As Samsung Electro-Mechanics is expected to break its all-time high annual revenue this year, projections also see its annual operating profit surpassing 1 trillion won next year for the first time in four years. The uptick comes as supplies of multilayer ceramic capacitors (MLCC) and flip-chip ball grid array (FC-BGA), the company's core businesses, are increasing. Analysts say the company is seeing results from reducing its reliance on key client Samsung Electronics and overhauling its portfolio around high value-added product lines such as artificial intelligence (AI) and automotive electronics.
MLCCs are components essential to running electronic devices, so much so that they are called "the rice of the electronics industry." They play the role of a "dam," storing electricity and releasing it in measured amounts. The operating profit of Samsung Electro-Mechanics' Component Business Unit, which handles the MLCC business, came to 290.1 billion won in the first half, accounting for about 70% of total operating profit. FC-BGA fixes semiconductors securely and transmits electrical signals. It is regarded as a next-generation high value-added substrate suitable for increasingly large AI semiconductors.
Industry watchers say President Jang Deok-hyun's strategy to strengthen fundamentals has been effective in Samsung Electro-Mechanics' growth trajectory. Promoted to president in 2021, Jang was appointed CEO in 2022 and began leading Samsung Electro-Mechanics. Jang has expanded the previously IT-heavy MLCC business into automotive and industrial uses, and has also strengthened the FC-BGA business targeting high value-added markets such as AI and servers.
According to financial information firm FnGuide on the 16th, Samsung Electro-Mechanics' annual revenue forecast for this year stands at 11.0735 trillion won, which is expected to set a new all-time high. The annual operating profit forecast for this year is 829.1 billion won, up about 12% from the previous year (735 billion won). Next year's annual operating profit is projected at 1.0167 trillion won. After recording 1.1828 trillion won in operating profit in 2022, Samsung Electro-Mechanics has continued to post operating profit below 1 trillion won.
Park Kang-ho, an analyst at DAISHIN SECURITIES, said, "With reduced sales dependence on Samsung Electronics and expanded collaboration with global big tech corporations, it is time to re-evaluate corporate value," adding, "Next year, operating profit is expected to return to the 1 trillion won level for the first time in four years."
◇ MLCC business sees higher supply of high value-added lineup… "Utilization at the maximum"
Since 2022, Samsung Electro-Mechanics has strengthened its lineup of automotive and industrial MLCCs, where the number of components per unit has expanded sharply. While traditional IT demand for PCs and TVs is slowing, this is why Samsung Electro-Mechanics' MLCC supply has increased. Autonomous vehicles and electric vehicles use more than 30,000 MLCCs, up to 10 times more than conventional cars.
Industrial MLCCs used in AI servers are also seeing increased supply in step with the growth of the AI industry. Typically, an AI server mounts 10 times more MLCCs than a conventional server, and Nvidia's Blackwell platform servers launching this year are understood to adopt 10 times more than the previous generation. Oh Kang-ho, a research fellow at Shinhan Securities, said, "In the Component Business Unit, the share for automotive use is expected to rise from 25% to 29%, and the revenue share of industrial MLCCs from 18% last year to around 20% this year," adding, "Both MLCC supply volume and prices will increase."
Samsung Electro-Mechanics is reportedly reviewing facility investments in places such as the Philippines to expand MLCC production capacity. With a sharp increase in supply volumes for automotive and industrial MLCCs, production line utilization has neared its maximum. According to Samsung Electro-Mechanics' semiannual report, the average MLCC utilization rate in the first half was 98%. Considering that demand typically concentrates in the second half compared with the first, utilization of MLCC production lines is expected to exceed 95% in the second half as well.
◇ AI and server-use FG-BGA also ramping up supply… "Possibility of mass-production line investment next year"
FC-BGA is also accelerating supply after securing global big tech companies as clients. Samsung Electro-Mechanics is understood to have begun supplying FC-BGA to Amazon and AMD this year. Next year, it plans to supply FC-BGA to Google and Meta, which produce their own AI accelerators. Supply of FC-BGA mounted on Tesla's AI chips, which Samsung Electro-Mechanics has effectively supplied on an exclusive basis, is also expected to increase with mass production of next-generation AI chips. With the AI and server-use FC-BGA market effectively divided between Samsung Electro-Mechanics and Murata, the company appears poised to continue benefiting.
For these reasons, as FC-BGA utilization gradually rises, the likelihood is growing that the substrate business will proceed with investment in mass-production lines. Samsung Electro-Mechanics is also accelerating development of glass substrates, aiming for a 2027 launch. Park said, "Starting with Amazon and AMD, we expect FC-BGA supply to Google and Meta next year," adding, "Given that the company is also pursuing the glass substrate business, we expect it to make partial mass-production line investments next year."
Samsung Electro-Mechanics designated high value-added FC-BGA as its next growth engine and in 2021 carried out facility investments totaling about 2 trillion won to expand FC-BGA production capacity. There is a projection that this year's FC-BGA sales will exceed 50% of total revenue in the Package Solution Business Unit.