Samsung Electro-Mechanics beat market expectations in the third quarter (July–September) this year on the back of expanded supply of high value-added parts for artificial intelligence (AI) and automotive electronics (in-vehicle electronic and electrical equipment). As AI demand surges and the semiconductor industry enjoys a boom, orders for Samsung Electro-Mechanics' core revenue sources, multilayer ceramic capacitors (MLCCs) and next-generation semiconductor substrates (FC-BGAs) for AI servers are also increasing, lifting performance, according to analyses.
Samsung Electro-Mechanics said in a regulatory filing on the 29th that, on a consolidation basis, operating profit in the third quarter came to 260 billion won, up 16% from a year earlier on a preliminary basis. That is about 6% above the raised market consensus of 245 billion won. Revenue rose 10% from a year earlier to 2.889 trillion won, the highest on a quarterly basis. Net profit jumped 91% to 219.8 billion won from a year earlier. Compared with the previous quarter, revenue increased 4% and operating profit rose 22%.
The strong results are seen as the outcome of a shift in the revenue structure, which had previously focused on IT devices such as smartphones and PCs, toward high value-added products for AI and automotive electronics. By business division, the components division in charge of MLCCs posted third-quarter revenue of 1.3812 trillion won, up 15% from a year earlier. MLCC supply increased across all applications including industrial, automotive, and IT. In particular, high value-added product supply rose on the back of new product launches by global smartphone customers, wider adoption of advanced driver-assistance systems (ADAS), and growing demand for AI servers and networks.
Following the earnings release, Samsung Electro-Mechanics said on a conference call, "Demand for large, high-capacity MLCCs for industrial and automotive applications is increasing, and the tight supply situation will continue for the time being," and added, "We will proactively expand supply focused on growth areas such as AI servers and automotive electronics to improve our product mix."
The package division in charge of semiconductor substrates recorded revenue of 593.2 billion won, up 6% from a year earlier. Performance improved by expanding supply to big tech corporations of large-area, multilayer server FC-BGAs and memory BGAs. Samsung Electro-Mechanics said, "In addition to server products, since the second quarter we have been in full-scale supply of substrates for AI accelerators, and this year FC-BGA revenue will reach a record high," adding, "We are developing new next-generation AI substrate products in collaboration with multiple major customers, and next year we will expand supply to new customers to sustain double-digit or higher revenue growth."
Revenue in the optics division, which handles camera modules, was 914.6 billion won, up 6% from a year earlier. Supply of automotive products such as all-weather camera modules and hybrid lenses increased, including high-performance smartphone camera modules for strategic clients, but revenue fell 3% from the previous quarter due to weaker demand for key smartphone models at overseas smartphone customers.
Samsung Electro-Mechanics plans to expand the list of approved high value-added products and focus on securing new customers to increase its share with global big tech customers, while ramping up supply of components for AI servers and automotive electronics.
Demand for AI server and automotive components is expected to remain high next year, following the second half of this year. Yang Seung-su, an analyst at Meritz Securities, said, "Demand for AI-based MLCCs and FC-BGAs will accelerate further," adding, "With Samsung Electro-Mechanics' MLCC lines already near full utilization, AI MLCCs are likely to shift into a supply shortage phase next year." It is also positive that MLCC usage is increasing as server rack configurations by major AI accelerator makers such as Nvidia and AMD become more complex.
On the back of this momentum, the brokerage community expects Samsung Electro-Mechanics' operating profit next year to top 1 trillion won for the first time in four years. Kim Woon-ho, an analyst at IBK Securities, said, "The current industry conditions are similar to the memory industry, where demand for high value-added products is surging and supply of general-purpose products is tightening," adding, "As AI demand continues to improve, both revenue and operating margin in the core package and components divisions will improve."