South Korea's leading component suppliers, Samsung Electro-Mechanics (Semco) and LG Innotek, have defied the traditional second-quarter slump with impressive results, driven by recovering market demand and a strategic focus on high-value products. As they head into the peak season of the second half, both companies are poised to expand their high-margin product lines to fuel further growth.
According to South Korean media outlet Ddaily, Samsung Electro-Mechanics capped off the first half of 2024 with revenue of approximately KRW 2.58 trillion for the second quarter, a 16% year-on-year increase, though slightly down 2% from the previous quarter. The company's operating profit reached KRW 208.1 billion, marking a 2% annual rise and a 15% quarterly gain.
Samsung's results outpaced expectations in the South Korean securities market. Data from financial information firm FnGuide forecasted second-quarter 2024 revenue at around KRW 2.37 trillion and operating profit at KRW 207.5 billion.
The company attributed its performance to a robust increase in sales of high-value products, such as industrial and automotive multilayer ceramic capacitors (MLCCs) and substrates for servers, offsetting the impact of a seasonal downturn that led to reduced supply for some items.
LG Innotek, which released its second quarter 2024 results earlier, reported revenue of KRW 4.55 trillion, up 16.67% year-on-year but down 1.09% quarter-on-quarter. Its operating profit, however, surged by 726.2% year-on-year to KRW 151.7 billion, despite a 13.81% decline from the previous quarter.
LG Innotek's performance also exceeded market expectations, with FnGuide's average forecast placing the second quarter 2024 revenue at around KRW 4.5 trillion and operating profit at KRW 104.9 billion.
Analysts credit LG Innotek's strong quarter to sustained demand for iPhones, which boosted sales of high-performance camera modules and smartphone IC substrates, along with rising revenue from automotive communication components. The company's efforts to expand its high-value product portfolio, coupled with internal cost-structure improvements and a favorable won-to-dollar exchange rate, also contributed to its positive results.
Having navigated the traditional off-season, both Samsung Electro-Mechanics and LG Innotek are optimistic about the second half of 2024. The peak season, driven by new smartphone and computer launches, alongside expanding AI and hybrid electric vehicle markets, is expected to accelerate demand for high-performance MLCCs and camera modules.
Samsung Electro-Mechanics, in its earnings call, expressed confidence in its outlook for the remainder of the year, revealing plans to boost sales of IT MLCCs and AI server MLCCs. With demand for IT MLCCs expected to remain strong, the company is ready to expand production capacity as needed.
In the ABF substrate segment, while oversupply remains an issue, demand is improving gradually. High entry barriers for AI and server products mean only a few manufacturers can compete, positioning Samsung Electro-Mechanics favorably. The company is also preparing to mass-produce chip-scale package (CSP) substrates for AI accelerators, with plans to continue expanding its supply of server and AI packaging substrates.
Looking ahead to the second half of 2024, LG Innotek is expected to benefit from the launch of AI-enhanced iPhones in the third quarter of 2024, which could spur a wave of upgrades. As AI capabilities become a central feature, optical solutions will likely play a crucial role, bolstering LG Innotek's dominant position in the iPhone camera supply chain.
