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Operator: [Interpreted] Good morning, everyone. Thank you for joining Samsung SDI 2025 Third Quarter Earnings Call. [Operator Instructions] Now we will begin 2025 third quarter earnings results.
Yoontae Kim: [Interpreted] Good morning. I'm Yoontae Kim, Executive Vice President of the Business Management Office at Samsung SDI. First, thank you for joining today's earnings call. And joining me are CFO, Jong Sung Kim; EVP Jong Sung Park for Strategic Marketing office; EVP; Yonghui Cho for ESS business team; and VP Ik-Su Kim for Electronic Materials. We'll provide simultaneous interpretation for the earnings presentation and consecutive interpretation for the Q&A session. Now we will begin Samsung SDI's 2025 Third Quarter Earnings Call. I'll start with our 2025 3Q financial results. 3Q revenue was KRW 3.1 trillion, down 4% Q-o-Q and 22.5% Y-o-Y. Operating income recorded a loss of KRW 591 billion. Pretax income recorded a loss of KRW 430 billion, including nonoperating profit and net income posted a profit of KRW 5.7 billion due to gains from the sales of the polarizer film business. Next is our financial status at the end of 3Q. Assets increased to KRW 42.2 trillion, up by KRW 738 billion from the end of 2Q, driven by increased tangible assets and nonoperating profit. Liabilities decreased to KRW 18.7 trillion, down by KRW 56.6 billion Q-o-Q. Equity rose to KRW 23.5 trillion, up by KRW 794 billion Q-o-Q due to an increase in other comprehensive income driven by foreign exchange translation effect. 3Q CapEx was KRW 499 billion, bringing the cumulative total for 2025 to KRW 2.3 trillion. For detailed financial status, please refer to the appendix. Now I will present the 3Q financial results of each business unit. First of 3Q revenue for the battery business was KRW 2.82 trillion, down 5% Q-o-Q and 23% Y-o-Y due to sluggish EV battery sales. Operating profit recorded a loss of KRW 630 billion. For operating profit deficit small -- despite small deficit in the small battery business, deficit widened Q-o-Q as EV battery sales declined with reduced AMPC and tariff impacts on ESS. Revenue for the Electronic Materials business increased to KRW 232 billion, up by 6% Q-o-Q, while operating profit recorded KRW 38.8 billion as sales of OLED materials for major customers' new smartphones and sales of semiconductor materials for AI servers increased. Now I will share our 3Q business highlights. First, we completed the award for server EV and ESS projects. We signed supply agreements with multiple global major OEMs for EV projects totaling over 110 gigawatts per hour based on 465 and Prismatic EV batteries. We also completed the award of the first round bidding for the Korean government-led ESS project. Additionally, we introduced U.S. local next-generation ESS lineup to expand our ESS we introduced NCA-based high-capacity SBB 1.7 and LFP-based SBB 2.0. We also improved safety by adopting enhanced direct injection system and no thermal propagation technology to both products. On top of that, we closed the deal for the Polarizer Film business sales during 3Q. This strengthened financial stability through a cash inflow of KRW 1.1 trillion. Next is the market outlook and our strategies in 4Q. Demand for EV and ESS batteries is expected to grow due to year-end seasonality, while uncertainties such as tariffs still exist. EV demand is expected to grow, particularly in the volume and entry segments in the EU. However, in the U.S. EV demand is likely to slow due to subsidy expiration on September 30 and tariff uncertainties. To actively respond to growing EV demand in the EU by the year-end, we plan to maximize sales from ongoing projects and complete major EV projects awards, including LFP within 4Q. The U.S. ESS market is projected to grow due to rising AI electricity demand and the expansion of renewable energy generation. Furthermore, government-led ESS programs are expected to increase to stabilize the domestic grid. To address this growing demand for utility scale ESS in the U.S. will not only increase sales of Korea-produced products for the U.S. market, but also begin U.S. local line operation. Also, we're continuing our efforts for major project awards, including Korean government-led projects. At the same time, we recently signed an MOU with the Korea Electrical Safety Corporation to promote the domestic ESS industry and improve safety. We also plan to continue our social efforts to establish a safe and reliable domestic ESS industry foundation and promote shared growth. Next is the small battery business. Power tool demand is expected to slow down after a temporary increase driven by early purchases ahead of U.S. tariff impacts. Meanwhile, demand for IT devices and smartphones is expected to stay firm, thanks to flagship smartphone launches. We'll expand sales of new high-power tablets products targeting major customers' launch of new power tools. For IT batteries, we aim to begin the initial supplies through first-in strategy for our major customers' flagship smartphones and expand into various new IT applications, including tablets and laptops scheduled to be launched next year. Last is the electronic materials business. For the semiconductor market, wafer production is projected to grow as DRAM production increases driven by larger investment in AI servers. The OLED panel market is expected to expand, particularly in flagship smartphones, including foldable phones. Steady sales growth is expected, supported by continued demand expansion for semiconductor materials. For OLED materials, we plan to enter new platforms of major customers targeting 2026. Next, we'll go over our core business strategies currently underway. While some uncertainties remain in the market, we plan to strengthen our competitiveness by building a U.S. local manufacturing system and focusing on the fast-growing ESS market in the short term. In the long term, we plan to set the foundation for the future growth through the award expansion of EV volume and entry segments. First is strengthening our ESS competitiveness. StarPlus Energy is converting its existing EV lines into ESS dedicated ones. NCA-based ESS line has already begun operation, while LFP-based ESS line is scheduled to begin operation in 4Q of next year. Through these efforts, we aim to enhance our local market responsiveness by expanding ESS production capacity to around 30 gigawatts per hour annually by around the end of next year. In addition, prismatic cells are much more preferred than cylindrical ones as they offer higher safety, better thermal management and higher energy density. As the only non-Chinese company capable of supplying prismatic products, we'll actively target the fast-growing ESS market in the U.S. through mass production of our SBB 1.7 and SBB 2.0, which feature enhanced safety with new TP and EDI technologies. Next part is the EVs. To enhance our market share, we are actively entering volume and entry segments with prismatic LFP and mid-nickel products. Also, we are expanding sales portfolio by introducing tablet cylindrical batteries for increasingly growing hybrid EV projects. Moreover, we'll continue to win awards for the premium EV segments with high nickel cylindrical 465 and prismatic batteries. Last is our operational efficiency. We will improve productivity across our production lines. And for the LFP line that requires investment due to increasing new orders, we'll modify the existing NCA line to maximize investment efficiency. By aligning our mid- to long-term investment plans in line with demand, we aim to improve our financial stability and cash flow. Now we'll move on to the Q&A session, which will be provided in Korean followed by consecutive interpreting in English. [Operator Instructions]
Operator: [Interpreted] [Operator Instructions] The first question will be provided by Won Suk Chung from iM Securities.
Won Suk Chung: [Interpreted] I have 2 questions that I would like to ask. The first question is SDI's performance has remained under pressure this year. So could you elaborate on the key factors driving this weakness? And my second question is that please share your outlook for Q4 results and the overall business environment heading into next year.
Jong-chun Kim: [Interpreted] So let me -- good morning. My name is Jong Sung Kim, I'm the CFO of Samsung SDI. Let me first provide the answer to the first part of your question. And the first part of the question is related to the business environment. The primary driver of this year's continued weak performance has been the slowdown in demand for SDI EV batteries. Since last year, overall EV demand has moderated with consumers increasingly shifting towards volume and entry-level segment and our entry into the U.S. market has been relatively late, while demand from our JV partner has also declined. In addition, the recovery in small battery demand has taken longer than expected. Although ESS demand continues to grow, particularly in the U.S., profitability has been lower than anticipated due to the impact of tariffs. Despite these business challenges, SDI is strengthening its responsiveness to the U.S. ESS market by converting EV battery capacity at its U.S. joint venture plant for ESS production. In the small battery segment, the company has also introduced new cylindrical tablet products for power tools to drive sales expansion. In EV batteries, SDI continues to secure new orders in the volume and entry segments and expect to see tangible progress in the near future. In Q4, while a short-term rebound in EV battery demand is unlikely, the company expects its operating loss to narrow from Q3, supported by a recovery in sales from other business divisions. However, discussions on compensation related to the volume reduction are still underway, and there is a possibility of one-off costs toward the end of the year. These factors could influence the degree of profit improvement. Let me now answer the second part of your question, which is related to the business environment in 2026. Well, regarding the business environment for next year, in the U.S., EV battery demand growth is expected to remain limited due to the expiration of EV subsidies and fuel efficiency regulations. Europe is projected to see stronger demand supported by the reinstatement of subsidy programs in major countries and the continued enforcement of CO2 regulations. In contrast, ESS demand is expected to continue growing, driven by growth in renewable energy generation and the rapid growth of the AI industry. In particular, with tighter regulations on Chinese products and rising preference for safer prismatic form factors, companies with prismatic capacity in the U.S. are likely to see increased opportunities. For small batteries, a rebound in demand is expected in key applications such as power tools and mobility, supported by the base effect from this year's inventory adjustments. For electronic materials, market demand from DRAM and mobile OLED panels is expected to continue growing, leading to a steady increase in demand for related materials as well. Although challenges in the EV market are expected to persist next year, growth opportunities are anticipated in the ESS, smart battery and electronic materials businesses. We are currently reviewing customer demand and developing our sales plans accordingly, and we plan to share more detailed market response strategies in the next quarter's earnings call. Thank you.
Operator: [Interpreted] following question will be presented by Minwoo Ju from NH Investment & Securities.
Minwoo Ju: [Interpreted] My name is Minwoo Ju from NH Securities. I have 2 questions. As demand for ESS in the U.S. continues to grow rapidly, what is SDI's outlook for the market? And also, are there any concerns about potential oversupply of ESS batteries in the U.S. market? And also, I'd like to ask you to share SDI's capacity expansion plans for ESS in the region.
Yonghui Cho: [Interpreted] Good morning. This is EVP Yonghui Cho, and I will provide the answers to your question. The U.S. ESS market is projected to grow rapidly with battery shipments expected to increase from around 80 gigawatt hour in 2025 to approximately 130 gigawatt hour in 2030, and this growth will be driven by rising power consumption from the expansion of the AI industry and the continued adoption of eco-friendly energy generation. Recently, some battery manufacturers have shifted part of their North American capacity to ESS production, raising some market concerns about potential oversupply. However, domestic production still covers only about 30% of U.S. ESS battery demand with stricter tariffs and PFE compliance requirements, reducing the use of China-made batteries and with local players still building out supply chains for materials and components, the shortage of U.S. production capacity is expected to continue for some time. Accordingly, even if battery manufacturers aggressively expand their ESS capacity, it is expected that supply-demand balance would only be achieved around 2030, considering the pace of demand growth. In SDI's case, the company plans to convert its SPE production line for ESS use, targeting approximately 30 gigawatt hour of U.S. ESS capacity by the end of next year. As opportunities in the U.S. ESS market continue to expand, STI intends to leverage its local capacity to sustain a growth momentum.
Jong Sun Park: [Interpreted] This is answered to Mr. Minwoo Ju from NH Securities, a second part of the question, which is related to the development of batteries for volume and entry-level EVs to strengthen SDI's market share and about the update on the current development programs and the recent order trend. And the answer will be provided EVP Jong Sung Park. To capture opportunities in the volume and entry-level EV market, we are developing LFP and mid-nickel prismatic batteries, targeting mass production in 2028. While market entry has been relatively late, we are accelerating our catch-up efforts and leveraging proprietary technologies to establish clear points of differentiation. In the volume and entry segment, cost competitiveness is the most critical factor. To enhance this, we plan to optimize our global supply chain by production base, develop low-cost materials, expand dual sourcing of components and improve manufacturing efficiency through faster stacking and coating processes, all aimed at further strengthening cost competitiveness. In addition, since vehicles in this segment typically have shorter driving ranges, fast charging performance is especially critical and customer safety standards are continuing to rise. By applying our low-resistance technology, we have achieved a superior fast charging performance compared to peers, and we plan to further strengthen our safety differentiation through proprietary thermal propagation prevention technology based on the prismatic form factors. Regarding recent order activity, we are currently in discussions with several global customers on mass production projects scheduled for 2028, and we expect to finalize some of these within the year. We will provide further updates as appropriate within the scope of what can be publicly disclosed.
Operator: [Interpreted] The following question will be presented by Kyung Hun from DAOL Investment & Securities, with your question.
Kyung Hun Kim: [Interpreted] My name is Kyung Hun from DAOL Securities. I have two questions. The first question is additional question related to ESS. It seems that opportunities for Korean battery manufacturers in the U.S. market are expanding. So what is the current status of SDI's ESS orders in the United States? And the market is also anticipating potential ESS-related collaborations with major U.S. clients. So is there a possibility of securing new orders? And the second question is related to downstream industry. With the rapid advancement of the humanoid industry, it is expected to emerge as a new source of battery demand in the future. So could you share your outlook on the humanoid market and provide an update on SDI's related product development?
Yonghui Cho: [Interpreted] This is Yonghui, EVP Yonghui Cho, and I will provide the answer to your question related to ESS. As mentioned earlier, SDI has recently secured local ESS production capacity, converting its SPE line with proprietary technologies such as the highly safe prismatic form factor and an integrated direct injection fire suppression system, the company is in active discussions with multiple ESS clients and is securing orders covering a substantial portion of its capacity through 2027. By production line, the NCA ESS line, which began mass production this year, is preparing to roll out the new SBB 1.7 product, featuring high energy density cells that boost capacity by over 20%. Based on existing partnerships, SBI has already secured a significant portion of '24-'25 volumes from major U.S. customers and is continuing to expand discussions for additional orders. For the LFP line, which is scheduled to begin mass production in Q4 of next year, the company is developing the SBB 2.0 solution featuring large capacity LFP batteries and is likewise engaged in mid- to long-term collaboration discussions with multiple clients. While we can't comment on specific customer, we are actively pursuing opportunities with multiple U.S. clients and expect to see steady growth in ESS orders going forward.
Jong Sun Park: [Interpreted] This is EVP, Jong-Sung Park. I will be answering the part of the question related to the humanoid market. The robotics market has been advancing rapidly, driven by more sophisticated movement capabilities, AI-enabled intelligence and declining costs. As a result, applications are expanding beyond industrial uses to commercial and household sectors. With component technologies and supply chains expected to take shape in earnest, the humanoid market is projected to grow quickly from around 20,000 units this year to over 600,000 units by 2030. Because humanoid robots have very limited internal space for battery installation, the batteries must deliver both high power and strong durability to support movement. As a result, high-power, high-capacity cylindrical batteries are currently being used for this application. Several robotics customers have already adopted SBI's cylindrical batteries, which have demonstrated high power and large capacity performance in the power tool market. To further expand business opportunities, SBI is also engaged in additional discussions with multiple robotics manufacturers. Beyond humanoids, advances in AI technology are driving autonomous flight in drones and enhancing immersion in XR or extended reality devices, leading to rapid growth in these emerging markets. These applications require highly customized battery performance, including ultra-compact size, lightweight design and fast charging. To capture opportunities in the expanding AI-related device market, the company plans to leverage cylindrical-based coin cells and pouch-based mini cells. Thank you.
Operator: [Interpreted] The last question will be presented by Ji-San Kim from Kiwoom Securities.
Ji-san Kim: [Interpreted] This is Ji-San Kim from Kiwoom Securities. I actually have 2 questions. And the first question is related to AI industry. With the rapid growth of the AI industry expected to drive semiconductor super cycle for the foreseeable future, opportunities in the semiconductor materials businesses are expanding. So could you share SBI's strategy to capture this growth and further expand sales in this area? And the second question is related to data centers. BBU sales have continued robust growth throughout this year. So how is this trend affecting the sales this year? And what is the outlook for the market going forward? And I would also like to know if there's a possibility that BBUs could cannibalize the demand of UPS.
Ik Soo Kim: [Interpreted] This is EVP Iksoo Kim, and I will be answering your question related to the semiconductor materials. As you have just mentioned, demand for high value-added memory used in AI applications is expected to continue growing with our key customers expanding wafer production for DRAM and HBM. As a result, demand for semiconductor materials is also projected to maintain solid growth momentum. To further drive sales growth, we are pursuing customer diversification while strengthening material competitiveness to meet customer needs for process migration and performance enhancement. In particular, we are expanding our metal slurry portfolio and working to secure new customers for high thermal conductivity EMC materials used in application processors. In addition, we continue to collaborate closely with our major semiconductor manufacturers to jointly develop new products, including organic and inorganic materials, insulating materials and next-generation packaging materials.
Jong Sun Park: Again, this is EVP Jong-Sung Park. I will be answering Mr. Ji-San second part of the question related to the BBU market. Major cloud service providers, including Google, Meta and Amazon have been rapidly installing BBUs or battery backup units at the server rack levels within their AI data centers. This trend is driving rapid growth in both the overall BBU market and the demand for BBU sales. Amid the strong market momentum, our BBU cell sales have increased significantly. In the cylindrical battery segment, the revenue contribution from BBUs is expected to surge from just 2% last year to 11% this year. Based on current trends, we estimate our market share in the BBU cell segment will reach around 40% this year. The number of BBU installations is expected to more than double between '24 and '26, a period when data center investments are projected to be highly concentrated. As BBUs are required to deliver high output power rapidly within the limited space of a server rack, demand for high-power cylindrical batteries is expected to increase significantly. Regarding the potential demand overlap between BBUs and the UPS market, while both serve the common purpose of providing backup power beyond outages, their functions and applications are distinct. UPS systems are designed to support power for the entire data center, whereas BBUs are installed to protect specific critical server units. As a result, the 2 products differ in both performance characteristics and use cases. Therefore, we believe the likelihood of market cannibalization between the 2 applications is low. We will continue to capture growing demand by providing products tailored to the specific requirements of each market.
Yoontae Kim: [Interpreted] Lastly, we will close the call by answering one of the questions that we collected online in advance. Let me read the questions that we have collected. Given the recent slowdown in earnings and continued capital expenditures, it appears that ongoing funding will be required. So could you elaborate on the company's investment plans and outline your financing strategies, including any potential additional capital increase or utilization of existing assets such as the stake in Samsung Display. And the answer will be provided by EVP Jong Sung Kim.
Jong-chun Kim: [Interpreted] As was mentioned before, in terms of capital expenditures, we plan to optimize our investment strategy by adjusting the timing of new projects based on market conditions and prioritizing the conversion and utilization of existing lines rather than adding entirely new capacity. Regarding funding, we recently secured approximately KRW 1.1 trillion in cash through the sales of our polarizer film business. Combined with the gradual improvement in operating performance and continued positive EBITDA, we expect overall funding pressure to ease. Accordingly, we are not considering any additional capital increase at this time. Should further funding needs arise, we will review various options, including borrowings and potential utilization of existing assets, taking into account market conditions and financing requirements
Unknown Executive: We appreciate your valuable questions and opinions, and we will refer to them in our management decision making. With this, we will end the earnings conference call for Q3 2025. And should you have further inquiries, please contact the IR team. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]