Third-quarter earnings forecasts for Samsung Electro-Mechanics (009150.KS), one of South Korea's leading exporters of artificial intelligence components, have been raised sharply despite a recent decline in the won-dollar exchange rate. Analysts said the company has offset the currency drag by winning far more AI component orders from global technology giants. The industry expects third-quarter operating profit to more than double from a year earlier.
The consensus forecast for Samsung Electro-Mechanics' third-quarter operating profit stands at 605 billion won ($431 million), or 2.3 times the 260.3 billion won posted a year earlier, according to financial data provider FnGuide on the 28th. That is about 30% higher than the roughly 470 billion won brokerages had projected three months ago. Some houses see an even larger figure, with KB Securities at 660.1 billion won and iM Securities at 650 billion won.
The upgrades are unusual at a time when the won has been strengthening against the dollar. Exporters typically see reported earnings shrink when the won-dollar rate falls, because dollar revenue converts into fewer won. Samsung Electro-Mechanics, which counts U.S. technology giants among its customers, is not immune, but brokerages said the earnings boost from expanding AI component sales outweighs the currency effect.
The company is a leading supplier of multilayer ceramic capacitors (MLCCs) and flip-chip ball grid arrays (FC-BGAs), both essential components in AI chips and servers used by big technology firms. An AI server carries more MLCCs, and higher-capacity ones, than a conventional server, driving a global supply shortage and price increases.
Early this month, Samsung Electro-Mechanics signed its largest-ever MLCC supply contract with a global technology company, valued at 1.0722 trillion won ($764 million). With utilization at its component production lines, including MLCC, reaching 91% as of the end of June, the company is accelerating capacity expansion to respond quickly to demand from big technology firms. A third MLCC plant under construction in Calamba, Laguna province, in the Philippines is scheduled to start operating at the end of the first quarter next year, 15 months after the site was secured. Along with the new Philippine plant, the company plans to expand MLCC lines at its domestic plant in Busan, lifting production capacity by up to 20% a year.
Demand for FC-BGAs is also shifting toward larger, higher-layer-count products as AI chip specifications rise. As AI chip performance improves, package substrates are growing in area and layer count, increasing the supply burden for high-performance FC-BGAs and raising market expectations for better prices and margins. As with MLCCs, the share of FC-BGA sales covered by long-term agreements (LTAs) with big technology firms is widening.
KB Securities said that with package substrates, like MLCCs, expected to remain in severe shortage, the company is likely to sign LTAs on favorable terms that include advance payments and margin protection clauses. The brokerage added that core AI-related components are enjoying an unprecedented boom and that further improvement in industry conditions is expected.
An official at Samsung Electro-Mechanics said demand for high-value MLCCs and package substrates continues to grow as the AI server and data center markets expand. "We plan to respond actively to market demand centered on high-performance, high-reliability products and to strengthen our differentiated product competitiveness," the official said.
