Samsung Electro-Mechanics Co., Ltd. (A009150) Earnings Call Transcript & Summary

Good afternoon. This is EVP, Dong Woo Lee, Head of IR and Planning team at Samsung Electro-Mechanics. Thank you for joining our 2025 Q4 Earnings Conference Call. On today's call, I am joined by our CFO, Sung Jin Kim; EVP, Taegon Lee, who is the Head of Strategic Marketing; VP, Kyu-Taeck Park, Head of Support Team Component Division; Hong Jin Kim, Head of Support Team Package Solutions Division; and Hun-Jun Kim, Head of Support Team Optics Solutions Division. We will start with a presentation of our 2025 Q4 company level and divisional business results, followed by market trends and outlook by product before taking your questions. First, a look at our 2025 Q4 results. Q4 revenue was KRW 2,902.1 trillion, which is approximately 0.5% increase Q-o-Q and 16% increase Y-o-Y. The details regarding revenue increase, decrease factors by division will be explained later during the briefing on divisional results. Q4 operating profit was KRW 239.5 billion, approximately 8% decrease Q-o-Q and around 108% increase on a Y-o-Y basis. Q4 pretax profit was KRW 268.9 billion. Net profit was KRW 222.8 billion. Next, in terms of our financials, as of end of Q4, total assets was KRW 14,595.9 trillion, which is a roughly 5% increase from end of Q3. To look at major financial indicators, liability to equity increased 2 percentage points to 49% from Q3's 47%. Debt to equity increased 1 percentage point Q-o-Q from 21% to 22%. Equity ratio was around 67%, which is a 1 percentage point fall from Q3. Next are the divisional results and future outlook. First, the Component division. The Component division's Q4 revenue was KRW 1,320.3 trillion, which is roughly 4% decrease Q-o-Q, but a 22% increase Y-o-Y. Q4 revenue decreased due to seasonality, including year-end customer inventory adjustments, but AI-related revenue continued growth, driven by solid demand for AI, server and power applications. The 2026 MLCC market is expected to enjoy solid demand for industrial and automotive MLCCs with continued AI infrastructure investments and wider adoption of ADAS and xEV. Accordingly, we will expand our AI-related high-end cutting-edge products targeting server and network equipment and strengthen our lineup of high-capacitant MLCCs for ADAS and high-voltage MLCC for xEV to increase industrial and automotive revenue. Next is a look at our Package Solutions division. Q4 revenue was KRW 644.4 billion or roughly 9% Q-o-Q and 17% Y-o-Y increase. For Flip Chip BGA, revenue increase was driven by increased supply of large area, high multilayer server CPUs and AI accelerator substrates to our major big tech customers and increased supply of substrates for high-performance autonomous driving systems. BGA revenue also increased with greater supply of mobile AP and SiP substrates for overseas customers. In 2026, the Flip Chip BGA market is expected to see solid demand for high-end FCBGA for AI, server and network applications driven by continued strong growth of the data center market. Accordingly, we will focus on increasing new server CPU substrates with differentiated embedding architecture and on-time supply of new products for AI accelerators and networks to new big tech customers. Also, given that our production sites are expected to run at full utilization in the second half, we will look into capacity expansion plans for timely execution of investments. Last is the Optics Solutions division. The division's Q4 revenue was KRW 937.2 billion, roughly a 2% increase Q-o-Q and 9% increase Y-o-Y. In IT camera modules, we started mass production of differentiating new camera modules for new flagship smartphones such as Slim folded Zoom for strategic customer and continuous Zoom and Super Macro for Chinese OEMs. For automotive camera modules, revenue increased, thanks to increased supply of global EV OEMs and our in-cabin camera modules being adopted in increased number of vehicle models by the Korean OEM. Now in 2026, the IT camera module market is expected to see continued demand for higher-performance cameras as a way of differentiating high-end flagship smartphones, and we will secure customer-specific differentiated technologies such as slim optical Zoom and Iris in time to capture this demand. In the automotive market, new applications such as advanced ADAS and humanoid are expected to increase, and we will focus on increasing supply of automotive specialty camera modules such as heating, water repellent coating, cleaning and also focus on securing next-generation technology for physical AI, such as high pixel for sensing and high reliability actuators. That completes the presentation on our 2025, Q4 results. And now Taegon Lee, our Head of Strategic Marketing, will talk about market trends and outlook by key product.

[Interpreted] Yes. Good afternoon. This is Taegon Lee, Head of Strategic Marketing. I will share the current market situation and outlook for MLCC, substrate and camera modules, respectively. First, the MLCC. Q4 MLCC demand decreased slightly Q-o-Q due to year-end inventory adjustments in certain applications, including IT, despite the momentum of AI-related demand remaining solid. However, demand increased on a Y-o-Y basis across all applications with particularly strong growth coming from MLCCs for AI and server applications. To look at MLCC demand by application, IT MLCC demand slightly decreased Q-o-Q due to inventory adjustments in certain applications such as PC and consumer electronics, despite the tailwind from the North American smartphone OEMs new model. For industrial MLCC, despite the seasonality of certain applications such as base stations, server-related MLCC demand continued rapid growth driven by major big tech companies continued AI-related investments. Automotive MLCC demand also continued Y-o-Y growth supported by increased xEV sales in China and Europe. Next is a look at the 2026 Q1 MLCC outlook. While global economic uncertainties continue due to supply chain shifts and geopolitical risks, the MLCC market is expected to maintain a structural growth trend. Despite some softness in IT set demand, IT MLCC demand is expected to remain similar to Q4 as high-end MLCC demand increases with strategic customers' flagship smartphone launch. Industrial MLCC demand growth trends are expected to continue as AI-related customers adopt new architectures and the share of rack scale architecture servers increased in the cloud market, accelerating MLCC content growth even further. In particular, with a surge in usage of high-temperature, high-capacitance MLCC specialized for AI servers, supply is expected to be even tighter than last year, especially around the AI and server applications. Lastly, for automotive MLCC, the Chinese government's extension of its vehicle trade-in subsidy and European environment-friendly automobile policies are expected to drive solid xEV and in turn, automotive MLCC demand. Furthermore, the self-driving vehicle market is expected to record significant growth, keeping momentum strong for high-end MLCCs. Accordingly, for IT MLCC, we will actively expand sales of high effective capacitance MLCC where significant content per box increase is expected, driven by higher performance APs necessary for AI smartphones and strengthen customer proposal activity, including design-in activity for new medium voltage and low ESR products used for ultra-high-speed charging and power systems for flagship smartphones. We will further also drive up share of high-end new product revenue by increasing supply of high-temperature, ultra-high capacitance products for memory chips, including silicon, which is in high demand. For industrial MLCC, we will be actively driving revenue by revenue increase of the high-end new products, which are positioned to benefit from the GPU customers' new architecture-based new product launch. In particular, when it comes to new programs, we will develop rack-level design-in opportunities covering integrated GPU server network in addition to AI servers. We will also provide timely supply for the cloud customers' new proprietary solution program to lock in our volume. We also see demand for our cutting-edge products spreading to network and power applications. So we will preempt this opportunity to increase our supply, especially around the small-sized ultra-high capacitance high-temperature MLCCs. For automotive, high-end MLCC demand continues to grow, supported by penetration of 800-volt charging platforms with continued development of EV technology and ADAS spreading to even the lower segments. So we will continue to strengthen our high-end MLCC lineup, continuing the C0G high-voltage, ultra-sallsize, ultra-high capacitance characteristics to fully meet the customer requirements. Next is look at substrates. Q4 Flip Chip BGA market demand increased Q-o-Q with solid demand from high-spec FCBGA for AI accelerators and server CPU tied to Gen AI infrastructure as well as solid automotive demand around EVs, which more than offset its seasonal softness. Q4 BGA market demand slightly decreased Q-o-Q due to seasonality, but ARM CPU-related new product demand increased. In 2026 Q1, FCBGA demand will be affected by seasonal softness and slowdown in PC replacement demand, but AI server and data center-related demand is expected to remain strong with growth momentum continuing, especially around AI accelerators and data centers. Now Q1 BGA demand is expected to decrease Q-o-Q due to soft demand for certain products, including SiP, but grow on a Y-o-Y basis, driven by increased ARM CPU and SSD controller-related demand. Accordingly, for FCBGA, we will continue to drive market share gain in our existing big tech accounts by significantly increasing supply of FCBGA for growing AI accelerator and server CPU demand based on our track record of stable on-time delivery and high quality. We will also focus on breaking into new big tech accounts, leveraging synergies with our component division, which produces the silicon cap and other embedded parts and are embedding multilayer core package precision control technology to drive our business growth in 2026. For BGA, we have been focusing on increasing market share of the North American key customers' upcoming new ARM CPU and capturing demand from the SSD controller customer in Korea and North America. We will also continue to drive new design-in activity, including preparing supply of the MLCC embedded substrates to new customers in Q2 and expanding the new lineup of AP participating products. Lastly is the camera modules. In Q4, IT camera demand decreased due to overall year-end inventory adjustments despite the launch of new flagships by Chinese OEMs. On the other hand, automotive camera demand relevant to SEMCO increased, thanks to key customer supply volume increase and mass production of new models. Looking towards Q1, IT camera demand is expected to remain soft, especially around the mass tier smartphones, but our addressable IT camera demand is expected to increase, thanks to strategic customers' new flagship smartphone launch effect. On the other hand, automotive camera demand is expected to decrease Q-o-Q due to the major North American customers' production volume adjustments in anticipation of new model launches, but we expect that to grow on a Y-o-Y basis. Accordingly, we will focus on proposing customer-specific technologies such as folded zoom, aperture modules and wide-angle OIS ultra light and thin modules that enhance customers' brand value with differentiated user experience and drive high-end revenue. We will also focus on successful launch of the new North American customers business to add a new engine for future growth. For automotive cameras, we will focus on expanding heating solutions for advanced self-driving performance, internalizing small-sized active lens cleaning technology and supplying modules for the in-cabin cameras with our high-pixel lenses to further strengthen our technology leadership. For humanoid cameras, we are currently in development with major humanoid global companies using our differentiated core technologies, including low light performance enhancing lens and high-reliability shock-resistant actuator technology and long-distance high-precision infrared 3D sensing technology and aim to become a first mover in next-generation physical AI robot market. Thank you.

[Interpreted] [Operator Instructions] The first question will be provided by Hyun Ji Cho from DB Securities.

[Interpreted] I have 2 questions regarding your MLCC business. First of all, can you share with us your Q4 MLCC shipment inventory ASP as well as your outlook on these data points for Q1? Second question is about MLCC utilization. It appears your Q4 MLCC utilization increased on a Y-o-Y basis. Can you give us a bit more color and detail about your utilization for MLCC? Also, can you share your outlook for MLCC utilization this year and how you plan to manage your capacity?

[Interpreted] To answer your first question, which was about our Q4 MLCC shipment inventory ASP and Q1 outlook. First of all, overall, Q4 MLCC shipment decreased on a Q-o-Q basis due to seasonality including some year-end inventory adjustments happening at our customers' side. But AI-related shipments, including for servers remained solid throughout Q4. And so overall -- and also overall inventory increased slightly in Q4. Blended ASP in Q4 increased on a Q-o-Q basis with a higher mix of high-end industrial and automotive MLCCs. Looking towards Q1, shipment is expected to remain similar to Q4 with softness in certain IT set demand such as smartphones and PCs. But blended ASP is expected to increase in Q1 on a Q-o-Q basis with the strategic customers' new model launch and the increased demand for AI server or automotive-related high-end MLCC. [Interpreted] To answer your question about our MLCC utilization and capacity operation plans during Q4, shipment increased on a Y-o-Y basis at a double-digit rate with strong server and automotive demand supporting the shipments. And our utilization in Q4 also improved at a meaningful level. Looking towards 2026, global big tech companies' AI-related investments is likely to continue. And with ADAS and xEV penetrating -- penetration increasing within the auto market, MLCC demand this year is expected to remain solid based on both pillars, one being AI, the other automotive. And so our utilization this year is also expected to remain at high levels. As you know, we have been increasing CapEx from last year to meet this growing demand, and we have also been preemptively preparing our supply capabilities, including further enhancing our productivities. We will continue to carefully watch customer trends and overall market demand and maintain our stable supply capabilities.

The following question will be presented by Junseo Park from Mirae Asset Securities.

[Interpreted] My first question is about the Flip Chip BGA. Looking at your Flip Chip BGA business, we are expecting that new big tech accounts will be secured, that your capacity will be fully sold out until 2027. And you've just shared that you're expecting your second half capacity to be running at full utilization. These are all very good news. And in that context, can you give us a bit more detail of your Flip Chip BGA business outlook for 2026? And if the demand for Flip Chip BGA remains so strong for some time, there may be a need for additional capacity expansions. Can you share with us any plans or what you're looking into in terms of additional CapEx into capacity? My second question is about your MLCC. MLCC demand continues to remain quite strong, especially around your high-end AI and automotive applications. And not only SEMCO, but other companies' utilizations are appearing to stay at high levels, and this is driving up market expectations for the MLCC business results this year. With that expectation growing, can you share your company business outlook for 2026 MLCC.

[Interpreted] To answer your first question about our Flip Chip BGA business. First to look at our 2025 last year business, Flip Chip BGA revenue increased significantly versus previous year, thanks to, first, the strong demand for high-performance chips driven by hyperscaler investments in data centers and also global big tech companies proprietary chip adoption increasing. Looking at this year, we expect Flip Chip BGA capacity consumption will continue to increase with a trend of large area, high multilayer substrates to support the larger number of semiconductors as well as the growing technical difficulty levels of the Flip Chip BGA itself. And so we continue to receive supply increase requests from our existing customers and also supply requests from new big tech accounts. Our Flip Chip BGA is expected to approach full utilization later this year, and we will go through capacity expansion, if necessary based on customer request and supply-demand situation to meet customer demand on time and continue the Flip Chip BGA revenue growth trend. [Interpreted] To answer your second question, which was about our MLCC business outlook for this year, in 2026, the MLCC market is expected to grow in all areas, including industrial and automotive due to the factors that we have explained before. In order to strengthen our leadership in growth markets of AI-related servers, network and power applications, we have been launching high-temperature, high-capacitance, high-end MLCCs at the right time, and we continue to expand, for example, in the 1 kilovolt plus high-voltage lineup to meet the higher power input voltage requirements of the higher-performing AI servers. For automotive, we plan to increase revenue by using, first of all, our existing lineup of high-capacitance MLCC for ADAS and high-voltage MLCC for xEV, while also actively driving customer diversification. For IT MLCC, we will focus on solidifying our leadership also in the volume market by enhancing our manufacturing competitiveness with better production yield and productivity, while continuing to win in the high-end market using our cutting-edge products. So overall, our aim for 2026 for MLCC is to continue and deliver another year of revenue growth that outpaces market.