The two major South Korean component suppliers, Samsung Electro-Mechanics (Semco) and LG Innotek, have released their financial reports for the third quarter of 2024, with performance falling short of expectations. Industry analysts attribute this underperformance to poor sales of Apple's iPhone 16 and delays in the demand recovery of industries such as PCs and smartphones.
LG Innotek
According to IT Chosun, LG Innotek reported a revenue of around KRW5.68 trillion (approx. US$4.12 billion) for the third quarter of 2024, reflecting a growth of 19.34% compared to the same period last year. However, its operating profit was KRW130.4 billion, which represents a decline of 28.89%.
Notably, South Korea's financial information agency FnGuide had previously revised its forecast for LG Innotek's third quarter 2024 operating profit down to KRW259.5 billion in October 2024. Yet the actual operating profit reported by LG Innotek was over 50% lower than this forecast.
By business segment, LG Innotek's optical solutions division generated revenues of about KRW4.83 trillion, marking an increase of 24% compared to the same period last year. This growth was driven by the launch of new models from clients, leading to mass production of high-value camera modules for mobile devices, along with an increase in the supply of automotive camera modules.
However, it is important to note that Apple accounts for more than 80% of LG Innotek's overall revenue. Market observers believe that the weak operating profit performance of the optical solutions division can be attributed to the fact that only 37 million iPhone 16 units were sold in its first week, a decrease of 12.7% compared to the previous generation.
In the substrate materials sector, revenue reached KRW370.3 billion, representing an increase of 13% compared to the same period last year, but a decline of 2% compared to the previous quarter. Industry analyses indicate that while the launch of new products by clients has boosted the supply of IC substrates, sluggish demand from downstream industries like TVs has led to weak performance in display-related products such as Chip On Film (COF).
In the automotive electronic components sector, revenue fell to KRW477.9 billion, a decrease of 9% compared to the same period last year and 4% compared to the previous quarter, primarily due to slowing growth in the EV market. Nevertheless, revenue from communication modules for autonomous vehicles has seen growth, with orders continuing to rise, resulting in an order backlog of KRW11.9 trillion as of the end of the third quarter of 2024.
Looking forward, LG Innotek emphasized that it will strengthen its market position through the expansion of advanced technologies and product proposals. Additionally, the company plans to leverage AI and digital twin technology to enhance cost competitiveness, alongside strategic adjustments to its production bases to improve profitability.
Semco
Meanwhile, Semco also announced its financial results for the third quarter of 2024, reporting revenue of around KRW2.61 trillion, an 11% increase compared to the same period last year, with an operating profit of KRW224.9 billion, reflecting an increase of 19.5% year over year.
Similarly, FnGuide had downgraded its forecast for Semco's operating profit for the third quarter of 2024 to KRW238.6 billion in October, and Semco's operating profit ultimately also came in below expectations.
Industry experts interpret this underperformance as a result of the delayed recovery in product demand from downstream sectors such as PCs and mobile devices, adversely affecting the supply performance of Semco's main product, multilayer ceramic capacitors (MLCCs).
Despite facing uncertainties such as exchange rate fluctuations and geopolitical risks, Semco anticipates continued growth in the AI, server, and automotive markets in 2025. Furthermore, the company plans to strengthen its competitiveness by expanding its high-added-value product lines, diversifying production sites, improving yield rates, and increasing capacity.
Notably, during the earnings call, Semco mentioned the mass production timeline for its new business, silicon capacitors, scheduled to begin in the fourth quarter of 2024 for major global semiconductor manufacturers. It plans to expand supply to domestic and international customers starting in 2025.
