result and the outlook of the IM Division.

In the third quarter, market demand for smartphone increased Q-on-Q due to the seasonality. During the same period, the tablet demand stayed at a similar level to the previous quarter. Our smartphone shipment increased Q-on-Q, thanks to the launching of Galaxy Note 8 and solid sales of Galaxy -- new Galaxy J 2017. However, our revenue and profit decreased Q-on-Q due to the higher sales proportion of mass smartphones. The Galaxy Note 8, newly released in the third quarter, has shown strong sales in almost all regions with the reinforced product competitiveness like dual camera, enhanced S Pen usability and multimedia features.

As for the Network business, our revenue and profit decreased Q-on-Q as LTE investment from our major overseas partners were conducted already in the first half of 2017. Let me move on to the outlook of the fourth quarter. Market demand for both smartphone and tablet is expected to increase Q-on-Q as we enter the year-end peak season. In particular, we forecast the competition to get harder in the premium smartphone market due to competitor's new smartphone model. With the global expansion of Galaxy Note 8 and increased marketing activities, we aim to raise sales proportion of flagship models and improve product mix.

Through this effort, we will maintain our revenue and profit at a similar level to the previous quarter. However, our smartphone shipment is expected to decrease Q-on-Q as mass smartphone shipment is likely to decline. As for the Network business, we will improve our revenue and profit by introducing next-generation network solution into global advanced markets. Lastly, I would like to share the outlook for 2018. Next year, we expect that the smartphone market growth to be recovered, either the increased replacement demand in high-end segment as well as mid- to low-end segment.

Meanwhile, it seems that the challenges in our business will be increased due to severe competition and increase of the material cost. We will solidify our leadership in the premium market with the differentiated design, high quality and innovative features. In terms of operation, we will focus on improving profitability by optimized product portfolio and enhanced productivity as well as the efficient operation of local manufacturing sites. Moreover, we will explore all new business opportunity ahead of the competition through the new technologies, such as 5G. At the same time, we will continue to promote the service business.

By doing so, we will strengthen the foundation for our mid- to longer-term growth. This [indiscernible] the Samsung Developer Conference 2017 and share our vision for the intelligence era. We are combining our IoT product and services into a single platform -- single, powerful platform. Through this unified platform, we believe that we will be able to provide the consistent user experiences to our customer and the mass adoption of IoT. Furthermore, Bixby will be at the center of our open ecosystem not only available on all of our products, including TV and home appliances, but also on third-party's devices and services.

With Bixby, we will grow on open ecosystem, where a variety of devices and services can seamlessly work together to provide harmonized experience for our customers. As for the Network business, we aim to strengthen the presence in the market by expanding our customer base in developed markets and increasing the supply of fiber-related network solution. Thank you. Yoon C. Lee: Good morning.

I'm Yoon Lee, Senior Vice President of Visual Display Sales and Marketing team. I would like to present the current market conditions and our results for the third quarter of 2017. As for the TV market, in Q3 this year, as we have entered into peak season, the market has grown quarter-on-quarter. But due to the decreased demand in the advanced markets, including North America, the TV market is projected to have weakened year-on-year. Under these market circumstances, as we were affected by the panel price increase, our results were modestly decreased year-on-year.

However, as the expansion of sales portion in UHD TVs and ultra large screen TVs, led to higher average selling price, we have significantly improved our quarter-on-quarter results. In particular, fueled by the increase in the sales of flagship lineup, QLED, we have achieved over 40% market share in above $2,500 segment as well as in ultra large TV segments, thereby solidifying our leadership in the premium market. As for the Digital Appliance market, we maintain growth of the advanced countries and economic recovery in the emerging countries, including Southwest Asia and CIS, the overall market demand saw a modest increase year-on-year. Retaining strong sales of air conditioner and washing machines in the domestic market and the expanded sales of the premium products, such as AddWash washing machine, we continue to grow sales. However, due to the investments caused in the North American builders market, our overall earnings slightly went down compared to the last year.

Next, let me brief on the market prospects for Q4 of 2017 and the next year 2018. For the TV market in Q4 this year, as the market is entering into the year-end peak season, we expect to see an increase in demand centering on North American, West European and Latin American markets, and the panel price is expected to become stable. Under these circumstances, making full use of our cumulative know-hows on peak season promotion, we will collaborate in advance with our partners to preoccupy the demand in the year-end peak season such as Black Friday. At the same time, by expanding sales of our strategic products including QLED and ultra large screen TVs, we will further strengthen our premium leadership in the TV market. Specifically, in order to maximize the QLED sales that currently continues to grow, we will reinforce our premium marketing activities also by complementing the current lineup with the new Q6 series, we will strongly drive the QLED to gain more dominance.

As the new opportunities in B2B business, digital signage market are projected to increase, including QSR, that is quick service restaurant sectors. We have set up our basis by winning on larger scale products -- projects. Also, for the world's first cinema LED introduced recently in domestic market, we will go further to develop our business in the global market with our constant investment and technology leadership. Now as for the Digital Appliance business. In the coming year-end peak season, the adverse market are expected to show stable growth in demand, while the growing markets maintain their recovery trends.

Under these condition, [indiscernible] Family Hub refrigerator, Flex Wash washing machine, other existing premium innovative products, new models including QuickDrive washing machine, PowerGun vacuum cleaner, which were newly introduced at IFA, will drive a continuous revenue growth. As for the TV market of 2018, due to an effect of major sports events such as World Cup and Winter Olympic Games, demand for the UHD and ultra large screen TVs, along other lines, is expected to keep growing. Based on cooperation with our channel partners, we will actively respond to a growing demand coming from the global sports events. With all of these efforts, we will continue to expand the premium lineups that includes the QLED and ultra large screen TVs and introduce products designed for consumers' lifestyle. As for the Digital Appliance business, by strengthening cooperation with our channel partners, we will carry out various sales promotion for each region.

In the meantime, by constantly expanding the B2B business, including built-in home appliances and system air conditioners as well as online business, we will actively drive for profitable growth. Thank you.

Robert Yi: [Foreign Language]

Operator: [Foreign Language] The first question will be provided by Jong Woo Yoo from Korea Investment & Securities. Jong

Woo Yoo: [Foreign Language] Regarding the new shareholder return policy that you announced today, I believe the fact that you have significantly increased dividends as well as decided not to include M&A and other factors, not to deduct that from the free cash flow calculations can be viewed to be very positive. On the other hand, the 50% of free cash flow being available for shareholder return has been maintained.

When the 50% was set last year in November, I think there were some expectation in the market that maybe this time, that 50% would be raised. Can you explain in detail the reasons, the rationale behind not increasing the percentage of free cash flow available for shareholder return this time?
Sang-

Hoon Lee: [Foreign Language] As we mentioned, we have decided to not deduct the M&A from the free cash flow calculation. M&A was difficult to predict in terms of size as well as the timing. And by not deducting M&A in future free cash flow calculations compared to the previous shareholder return policies, not only does this increase the predictability of shareholder return size, but also, we believe that in effect, the amount of shareholder return available increased according to the size of the M&A. And therefore, we believe that -- actually, we did not maintain the percentage.

Actually, there was an, in effect, increase of the percentage of free cash flow available for shareholder return.

Operator: [Foreign Language] The following question will be presented by Dohoon Lee from CIMB. Do

Hoon Lee: [Foreign Language] My question is about the remaining 50% of free cash flow with -- the 50% of free cash flow is paid out as shareholder returns. Still, the remaining 50% will be retained and it will accumulate. What are the company's plans on how to use this increasing cash?
Sang-

Hoon Lee: [Foreign Language] The increase of cash or free cash flow is basically a function of how much free cash flow we can generate from the business and also will be reduced as much as, for example, M&A needs, such the M&A of Harman that we went through.

And therefore, looking at the current situation where we're seeing an increase, a significant increase of CapEx needs, we don't expect our free cash flow to increase dramatically in the future. And given the M&A needs as well as shareholder return policies, we expect our cash increase to be limited in the future.

Operator: [Foreign Language] The following question will be provided by J.J. Park from JPMorgan. J.J.

Park: [Foreign Language] I recall that in a previous shareholder return policy, you mentioned that the company would be providing whatever exceeds the KRW 70 trillion level of required cash for shareholder returns. Is this policy still effective under the new 3-year shareholder return plans that you've announced today?
Sang-

Hoon Lee: [Foreign Language] We have been implementing the shareholder return program for the past 3 years. And actually, some shareholders have voiced questions on this policy of setting a certain level of required cash and distributing what exceeds at -- is shareholder return. The issues that they have raised include the fact that this makes -- it's very difficult to predict the size of shareholder returns. Also, for example, this year, given the very strong performance of the business, the market had actually expected our cash to increase at the end of the year.

But actually, when we look at the current situation due to the M&A of Harman as well as significant increase of our CapEx needs this year, our net cash at the end of the year probably will be less than what we had at the end of last year. Also, the fundamental question was whether KRW 70 trillion, a certain level of required cash itself, is appropriate or not. So given all of these factors, we have decided that what is most important is to build a long-term and sustainable, trusting relationship with the shareholders. And to do that, we needed to provide better predictability of the size of shareholder return. And therefore, we have decided to no longer use this principle or approach, providing -- of setting a certain level of required cash and distributing the cash that exceeds it.

Unknown Executive: [Foreign Language] We will take one last question for our CFO.

Operator: [Foreign Language] The following question will be provided by S.K. Kim from Daiwa Capital Markets. S. K.

Kim: [Foreign Language] It seems that the highlight of the new dividend -- or the new shareholder return policy lies in dividends. You've announced that there will be a dramatic increase in the dividends from 2018 onward. I'm just wondering, the KRW 29 trillion of total dividends for the next 3 years, is this something that is guaranteed regardless of the free cash situation that will actually unfold in 2018?
Sang-

Hoon Lee: [Foreign Language] The dividend size that we have announced today was determined based on what we believe what was based on what we foresee in terms of our ongoing business performance as well as financial situation in the next 3-year period. It was set at a level that we believe we can sufficiently handle and manage. Therefore, even if there are some unexpected issues in our businesses in the next 3 years, 2018, '19 and '20, resulting in somewhat of a less-than-expected free cash flow, the dividend policy that we announced today will be kept and executed.

Unknown Executive: [Foreign Language] Well, this completes our shareholder return policy Q&A, and we will move on to the regular earnings conference call.

Operator: [Foreign Language] [Operator Instructions] [Foreign Language] The first question will be provided by Nicolas Gaudois from UBS.

Nicolas Gaudois: The first one is cost -- is for memory capacity. Have you now fixed plans for the west side clean room on the second floor of a Pyeongtaek fab i.e., in terms of timing of a ramp and the split between DRAM and NAND flash? And how about your initial views for the east side clean room in the second floor of Pyeongtaek? [Foreign Language]

Unknown Executive: [Foreign Language] Regarding the memory market. As you know, since the end of last year, late last year, the demand side is mainly being driven by servers and mobile applications.

On the supply side, there is inevitable bit loss that's created as we migrate to 10-nano class process technology and also because of Line 11 being converted for CIS production. And due to this bit loss, to make up for that, there is inevitable investments and capacities that are necessary. Last year, we decided to convert part of Hwaseong's NAND capacity to DRAM. But because of the inefficiencies that our caused as a result of this conversion, we have actually decided to reduce the size of the NAND conversion to DRAM than originally planned and rather use part of the upper floor of Pyeongtaek for DRAM capacity. [Foreign Language] Whether it will be west side or east side, it's difficult to give you a specific answer today because we're actually in the process of continuingly reviewing the detailed plan.

However, our basic approach to DRAM capacity management that we will -- is that we will flexibly manage our capacity, especially depending on the market situation for each product as well as the migration in the 10-nano class process technology.

Nicolas Gaudois: Okay. And the second question relates to the CapEx announcement you just made for 2017. For the semis portion of KRW 29.5 trillion, could you give us a bit more color on the speed between NAND flash DRAM and LSI? But also the portion of this KRW 29.5 trillion which actually relates to fab infrastructure investments, so bricks and mortars as well as the facilitation of the fab, which you say, I think, Q4 will actually be quite substantial. And lastly, how do you see what segments qualitatively evolving for CapEx into 2018? [Foreign Language]

Unknown Executive: [Foreign Language] It's -- we're always very cautious about answering specific questions of our CapEx because we don't want the market to respond in an overreacting way.

But to give you details of the 2017 CapEx, for semiconductors, I think if we split that between Memory and System LSI, the split will be 73% or maybe 75% to 25%. Within Memory, DRAM versus NAND will be about 4 to 6 or Memory maybe slightly less than 4. In fourth quarter, yes, infrastructure investments, among CapEx spending for semiconductors, I think, accounted for about 35% to 40%, given the fact that a considerable amount of work is being done, preparing the clean rooms. We do know that there are some concerns in the market that may be such huge investments that we're making in semiconductors may lead to excessive bit growth next year. But actually, we have a different approach to the investments that we're making right now.

We believe that the investments we're making this year and next year in our Semiconductor business is not for immediate bit growth next year. We actually have a longer-term horizon. We think that the investments that we're making now and next year is more for the overall business capabilities for the next 2 to 3 years.

Operator: [Foreign Language] The following question will be presented by S. K.

Kim from Daiwa Capital Market. S. K. Kim: [Foreign Language] My question is for the Mobile business. Even though the Galaxy S8 had various differentiating strengths in its products, it still seems to be weaker than originally expected.

On top of that, the component price burdens, for example, increasing memory prices is increasing the overall cost burden on this high-end flagship models. So given this backdrop, what is your plans in terms of differentiating your future flagship launches? For example, the S9 on top of that may be negatively impacted in terms of launch timing, given the fact that your major competitor has been delaying the launch of its flagship model, so that it may have a negative impact on Q1 next year. What are your plans specifically about how to respond to this timing issue? Do you have, for example, plans of changing the timing of when S9 will be launched?

Unknown Executive: [Foreign Language] That was actually several questions in one, so I'll sort of answer it by dividing that into different questions. First, regarding our flagship strategy. As you mentioned, we have always provided differentiated value to our consumers by building in new technologies and new features into our flagship model, such as the Edge design, Samsung Pay, iris recognition, Infinity Display as well as Bixby.

And this has been part of our efforts to increase our market share within the premium segment. As we mentioned in the speech, previously in the fourth quarter, we will not only expand the number of countries where Galaxy Note S is launched, but we also have plans of strengthening our sell-up program by collaborating with the customers, also by -- also, we have plans of implementing, switching and retention activities actively in order to further expand the market share we enjoy in the premium segment. [Foreign Language] So your second question was more about next year first quarter. We do expect there will be fiercer competition, especially in the segment -- premium segment, given competitors launching their flagships. However, we plan to expand our sales in the premium segment based on our technology leadership as well as the competitiveness of our products.

Regarding the exact timing of when S9 will be launched, as always, it's difficult for us to mention future product launches. But rather than being conscious of the competitor's launching, I think, as always, we will be deciding when to launch based on our product road map and meeting the needs of our consumers.

Operator: [Foreign Language] The following question will be provided by Jong Woo Yoo from Korea Investment & Securities. Jong

Woo Yoo: [Foreign Language] My questions are about your outlook on the memory demand-and-supply situation next year in 2018. You mentioned that you're expecting solid demand-and-supply situations to continue that the situations remain tight in 2018.

But actually, I think the market, there is still a lot of controversy about where we stand in terms of this demand-and-supply side goals. Some are saying that already we are peaked in terms of demand and supply. So it will be great if you could give us a bit more of your insight and outlook about what you expect there to be in terms of demand and supply. First of all, in the server DRAMs, how much or at what level do you think server DRAM demand will be maintained next year? Also, there are concerns of there being a huge increase of DRAM supply next year. And so given that, what do you expect the 2018 DRAM supply-and-demand situation to be? Also in terms of NAND, there are some concerns that there will be a huge increase in 3D NAND supply next year.

Do you see any possibilities of there being an oversupply of NAND, specifically 3D NAND next year?

Unknown Executive: [Foreign Language] I think I can answer your question by dividing into the demand side versus the supply side. First, in terms of the demand, as we had mentioned in the presentation, we see that there will be, first of all, strong demand driven by, for example, the cloud service as well as the new CPU platform being launched. On top of that, we're seeing actually the high-density trends to continue driven by applications such as machine learning and AI. Also, on top of that, in addition to the server side, we're expecting that the mobile devices would also be a major engine in driving up demand next year as there's more higher resolutions being adopted on the mobile side as well as on device AI applications that are being adopted. Also, in addition to mobile and servers, we're actually expecting there to be a strong demand growth in consumer devices, especially as the 4K level content increases.

And so based on all of these factors, we're expecting demand growth to remain strong and sustained in a fundamental manner in 2018.

Unknown Executive: [Foreign Language] On the supply side. There could actually be a bit of an ease in the supply shortage if the companies are able to successfully and smoothly migrate towards 1X class -- 1X nano class DRAM technology and also are able to scale up their 3D NAND supply successfully, but there's always uncertainty in terms of such migrations. So overall, we're expecting the 2018's supply situation, demand-supply situation, to remain tight. But specific situation will depend on how successful companies are in terms of migrating towards cutting-edge process technology and also the specific calls by customers.

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

Peter Li: [Foreign Language] I have 2 questions. First question is about some new technology trends that are emerging, especially in image sensors. There are image sensors that also a combined memory, FRS, as well as these 3-stack image sensors. Can you give us, first of all, your technology update on these new products and what you see in terms of market outlook? The second question is specific to the foundry.

You've recently announced, including at the foundry forum that there is a promotion of [ FDS ]. Can you give us your market outlook on [ FDS ] and also describe the competitiveness that Samsung has in the [ FDS ] segment.

Unknown Executive: [Foreign Language] Well, thank you very much for that question. First of all, that 3-stack image sensor were the FRS, the fast reader sensors, actually support greater picture quality on the mobile device platform and can even provide very unique and differentiating user experience such as super slow motion. So it is a new CMOS sensor product.

[Foreign Language] Therefore, we're expecting this to be adopted next year, especially on the premium and high-end handsets and will then quickly expand from there. So based on that expectation, we are currently preparing solutions and expect to commercialize our solution within next year.

Unknown Executive: [Foreign Language] The [ FDS ] versus the CMOS, bulk CMOS, is actually a solution that can provide lower power requirement, higher performance and also has a price competitiveness. Currently, we're expanding our customers in IoT, automotive and consumer applications. We've already started successful mass production for American and European customers and currently in the process of adding on Asian customers.

[Foreign Language] In terms of -- currently, we're expecting to tape out a total of 40 products by end of 2017. And in the future, we're planning to provide RF connectivity and also add on EMM nonvolatile RAM to provide a platform solution.

Operator: [Foreign Language] The following question will be provided by Dongwon Kim from KB Securities.

Dongwon Kim: [Foreign Language] I have questions for the DP, the display and the CE businesses. First of all, the flexible OLED business currently that you operate is mainly dominated by smartphone applications.

I'm wondering if the company is preparing to add on other applications, such as large-sized OLED panel applications other than smartphones. And if so, when do you think this diversification of application and product will be possible? Second is about the TV business for next year. Your TV business is competing or has to compete with the OLED TVs. So in that context, what are you planning in terms of your QLED TV lineup for next year? And what kind of form factors can we expect? Also, in the ultra large-sized, 65-inch-plus segment, are you considering, for example, entering into the high-picture quality 8K QLED segments?

Unknown Executive: [Foreign Language] Now first of all, even in our mid- to small-sized OLED business, we believe that in addition to smartphones, we will be able to expand our mid- to small-sized OLED panels to applications such as AR, VR, foldables as well as automotive. Especially in the automotive application, our OLED has various strengths in, for example, in terms of energy efficiency, in terms of design possibilities and especially in the ability to reproduce black screens which are particularly important for driver safety during nighttime driving.

And therefore, we're gathering a lot of interest for automotive applications. We will continue to collaborate and work closely with our customers in order to maintain our business leadership in OLED.

Unknown Executive: [Foreign Language] Another new application that we're working on is the foldable application. We are continuing our R&D efforts in line with the customers' needs and schedules. We will be delivering a foldable application that has a higher level or a high level of completeness that meets the needs and expectations of the market as well as consumers.

So in foldable, not only is the level of completeness at the set level at the end device level is important, but also it's important that our foldable solutions meet the demands that are expected by the -- our customers as well as the end consumers, and we will prepare in line with the schedules of our customers.

Unknown Executive: [Foreign Language] Your question about the TV. First of all was about the QLED and next year's road map, second was about 8K technology. To answer the first part of your question, it's been about 6 months since we launched QLED. Since then, the awareness of the product has increased and had us actually resulted in quite fast increases in the sales, especially we've been able to record more than 40% market share in the $2,500 and above premium segment.

Also, we've received very positive reviews from major medias, such as Forbes and Display. We believe that we have actually gained a very strong position, leadership position in the premium TV segment. In 2018, we will continue to strengthen our leadership with the QLED TV by further enhancing picture quality, further enhancing the completeness of the product, also meeting consumer needs better and also improving in terms of the style further. Also, we are planning to actually provide a wider selection to our consumers by launching wider range of sizes as well as adding new series'. But it's difficult for us to go into details at this current time.

Unknown Executive: [Foreign Language] Regarding the 8K TV, we are, first of all, expecting the ultra large-sized TV segment to continue to grow. And with the larger screen sizes in TVs, there are also be stronger demand for such high-picture quality created by 8K technology. One example is that in the upcoming Winter Olympics to be held in PyeongChang next year, there will actually be a pilot broadcasting at 8K picture quality, which is even 4 times higher resolutions versus UHD. And we're also hearing that some countries are preparing to commercialize 8K broadcasting. This has also led many content providers to start production of 8K content.

So overall, we are seeing a business environment being created and becoming ready for 8K supporting TVs. We think that in 8K quality resolution, large screen sizes that are 65-inch and above would be the main segment. And therefore, we will -- we are planning to leverage the advantages that we have with our QLED large-sized -- ultra large-sized TVs, and we are preparing fully to take advantage of this new display technology.

Robert Yi: [Foreign Language] Due to limited time, we will take 2 more questions before ending today's conference call.

Operator: [Foreign Language] The following questions will be presented by Simon Woo from Bank of America Merrill Lynch.

Simon Woo: [Foreign Language] I have one question, and that's actually about your Memory business and your bit growth. Even though Memory is currently contributing the largest to the earnings of the company, we're seeing that your bit growth -- actually, the volume of your business is low compared to previous years. And on top of that, in terms of CapEx, even if we exclude infrastructure investments, your investments in actual facility, equipment itself is quite large. And so I'm just wondering where has your production disruptions been happening specifically. There seems to have been a mismatch versus what you were expecting in bit growth the start of this year versus what you're actually producing right now.

So I'm wondering where did that these unexpected production issues happened. And do you think it's possible for you to recover normal bit growth in the future? I do understand that we are at processes that are very difficult to manage and that the manufacturing cycle times have become even longer. So I do understand the overall general challenges and difficulties of turning out a memory where we stand in terms of technology. But regardless of that, where specifically has these production issues been happening?

Unknown Executive: [Foreign Language] In the third quarter, the bit loss is mainly attributed to the product mix change that we went through in order to increase memory for servers and also to increase production of SSD. In addition to that, as we had announced last quarter, there was a conversion of Line 11 to CIS production and Line 16 from NAND to DRAM, and that has resulted in bit losses which resulted in us overall lowering the bit growth guidance for this year.

Operator: [Foreign Language] The last question will be provided by J.J. Park from JPMorgan. J.J. Park: [Foreign Language] I have 2 questions. The first question is for the mobile side.

Previously, you did answer your plan specific to the high-end segment, but the component prices are increasing and that is affecting also the mid- to low-end segment, so I would like to hear specifically how you're planning to maintain your profit margins in the mid- to low-end segments despite increasing component prices. Second question is about the DRAM business. This is the first time that Samsung Electronics has lost market share in DRAM. Does it plan to regain its previous market share next year? Or will you be more trying to maintain where you stand currently?

Unknown Executive: [Foreign Language] To answer your first question. In the mid- to low-end segment, our first focus has been to increase the competitiveness of our mid- to low-end handset offering by expanding the hardware technologies and services that we first adopted on the high-end segment.

This has been effective in terms of meeting the growing demands in the growth market and also responding to fiercer competition in the mid- to low-end segment as well. For example, the Galaxy J Series 2017 which we launched in the third quarter has received very strong responses in all global markets, given the fact that it has -- it's a mid- to low-end segment handset that has metal design, a high-pixel count selfie camera and also support Samsung Pay. So in the future, our plans of maintaining profitability in the mid to low end, first of all, is to increase sales based on our strong product competitiveness and by effectively meeting market demand, while at the same time, making our product lineup more efficient, increasing the components that we commonly use over various handsets, increasing the productivity, efficiently operating our local manufacturing facilities, which will help us improve the overall profitability of the mid- to low-end handset. And by doing that, our aim is to contribute to our overall business in both scale as well as quality of the profitability. [Foreign Language] It's a bit too early for us to give you specifics about what we plan to do with DRAM, but the current guidance that we can give you is that for next year, our bit growth for DRAM is expected to be at market growth levels.

Robert Yi: [Foreign Language] Thank you very much. This ends the third quarter earnings conference call.