Samsung Electro-Mechanics and LG Innotek are expected to exceed market expectations with strong performances in the second quarter of this year. The surge in demand for high-value components is attributed to increased investments in artificial intelligence (AI) servers and data centers. The memory boom, initially driven by AI semiconductors, appears to be expanding into the component ecosystem.
According to financial information provider FnGuide, both companies are projected to achieve surprising results in the second quarter. Samsung Electro-Mechanics is expected to report a revenue of 3.248 trillion won, a 16.6% increase from the same period last year, and an operating profit of 400.1 billion won, up 87.8%. This operating profit is anticipated to surpass the market expectation of 382 billion won.
LG Innotek is forecasted to see even more significant growth, with second-quarter revenue expected to reach 4.9697 trillion won, a 26.3% increase year-on-year, and an operating profit projected to skyrocket by 1,690% to 203.9 billion won. This figure exceeds the market forecast of 152.6 billion won by 33.7%.
The strong performances of both companies are linked to the growing demand for semiconductor substrates driven by the expansion of AI infrastructure. Previously sensitive to demand from information technology (IT) devices like smartphones and PCs, the market is now rapidly shifting towards high-value components centered around AI servers and data centers, leading to a more profitable business structure.
Samsung Electro-Mechanics is benefiting from the increased demand for multilayer ceramic capacitors (MLCC) and semiconductor substrates due to AI. MLCCs are essential components that regulate the flow of current in electronic circuits. Recently, the company secured a leading position in the AI data center MLCC market through long-term supply contracts. On June 30, it announced a supply contract worth 454 billion won with a global tech giant for ultra-small, high-capacity MLCCs. The identity of the client has not been disclosed, but it is believed to be one of the major U.S. cloud service providers.
The flip-chip ball grid array (FC-BGA) business is also experiencing growth. During the first quarter earnings conference call, Samsung Electro-Mechanics explained that the spread of AI has increased demand for high-performance semiconductors, leading to requests from existing clients for expanded FC-BGA supplies. With new customer demand added from the second quarter, overall demand is reportedly exceeding production capacity.
LG Innotek is expanding its substrate business, which is seen as a future growth driver, supported by robust growth in its core optical solutions segment. The company has identified the package solution business as a key area for medium- to long-term growth. It is broadening its portfolio around radio frequency system-in-package (RF-SiP), flip-chip chip-scale package (FC-CSP), and FC-BGA. As demand for substrates for AI servers and high-performance semiconductors increases, the profitability of package solutions is also expected to rise.
Previously, LG Innotek set a goal during the 'Package Solution Media Tech Day' held last month to grow its package solution business to over 3 trillion won in revenue and 1 trillion won in operating profit by 2031. Last year, the package solution business generated 1.720 trillion won in revenue, an 18% increase from the previous year, with operating profit rising 82% to 128.9 billion won. Although it is a latecomer in the FC-BGA market, the overall supply shortage in the industry is accelerating its efforts to secure new clients.
Efforts to secure volumes through long-term supply contracts (LTA) are ongoing. As concerns about semiconductor substrate supply shortages grow due to increased AI investments, clients are proactively seeking to secure production capacity. LG Innotek is expanding long-term supply contracts not only for existing RF-SiP products but also for other substrate products, and is pursuing contracts that allocate specific production capacities to new clients.
* This article has been translated by AI.
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