[Into the Stocks] Samsung Electro-Mechanics Struggling as Smartphone Component Stock, Tesla 'Order Jackpot'

Establishing Presence in Vehicle Camera Module Market
Expecting Performance Growth through Securing New Growth Engines

[Asia Economy Reporter Kwon Jae-hee] Samsung Electro-Mechanics is gaining attention with a jackpot order from Tesla. Although it is considered a mobile parts stock like LG Innotek, which has Apple as a client, Samsung Electro-Mechanics, which supplies parts to Samsung Electronics' smartphones, has experienced a sluggish trend with its stock price falling more than 9% over the past month due to weak smartphone demand caused by the recent lockdowns in China. With the Tesla order, Samsung Electro-Mechanics is expanding not only into smartphones but also into the autonomous driving and electric vehicle markets, securing new growth engines and increasing expectations for future stock price rises.

According to the Korea Exchange on the 13th, as of 9:12 a.m., Samsung Electro-Mechanics was trading at 147,500 KRW, down 2.32% from the previous trading day. Samsung Electro-Mechanics hit its highest price of 199,000 KRW on January 3rd this year and has steadily declined since then, reaching a low of 143,500 KRW on June 7th. However, it rebounded following news of supply contract negotiations with Tesla. After hitting the low on the 7th, Samsung Electro-Mechanics rose 5% the next day.

Until now, Samsung Electro-Mechanics' main client was limited to Samsung Electronics. In the mobile parts market, its competitor LG Innotek has Apple as a client, while Samsung Electro-Mechanics mainly supplied parts to Samsung Electronics' smartphones. Despite inflation, Apple's iPhone demand was not significantly affected, allowing LG Innotek to maintain stable profit generation. However, Samsung Electro-Mechanics suffered considerable damage after Samsung Electronics announced it would reduce smartphone production by about 15-20% due to the lockdowns in China.

The supply contract with Tesla signifies supply diversification and securing new growth engines for Samsung Electro-Mechanics. Samsung Electro-Mechanics is considered a latecomer in the automotive camera module market. The market leader is its competitor LG Innotek, and Samsung Electro-Mechanics only entered the automotive camera module market in 2010. Until now, LG Innotek supplied about 70% of the camera modules installed in Tesla electric vehicles, while Samsung Electro-Mechanics supplied about 30%. However, with the recent order from Tesla, Samsung Electro-Mechanics' supply share is expected to increase to 80%. Samsung Electro-Mechanics' camera modules will be widely installed in Tesla's major passenger cars and trucks, including the Model X, Model Y, Model S, and Model 3, which are being released starting this year. This is the first time Samsung Electro-Mechanics has overtaken LG Innotek in the electric vehicle camera module sector, and Samsung Electro-Mechanics' supply of parts to Tesla is expected to steadily increase in the future.

Kim Ji-san, a researcher at Kiwoom Securities, said, "Samsung Electro-Mechanics' stock price has fallen as much as it could, so it will respond sensitively to positive changes in the second half of the year. It has secured a leading position in the autonomous driving camera market and price increases are expected with new foldable phones."