Following memory chips, multilayer ceramic capacitors (MLCCs), a core semiconductor component, are now seeing demand concentrated among Big Tech firms. This has given rise to a so-called "order-first, expand-later" transaction model, in which suppliers receive orders and advance payments before safely increasing supply, emerging as a new industry trend. Samsung Electro-Mechanics, which has recently seen orders pour in from Big Tech, is also accelerating the expansion of its new overseas plant as it fully adopts this investment strategy.
According to industry sources on the 3rd, Samsung Electro-Mechanics (009150.KS) plans to begin operations at its third MLCC plant, under construction in Calamba, Laguna Province, in the Philippines, by the end of the first quarter next year. This comes 15 months after the company secured the plant site and established its construction plan in December last year. Murata completed a production line in April this year, more than two years after breaking ground in early 2024, and given that the industry typically requires more than two years from groundbreaking to completion, Samsung Electro-Mechanics' mass-production schedule is considered relatively fast.
"Starting from site acquisition and permits inevitably takes a long time, but Samsung Electro-Mechanics can shorten the process by building the third plant on a site adjacent to its existing, already-operating first and second plants in the Philippines," an industry official said.
The new plant is known to focus on producing high-capacity MLCC products for artificial intelligence (AI) servers. AI MLCCs are expected to be installed in quantities of 800,000 units in Nvidia's new second-half accelerator "Vera Rubin" and 1 million units in its successor product "Feynman," with demand surging rapidly. However, mass production is difficult, making it a blue ocean that only a few companies, including Samsung Electro-Mechanics and Japan's Murata, can properly supply. Samsung Electro-Mechanics' MLCC production line utilization rate is expected to rise further, from the mid-90 percent range in the second quarter to the high-90 percent range in the third quarter.
Along with the new plant's operation, Samsung Electro-Mechanics plans to expand its MLCC production lines at its domestic Busan plant as well, increasing production by up to 20 percent annually. "Samsung Electro-Mechanics' company-wide revenue is expected to increase by the low 10 percent range compared to the second quarter, driven by improved MLCC profitability in the third quarter," an industry official said. "In particular, the improvement will be led by the share of AI server products in total MLCC revenue expanding from the high 10 percent range in the second quarter to about 20 percent in the third quarter."
The industry is also paying attention to the fact that the surge in orders from Big Tech firms lies behind the push to bring the new plant online. On the 30th of last month, during its second-quarter earnings conference call, Samsung Electro-Mechanics announced that it had signed long-term supply agreements (LTAs) for MLCCs with about 10 firms, including top-tier hyperscalers (operators of very large data centers). Through these agreements, the company preemptively secured medium- to long-term demand of up to five years while also receiving substantial advance payments to fund the necessary expansion.
This means Samsung Electro-Mechanics has fully shifted its investment strategy toward moving up its expansion investment schedule boldly, by first receiving orders and advance payments from Big Tech firms to clearly forecast demand. The previous "invest-first, order-later" approach involved building plants ahead of anticipated demand years in advance and securing customers at the point of mass production, carrying the risk of having to absorb idle facilities and depreciation costs if the industry conditions weaken.
By contrast, the "order-first, expand-later" model has the advantage of resolving demand uncertainty through one- to five-year LTAs with Big Tech, as well as being able to quickly reinvest advance payments received from customers into expanding production facilities. Recently, following memory chips, MLCCs have also faced supply shortages, prompting Big Tech firms to secure volumes preemptively, and the order-first, expand-later model through LTAs has emerged as a new industry trend.
Samsung Electro-Mechanics is also expected to reorganize its existing MLCC production lines toward AI server products instead of mobile products, and to boldly increase its capital expenditure (CAPEX) from 3 trillion won this year to 6 trillion won next year. Through research and development (R&D) investment, the company is also accelerating the development of next-generation high-capacity products.
