South Korea’s leading electronic component manufacturers, Samsung Electro-Mechanics and LG Innotek, are making a quantum leap in profitability, escaping their traditionally “thin margin” structure thanks to the explosive growth of the artificial intelligence (AI) server market. The two companies’ second-quarter results are expected to show operating profit growth far outpacing revenue increases, proving that AI is fundamentally reshaping the profit structure of the component industry beyond just semiconductors.<\/p>\n
According to a consensus compiled by financial data provider FnGuide on the 6th, Samsung Electro-Mechanics’ second-quarter revenue is expected to reach \u20a93.28 trillion (approximately $2.1 billion), with an operating profit of \u20a9385.6 billion (approximately $251.7 million). This represents a 17.8% increase in revenue compared to the same period last year, while operating profit surged by a staggering 81.0%. The operating profit growth rate is more than four times higher than the revenue growth rate. Consequently, Samsung Electro-Mechanics’ operating margin, which hovered in the 8% range last year, is expected to enter double-digit territory at 11.8% in the second quarter.<\/p>\n
LG Innotek’s rebound is even more dramatic. The consensus for LG Innotek’s second-quarter operating profit ranges from \u20a9152.6 billion to \u20a9159.9 billion (approximately $99.6 million to $104.4 million), an increase of up to 1,300% year-over-year. Considering that its operating margin was a mere 0.3% in the second quarter of last year, it is set to jump to the mid-3% range in just one year. This is a particularly meaningful change given that the second quarter is traditionally a seasonal off-season before Apple launches new products. AI semiconductor substrates are perfectly filling the void left by the traditional off-season of the Optical Solutions Division (camera modules), which accounts for over 80% of LG Innotek’s revenue.<\/p>\n
The core driver of this performance improvement is high-value components essential for AI servers. For Samsung Electro-Mechanics, AI server-grade Multi-Layer Ceramic Capacitors (MLCCs) and Flip-Chip Ball Grid Array (FC-BGA) substrates are driving earnings. AI servers require more than ten times the number of high-capacity, high-heat-resistant MLCCs compared to standard servers. As the computing performance of Central Processing Units (CPUs) and Graphics Processing Units (GPUs) increases, FC-BGA substrates also become larger and more multi-layered. This acts as a factor that simultaneously boosts the average selling price and added value of the products.<\/p>\n
LG Innotek is also experiencing a surge in demand for AI server FC-BGA and large-area, high-layer package substrates, centered on its Package Solutions Division. With production line utilization rates nearing 100%, product prices are rising due to supply shortages. According to industry sources, major U.S. Big Tech companies are increasingly proposing Long-Term Agreements (LTAs) conditional on advance payments and equipment investment support to secure substrates for AI semiconductors.<\/p>\n
Park Jung-ha, an analyst at iM Securities, analyzed, “As demand for heterogeneous large-area ICs (integrated circuits) related to AI data centers expands, the FC-BGA supply-demand environment is becoming tighter,” adding, “Significant opportunities are opening up even for a relative latecomer like LG Innotek.”<\/p>\n
Furthermore, the business viability of wireless communication substrates is gaining new attention. As the low-Earth orbit satellite communication market expands, driven by projects like SpaceX’s Starlink and Amazon’s Project Kuiper, demand for high-value communication substrates is also expected to grow. Satellite communication substrates are more profitable than general products, which is expected to provide additional momentum for improving the profitability of the substrate division.<\/p>\n
A commonality between the two companies is that their profit growth rate is overwhelmingly faster than their top-line growth. In the past, South Korean component makers were trapped in a low-margin structure, heavily dependent on finished product clients like Samsung Electronics or Apple, making it difficult to reflect cost increases in supply prices. However, in the AI substrate and MLCC markets, bargaining power is shifting toward suppliers due to a limited number of suppliers relative to demand and high technological entry barriers.<\/p>\n
An industry official stated, “While the operating margin for conventional electronic components was in the single digits, the margin for high-value AI substrates is soaring to the 20% range,” adding, “Domestic component makers are breaking away from the low-margin structure of the past and being re-evaluated as high-value AI infrastructure suppliers.”<\/p>\n
It is particularly noteworthy that this profitability improvement is not a one-time price hike but the result of structural changes, including new product price increases, an expanding mix of high-value products, and a rise in long-term supply contracts. This suggests that even if the supply-demand imbalance eases in the future, the likelihood of earnings sharply declining as in past component cycles has decreased.<\/p>\n
In line with this growth trend, Samsung Electro-Mechanics and LG Innotek are also accelerating their facility investments. Samsung Electro-Mechanics is actively reviewing investments to expand its MLCC and semiconductor substrate production capacity (CAPA). LG Innotek officially announced plans last month to build a new semiconductor substrate factory in Vietnam, targeting completion in May 2027. The securities industry expects LG Innotek to surpass \u20a91 trillion (approximately $652.8 million) in annual operating profit this year, challenging its all-time high record (\u20a91.27 trillion).<\/p>\n
Meanwhile, LG Innotek’s surprise performance is expected to have a positive ripple effect on its parent company, LG Electronics. As the largest shareholder with a 40.8% stake, LG Electronics reflects the subsidiary’s performance in its consolidated financial statements. The securities industry estimates LG Electronics’ second-quarter consolidated operating profit at \u20a91.02 trillion (approximately $664.8 million), a 59.3% increase year-over-year. There is also a possibility that the results could exceed market expectations when combined with LG Innotek’s improved performance and the effects of U.S. tariff refunds.<\/p>\n","protected":false},"excerpt":{"rendered":"South Korea’s leading electronic component manufacturers, Samsung Electro-Mechanics and LG Innotek, are making a quantum leap in profitability,…\n","protected":false},"author":2,"featured_media":76426,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[621],"tags":[24891,1282,3628,9211,31940,315,357,9450,9210,41461,41460,3164,25678],"class_list":["post-76425","post","type-post","status-publish","format-standard","has-post-thumbnail","category-lg-electronics","tag-ai-servers","tag-amazon","tag-apple","tag-fc-bga","tag-fnguide","tag-lg","tag-lg-electronics","tag-lg-innotek","tag-mlcc","tag-optical-solutions-division","tag-package-solutions-division","tag-samsung-electro-mechanics","tag-spacex"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/76425","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/comments?post=76425"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/76425\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media\/76426"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media?parent=76425"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/categories?post=76425"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/tags?post=76425"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}