Samsung Electro-Mechanics' Sejong plant, which primarily produces semiconductor package substrates. [Samsung Electro-Mechanics]
Samsung Electro-Mechanics' Sejong plant, which primarily produces semiconductor package substrates. [Samsung Electro-Mechanics]

Samsung Electro-Mechanics and LG Innotek, South Korea's two largest electronic components makers, are on the verge of reclaiming annual operating profit of 1 trillion won ($681 million) this year. Analysts expect the companies to post unprecedented growth starting next year, as supply deals struck with global big-tech clients begin flowing through to earnings.

Samsung Electro-Mechanics and LG Innotek are forecast to post annual operating profit of 1.67 trillion won and 1.18 trillion won, respectively, this year, according to the securities industry. Both companies are widely expected to return to the 1 trillion won range for the first time in four years, since 2022 during the COVID-19 pandemic.

Industry watchers say the component makers are poised to enter a supercycle next year, much as Samsung Electronics and SK Hynix have been posting record earnings this year on the back of surging memory chip orders.

Samsung Electro-Mechanics in particular is riding a dual AI-driven upswing, with demand booming for both its flagship multilayer ceramic capacitors (MLCCs) and its semiconductor substrates.

Last month the company signed a 450 billion won MLCC supply deal with a global big-tech firm for AI servers, and on Thursday it secured an additional contract worth 300 billion won with another major global company. Both are long-term supply agreements covering January through December next year.

AI servers require more than 10 times as many MLCCs as conventional servers. Profitability is also markedly higher than for general-purpose MLCCs used in smartphones and PCs. The per-unit profit on a general-purpose MLCC is 0.2 won, compared with 5.4 won for an AI server MLCC — a 27-fold difference. As AI server supply grows, Samsung Electro-Mechanics stands to see an increasingly steep rise in profits.

An RF-SiP substrate for 5G communications developed by LG Innotek using the world's first Cu-Post (copper pillar) technology, which reduces thickness by nearly 20 percent. [LG Innotek]
An RF-SiP substrate for 5G communications developed by LG Innotek using the world's first Cu-Post (copper pillar) technology, which reduces thickness by nearly 20 percent. [LG Innotek]

Only two companies — Samsung Electro-Mechanics and Japan's Murata — can currently supply MLCCs that withstand the high temperatures and high-capacity demands of AI servers, a duopoly that analysts expect will sustain the AI-driven windfall for years to come.

Demand for high-value-added semiconductor substrates for AI servers has also surged to the point where production lines are already running at full capacity, further underpinning Samsung Electro-Mechanics' earnings growth.

With both AI server MLCCs and substrates showing signs of a supply shortage, Samsung Electro-Mechanics has moved quickly to commit 15 trillion won to expanding production lines for cutting-edge AI server package substrates and high-value MLCCs at its Busan plant.

The company is also in talks with other global clients on long-term MLCC supply agreements, pointing to additional orders ahead. Meritz Securities, reflecting this momentum, sharply raised its estimate for Samsung Electro-Mechanics' 2027 annual operating profit from 3.63 trillion won to 4 trillion won — projecting that the company will nearly triple its earnings within a year of crossing the 1 trillion won threshold this year.

LG Innotek, whose revenue is heavily weighted toward camera modules for Apple iPhones, is also counting on its growing AI server substrate business to diversify its earnings. The company is reportedly in discussions with two global big-tech firms on substrate supply, under conditions in which the clients would help fund the cost of expanding AI semiconductor substrate capacity.

KB Securities projects that LG Innotek's sales of its high-performance flip-chip ball grid array (FC-BGA) semiconductor substrates will surge from 140 billion won this year to 1.1 trillion won in 2028 and 2.3 trillion won in 2030. The brokerage expects the company's overall semiconductor substrate business to reach the long-coveted milestone of 1 trillion won in annual operating profit by 2030.


joze@heraldcorp.com