Samsung Electro-Mechanics and LG Innotek, the electronics parts affiliates of Samsung and LG, are accelerating corporate restructuring as new businesses begin to benefit from an improvement in market demand that had been sluggish for a while and from the investment boom in artificial intelligence (AI) infrastructure.
In particular, Samsung Electro-Mechanics and LG Innotek diversified their parts portfolios for AI data centers and devices to improve a revenue structure that had long been swayed by orders from major clients such as Samsung Electronics and Apple, and analysts say these efforts have begun to bear fruit in the second half of this year.
According to the industry on the 17th, third-quarter earnings forecasts for major domestic electronics parts affiliates such as Samsung Electro-Mechanics and LG Innotek are being raised across the board. Despite seasonal factors, Samsung Electro-Mechanics and LG Innotek, which had a high sales dependence on Samsung Electronics and Apple, are strengthening profitability on the back of sales diversification and a frenzy of AI infrastructure investment, according to the securities community.
For Samsung Electro-Mechanics, the multilayer ceramic capacitor (MLCC) business, which accounts for the core of sales, has revived thanks to the AI boom. Unlike the existing electronics and IT segments, which are heavily affected by seasonality, sales of high value-added MLCCs for AI servers and automotive electronics are steadily increasing. According to the industry, supply volumes are continuously rising for products such as Nvidia's AI server chips GB200 and GB300, which consist of multiple boards and multiple power conversion layers.
An IT industry official said, "Not only Nvidia but also major AI accelerator companies such as Amazon Web Services (AWS) and AMD are choosing similar architectures, so Samsung Electro-Mechanics' MLCC supply for AI data centers is expected to continue increasing," adding, "AI data demands more MLCCs and higher quality than existing infrastructure, so profitability is also relatively high."
One of Samsung Electro-Mechanics' new growth engines, the next-generation semiconductor substrate business FC-BGA (flip-chip ball grid array), is also gaining momentum. Yang Seung-su, an analyst at Meritz Securities, said, "Samsung Electro-Mechanics' main FC-BGA customer plans to begin full-fledged rack-scale shipments from next year and apply a self-developed central processing unit (CPU)," adding, "There is currently no supply for AI accelerator products, but from next year, FC-BGA is highly likely to be partially supplied to rack-scale products."
Steady investment in Vietnam to optimize production locations, streamline unit production costs, and strengthen cost competitiveness is also paying off. Samsung Electro-Mechanics, which began operating an FC-BGA plant at its Vietnam subsidiary in the second quarter of last year, is producing AI semiconductor substrates locally. As it concentrated FC-BGA capabilities at the Vietnam plant, the local sales contribution rose sharply. It jumped from 197.51 billion won in 2022 to 212.73 billion won in 2023, and to 278.21 billion won last year.
Following its main revenue source of camera modules, LG Innotek has opened the door to supplying next-generation products to be mounted in physical AI areas such as next-generation humanoids. Earlier, LG Innotek was reported to be the exclusive supplier of camera modules for Figure 03, developed by humanoid robot startup "Figure AI." It is also simultaneously developing a "vision sensing module" to be installed in the next-generation model of Boston Dynamics' humanoid robot Atlas, leading to expectations that supply in the physical AI field will increase.
Its position in supplying camera modules to its largest client, Apple, has become more solid since the launch of the iPhone 17 series. Go Sun-young, an analyst at Yuanta Securities Korea, said, "All market conditions, including market response and initial demand after the launch of the iPhone 17 series, are favorable to LG Innotek," adding, "The newly unveiled iPhone Air is expected to replace demand for the existing Plus lineup, pushing (the supply price range) higher, and as the camera hardware specs have been upgraded, supply unit prices have also been raised."