Samsung Electro-Mechanics is expanding its footing in the artificial intelligence (AI) semiconductor supply chain by signing a series of long-term supply agreements with global Big Tech, including major cloud providers. As recently as five years ago, its sales dependence on Samsung Electronics was close to 40%, but it fell to 27% as of the end of last year, and this year it secured a new portfolio by increasing the share of direct transactions with U.S. Big Tech.
On the 30th, Samsung Electro-Mechanics said it posted second-quarter revenue in the 3.3 trillion won range and operating profit in the 400 billion won range. The operating margin returned to double digits at around 12% for the first time in four years since the third quarter of 2022. On a conference call held that day, Samsung Electro-Mechanics also signaled record quarterly results in the third quarter.
◇"Long-term supply deals with about 10 companies, including top-tier cloud providers"
Samsung Electro-Mechanics said it has signed MLCC long-term supply agreements (LTAs) with about 10 customers, including top-tier large cloud providers and major semiconductor companies. The company said, "Frontline MLCC products require top-tier technology in terms of performance and reliability, so only a few companies, including ours, can respond," adding, "As supply-demand tension in the market increases, demand for long-term supply agreements to secure stable volumes is growing among major customers."
The increase in demand was reflected in results. Samsung Electro-Mechanics said, "Total MLCC inventories fell in the second quarter due to higher shipments for AI servers and electric vehicles (xEV), and the blended average selling price (blended ASP) also rose again from the previous quarter as the share of high-value products such as industrial and automotive grew." For the third quarter, it projected that MLCC revenue and blended ASP will climb together, powered by AI server demand centered on major cloud providers and double-digit growth expected in electric vehicle shipments.
Managing the supply of titanium (Ti), a key materials and supplies input, has also emerged as a task. The company said, "As AI demand increases, we expect titanium supply conditions to tighten further, so we will closely monitor the situation and continue strategic pricing responses." By application, it plans to broaden its lineup to include small, ultra-high-capacitance products driven by the advancement of ADAS (advanced driver-assistance systems) and high-voltage products for 48V power systems.
◇FC-BGA also on track… discussing LTAs including investment support with top-tier semiconductor corporations
Direct collaboration with Big Tech has also begun in the package substrate business. Samsung Electro-Mechanics had supplied mainly PC and network products to a small number of large semiconductor design companies, and only started mass production for servers in 2022 as the first in Korea, but starting this quarter it began direct supply of substrates for AI data center networks to newly added global Big Tech customers. The company said, "We are discussing long-term supply agreements, including investment support, with most of the world's top-tier semiconductor corporations related to AI and data centers, and based on this we plan to draw up future capacity expansion plans."
Samsung Electro-Mechanics said, "The shortage of semiconductors for AI is structurally deepening," adding, "As AI chips grow larger and the number of HBMs (high bandwidth memory) installed increases, semiconductor substrates are evolving into ultra-large, high-layer-count structures." It continued, "Substrate makers' capacity consumption is rising and shortages are worsening," adding, "Advanced substrates that apply multi-core and embedded component technologies have high technical barriers, so the number of companies capable of mass production is limited."
Prices are also on an uptrend. Samsung Electro-Mechanics emphasized, "Package substrates are steadily becoming more expensive as rising demand and higher product specifications are compounded by increases in raw material prices," adding, "A supplier-favorable market continues." Samsung Electro-Mechanics expects solid demand for server CPUs and AI accelerators in the third quarter and plans to expand advanced substrate supply capacity by adding new plants.