Samsung Electronics Co., Ltd. Q3 FY2026 earnings call

Financial Milestones:

• Achieved historic milestone of >KRW 100 trillion quarterly operating profit.
• First global tech company to reach this level; demonstrates strength of technologies and nimble response to market changes.

Capital Expenditure (CapEx):

• Q3 CapEx was KRW 29 trillion (up KRW 12.2 trillion q-o-q).
• Full-year 2026 CapEx expected to reach KRW 84.4 trillion (up KRW 31.7 trillion y-o-y).
• DS division CapEx projected to rise to KRW 76.8 trillion, focused on new fabs and infrastructure for AI demand.
• Display business CapEx projected to rise to KRW 3.9 trillion for production line upgrades.

Strategic Priorities & Outlook:

• DS Division: Priority is overcoming profitability challenges by expanding premium product sales during the year-end peak season and improving operational efficiency.
• Memory: Solidifying leadership by expanding HBM4, high-performance DDR5, and server SSDs. Expecting robust demand driven by Agentic AI.
• Foundry: Accelerating earnings growth through scaling mass production at 4-nano nodes and winning new orders for 2-nano products. Taylor fab in the U.S. is key to meeting AI/HPC market needs.
• DX Division: Focus on AI-driven innovation, diversifying revenue streams into services/platforms, and improving resource efficiency. Aim to maintain leadership in the premium smartphone market despite rising component costs.

Shareholder Returns:

• Board approved Q3 cash dividend of KRW 4,601 per share (common and preferred).
• Total shareholder returns for 2026 estimated at KRW 90–110 trillion, with KRW 35 trillion already planned/completed.
• Remaining KRW 55–75 trillion to be returned via dividends and substantial share repurchase/cancellation.
• Commitment to consider adjusting preferred share proportion in buybacks to address price gaps and ensure equal respect to all shareholders.

Total Revenue: KRW 195.3 trillion (up 14% sequentially). Total Operating Profit: KRW 107.4 trillion (up 20% sequentially), marking the first time a global tech company exceeded KRW 100 trillion in quarterly operating profit. Operating Margin: 55%. Net Profit: KRW 75.1 trillion (up 5% sequentially). R&D Expenses: KRW 14.4 trillion.

DS Division: Driven by record performance in Memory, which expanded HBM4 sales and met strong server demand. System LSI faced headwinds from weak mobile demand but grew revenue via new SoC adoption and 200MP image sensors. Foundry saw earnings recovery supported by advanced node sales. Contribution % not explicitly broken down in absolute terms for each sub-segment, but DS is identified as the primary driver of the record results.

DX Division: MX business recorded year-on-year revenue growth driven by Galaxy Z Fold 8, though higher component costs kept conditions challenging. Visual Display minimized profit decline through premium sales expansion.

• Fourth Quarter 2026: Expect continued company-wide earnings growth, supported by strong DS division performance. However, DS faces pressure from macroeconomic uncertainty and rising component costs.
• Memory (Q4): Expect bit growth to increase mid-to-high teens for DRAM and mid-teens for NAND. Supply demand continues to outpace production increases.
• Foundry (Q4): Expect double-digit revenue growth q-o-q and y-o-y, driven by high-value advanced node revenue and improved utilization.
• 2027 Outlook - DS: Semiconductor market expected to remain strong due to historic AI investment and supply constraints. DS division positioned to exceed 2026 performance and achieve another year of record results. Memory demand far exceeds supply; Foundry growth accelerates with Taylor fab ramp-up.
• 2027 Outlook - DX: Continued profitability pressure from rising component costs. Smartphone unit volumes expected to decline in mid-to-entry segments, while premium segment growth drives overall market value. Strategy focuses on flagship models, foldable leadership, and Agentic AI experiences.
• Capital Expenditure: Full-year 2026 CapEx guided at KRW 84.4 trillion.

• Macroeconomic Uncertainty: Ongoing pressure on DS division earnings from global economic shifts.
• Rising Component Costs: Significant impact on profitability, particularly in DX/MX businesses, where higher memory prices have constrained margins.
• Currency Effects: Weaker exchange rates for USD, Euro, and other major currencies negatively impacted operating profit by approximately KRW 10 trillion in Q3 compared to the prior quarter.
• Market Demand Volatility: Mobile and IT market demand declined in Q3 due to price sensitivity; smartphone shipment volumes are expected to decline in 2027, particularly in mid-to-entry segments.
• Supply Constraints: Potential physical constraints on HBM supply due to larger die sizes and increased wafer process layers; difficulty in rapidly boosting bit production despite increased CapEx.

Q: Analyst asked about memory market outlook beyond 2027, specifically regarding potential shortages in 2028 given current trends.

A: EVP Jaejune Kim stated that tight supply conditions are expected to continue in 2028. While CapEx will increase significantly in 2027, much of it will go toward new space acquisition and higher construction/equipment costs rather than immediate bit production growth. Long lead times for fab construction and equipment procurement further delay capacity ramps. Additionally, the shift to larger HBM4E/HBM5 dies and increased process layers acts as a physical constraint on conventional DRAM bit production. Samsung plans preemptive cleanroom investments but remains flexible on equipment installation based on demand monitoring.

Q: Analyst inquired about the status of multiyear supply contracts in memory and their future mix.

A: EVP Jaejune Kim reported that contracts have been concluded with 10 major accounts, with negotiations ongoing with 10 others nearing final phases. The scope of interest has expanded beyond hyperscalers to include mobile, automotive, and network sectors. The target is to increase the multiyear contract mix to 60-70% of mid-to-long-term capacity, enhancing business stability. Existing rolling contracts are seeing stronger demand for extensions and additional supply requests. Given current capacity limitations, Samsung is exploring product mix shifts across applications to meet this growing long-term demand.

Q: Analyst sought updates on foundry design wins for large customers and SDC's strategy for foldables amidst competition.

A: EVP Sukchae Kang noted that 2-nano project awards from large CSPs and AI/HPC customers have more than doubled year-on-year. The goal is to strengthen strategic partnerships and increase HPC share to over 50% of the sales mix. For displays, VP Wonwoo Kim highlighted positive feedback for new slim/durable foldables. Despite risks from device prices due to memory shortages, AI adoption supports foldable demand. Samsung aims to widen the technology gap with competitors through continuous innovation in screen size and strength, leveraging its mass production experience since 2019 to lead the mainstream adoption of foldables.

Q: Analyst asked for an update on HBM4 sales progress and 2027 supply negotiations.

A: EVP Jaejune Kim confirmed that HBM4 sales increased more than threefold q-o-q in Q3, with HBM4 comprising 60% of total HBM sales. This achievement brought Samsung’s HBM market share in line with its overall DRAM share, ahead of schedule. Samples for next-gen HBM4E were shipped early in May with positive feedback. Crucially, Samsung’s entire 2027 HBM supply volume is already sold out at agreed target prices reflecting competitiveness, yet customer requests for additional supply persist. Samsung intends to leverage leading-edge technology to deliver timely products and strengthen market leadership.

Q: Analyst questioned the impact of Agentic AI on NAND demand for server SSDs and how MX addresses profitability amid cost pressures.

A: EVP Jaejune Kim explained that Agentic AI drives exponential growth in KV cache requirements, increasing demand for high-capacity TLC SSDs. Cloud-based personal AI agents also drive preference for QLC SSDs to reduce latency. Samsung is expanding sales of PCIe Gen 6 TLC and high-density QLC SSDs, with V10 TLC production ready and a 256TB QLC product launching early next year. For MX, VP Daniel Araujo noted that high memory prices squeezed profitability, but premium launches (Fold 8) and cost reductions improved q-o-q results. For 2027, MX expects high raw material costs to persist. Strategy involves prioritizing flagship sales to improve product mix, redefining entry-level roles to upsell carriers/partners, and streamlining operations to minimize profit declines.