Earnings growth continues despite won's rise against dollar

Third-quarter operating profit seen beating market consensus

High-value AI server components drive structural shift

Global firms sign MLCC supply deals in quick succession

FC-BGA demand rises, boosting profitability

An aerial view of Samsung Electro-Mechanics' Busan plant. [Samsung Electro-Mechanics]
An aerial view of Samsung Electro-Mechanics' Busan plant. [Samsung Electro-Mechanics]

Samsung Electro-Mechanics is on the verge of posting record earnings, with surging AI demand more than offsetting a sharp drop in the won-dollar exchange rate during the third quarter. Analysts say the company's pivot toward high-value components for AI servers has effectively neutralized the exchange rate risk.

The company's third-quarter operating profit is expected to significantly exceed the market consensus of 605.1 billion won ($448 million), according to industry sources. KB Securities raised its estimate to 660.1 billion won, while iM Securities put its forecast at 650 billion won.

Although a weaker dollar typically weighs on South Korean exporters, Samsung Electro-Mechanics is expected to sustain its earnings momentum, driven by rising demand for high-value AI server components and price increases stemming from supply shortages.

Its core product, multilayer ceramic capacitors, or MLCCs, have been a key growth engine this year, with the company signing a series of long-term supply agreements with major global firms.

AI servers require more than 10 times as many MLCCs as conventional servers. With investment in AI data centers accelerating, the industry expects MLCC demand to grow rapidly in tandem.

As supply shortages of high-capacity, high-reliability MLCCs deepen amid expanding AI server and data center investment, rising product prices are translating directly into improved profitability.

Flip-chip ball grid array, or FC-BGA, substrates — high-performance semiconductor packaging boards — are also benefiting from the AI boom. FC-BGA boards for AI servers cover more than four times the surface area of those used in PCs and have more than twice as many layers, exceeding 20. Greater surface area and higher layer counts allow the boards to meet the high-performance requirements customers demand.

As advances in AI semiconductor performance drive up the size and layer count of packaging substrates, the supply burden for high-performance FC-BGA is growing. Securities analysts have recently raised expectations that Samsung Electro-Mechanics' FC-BGA business will see improved profitability, buoyed by the prospect of higher prices.

Samsung Electro-Mechanics has been strengthening its product portfolio around high-value MLCCs and FC-BGA to keep pace with growth in the AI and server markets. That strategy has provided the foundation for sustained earnings growth even as the won-dollar rate fell in the third quarter.

The company's ongoing expansion of long-term supply contracts for AI server components — securing stable demand over the medium to long term — also brightens the earnings outlook. Analysts note that Samsung Electro-Mechanics is working to lock in a substantial portion of its 2027 production capacity through such contracts, which could extend its earnings growth trajectory further.

Having signed long-term supply agreements, known as LTAs, with more than 10 global companies this year, Samsung Electro-Mechanics is currently in talks with additional firms on further contracts, steadily improving visibility into medium- and long-term demand.

In addition, the company has committed 15 trillion won ($11.1 billion) to expand production lines for AI server packaging substrates and high-value MLCCs at its Busan plant to meet rising demand.

"Demand for high-value MLCCs and packaging substrates continues to grow in line with the expansion of the AI server and data center markets," a Samsung Electro-Mechanics official said. "We plan to actively respond to market demand with a focus on high-performance, high-reliability products and to further strengthen our differentiated product competitiveness."


joze@heraldcorp.com