Samsung Electro-Mechanics (009150.KS) will begin operating its new multilayer ceramic capacitor (MLCC) plant in the Philippines from late in the first quarter of next year. This comes just 15 months after the company began negotiating investment terms with the local government late last year. Analysts say the move marks the full-scale launch of an "order-linked rapid expansion" strategy, in which the company aggressively accelerates mass production on the back of long-term agreements (LTAs) signed with global big tech firms.
According to the industry on the 2nd, Samsung Electro-Mechanics aims to begin operating its third MLCC plant, currently under construction in Calamba, Laguna province in the Philippines, as early as late in the first quarter of next year. As recently as December last year, the company was in the stage of securing the plant site and then discussing detailed conditions such as tax support and power supply with the local government. But construction began in the first half of this year, adding momentum. The timeline for mass production, previously expected in the second half of next year at the earliest, has also been moved up significantly.
MLCCs are a core semiconductor component that stores electricity and supplies it stably. The new plant is expected to be used as a dedicated production facility for high-capacity "1005 (1.0 mm wide, 0.5 mm long) 47 microfarad (㎌)" MLCCs used in artificial intelligence (AI) accelerators. Known as "AI MLCCs," these products are expected to be installed at 800,000 units in Nvidia's new "Vera Rubin" accelerator due in the second half of the year and 1 million units in its successor "Feynman," with demand growing in earnest.
By contrast, AI MLCCs must maintain performance even at high temperatures above 125°C and under high voltage, making mass production difficult. As a result, suppliers are limited to a few players, including Samsung Electro-Mechanics and Japan's Murata. In particular, Samsung Electro-Mechanics' MLCC production capacity at existing plants, including its Busan facility, has already reached its limit. The MLCC utilization rate recorded the mid-90 percent range in the second quarter and is expected to rise further to the high-90 percent range in the third quarter.
Amid this supply shortage, Samsung Electro-Mechanics plans to seize the recently surging big tech demand by accelerating its expansion. In this regard, the company announced during its second-quarter earnings conference call on the 30th of last month that it had signed MLCC-related LTAs with about 10 firms, including top-tier hyperscalers (operators of ultra-large data centers). Through these agreements, the company has preemptively secured medium- to long-term demand while also receiving substantial advance payments to fund the expansion.
In particular, along with operating the new plant, Samsung Electro-Mechanics plans to pursue an MLCC expansion at its Busan plant, aiming to increase MLCC production capacity by up to 20 percent each year. It will also reorganize existing production lines toward increasing the proportion of AI MLCCs over MLCCs for mobile and information technology (IT) devices. "Samsung Electro-Mechanics' companywide revenue is expected to grow in the low 10 percent range in the third quarter compared with the second quarter, driven by improved MLCC profitability," an industry official said. "In particular, the fact that the proportion of AI server products in total MLCC revenue will expand from the high 10 percent range in the second quarter to about 20 percent in the third quarter will drive the earnings improvement."
The industry expects Samsung Electro-Mechanics' capital expenditure (CAPEX) to double from 3 trillion won this year to 6 trillion won next year, with infrastructure investment concentrated during this period. The Philippine plant is estimated to require an investment of more than 1 trillion won, similar to the Vietnam plant whose expansion plan was recently announced. Beyond 47 ㎌, Samsung Electro-Mechanics is also rushing to develop high-margin, high-capacity new products in the 68 ㎌ and 150 ㎌ classes.
Through this new plant, Samsung Electro-Mechanics will also launch its "order-first, expansion-later" strategy in earnest. The existing "invest-first, order-later" approach involves building plants ahead of anticipated demand years in advance and securing customers at the time of mass production, carrying the risk of shouldering idle facilities and depreciation costs if the market turns down. By contrast, the order-first, expansion-later strategy has the advantage of resolving demand uncertainty by signing one- to five-year LTAs with big tech firms, while also being able to quickly reinvest advance payments received from clients into expanding production facilities. As big tech firms have recently sought to secure volumes preemptively amid the MLCC supply shortage, the order-first, expansion-later approach through LTAs has emerged as a new trend in the industry.
"Samsung Electro-Mechanics accelerating its expansion centered on the Philippines and Busan is a decisive bet to secure leadership in this AI component cycle," an industry official said. "With supply and demand for high-capacity AI MLCCs so tight that customers are asking 'how much do you want to sell MLCCs for,' now is the time to secure production capacity preemptively."
