SAMSUNG ELECTRONICS Co., Ltd. Interim Business Report For the quarter ended September 30, 2019 Certain statements in the document, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our financial reports available on our website. See, also, 『Note on Forward-Looking Statements』 in preamble of 『II. Business Overview』. Samsung Electronics Interim Business Report 1 / 217 Table of Contents Certification ................................................................................................................................................................................ 3 I. Corporate Overview ............................................................................................................................................................... 4 II. Businesses Overview ......................................................................................................................................................... 26 III. Financial Affairs .................................................................................................................................................................. 74 IV. Management Discussion and Analysis .......................................................................................................................... 147 V. Auditor’s Report ................................................................................................................................................................ 148 VI. Corporate Governance .................................................................................................................................................... 150 VII. Information on Shareholders ......................................................................................................................................... 166 VIII. Executives and Employees ........................................................................................................................................... 172 IX. Affiliates and Subsidiaries .............................................................................................................................................. 177 X. Related Party Transactions .............................................................................................................................................. 205 XI. Other Information ............................................................................................................................................................. 209 Samsung Electronics Interim Business Report 2 / 217 Certification Letter of Certification We, Ki-nam Kim and Hee-chan Roh, as executives in charge of reporting, certify that we have reviewed the half year business report of Samsung Electronics Co., Ltd. for the nine-months ended September 30, 2019. Based on our knowledge, this report does not contain any untrue statements or omissions of necessary material facts that would be misleading with respect to the periods covered by this report. Based on our knowledge, the financial statements, and other financial information included in the report, are fairly presented in all materials and respect the financial condition, results of operations, and cash flows of the company as of, and for, the periods presented in this report. We confirm that Samsung Electronics operates an Internal Accounting Management System, responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting, as defined in Article 8 of the External Audit Act. We have disclosed our most recent evaluation of internal controls over financial reporting to the Company’s auditors and to the audit committee of the Company’s board of directors. Date: Nov 14, 2019 Samsung Electronics Interim Business Report 3 / 217 I. Corporate Overview 1. Overview A. Legal, commercial name: - Samsung Electronics Co., Ltd. B. Date of establishment: - Samsung Electronics Co., Ltd. (“SEC”) was established as Samsung Electronics Industry Co., Ltd. on January 13, 1969, and held an initial public offering on June 11, 1975. - SEC changed its name from Samsung Electronics Industry Co., Ltd. to Samsung Electronics Co., Ltd. following a resolution passed at the Annual General Meeting (AGM) of shareholders on February 28, 1984. C. Address, phone number, and English language website of the corporate headquarter - Address: 129, Samsung-ro, Yeongtong-gu, Suwon, Gyeonggi-do, Korea - Phone Number: 82-31-200-1114 - Website: https:// www.samsung.com/sec D. The Company is not subject to Article 2 of the Framework Act on Small and Medium Enterprises. E. Core businesses - The Company (defined below) consists of business divisions that operate independently: CE (Consumer Electronics); IM (Information Technology & Mobile Communications); DS (Device Solutions); and Harman (Harman International Industries, Inc. and its subsidiaries), which produces automotive electronics components. Products in each Division are presented below: Division Products CE TVs, monitors, refrigerators, washing machines, air conditioners, etc. IM HHPs, network systems, computers, etc. DS DRAM, NAND flash, mobile APs, OLED smartphone panels, LCD TV panels, etc. Harman Head units, infotainment systems, telematics, speakers, etc. SEC is a global electronics firm comprised of the headquarters in Korea and 246 subsidiaries (collectively, “Samsung Electronics” or the “Company”) across the world including nine (9) regional headquarters for the CE and IM Divisions, five (5) regional headquarters for the DS Division, and Harman’s subsidiaries. [CE Division] The CE Division is leading the global digital era by continuously offering new products with innovative technology, unique design, and enhanced value propositions. TV is the core product of CE. The Company has maintained its position as the market leader for thirteen (13) consecutive years by leveraging competitive advantages in hardware such as LCD/LED TVs as well as software driven product features within our Smart TV product portfolio. We will continue to expand our market leadership based on our competitive edge in the premium segment through our 8K QLED and ultra-large products, to name a few. Samsung Electronics Interim Business Report 4 / 217 [IM Division] The IM Division operates the Mobile Communication Business, which produces and sells smart mobile devices such as smartphones, tablets, wearables, etc. For smartphones, a key product of the business, we have developed a lineup ranging from low-end right through to premium models, and have achieved growth in both advanced and emerging markets with the Galaxy series. We will lead growth of the smartphone market and deliver exceptional user experiences by: 1) offering innovative hardware features such as new form factors (based on flexible OLED technology), high-definition cameras, biometric sensors, and battery charger technologies; 2) improving software capabilities of Samsung Pay, Bixby, etc.; and 3) investing in future growth drivers such as Cloud, IoT, healthcare, AR, and VR. At the same time, we will lead the global 5G market based on our end-to-end solutions, which encompass handsets, chipsets, as well as our commercialization experience in initial 5G markets. [DS Division] The Memory Business, System LSI Business, Foundry Business, and Display Panel (“DP”) Business make up the DS Division. The Memory Business manufactures and sells DRAM and NAND products; the System LSI Business designs and sells mobile application processors (“mobile APs” or “APs”) and camera sensor chips; the Foundry Business is in charge of consignment production of semiconductors; and the DP Business manufactures and sells display panels. The Company constantly works to increase its influence on end-product manufacturers and create new demand through technological breakthroughs and the development of high quality components as it has done with APs—which serve as the brains of mobile products—and with memory components like DRAM via enhanced capacity and density. The Memory Business has maintained its position at the top of the global memory market by sustaining cost competitiveness and applying the latest advanced process technology in each technological iteration. The System LSI Business has not been complacent, expanding its focus from mobile to include automotive chips, and will stay at the forefront of the market by offering differentiated products such as APs and CISs and strengthening competitiveness via its advanced manufacturing process technology. In 1H19, the Foundry Business introduced the world’s first 7-nano product manufactured with EUV technology; and it will gain market leadership by developing next-generation technologies such as the 3-nano process. We are expanding the business by diversifying our product portfolio, which includes CIS, DDI, and PMIC. In the Display division, the Company’s mobile panel business’s differentiated technology is a main factor