Hana Securities said the supply shortage of multilayer ceramic capacitors (MLCC) and flip chip ball grid array (FCBGA) for artificial intelligence (AI) servers is persisting, increasing the likelihood that Samsung Electro-Mechanics(009150) will post profitability above market expectations. It maintained a "buy (BUY)" rating and a target price of 3 million won. The previous trading day's closing price for Samsung Electro-Mechanics was 1.274 million won.
Kim Min-gyeong, an analyst at Hana Securities, said on the 11th, "While demand for MLCC and FCBGA centered on AI servers continues to rise, supply expansion remains limited as production capacity losses increase," and "With the emergence of AI data center customers that have stronger pricing absorption than in past cycles, the likelihood of posting profitability above market expectations is rising significantly."
For MLCC, the supply shortage is leading to price increases. Samsung Electro-Mechanics has signed 10 long-term agreements (LTA) and is negotiating with more than 10 additional customers. However, it is expected to keep the share of long-term contracts limited within total MLCC sales, leaving room for future price increases.
In fact, Samsung Electro-Mechanics raised distribution channel lot prices by about 10% and 30% in Jun. and Aug., respectively. The explanation is that supply is failing to keep up with demand to the extent that the average selling price (ASP) of the same product has risen rapidly in a short period.
Kim said, "As MLCC supply and demand get even tighter, there is a high likelihood of price negotiations for volumes outside of distribution channels as well."
It is expected to take time to expand supply. Samsung Electro-Mechanics moved up the start of operations for its new production facility in the Philippines from the second half of 2027 to the first half, but large-scale capacity additions will be difficult in the short term due to staffing issues. Annual capacity growth is projected to be around 20%.
FCBGA is also expected to run at full capacity from the second half, supported by AI server demand. Samsung Electro-Mechanics began mass-producing products for switches in the first half of this year and plans to increase supplies for accelerators and server central processing units (CPU) in the second half. As a result, servers and networks are expected to account for more than 60% of second-half FCBGA sales.
Kim said, "Despite limited production capacity, mix improvement and price hikes are expected to drive earnings growth," and "The start of operations for the new production facility is the first half of 2028, and in 2027 a small capacity expansion is expected through supplementary investment."