Samsung Electro-Mechanics Strives for Customer Diversification, Lowers Electronics Proportion to 20% Range

[Asia Economy Reporter Jeong Hyunjin] Samsung Electro-Mechanics has lowered its sales dependence on its largest shareholder, Samsung Electronics, to the 20% range for the first time in the first quarter of this year. Once criticized for its vulnerability to external volatility as Samsung Electronics' sales accounted for more than half, Samsung Electro-Mechanics is focusing on diversifying customers and strengthening business capabilities in areas outside mobile, such as automotive electronics.

According to the industry on the 1st, the proportion of sales to Samsung Electronics and its subsidiaries accounted for 29.7% of Samsung Electro-Mechanics' sales in the first quarter of this year. This is a 4 percentage point decrease compared to the end of last year and a 17 percentage point drop compared to the same period last year. This is the first time that Samsung Electronics' share of Samsung Electro-Mechanics' sales has fallen to the 20% range. Earlier, Kyung Kye-hyun, CEO of Samsung Electro-Mechanics, announced at the shareholders' meeting in March that they would discover new customers and reduce Samsung Electronics' sales ratio to the 20% range this year.

Samsung Electro-Mechanics' dependence on Samsung Electronics sales has been rapidly decreasing for several years. The proportion of Samsung Electronics within Samsung Electro-Mechanics was 56.8% in 2016, dropped to 47.8% in 2017, maintained in the 40% range thereafter, and fell to 33.7% last year. The sales dependence has dropped by more than 20 percentage points in four years.

The decline in sales related to Samsung Electronics is even steeper. In the first quarter of this year, Samsung Electro-Mechanics' sales transactions with Samsung Electronics and its subsidiaries amounted to 704.3 billion KRW, down 31.7% year-on-year and 26.0% quarter-on-quarter. Considering that sales vary by quarter, this first-quarter sales figure is the lowest in recent times. This contrasts with Samsung Electro-Mechanics' total first-quarter sales, which increased by 11% year-on-year and 14% quarter-on-quarter to 2.3719 trillion KRW.

The reason for the decrease in Samsung Electronics' share of Samsung Electro-Mechanics' sales lies in customer diversification. First, as the smartphone market expanded focusing on entry-level models rather than flagships, the demand for some parts supplied to Samsung Electronics' flagship models, such as camera modules, slightly decreased, according to industry sources. During the first quarter, related sales slightly decreased year-on-year due to the early launch of the Galaxy S21 series. At the same time, Samsung Electro-Mechanics is expanding its transactions with global companies such as Apple, Xiaomi, and Oppo for its main products and key smartphone components like multilayer ceramic capacitors (MLCCs). They are diversifying and expanding their customer base, which had been heavily concentrated on Samsung Electronics.

Additionally, by diversifying its business portfolio, Samsung Electro-Mechanics is strengthening growth potential in other fields such as automotive electronics, beyond the mobile sector it has focused on so far. In particular, as demand for MLCCs used in automotive electronic components increases, related sales are rising, and collaboration with automotive electronics companies is also increasing. Furthermore, during the semiconductor boom, sales in the package substrate business increased by 15% year-on-year in the first quarter, showing growth. Consequently, the market expects Samsung Electro-Mechanics' annual operating profit to surpass 1 trillion KRW this year.