SAMSUNG Electronics 3Q 2023 Financial Results User Guide

SAMSUNG Electronics 3Q 2023 Financial Results

Product Information

Specifications

• Sales: 67.40 KRW Trillion
• Cost of sales: 46.62 KRW Trillion
• Gross Profit: 20.79 KRW Trillion
• SG &A expenses: 18.35 KRW Trillion
• R &D expenses: 7.01 KRW Trillion
• Operating Profit: 2.43 KRW Trillion
• Other non-operating income/expense: 0.04 KRW Trillion
• Equity method gain/loss: 0.26 KRW Trillion
• Finance income/expense: 1.21 KRW Trillion
• Profit Before Income Tax: 3.94 KRW Trillion
• Income tax: (1.90) KRW Trillion
• Net profit: 5.84 KRW Trillion
• Profit attributable to owners of the parent: 5.84 KRW Trillion
• Earnings Per Share (KRW Won): 5.50

Performance by Business Unit

• Total DX Sales: 30.00 KRW Trillion
• Total DX Operating Profit: 2.43 KRW Trillion
• VD / DA Sales: 44.02 KRW Trillion
• VD / DA Operating Profit: 0.67 KRW Trillion
• VD MX / Networks Sales: 13.71 KRW Trillion
• VD MX / Networks Operating Profit: 10.85 KRW Trillion
• DS Sales: 7.32 KRW Trillion
• DS Operating Profit: 1.77 KRW Trillion
• Memory Sales: 30.00 KRW Trillion
• Memory Operating Profit: (8.42) KRW Trillion
• SDC Harman Sales: 3.80 KRW Trillion
• SDC Harman Operating Profit: (8.87) KRW Trillion

Key Profitability Indicators

• ROE (Return on Equity): 7%
• Profitability (Net profit/sales): 0.09
• Asset turnover (Sales/asset): 0.60
• Leverage (Asset/equity): 1.26
• EBITDA Margin: 17%

Product Usage Instructions

Section 1: Sales and Financial Data

The product has achieved sales of 67.40 KRW Trillion in the third quarter of 2023. The cost of sales is 46.62 KRW Trillion, resulting in a gross profit of 20.79 KRW Trillion. SG&A expenses and R&D expenses are recorded as 18.35 KRW Trillion and 7.01 KRW Trillion respectively. The operating profit for this period is 2.43 KRW Trillion.

Section 2: Performance by Business Unit

The product’s performance is broken down by business unit:

• Total DX: Sales of 30.00 KRW Trillion and Operating Profit of 2.43 KRW Trillion
• VD / DA: Sales of 44.02 KRW Trillion and Operating Profit of 0.67 KRW Trillion
• VD MX / Networks: Sales of 13.71 KRW Trillion and Operating Profit of 10.85 KRW Trillion
• DS: Sales of 7.32 KRW Trillion and Operating Profit of 1.77 KRW Trillion
• Memory: Sales of 30.00 KRW Trillion and Operating Profit of (8.42) KRW Trillion
• SDC Harman: Sales of 3.80 KRW Trillion and Operating Profit of (8.87) KRW Trillion

Section 3: Key Profitability Indicators

• ROE (Return on Equity): 7%
• Profitability (Net profit/sales): 0.09
• Asset turnover (Sales/asset): 0.60
• Leverage (Asset/equity): 1.26
• EBITDA Margin: 17%

DISCLAIMER

The financial information in this document are consolidated earnings results based on K IFRS.
This document is provided for the convenience of investors only before the external review on our 3Q 2023 financial results is completed.

The review outcomes may cause some parts of this document to change.
This document contains “forward looking statements” that is statements related to future not past events.
In this context “forward looking statements” often address our expected future business and financial performance and often contain words such as “expects ” “anticipates ” “intends ” “plans ” “believes ” “seeks” or “will “.
“Forward looking statements” by their nature address matters that are to different degrees uncertain.

For us particular uncertainties which could adversely or positively affect our future results include:

• The behavior of financial markets including fluctuations in exchange rates interest rates and commodity prices
• Strategic actions including dispositions and acquisitions · Unanticipated dramatic developments in our major businesses including DX (Digital eXperience ) DS (Device Solutions)
• Numerous other matters at the national and international levels which could affect our future results

These uncertainties may cause our actual results to be materially different from those expressed in this document.

Earnings Presentation

Presenter by Business Unit

3Q 202 2023Result & Financial Data

Based on the consolidated financial statement in 3Q 2023

(Unit: KRW Trillion)

| 3Q23| % of sales| 2Q23| % of sales| 3Q22
---|---|---|---|---|---
Sales

Cost of sales

| 67.40| 100.0%| 60.01| 100.0%| 76.78
46.62| 69.2%| 41.65| 69.4%| 48.07
Gross Profit

SG&A expenses

– R&D expenses

| 20.79| 30.8%| 18.36| 30.6%| 28.71
18.35| 27.2%| 17.69| 29.5%| 17.86
7.01| 10.4%| 7.20| 12.0%| 6.27
Operating Profit| 2.43| 3.6%| 0.67| 1.1%| 10.85
Other non-operating income/expense| 0.04| –| 0.03| –| 0.03
Equity method gain/loss| 0.26| –| 0.20| –| 0.31
Finance income/expense| 1.21| –| 0.81| –| 0.66
Profit Before Income Tax| 3.94| 5.8%| 1.71| 2.9%| 11.86
Income tax| (1.90)| –| (0.01)| –| 2.47
Net profit| 5.84| 8.7%| 1.72| 2.9%| 9.39
Profit attributable to owners of the parent| 5.50| 8.2%| 1.55| 2.6%| 9.14
Earnings Per Share (KRW Won)| 810|  | 228|  | 1,346

Key Profitability Indicators

Performance by Business Unit

Sales

( Unit: KRW Trillion)

VD / DA

|  |

13.71

|

14.39

|

14.75

|

5%↓

|

7%↓

VD

|

7.32

|

7.25

|

7.86

|

1%↑

|

7%↓

MX / Networks

|  |

30.00

|

25.55

|

32.21

30.92

|

17%↑

19%↑

|

7%↓

5%↓

MX

|

29.25

|

24.61

DS| 16.44| 14.73| 23.02

15.23

| 12%↑

17%↑

| 29%↓

31%↓

Memory

|

10.53

|

8.97

SDC| 8.22| 6.48| 9.39| 27%↑| 13%↓
Harman| 3.80| 3.50| 3.63| 9%↑| 5%↑

Operating Profit

( Unit: KRW Trillion)

VD / DA

|

0.38

|

0.74

|

0.25

|

(0.36)

|

0.13

MX / Networks

|

3.30

|

3.04

|

3.24

|

0.26

|

0.06

DS| (3.75)| (4.36)| 5.12| 0.61| (8.87)
SDC| 1.94| 0.84| 1.98| 1.09| (0.04)
Harman| 0.45| 0.25| 0.31| 0.20| 0.14

• Sales and operating profit of each business stated above reflect the organizational structure as of 2021 and the sales of business units include intersegment sales.
• The DX Division provides earnings call materials based on the business structure before the reorganization to prevent confusion and to improve understanding among investors.
• DX: Device eXperience MX: Mobile eXperience DS: Device Solutions
• Harman’s sales and operating profit figures are based on Samsung Electronics’ fiscal year and acquisition related expenses are reflected.

Memory

3Q23 Results

Memory

The demand environment improved, despite relatively weak demand for conventional servers, thanks to rising adoption of high high-density products for PC/mobile, the imminent completion of customer inventory adjustments, and ongoing strength for high high-end AI AI-oriented products. We received numerous purchase inquiries amid widening awareness of the industry reaching a bottom, following the industryindustry-wide production cuts.

Under a continued operational focus on profitability, we continued to expand sales of advanced-node products such as HBM/DDR5, and UFS4.0. For legacy products, which have relatively high inventory levels, we targeted reducing inventory by lowering production.

4Q23 Outlook

Memory

Memory demand is likely to improve thanks to year-end promotions and launches of new products by our major customers, while the high- density trend in major applications is forecast to accelerate and demand for generative A1 should remain strong.

We plan to increase the sales portion of highly profitable product lines—including automotive— while working to expand mass production and sales of HBM3 in earnest. We will proactively address the rising demand for new interface products, such as DDR5, PCIe, Gen5, and UFS4.0 via ramp-ups at the new fab.

2024 Outlook

Memory

For PC and mobile, arrivals of some replacement cycles and continued growth in the high high-density trend should boost demand; with the spread of on on- device AI likely to provide additional momentum. In server, demand is forecast to recover gradually, driven by increased demand for AI and normalizing inventory levels at customers. However, we need to keep monitoring variables that affect server demand, such as changes in IT investments based on macro conditions, AI AI-orientated investments, and geopolitical issues.

We will expand sales of advanced advanced-node products, such as 1b 1b-based DDR5/LPDDR5x and V8 V8-based UFS 4.0; and we will actively address demand for generative AI by increasing our HBM3 and HBM3E portion of sales on the back of the largest production capacity in the industry.

S.LS1/Foundry

3Q23 Results

S.LSI

Demand for mid- & low-priced smartphones remained sluggish due to influences of the economic downturn and inflation, while performance improvements were slower than expected due to a delay in the recovery of semiconductor demand alongside effects of inventory adjustments. We have completed the development of E2400, which has significantly improved CPU, GPU, and NPU performances, and we have expanded the business area of 200 megapixel sensors from wide to tele applications.

Foundry

In the third quarter, earnings remained sluggish due to stagnant line utilization due to a delayed recovery market conditions for major applications such as Mobile. However , orders from new customers increased thanks to our enhanced competitiveness in process technology for both advanced and mature nodes. Moreover, new backlog from design wins— centering on HPC HPC—reached a new quarterly high, thus strengthening our foundation for growth growth.

4Q23 Outlook

S.LSI

With customer inventory adjustments seeming to be in their final stage, we expect demand to start showing a recovery due to base effects. We also expect our performance to improve significantly thanks to increased supply of parts for our major mobile customers’ new products. For mobile SoC, we are in the final developmental stages to respond to next year’s flagship smartphones, and we also plan to expand our portfolio via targeting global customers for our modem business; and to enhance our solution capabilities for on-device A1.

Foundry

Although the magnitude of a recovery in market condition remains uncertain, we expect to record improved earnings in 4Q as inventories approach sound levels and on increased demand driven by launch effects of new products by major customers Regarding the GAA process, 2nd generation 3 3-nano GAA yields continue to improve; and for the 2-nano process, we are going to establish design infrastructure that incorporates Si results results.

2024 Outlook

S.LSI

Expecting the mobile market to increase centering on premium products, we will seek qualitative growth by increasing our sales portion of flagship products. Meanwhile, we remain committed to ensuring a solid business structure by expanding our business area beyond the mobile marketmarket.

Foundry

The market is forecast to shift to growth thanks to a rebound in mobile demand and continued growth in HPC demand.

We will strengthen our technology competitiveness through the 2H mass production of the 2nd generation 3-nano process as well as the 4th generation 4-nano process for HPC. For mature processes, we will strive to expand within applications such as HPC, automotives, consumer goods, etc., by developing specialized process technologies, including RF and eMRAM.

SDC

3Q23 Results

Mobile

Market demand increased slightly Thanks to seasonal demand and launches of new products by major smartphone makers. We achieved solid results by focusing on premium OLED products, with the polarizing trend intensifying between high-end and mid-mid-range-and-below markets.

Large

• Amid muted demand, we strengthened operational fundamentals by enhancing yields and reducing losses.
• At the same time, we improved our bottom line by focusing on high-end products such as gaming monitors.

4Q23 Outlook

Mobile

Sales should stay relatively strong thanks to seasonal effects in the smartphone and IT markets, but at the same time, lingering inflation and high- interest rates may weigh on consumer sentiment. We will strive to generate similar results Q-Q by leveraging our competitiveness in the high-end market, which is showing relatively strong demand and will feature launches of new foldable products.

Large

• Despite concerns over prolonged tepid demand due to the economic downturn, we will remain committed to offsetting losses by improving our product mix via an increased share of QD-OLED for monitors.

2024 Outlook

We will strive to achieve similar earnings Y-Y by utilizing our unrivaled capabilities, which include preemptive investments, the development of differentiated technologies, and our outstanding product quality and yield.

As our strategic customers are releasing products featuring OLED in earnest in the foldable smartphone, IT OLED, Automotive, and Gaming segments, we will actively promote OLED’s unique selling points and create a turning point in the market. In particular, we will maintain our leadership by developing not only technology that caters to customer needs, but also a complete supply chain—both upstream and downstream—in the high-potential AR/VR markets.

MX/Network

3Q23 Results

MX

Global smartphone demand rebounded and the overall market demand grew Q-Q. Revenue and operating profit grew thanks to the successful launch of new flagship models and new foldables/tablets showed strong sales on the back of smooth supply. S23 series maintained solid sales momentum, and our overall sales and ASP increased mainly thanks to the higher flagship portion in major product lineups. We achieved solid double-digit profitability with enhanced resource allocation.

Networks

• Revenue decreased in overseas markets as mobile carriers scaled back their investments.

4Q23 Outlook

MX

The smartphone market is expected to grow q-q due to seasonality. Competition in the mass market segment is likely to intensify while uncertainties caused by geopolitical risks are likely to remain. We will continue with solid sales of foldables and S23 series via various sales promotions in the year-end holiday season.

Expand sales of tablets and wearables, focusing on new premium lineups by leveraging seasonality and strengthening co-marketing campaigns with customers. Amid intensifying competition in the smartphone market, we will seek to increase y-y revenue and profits focusing on up-selling efforts and flagship- oriented sales.

Networks

• The Networks business will seek to obtain additional wins in overseas markets.

2024 Outlook

MX

We expect the smartphone market to grow, centering on the flagship segment, as consumer sentiment stabilizes in anticipation of a soft landing of the global economy. Tablet demand is forecast to rise, focusing on premium devices, and TWS demand should grow slightly amid a growing mass market. MX aims to grow annual flagship shipments by double digits and achieve smartphone revenue growth exceeding the market growth. For tablets, it will focus on strengthening the premium product line line-up to meet demand for large screens.

For wearables, we will increase wellness features and establish a full line line-up. We will provide our customers with hyper hyper-personalized experiences by applying generative AI technologies and secure core technologies for future growth areas such as XR, digital Health, and Digital Wallet. At the same time, we will strive to secure stronger profitability by enhancing resource allocation.

Networks

Seek to grow revenue through timely responses to major overseas businesses while also winning orders for new businesses and reinforcing its technology leadership in core 5G chips and vRAN.

VD/DA

3Q23 Results

VD

Market demand increased Q-Qon entering strong seasonality, but it declined slightly Y-Y as consumer sentiment continued to decline amid the influence of various macro factors, including high interest rates.

Results declined Q-Qdue to increased costs amid intensified competition, but profitability improved Thanks to enhanced mixes via sales expansion of high high-value-added products, such as Neo QLED/OLED/ultra ultra-large TVs, and by reducing overall costs, including material costs.

DA

We strengthened our sales mix via expanding sales of premium products centering on Bespoke, but results remained similar Y-Ydue to the waning effects of peak seasonality for air conditioners and intensifying market competition driven by the normalization of logistics.

4Q23 Outlook

VD

We expect demand uncertainty to continue due to various risks in the business environment, but demand should remain solid for premium products such as ultra-large TVs. That said, we expect competition to intensify as companies respond to peak seasonality.

VD will continue to strengthen the competitiveness of online and offline channels to capture peak- season demand while also focusing on securing profitability by continuing to improve the mix centering on premium products, such as Neo QLED/98″ ultra-large/Lifestyle Screen.

DA

DA will remain committed to securing profitability by improving its business structure via an increased focus on B2B, all while strengthening its mix through sales growth of premium products.

2024 Outlook

VD

Various external risks are likely to persist in the market, but we expect consumer sentiment to improve somewhat and ease the decline in market demand compared to 2023.

We will continue to innovate products centering on premium/lifestyle screens and lead the ultra ultra-high high-definition/ultra ultra-large TV market, targeting demand linked to sporting events. Moreover, we will continue to actively promote not only our basic competitiveness, such as picture and sound quality, but also product experiences related to the environment, security, and content, which have recently emerged as important consumer values.

DA

Digital Appliances will strengthen its leadership in premium segments via simultaneous global launches of home appliances featuring AI amid the advancement of interconnection experiences between SmartThings and SmartThings-based digital appliances and devices. We will also continue to improve the profit and loss structure by expanding sales of high-margin products, such as system air conditioners, and realizing operational efficiencies efficiencies.

Appendix 1

Financial Position

• ※ Cash = Cash and Cash equivalents Short-term financial instruments Short-term financial assets at amortized cost LongLong-term time deposits etc.

• ※ Current ratio = Current assets/Current liabilities

Appendix 2

Cash Flow

125.35
Cash flows from operating activities| 9.73| 8.17| 18.98
Net profit| 5.84| 1.72| 9.39
Depreciation| 8.90| 8.77| 9.03
Cash flows from investing activities| (12.75)| (13.14)| (13.95)
Purchases of PP&E| (13.02)| (16.13)| (12.31)
Cash flows from financing activities| (1.96)| (5.78)| (8.23)
Increase in debts| 0.51| (0.88)| (5.77)
Acquisition of treasury stock| –| –| –
Payment of dividends| (2.46)| (4.91)| (2.45)
Increase in cash| (4.02)| (11.06)| 3.47
Cash (End of period) ※| 93.10| 97.13| 128.82

• ※ Cash = Cash and Cash equivalents Short-term financial instruments Short-term financial assets at amortized cost LongLong-term time deposits etc.

Current State of Net Cash (Net Cash =Cash Cash※ -Debts)

• ※ Cash = Cash and Cash equivalents ShortShort-term financial instruments Short-term financial assets at amortized cost LongLong-term time deposits etc.

Thank you

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