Samsung Electronics : 2018 Half Year Report

SAMSUNG ELECTRONICS Co., Ltd.

Half Year Report

January 1, 2018 - June 30, 2018

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』.

Table of Contents

Certification ................................................................................................................................................................................ 3

I. Corporate Overview ............................................................................................................................................................... 4

II. Businesses Overview ......................................................................................................................................................... 27

III. Financial Affairs ................................................................................................................................................................. 72

IV. Auditor's Report ............................................................................................................................................................... 148

V. Management Discussion and Analysis ........................................................................................................................... 150

VI. Corporate Governance .................................................................................................................................................... 151

VII. Information on Shareholders ......................................................................................................................................... 161

VIII. Executives and Employees ........................................................................................................................................... 167

IX. Affiliates and Subsidiaries .............................................................................................................................................. 178

X. Related Party Transactions .............................................................................................................................................. 208

XI. Other Information ............................................................................................................................................................. 212

Certification

Letter of Certification

We, Ki-Nam Kim and Hee-Chan Roh, as CEO and executive of the company in charge of reporting, certify that we have reviewed the half year business report of Samsung Electronics Co., Ltd. for the six-months ended June 30, 2018.

Based on our knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary that would be misleading with respect to the period covered by this report.

Based on our knowledge, the financial statements, and other financial information included in the report, fairly present in all materials respects 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 2.2 and 2.3 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: 2018. 8. 14

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) comprises business divisions that operates independently (each a "Division"): 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, TFT-LCD panels, OLED panels, etc.
Harman	Head units, infotainment systems, telematics, speakers, etc.

SEC is a global electronics firm comprised of the headquarters in Korea and 263 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 twelve (12) consecutive years by leveraging competitive advantages in hardware such as LCD/LED TVs as well as software driven productfeatures within our Smart TV product portfolio. We plan to solidify our market leadership by continue developing new technologies and making innovations.

[IM Division]

The IM Division operates the Mobile Communication Business, which produces and sells smart mobile devices such as smartphones, tablets, wearable devices, etc. For smartphones, a key product of the business, we have developed a product lineup ranging from low-end to premium models, and achieved growth in both advanced and emerging markets with the Galaxy series.

The division leads the smartphone market with innovative hardware features including flexible OLED panels, high-definition cameras, and biometric sensors. For software, we will continue innovating to enhance user experience by investing in cutting edge technology ranging from Samsung Pay and Bixby to Cloud, IoT, healthcare, AR, and VR. At the same time, we will lead the global network business via 5G commercialization, the next-generation technology.

[DS Division]

The DS Division comprises the Memory Business, System LSI Business, Foundry Business, and Display Panel ("DP") Business. 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 is constantly working 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 produces differentiated products and has maintained the top position in the global memory market by being the first to apply the latest advanced process technology for 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. The Foundry Business partners with fabless corporations based on its advanced process technologies and seeks to solidify its market leadership by being the first to develop 7nm and 8nm processes. In 2018, the Business aims to lead advanced process technology by introducing the world's first EUV process.

The Company's OLED business is building a system that can respond swiftly to fluctuating market demand for flexible panels while maintaining a competitive edge by delivering differentiated products. The TFT-LCD business is improving its sales mix via high-value-added high-definition and ultra-large panels for use in quantum dot and frameless products. It is also strengthening business competitiveness by continuously improving yield and reducing costs.

[Harman Division]

Harman designs and develops connected products and solutions for automakers, consumers, and companies worldwide, and is a global leader in the market for connected car systems, audio and visual products, professional solutions, and connected services.

Harman has established an internationally renowned brand and employs both internal development and strategic acquisitions to expand its lineup of quality products.

☞See『II. Businesses Overview』, for more details about each Division.