Samsung SDI Aktie

Good morning. Thank you for joining Samsung SDI's Earnings Call. Today's schedule will follow Samsung SDI's presentation. With a Q&A session for participants afterward. [Operator Instructions]. We'll now begin Samsung SDI's 2026 First Quarter Earnings Call.

Good morning. I'm Yoontae Kim, Executive Vice President of the finance and accounting team at Samsung SDI [Operator Instructions] To begin with, I'd like to thank everyone for joining today's earnings call Joining me are EVP, Jae Kyun Oh from Business Management Operation; EVP Yonghui Cho from ESS Business Team; VP Hoon Choi from Sales Team and VP Ik Soo Kim from Strategic Marketing Team of Electronic Materials business.

The earnings call presentation will be provided with simultaneous interpretation and Q&A session with consecutive interpretation.

We'll now begin Samsung SDI's 2026 First Quarter Earnings Call.

I will start with financial results for the first quarter of 2026. Q1 revenue was KRW 3.6 trillion, a 7.3% decrease from the previous quarter, but a 12.6% increase year-on-year. Operating income was a loss of KRW 156 billion with the loss narrowing in both the previous quarter and the same period last year. Pretax income, reflecting equity income in affiliates and other factors, recorded a loss of KRW 43 billion due to a decrease in corporate tax, net income was a profit of KRW 56 billion.

I will now present the financial status as of the end of Q1 2026. Factoring in CapEx and the increased equity value of affiliates, assets grew by KRW 2.3 trillion Y-o-Y to KRW 44.5 trillion and liabilities increased by KRW 911 billion Q-o-Q to KRW 19.6 trillion. Total equity rose by KRW 1.3 trillion Q-o-Q to KRW to 24.9 trillion. CapEx for Q1 was executed at KRW 589 billion. For detailed financial status, please refer to the appendix.

Now I will explain the Q1 financial results of each business unit. First of all, revenue in the battery business was impacted by seasonality, resulting in a 7% decrease Q-o-Q. However, driven by a significant recovery in demand from front-end market, including utility ESS, UPS and BBU for AI data centers and power tools, revenue increased by 13% Y-o-Y to KRW 3.4 trillion. For operating income, factors such as increased AMPC benefits from rising sales of locally produced ESS in the U.S. and expanded sales of high value-added cylindrical batteries used in BBUs and professional power tools led to an improvement over both the previous quarter and the same period last year, narrowing the loss.

Moving on to the Electronic Materials business. Benefiting from the semiconductor market boom, sales of semiconductor materials remained robust with the increase in sales of flagship smartphones by major customers, sales of display materials also rebounded, leading to a Y-o-Y increase of 13% in revenue and 15% in operating income, respectively. However, due to the impact of seasonality, the performance slightly decreased compared to the previous quarter.

I will move on to our business highlights for the Q1. First, in the ESS market, where demand is growing rapidly with expanded customer orders and built on our supply chain, strengthening the foundation for future business outcomes. We secured prismatic LFP project awards for utility ESS solutions from major U.S. customers and signed high-power battery supply agreement for BDUs in data centers.

And at the same time, to meet the non-PFE procurement requirements of the U.S. OBBBA, we proactively established an LFP material supply chain. We also expanded customer base and product portfolio. On this 20th, we signed a supply agreement with Mercedes-Benz for our prismatic batteries, securing all 3 of Germany's top premium automotive brands as our customers. And we entered into a relationship with a new global memory manufacturer, leveraging our semiconductor packaging materials. Moreover by winning a tab-less cylindrical battery project for hybrid EVs, we're able to diversify product portfolio.

Lastly, at the InterBattery exhibition held last March, we unveiled an all-solid-state battery for physical AI, which currently garner significant market interest. Beyond this, we have developed solutions to improve the lifespan and safety of next-generation lithium metal batteries, continuously strengthening our future technological competitiveness.

Next, I will address the market outlook and our business strategies. First, the EV market is expected to see a gradual demand recovery, particularly in Europe. As subsidy policies in key countries such as Germany and France are expanded, the growth momentum centered on volume models is strengthening. And with the total cost of ownership or TCO for the ICE vehicles rising recently, expectations for recovery in EV demand are growing. We plan to proceed smoothly with the mass production of projects for new customers scheduled for the second quarter and the second half of the year and continue our trend of restoring profitability by increasing utilization rates.

Along with this, to strengthen our growth momentum, we will continue to pursue additional project orders focused on volume models. In the ESS market, growing power demand driven by expansion of U.S. AI data centers and steadily increasing demand for renewable energy linked ESS and UPS and domestically, rising share of renewable energy is also boosting the need for grid stabilization. Accordingly, we will expand local ESS mass production and sales of high-power UPS for data centers to address the U.S. power market while actively participating in the domestic government-led ESS project bidding and next-generation grid-connected ESS projects to expand our business.

Small battery business is also seeing sustained growth in demand for BBUs and professional power tools, driven by increasing AI data center construction and the micro mobility segment is showing signs of demand recovery centered on high-end leisure models following inventory adjustments. Therefore, we plan to expand sales by focusing on tab-less and high-power products tailored to specific application and improve profitability.

Next is the Electronic Materials business. Regarding semiconductor materials amid favorable conditions in the front-end market, the demand is expected to grow centered on high value-added semiconductor materials for AI applications while for display models. Demand driven by foldable smartphones and gaming modules is projected to continue. We'll expand sales of new semiconductor patterning materials and OLED materials such as TH, TFE and FOCA to sustain revenue growth.

As described [front end ] demand is recovering across both the batteries and Electronic Materials business units, and we will execute our response strategies effectively to continue improving our performance. We now close the presentation and move to the Q&A session.

The Q&A will be held in Korean followed by consecutive English interpretation for its response.

[Operator Instructions]. The first question will be provided by Sung Kyu Kim from Daiwa Securities.

[Interpreted]. I have 2 questions. First is about your business outlook in the second quarter, during the presentation. You've shared with us your market outlook and strategic direction for Q2. Can you also give us then your guidance on business performance? And also, when do you think you'll be able to return to black in terms of your business performance?

Second question is about ESS. Currently, the U.S. ESS market is growing very strong, particularly tied to the AI data center-related demand. So I'm wondering how large does the company estimate the data center-related ESS demand to be? And can you give us some updates on your order winning situations?

[Interpreted] I am CFO, [ Jae Kyun Oh ]. I will be answering your first question, which was about second quarter guidance and when we expect to return to black. Despite continuing uncertainty in the business environment and also the impact related with the Iranian war, fortunately, we see limited impact on the demand side of our major businesses. And as mentioned before, downstream demand continues to show signs of improvement. With demand improving, we believe the company's business results has turned around after bottoming out Q3 of last year and expect our loss to further narrow in Q2 as it did in Q1.

Regarding the timing of returning to profit, increasing local U.S. ESS production, winning EV volume model production, projects and increasing supply of cylindrical tab-less batteries and diversifying the customer base for electronic materials are some of the key initiatives that the company has been preparing to turn around our business performance. These efforts have started to deliver tangible results, and we hope to turn black on a quarterly basis during the second half of this year. We will seize this improving downstream demand as an opportunity to accelerate our turnaround and focus on faithfully executing this year's key business strategies shared earlier this year, such as focusing and prioritizing for better business efficiency, improving customer and market responsiveness and preparing future-ready technology.

[Interpreted] This is the ESS Business Team Leader, Yonghui Cho, and I will answer your second question, which was about U.S. ESS market, particularly tied to AI data centers and our order booking situation. U.S. total ESS demand is expected to grow from 90 gigawatt hours in 2025 to 160 gigawatt hour in 2030, which is a pace of 12% CAGR. Of that data center ESS demand is estimated to be 9 gigawatt hours in 2025 and 40 gigawatt hours or more in 2030, which is a growth of 30% plus CAGR.

In addition to the existing utility ESS tied to the renewable energy projects and blackout preventing UPS, recently, we're seeing demand for microgrid ESS, which are installed on site in data centers for independent power supply. And such demand has been rapidly growing, estimated to grow by more than 60% CAGR until 2030. Accordingly, not only the existing TD and SI companies, but even data center companies are seeking to directly secure long-term battery supply.

In terms of our order book, taking advantage of the growing data center-driven ESS demand momentum, we have been booking new orders by working with new customers in addition to the existing customer base, and we have booked orders to cover a significant portion of the next 2, 3 years of local U.S. ESS production capacity, which is a strong foundation for stable business performance going forward.

[Interpreted] The following question will b presented by Sonny Lee from JPMorgan Securities.

[Interpreted]. I have 2 questions. First question is related with the BBU demand, which is expected to grow tied to data centers in addition to the ESS demand. What is your sales plan for BBU this year? How much battery sales do you think will increase on a year-on-year basis related with BBU.

Second question is about your plans of producing LFP batteries for ESS local in the U.S. second half of this year? Can you give us some update on whether your supply chain is being prepared on time, including materials and components? And do you see any issues in satisfying the non-PFE regulations under OBBBA?

[Interpreted] This is Choi, Head of Battery Sales team under Battery Strategic Marketing. I'll answer your first question about the BBU outlook. The BBU battery market size projections are being revised upward, driven by the aggressive infra investments by cloud service providers. This year, it is expected to be USD 800 million as a market size, which is over 70% Y-o-Y growth. Recently, not only the existing BBU packers, but key cloud service providers are seeking to directly source battery supply to ensure stable supply of BBUs, and this may drive the market further up.

Leveraging our high-power output and non-China supply chain, we significantly increased BBU battery sales in Q1, and we expect to outgrow the market in terms of sales volume on a full year basis this year. We will also focus on enhancing the high-power output and safety features, which are important key features in the BBU market to develop BBU into a core pillar of the cylindrical battery business in the mid- to long term.

[Interpreted] This is Yoontae Kim, Head of Finance and Accounting team. I'll answer your question about our ESS SCM situation. Under the US OBBBA, PFE raw material or component dealing will be gradually lowered each year from 40% this year to 15% in 2030. So as a battery company, we can use this as a transition period to gradually switch our supply chain, and we have plans in place accordingly.

Critical to satisfying the non-PFE requirement is building a non-China supply chain for LFP cathode active materials, which account for a large portion of the LFP battery cost. We plan to gradually switch to Korean sources to meet the requirements and have already secured supply from a key Korean supplier and will further diversify supply in the mid- to long term to strengthen our supply stability. For material or components other than the cathode active materials, we do not expect any issues in meeting the non-PFE requirements under the current rules. But of course, we will continue to monitor changes in policy or changes in supplier competitiveness and technology to update our supply chain.

[Interpreted] The following question will be presented by Minwoo Ju from NH Investment & Securities.

[Interpreted] I have 2 questions. First question is about the new project that will go into mass production from your Hungary plant this year. With that project mass production, how much utilization improvement do you expect? And when do you expect your EV business as a business line to breakeven point?

Second question is about your semiconductor materials, the AI-related industry is rapidly growing. What kind of impact do you see on your semiconductor material? And also, can you give us any update of whether you have started any new semiconductor material or have diversified your customer base?

[Interpreted] This is Hoon Choi, VP of Battery Sales. I'll answer your first question about our Hungary new project. Even though easing of CO2 regulations last year had some negative impact on the European EV market, key European countries are reintroducing and increasing subsidies and the recent oil price increase has helped increase consumer interest in EV, improving EV demand, especially around the volume segment. And so EV battery demand is expected to increase by more than 10% on a Y-o-Y basis.

Amid such market demand improvements, we are also planning to start mass production for a new battery project for a European volume model from Q2 and expect to see meaningful contribution to Hungary plant utilization and business performance once the OEM's new model is launched and sales ramp up. This year, in addition to sales increases, we're planning to switch some of our lines to LFP and refit our lines with latest manufacturing processes. Reflecting such capacity efficiency effects, utilization is expected to improve to about 70% in the second half.

While we are targeting BEP during the second half with improved Hungary utilization and increased sales from the new products, we will have to wait and see a bit more given the possibility of customer demand changes, and we will keep you updated.

[Interpreted]. This is Ik Soo Kim, VP Strategic Marketing of Electronic Materials, and I'll answer your question about our semiconductor material business. Semiconductor companies have recently been continuing to invest in new capacity, and they are focusing on quickly building out mass production capacity. This is expected to bring strong growth in the long term, but for this year, the impact of new capacity increase is limited and wafer input is expected to grow in mid-single digits on a Y-o-Y basis this year.

Semiconductor downstream demand is increasing, but mainly around the high-end products such as HBM or GDDR7 for AI data centers, and we are aiming to outgrow market demand by focusing on related products such as metal slurry and high thermal conductivity packaging material. To drive continued revenue growth and profitability, we are focusing on increasing sales of not only EUV material for DRAM advanced node production and patterning material for foundries, but also focusing on diversifying to overseas customers by starting supply of packaging materials to a global semiconductor manufacturer.

[Interpreted] The last question will be presented by Chuljoong Kim from Mira Asset Securities.

[Interpreted] I have 2 questions. The first question is about the cylindrical batteries. During the presentation, you've emphasized tab-less cylindrical batteries for power tools, the professional power tools. Can you give us a bit more detail of the share of tab-less cylindrical within your overall cylindrical business? And in terms of profitability, what kind of level of higher profitability does tab-less batteries have versus your other products?

Second question is about the plans of selling your stake in SBC, which you publicly disclosed as of February. I'm wondering whether there's been any progress on that deal since? And when do you expect to close the deal? Do you think it will be possible within the year?

[Interpreted] This is VP Hoon Choi of Battery Sales. I will answer your question about the tab-less cylindrical batteries. This year, demand for power tool batteries is growing driven by increased AI data center construction, and we are targeting over 30% increase in sales Y-o-Y. Among the power tool batteries, demand is particularly high for high-power batteries for professional power tools, and we expect the share of tab-less batteries in our sales to increase from 3% to 4% last year to over 20% this year. Tab-less batteries are high-performance products that enhance energy density, output and charging performance by improving the tab design.

They are high-end products mainly used in high-end premium professional power tools.

And therefore, increased share of tab-less sales will improve overall cylindrical battery business profitability. Also, we plan to start supply of tab-less products for not only power tool applications, but also BBUs from Q2 and for hybrid EVs from the second half, which is likely to drive an even clearer improvement trajectory for our cylindrical battery business.

[Interpreted]. This is EVP Yoontae Kim of Finance and Accounting, and I'll answer your last question about the SDC sales. Currently, we are making relevant preparations, and we're reviewing details related with that sale. A committee comprised of only independent directors are considering the deal from various angles, not only from the company growth strategy perspective but also from a shareholder interest protection perspective, even though details, including the sales time line have not yet been decided. We are working towards the goal of completing the deal within the year.

[Interpreted]. Thank you very much for all of your questions. Your opinions are always well heeded in our business decision. This completes our conference call for Q1 2026. If you have any further questions, please forward them to our IR team. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Hello. Thank you for joining Samsung SCI's earnings conference call. Today's schedule will follow the earnings presentation with a Q&A session for participants. [Operator Instructions] We will now begin our Q4 2025 earnings presentation.

Good afternoon. I'm Yoontae Kim, Executive Vice President of the Finance and Accounting team at Samsung SDI. First of all, I'd like to thank everyone for joining today's earnings call. Joining me are EVP, [ Jaekyun OH ] from Business Management Operations; EVP, Jong-Sung Park from Strategic Marketing Office; EVP, Yonghui Cho from ESS Business team and VP, Ik Soo Kim from Strategic Marketing team of Electronic Materials Business.

The earnings call presentation will be provided with simultaneous interpretation and Q&A session with consecutive interpretation. We'll now begin Samsung SDI's 2025 4Q Earnings Call.

First of all, let me start with financial results for Q4 2025. Q4 revenue was KRW 3.9 trillion, a 26.4% increase Q-o-Q and a 2.8% increase Y-o-Y. Operating profit recorded a loss of KRW 299 billion. Pretax income recorded a loss of KRW 236 billion, which reflects equity income in affiliates and other factors and net income showed a loss of KRW 208 billion. Annual results showed revenue of KRW 13.3 trillion and an operating loss of KRW 1.7 trillion.

I will now present the financial status at the end of 2025. Factoring in CapEx and the increased equity value of affiliates asset growth by KRW 1.7 trillion Y-o-Y to KRW 42.3 trillion, with the partial repayment of short-term borrowings, liabilities decreased by KRW 345 billion Y-o-Y to KRW 18.7 trillion.

Following a paid-in capital increase through the issuance of new shares, total equity increased by KRW 2 trillion Y-o-Y to KRW 23.6 trillion. R&D expenses for 2025 are about KRW 1.4 trillion, an increase from the previous year and CapEx of KRW 3.3 trillion, a significant decrease year-on-year. For detailed financial status, please refer to the appendix.

Next, I will explain the Q4 financial results of each business unit. For the Battery Business in the Q4, ESS margin all-time high quarterly revenue driven by expanded U.S. sales. Due to increased AMPC for local U.S. production and compensations for reduced EV volumes, battery revenue grew 28% Q-o-Q to KRW 3.6 trillion.

Operating profit showed a loss of KRW 339 billion, significantly narrowing the loss compared to the previous quarter. Electronic Materials business recorded revenue of KRW 237 billion and operating profit of KRW 39 billion, maintaining a performance level consistent with the previous quarter.

We now look at the 2025 annual performance. In the battery business due to factors such as changes in major countries environmental policies, a decline in EV sales from the strategic U.S. customer and the delayed recovery in demand for small batteries. Revenue decreased 21% Y-o-Y to KRW 12.4 trillion, resulting in an operating loss of KRW 1.9 trillion. In the Electronic Materials business, despite improved performance in semiconductor materials, reduced sales of OLED materials led to a slight Y-o-Y decrease in revenue to KRW 883 billion with an operating profit recorded at KRW 130 billion.

Moving on to our business highlights in 2025. First, we strengthened our ESS sales foundation. Based on our exclusive non-Chinese prismatic ESS solution, we developed the NCA-based SBB 1.7 and LFP-based SBB 2.0 to expand our product portfolio and solidify our sales foundation. We also expanded ESS capacity by repurposing the U.S. local ex EV line and reached a 50% global BBU market share based on battery cell sales.

Technological competitiveness was also consistently strengthened. ESS safety and high-power cylindrical battery technologies gained external recognition. For all solid-state batteries, we signed a joint development agreement with BMW and MOU with Hyundai Motor Company for robot batteries, successfully building our future technology foundation.

Regarding Electronic Materials, next-generation G-Host and high-thermal conductivity EMC were first applied in customers' new products. We accomplished project awards on the ground of such strength in technological competitiveness. We completed a project award for NCA-based 46 pie cylindrical cells for an automotive OEM and signed large-scale supply agreements for LFP prismatic batteries for ESS applications.

We also won some awards in the initial beat of the domestic ESS central contract market and commenced supply to global power tool customers by launching high-power tabless cylindrical cell.

Next, our Head of Business Management Operation, will speak about the 2026 market outlook and business strategies.

Good afternoon. I'm EVP, [ Jaekyun OH ] from Business Management Operations. Having been appointed as Head of Business Management Operation at Samsung SDI at the end of the last year, I'm pleased to extend my greetings to our investors and shareholders through this conference call. Amidst challenging business environment, I feel a profound sense of responsibility in taking on this important position. To ensure the company reenter its growth trajectory, I will exert my utmost effort going forward.

Now I will address the 2026 market outlook for each business unit and our business strategies. First, the EV market. The global EV battery market is projected to grow about 16% Y-o-Y. However, influenced by the easing of green policies in North America and Europe and adjustments of electrification strategies by major global OEMs, EV battery demand, excluding China is expected to grow only about 6%.

On the supply side, weakening EV demand and strengthened regulations against Chinese batteries in North America are expected to intensify competition within Europe as Chinese companies expand their entry into the European market.

Next is the ESS market. With the expansion of the AI data center investments, demand for power storage, UPS and BBU will continue to grow and the latest need to long-term demand projection is anticipated to exceed the last quarter's projection.

In terms of supply, changes in the policy environment such as the IRA and tariffs are expected to expand supply opportunities for non-China firms through local production in the U.S. For small batteries, demand for cylindrical cells is rebounding led by the professional power tools amid the expansion of U.S. data center construction.

Additionally, demand from the new markets like E2Wheeler and robotics is expected to continue growing. For POP cells, demand for high-capacity batteries will increase, centered on premium models like AI phones and foldable phones. Last is the Electronic Materials market. As AI server investments expand, semiconductor materials will continue their robust growth and display materials are projected to grow centered on IT and mobile OLED panels.

Let me now share our 2026 business strategies. As previously mentioned, we anticipate another challenging business environment this year. However, we will mark this year as the inaugural year of our turnaround by implementing selection and focus for management efficiency, speeding up our response to customers and markets and preparing future-ready technologies.

First, we will maximize ESS sales to achieve 100% production capacity utilization. Specifically, we will execute the seamless U.S. mass production of the LSP equipped SBB 2.0 to minimize the effect of the U.S. EV demand decline and maximize profitability by leveraging AMPC incentives.

Furthermore, we will capture a larger market share by scaling the sales of high-performance BBU products powered by the high-power cylindrical batteries featuring tabless technologies. In the EV battery sector, we will maintain a stable sales foundation with existing customers while seamlessly expanding our reach to new customers starting this year to drive performance growth.

We also plan to secure mid- to long-term growth drivers by expanding orders for products based on new materials such as LFP and mid-nickel. Furthermore, we will initiate our entry into new hybrid EV projects by leveraging our forementioned high-power tabless cylindrical batteries. We will closely coordinate with our customers to come to an agreement for production volume declines and lower utilization rates, which were the root causes of our performance deterioration.

For the small battery business, we will expand sales of high-power tabless cylindrical batteries to meet the recovering demand for our professional power tools. Additionally, we will maximize sales by ensuring seamless mass production and supply aligned with customer schedules to secure first in positions for our key customers' new [indiscernible] flagship smartphones. The Electronic Materials business will accelerate the development of materials focused on emerging markets such as packaging and turning materials for HBM and films for foldable smartphones to strengthen our mid- to long-term growth foundation.

At the company-wide level, we plan to meet the growing demand for ESS and LFP batteries, while maintaining an efficient investment approach that prioritizes the utilization of existing lines of our new capacity expansions. Moreover, we will drive productivity innovation by developing integrated solutions for process improvements and equipment retrofits.

We will also focus on strengthening cost competitiveness through refined product designs, optimized workforce management at each site and monitoring of cost inefficiencies. Lastly, we will continuously enhance our mid- to long-term technological competitiveness by differentiating our products through the development of ESS integrated systems including real-time BMS control and cloud-based diagnostic solutions alongside investments in material technologies such as binders, conductive agents and electrolyte additives.

This concludes our 2026 business strategy. Thank you.

I'll now close the presentation and move to the Q&A session.

The Q&A will be held in Korean followed by consecutive English interpretation for each response. [Operator Instructions]

[Interpreted] [Operator Instructions]

The first question will be provided by Hyun-Soo Kim from Hana Securities.

[Interpreted] My name is Hyun-Soo Kim from Hana Securities. I have two questions. The first question is that during the presentation, you've discussed the '26 business environment and the company's strategic direction. Could you provide your guidance for full year performance? .

And the second question is that following the start of operations at our U.S. ESS line in Q4, could you update us on order momentum? In addition, as industry players, especially Korean players expand ESS capacity, how is the company assessing the risk of potential oversupply?

[Interpreted] This is Jaekyun OH, EVP for Business Management Operation, and I'll be providing the answer to the first question. As I previously noted, the market environment this year is improving compared to last year. Excluding seasonal softness in Q1, we expect sequential quarterly improvement with performance weighted towards the second half. We also expect to turn to quarterly profit in the second half of the year. Meanwhile, heightened global geopolitical tensions and policy uncertainties continue to drive elevated demand volatility among customers.

In response to demand softness, we are working closely with our JV partners for operational efficiency. These factors are expected to remain key variables that could impact our full year profitability. By business segment, profitability in ESS, where demand remains strong, is expected to improve significantly as U.S. local production ramps up driving higher AMPC benefits and reducing tariff burdens.

In small battery, following customers' tight inventory adjustments last year, we expect a gradual recovery in sales this year. In the Electronic Materials, we expect to maintain solid growth momentum amid robust semiconductor demand. For EV batteries, policy changes, including relaxed fuel economy standards and the elimination of subsidies and leading OEMs to recalibrate their electrification strategy.

And as a result, our near-term recovery in demand is unlikely. Nevertheless, with several new mass production projects scheduled this year, we are preparing to ensure timely supply ramp up utilization rates without disruption and optimize line operations across sites in order to narrow operating losses. Despite a very challenging domestic and global operating environment, we are focused on responding to market demand in a timely manner, improving performance and continuing to invest in future technology readiness with the objective of laying the brand work for earnings turnaround. Thank you.

[Interpreted] This is EVP Yonghui Cho from ESS business team. And I'll be providing your second question related to the orders of the ESS as well as a potential oversupply. In the U.S. ESS market, rising power demand driven by the growth of AI data centers, together with customer preferences for non-China battery supply is creating expanding opportunities for locally based battery manufacturers, including Samsung SDI. Leveraging our highly safe prismatic form factor products and SBB solutions, we are securing orders in line with our production ramp-up plans. In addition to our existing high nickel products, the expansion of our LFP product lineup is supporting increased order wins from new customers with respect to concerns about oversupply.

While we and other local battery manufacturers are increasing ESS capacity by utilizing existing EV production line, this requires time for product qualification and supply chain setup. In particular, capacity expansion for LFP products in prismatic form factors, where customer demand is strong, also requires advanced technical capabilities.

As a result, we believe the pace of such capacity additions will be more constrained. From a demand perspective, recent ESS order patterns indicate a transition from onetime project award to a growing share of multiyear contracts, typically spanning 2 to 3 years or more as customers seek to lock in medium- to long-term supply. Taking into account these demand and supply dynamics, we do not believe there is a high likelihood of an oversupply situation in the near term. We will continue to closely monitor market conditions and manage our production line plans accordingly.

[Interpreted] The following question will be presented by Sonny Lee from JPMorgan Securities.

[Interpreted] I also have two questions to pose. The first question is that with the U.S. ESS capacity increasing this year and AMPC benefits being reflected, profitability in the ESS business is expected to improve. So could you share your outlook on this? And the second question is that given the expansion of AI data centers, how do you see BBU demand evolving? And what is your outlook for your BBU sales?

[Interpreted] This is EVP, Yonghui Cho from ESS business, and I'll be answering your first question related to ESS business profitability. Since the last fourth quarter, we have been expanding local ESS capacity in the U.S. through capacity conversion. And based on this, we expect ESS revenue this year to increase by close to 50% year-over-year. .

From a profitability perspective, margins on products manufactured in Korea are expected to remain relatively lower due to their still significant exposure to U.S. exports and associated tariff costs. However, for locally produced U.S. products, the benefits from AMPC and reduced tariff exposure are expected to drive a meaningful improvement in overall ESS business profitability.

Starting in the fourth quarter with the ramp-up of new U.S. LFP production lines, tariff excludes exports from Korea are expected to gradually phase out. In addition, as the initial fixed cost burden at the new U.S. lines alleviate, we expect profitability to show a more feasible improvement. We plan to ramp up our U.S. ESS production lines as schedule, increase utilization and continue to enhance cost competitiveness with objective of improving profitability over time.

[Interpreted] This is EVP, Jong-Sung Park from Battery Strategic Marketing Office. I'll be answering your question related to BBU demand and BBU sales outlook. The BBU sale market is expected to sustain strong growth at a CAGR of approximately 14% from 2025 to 2030, supported by aggressive data center expansion by cloud service providers such as Amazon, Meta and Google.

In addition, a server power per rack increases to support AI workload, BBUs are required to deliver high power, faster charge and discharge rates and related performance specifications, which is driving stronger customer preference for high power cells.

We plan to launch BBU dedicated cells incorporating tabless technology to further enhance high-power performance within this year, thereby expanding our product portfolio. Given that end demand for BBU is concentrated in the U.S. market, where non-China sourcing requirements are strong, we plan to leverage our Malaysia manufacturing base to drive more than 20% year-over-year sales growth and to continue strengthening our market presence.

The following question will be presented by Chuljoong Kim from Mirae Asset Securities.

[Interpreted]

I also have two questions to ask. I am Chuljoong Kim from Mirae Asset Securities. Last year results in cylindrical batteries for power tools were significantly impacted by customer inventory adjustments. So could you provide an update on current customer inventory levels? And also in addition, how is the demand for tabless-based products? And what is your sales outlook?

And the second question is that the Electronic Materials business delivered solid results last year. Could you share your outlook for the market and your sales expectations for 2026?

[Interpreted]

Once again, this is EVP, Jong-Sung Park from Battery Strategic Marketing Office. I'll be answering your question related to the cylindrical battery inventory and the demand and sales outlook for tabless-based products. While U.S. housing market index appears to have passed their trough following recent interest rate cuts, the recovery in housing market remains sluggish. In contrast, increased investment in AI-related infrastructure and data center construction and supporting growth in professional-grade power tool sales. In addition, after large inventory reductions last year, customer inventory levels are now approaching normalized levels.

In particular, as demand improves in the professional segment, where higher battery power performance is required, demand for tabless-based products is increasing. We entered major customers' new projects with our tabless products last year, and we plan to scale up sales more meaningfully this year.

In addition, demand for tabless-based products is expanding beyond power tools into BBUs and hybrid EVs. We plan to supply these products to new projects within the year and will increase tabless capacity to support higher sales. As a result, we expect tabless products to account for more than 10% of cylindrical battery revenue this year, contributing to overall performance improvement.

[Interpreted] This is VP, Ik Soo Kim for Electronic Materials Strategic marketing team, and I'll be answering your question related to the Electronic Materials businesses, market and sales expectations and outlook. In the Electronic Materials business, we expect solid growth to continue in '26, supported by positive growth outlook in the semiconductor and OLED market.

With respect to market conditions and the semiconductor front end market, wafer input is projected to increase by more than 5%. This growth is driven by expanded production centered on high value-added products fueled by AI and data centers, alongside the efforts to secure volumes of commodity DRAM. In the OLED panel market, despite product price increases driven by higher component costs, panel shipments are expected to remain solid, supported by premium products such as foldable devices.

In terms of sales outlook, for semiconductor materials, we expect revenue growth driven by mass production ramp-up with key customers for high thermal conductivity EMC and metal slurry products. We also plan to expand our portfolio with packaging materials for next-generation processes. For OLED materials, we expect sales to increase supported by customer diversification for high-efficiency green host materials and foldable display optical bonding films.

We also plan to focus on development of OLED materials and organic panel materials for high color gamut applications going forward. Based on these initiatives, we will continue to drive the expansion of our Electronic Materials business.

[Interpreted] The last question will be presented by Minwoo Ju from NH Investment & Securities.

[Interpreted]

This is Minwoo Ju from NH Securities. I have two questions. And the first question is that following weaker sales to European customers last year, which led to lower utilization at the Hungary plant. Could you outline your plans to improve utilization this year? In addition, how is progress on new order wins with European customers?

And the second question is related to capital expenditures. It actually declined year-over-year last year. How do you expect capital spending to trend this year? In addition, how are you planning to fund your capital investments?

[Interpreted]

This is EVP, Jong-Sung Park from Battery strategic marketing. I will be answering the question related to the plans to improve utilization rate at Hungary plant as well as the progress on new order wins with European customers. Due to a combination of factors, including relaxed European emissions regulation, a shift in consumer demand towards the mid- to low segment and increased penetration of Chinese EVs, demand for our key products declined, which led to lower utilization at our Hungary plants last year. However, with several improvement drivers in place this year, we expect utilization to improve year-over-year.

First, with the 3-year average-based carbon emissions regulations remaining in effect, we plan to expand supply for existing projects. In addition, for new supply projects scheduled for both the first and second half of this year, we intend to proceed with mass production on schedule without disruption in order to gradually increase utilization rate. We are also taking steps to prepare for the future by constructing new 46-phi production line. At the same time, we plan to convert certain lines to LFP and implement manufacturing modifications, which we expect will further enhance operational efficiency.

With respect to new orders, we are pursuing entry into high-growth volume and entry-level segments and actively working to secure new customers. We are advancing discussions with multiple customers on a range of mass production projects, including high nickel, mid-nickel and LFP chemistries, and we expect to see more tangible progress in the first half of the year.

[Interpreted] This is EVP, Yoontae Kim from Finance and Accounting. I will be answering the question related to CapEx outlook and funding method. This year, our capital expenditures were focused on essential investments for future growth, including the construction of 46-phi lines in Hungary, modifications to U.S. LFP, ESS lines and the application of cylindrical tabless technology at our Malaysia site. At the same time, we are pursuing investment efficiency initiatives. And as a result, we expect overall capital spending to decline slightly year-over-year.

With respect to funding, even with a reduced level of investment, it remains difficult to fully cover capital expenditures with operating cash flow alone. Accordingly, we plan to review a range of funding options including the utilization of existing assets, taking into account the size and timing of our investments.

Lastly, we will close the call by answering one of the questions that we collected online in advance. Many investors have inquired about all solid-state battery advanced production plans and latest development status. And Jong-Sung Park, Head of Battery Strategic Marketing Office will provide the reply to this line of question.

[Interpreted]

In line with our original plan, we are advancing the development of all solid-state factories with the goal of starting mass production in 2027. Last October, we also signed an MOU with BMW to develop test vehicles, marking tangible progress in our collaboration. While there has been some delay in OEM electrification plans, the robotics market is growing rapidly with the adoption of physical AI technologies. Even the limited installation space and the need for high safety and high-power in such devices, demand for all solid-state batteries is increasing.

In this context, we are exploring collaboration opportunities with multiple robotics companies utilizing all solid-state batteries. In addition, we are expanding business opportunities in new applications that require highest levels of safety and energy density, including urban air mobility, which enables the rapid transport of people and cargo in urban areas using small electric aircraft as well as high altitude platform stations, which provide communications and observation services through long endurance flights.

With the goal of starting mass production next year, we will continue to expand business opportunities in line with market demand. We also plan to proceed with capacity expansion investments for our all solid-state battery lines this year and prepare for commercialization in accordance with our planned time line.

[Interpreted] And I would also like to thank our investors for their opinions, and we will reflect them in our management decision-making goal going forward. And if you have further questions, please contact our IR team. And this concludes the earnings call for Q4 2025 of Samsung SDI. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

[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.

[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]

[Interpreted] [Operator Instructions] The first question will be provided by Won Suk Chung from iM Securities.

[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.

[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.

[Interpreted] following question will be presented by Minwoo Ju from NH Investment & Securities.

[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.

[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.

[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.

[Interpreted]

The following question will be presented by Kyung Hun from DAOL Investment & Securities, with your question.

[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?

[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.

[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.

[Interpreted] The last question will be presented by Ji-San Kim from Kiwoom Securities.

[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.

[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.

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.

[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.

[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

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.]

Good afternoon, everyone. Thank you for joining Samsung SDI 2025 Second Quarter Earnings Call. [Operator Instructions] Now we'll begin 2025 second quarter earnings results.

Good afternoon. 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; VP Soo Han Kim, for Automotive and ESS Battery, EVP Hanjae Cho, for Small Battery; and VP Ik Soo Kim for Electronic Materials.

We'll provide simultaneous interpretation for the earnings presentation and consecutive interpretation for the Q&A session. Now we'll begin Samsung SDI's 2025 Second Quarter Earnings Call.

First off, please note that starting with the 2024 3Q results, the profit or loss from discontinued operations is separately stated due to the decision to discontinue the Polarizer Film business. Today's presentation will also be based on the same reporting standards.

We'll start with our 2025 Q2 financial results. Q2 revenue was KRW 3.2 trillion, up by 0.1% Q-o-Q and down by 22% Y-o-Y. Operating income recorded a loss of KRW 398 billion. Pretax income recorded a loss of KRW 341 billion, and net income posted a loss of KRW 167 billion.

Next is our financial status at the end of 2Q. Assets increased to KRW 41.4 trillion, up by KRW 721 billion from the end of 1Q due to capital increase. Equity rose to KRW 22.7 trillion, up by KRW 1.1 trillion Q-o-Q due to capital increase. 2Q CapEx was KRW 1.1 trillion, bringing the cumulative total for the first half to KRW 1.8 trillion. For detailed financial status, please refer to the appendix.

Now I will present the 2Q financial results of each business unit. First off, 2Q revenue for the battery business was KRW 2.96 trillion, down 1% Q-o-Q and 24% Y-o-Y. Operating profit recorded a loss of KRW 431 billion. Inventory adjustments by major customers eased and sales of power tools and ESS/BBUs grew on AI growth. However, revenue remained flattish Q-o-Q due to sluggish demand of major EV customers.

While fixed cost burden from delayed sales recovery persist, profitability for North Korean ESS declined and volume compensation from a major EV customer was delayed. However, operating deficit in the battery business slightly reduced Q-o-Q as losses in the small battery business decreased quite significantly.

For the Electronic Materials business, revenue and profitability improved as sales of OLED materials for major customers' new smartphones as well as semiconductor wafer production increased.

Next, CFO, Jong Sung Kim, will share our first half business highlights and market outlook and core strategies for the second half.

Good afternoon. I am CFO, Jong Sung Kim. First, we apologize for our earnings falling short of market expectations. We expected a meaningful recovery in 2Q earnings compared to 1Q. However, due to increased uncertainties such as the IRA revision and tariffs, we were unable to reduce losses as much as originally planned.

We expect gradual earnings improvement in the second half alongside sales growth, although macroeconomic uncertainties are likely to persist. To overcome these challenges and solidify our foundation for mid- to long-term growth, we have continued our efforts and achieved the following results.

First, we strengthened our battery order efforts to secure future growth in the battery business. For EV batteries, we secured an order for 46-phi cylindrical batteries for a European global EV and its premium EV lineup and are currently in discussions with a U.S. start-up to supply 46-phi batteries for commercial EVs.

Discussions with another European global OEM are progressing well for prismatic LFP batteries for volume and entry-level EVs as well as prismatic NCA batteries for commercial EVs. We expect to achieve tangible outcomes in the near future.

For the ESS business, we won multiple products by participating in domestic government-led ESS project bidding. We also signed a contract for utility ESS project in the U.S. with local production scheduled to begin in 4Q. Several products, including LFP, are also expected to be finalized in the second half.

For small batteries, we'll begin supplying our newly developed tabless ultra-high-power battery to major customers in 3Q. Alongside these efforts, we are continuing to diversify our applications and customer base. For batteries beyond existing applications, we're in discussions to expand applications not only to BBU, which accounts for a meaningful share of sales in the first half, but also to HEVs, humanoids and UAM.

For semiconductor materials, we are securing new customers in the U.S., Greater China and Japan and began sales to a new customer in Greater China during the first half.

Next is the market outlook and our core business strategies in the second half. For the EV battery market, U.S. demand for EVs is slowing due to relaxed CO2 regulations, reduced subsidy and tariffs. EU demand is concentrated in affordable volume and entry segment as subsidies resume.

To cope with this, we are minimizing the impact of market changes by enhancing the operational efficiency of the StarPlus Energy line. Leveraging No-Thermal Propagation technology of prismatic form factors and new chemistries such as LFP, we aim to expand orders in the fast-growing volume in Energy segment.

For the ESS market, demand for utility and UPS is steadily growing due to the rising share of renewables and increased power needs from AI data centers. In contrast, pressure on cost and profitability on ESS produced outside the U.S. due to tariffs is mounting.

To address this, we'll boost sales in the second half by initiating local mass production in the U.S. and revitalizing domestic electric grid stabilization projects. Also we will secure more orders centering on LFP cells for utility and ultra-high power or UPS.

Next is the small battery market. Demand is recovering for high-power products, such as powertools and E2Wheeler. With the expansion of the AI and big data markets, BBU adoption for server is expected to grow. We will increase sales of powertools with new tabless batteries and E2Wheeler and BBU with high-power batteries. Additionally, for IT batteries, we plan to become the first-in to supply batteries for flagship smartphones of major customers in 4Q.

Last is the Electronic Materials. OLED panel market is expected to grow around new premium smartphones. With the expansion of AI, the semiconductor market is also expected to gain strong momentum based on rising demand for high value-added DRAM products, including HBM. Accordingly, we'll ensure timely supply of OLED materials to major customers' new platforms while increasing our market share in semiconductor materials by penetrating into customers' new products.

With continued market challenges in the second half, significant short-term earnings improvement will be difficult. However, we'll execute the strategies outlined above to gradually recover our performance and achieve mid- to long-term growth. Thank you.

[Foreign Language] Now Q&A session will begin. [Operator Instructions] [Foreign Language] The first question will be provided by William Cho from HSBC Securities.

[Foreign Language] This is William Cho from HSBC. I have one question. Samsung SDI recorded a significant loss in the first half of the year. Could you provide a more detailed outlook for the second half and indicate when a turnaround to profit is expected?

[Foreign Language] This is CFO, Jong Sung Kim, and I'll be providing you the answer to your question. In the first half of the year, significant policy changes in major countries such as the revision of the U.S. IRA and the imposition of tariffs led to reduced customer demand and lower utilization rates. This resulted in increased fixed cost pressure and weak performance. However, in the second half, sales are expected to improve, particularly in the smart battery and Electronic Materials businesses, leading to a gradual recovery in performance. We anticipate to turn to profit in Q4.

Let me provide additional update by business segment. In the mid- to large-sized battery business, we expect the operating loss to narrow in the second half. This will be driven by increased shipments to major European OEMs, compensation for reduced EV battery orders that was delayed from Q2 and continued strong demand in ESS. However, we do also expect some pressure on profitability from external factors such as the recently imposed U.S. tariffs.

For small batteries, solid sales for BBU applications continue while revenues from other applications such as powertools, EVs and micro-mobility are expected to grow significantly compared to the first half. As a result, we anticipate a meaningful improvement in performance with the goal of turning up profit in Q4.

In the Electronic Materials business, strong end market demand is driving continued growth in both OLED and semiconductor process materials, and we expect both sales and profits to increase compared to the first half. However, macro level uncertainties are expected to persist in the second half, contributing to continued earnings volatility. We will closely monitor market developments and work in close coordination with our customers to minimize any potential disruptions.

In addition, to support mid- to long-term growth, we are working to secure several key orders currently under negotiation. We will continue to drive product differentiation through advanced technologies such as prismatic batteries, utilizing multiple chemistries including LFP and cylindrical batteries featuring tabless technology to further expand our order pipeline.

[Foreign Language] The following question will be presented by Sang Uk Kim from UBS Securities.

[Foreign Language] I actually have two questions. My first question is that you mentioned in your presentation about improving the operational efficiency of the StarPlus Energy lines and setting up a local ESS production system. Does this mean that the StarPlus Energy lines will be converted to ESS production? Please explain the future operational plan for the StarPlus Energy lines in more detail.

And my second question is that you've also mentioned that discussions are underway for first LFP project. Does this mean you are now more actively entering the volume entry market? And since the entry is relatively late, what is the catch-up strategy?

[Foreign Language] Thank you for your questions. This is VP, Soo Han Kim. I will be providing you the answers to your question. As for your question related to the operational plan for the StarPlus Energy line, well, due to lower-than-expected customer demand, it has become necessary to adjust the operation plan for the StarPlus Energy production line.

At present, it is difficult to operate the line solely with EV battery production. So until customer demand recovers, we plan to utilize part of the lines for ESS battery production. After completing the line set up, mass production is expected to begin around October. We have already secured a significant portion of orders for this line throughout next year.

To prepare for the possibility of prolonged weakness in customer demand, we are discussing various measures with customers to improve line utilization, such as supplying battery for European EV models in addition to using the lines for ESS production. Starting with mass production of ESS cells, we plan to gradually ramp up line operations.

[Foreign Language] Once again, this is VP, Soo Han Kim, and I'll be answering your second question related to the LFP product with which we are going to be entering into the volume entry market. As the EV market grows, the volume and entry-level segments are expanding at a faster pace.

To align with this trend, we plan to actively target these segments and expand our business by introducing new products based on multiple chemistries, including LFP. Recent OEM requirements show that as battery energy density and capacity increase, safety standards, including thermal management are becoming significantly more stringent. Additionally, for volume and entry segments, which tend to have shorter driving ranges, fast charging performance is becoming increasingly important.

In our case, the proprietary thermal propagation prevention technology, based on prismatic form factors developed through our experience in the high-performance premium market has become a major selling point in recent bidding processes for the volume and entry segment market. We also plan to enhance a fast charging performance by applying lower resistance technology and strengthen cost competitiveness by utilizing low-cost cathode materials.

In fact, customer needs are expanding due to the prismatic form factor-based LFP solution, and we are making significant progress in collaboration with multiple customers and projects using multiple chemistry products. By around 2028, when full-scale mass production begins in Europe and the U.S., we aim to be well positioned to compete on equal footing with leading players in the industry.

[Foreign Language] The following question will be presented by Hyun-Soo Kim from Hana Securities.

[Foreign Language] This is Hyun-Soo Kim from Hana Securities. I have two questions related to small batteries. My first question is that you've mentioned that small battery performance improved in Q2 and is expected to improve further in the second half. So could you please provide a bit more detail by application? And my second question is this one. Regarding the new automotive orders for 46-phi cylindrical batteries, could you please provide additional details within the scope of what can be disclosed?

[Foreign Language] This is EVP, Hanjae Cho, and I'll be answering your question related to the performance of small battery in Q2. In the case of cylindrical batteries, the market conditions are expected to gradually improve with demand showing signs of recovery, particularly for high-power products across key applications.

For powertools, as major customers inventory levels have generally decreased, demand has been gradually recovering since Q1, particularly for ultra high-power battery packs. In the second half of the year, we plan to expand sales by launching 1865 and 2170 tabless products.

Given its product characteristics, BBU requires high-speed charging and discharging. We plan to expand supply by further enhancing our high power performance. Sales of E2Wheelers, including off-road e-motorcycles, are also expected to grow, driven by strong consumer demand for high-power and high-capacity products.

In line with the market conditions and characteristics of each application, we will actively respond to the recovery in demand by launching new application-specific products based on the competitiveness of our cylindrical batteries.

For pouch batteries, we plan to achieve our first-in for all flagship models of major domestic customers in Q4 while also increasing our market share in mass market models to improve both sales and profitability. Through such seamless responses tailored to each application, we will strive to ensure that the small battery business turns profitable as planned in Q4.

[Foreign Language] Again, this is VP, Soo Han Kim, and I'll be answering your second question regarding the new automotive orders for 46-phi cylindrical batteries. We ask for your understanding as we are unable to disclose specific details due to contractual obligation. This project is being prepared with a target of mass production in 2028 through investment in a new production line at our manufacturing site in Hungary.

Through this order, we expect to strengthen our partnership with the customer and gradually increase our supply share over the mid- to long term. Moreover, this also marks a meaningful expansion of our EV battery product portfolio from prismatic cells to 46-phi cylindrical cells.

As the company is planning to locally produce 46-phi cells in the Hungary plant, we will leverage our localization experience and technology competitiveness to ensure smooth execution and further strengthen our presence in the European market.

[Foreign Language] The following question will be presented by Won Suk Chung from iM Securities.

[Foreign Language] This is Won Suk Chung from iM Securities, and I have two questions. And my first question is that the U.S. tariff policy is putting pressure on performance. So how significantly is it affecting our profitability? And what measures are you planning to take in response?

And my second question is related to Electronic Materials. The Electronic Materials business has been delivering solid performance. So what is the future outlook for the business? And what is the company's strategic direction?

[Foreign Language] This is again VP, Soo Han Kim. I'll be answering your question related to the impact of tariff on ESS performance. Currently, more than 70% of our ESS sales are directed to the U.S. and with all shipments exported from Korea and also as the tariff rate is expected to be set at 15% starting in August, it will have a mid-single-digit percentage impact on our operating margin in the second half of the year.

To mitigate the impact of tariffs, we plan to begin local production within this year by utilizing the StarPlus Energy lines. Additionally, we aim to start local mass production of LFP ESS by 2026.

While some materials will still need to be imported from outside the U.S. and, therefore, remain subject to tariffs, we expect to offset part of the impact through AMPC subsidies. Given that the U.S. ESS market is the fastest growing, we anticipate not only continued sales growth but also a gradual improvement in profit margins.

[Foreign Language] I will be providing the answer to your second question related to Electronic Materials business and I'm VP, Ik Soo Kim. The key products of the Electronic Materials business, semiconductor and OLED materials are expected to continue their steady growth going forward.

The semiconductor and OLED material market relevant to our portfolio are expected to grow at average annual rates of 7% and 5%, respectively, through 2030. Aligned with this market growth, our business division aims to achieve sustained sales expansion while maintaining stable profitability.

In the short term, we plan to diversify our customer base by increasing the market share of existing products and acquiring new clients. Over the midterm, we are also actively advancing the development of new products to support future growth.

If I may elaborate on our new product development, in semiconductor materials, we are focusing on packaging materials, which are expected to demonstrate sustained growth. Leveraging our core technologies, we are developing high thermal conductivity molding compounds for HBM applications as well as copper slurry materials.

Additionally, in that process packing materials, we're expanding our product portfolio by developing materials required for next-generation semiconductor processes, including EUV materials.

For OLED materials, we are developing a range of new products, including G-Host materials to be applied in major customers' new products as well as RGB materials and low refractive index materials for new applications. We will ensure the timely launch of these new semiconductor and OLED materials to contribute to the future expansion of our Electronic Materials business.

[Foreign Language] Lastly, we will close the call by answering to one of the questions that we collected online in advance. And the question is this. EV sales grew in the first half of the year compared to last year, and other battery companies are also seeing improved performance. However, SDI's recovery appears to be relatively slower. What are the reasons for this? And what measures are being taken in response? And the answer will be provided by VP, Soo Han Kim.

[Foreign Language] Our company has focused on the premium market based on high-nickel batteries achieving both strong profitability and top line growth. However, over the past one to two years, due to economic slowdowns in major countries and reductions in EV subsidies, consumer demand has shifted faster than expected towards the volume and entry segments, creating challenges.

Additionally, our relatively late entry into the U.S. market limited our ability to secure a diverse range of customers and projects which impacted our sales growth and the expansion of AMPC.

To address these challenges, we are actively pursuing orders for volume and entry-level products by leveraging our accumulated expertise in prismatic battery technology. Utilizing a range of battery chemistries, including LFP, we are advancing discussions with multiple customers and expect several projects to be finalized in the second half of the year.

In the U.S., we plan to minimize the impact on our performance in the short term through the efficient operation of StarPlus Energy while proceeding as planned with our joint venture with GM. We also intend to expand discussions on project collaborations with other OEMs in the U.S. market.

While some of the initiatives that we have outlined are expected to deliver short-term performance improvements, many are geared towards generating results over the mid- to long term. We remain committed to executing these measures diligently to enhance our performance and drive sustainable growth.

[Foreign Language] We appreciate your valuable questions and opinions and we'll refer to them in our management decision-making. Now we will end the earnings conference call for Q2 2025. Should you have further inquiries, please contact the IR team. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]