[This Week's Attention Stock] Samsung Electro-Mechanics, MLCC Powerhouse Drawing as Much Attention as Memory

Samsung Electro-Mechanics, an MLCC powerhouse, draws attention amid AI-driven rapid growth
Also standing out in FC-BGA, a high value-added semiconductor substrate
Securities firms keep raising their targets

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In the era of the artificial intelligence (AI) revolution, Samsung Electro-Mechanics, a hidden powerhouse in the semiconductor industry, is drawing significant attention from the securities market. Demand for Samsung Electro-Mechanics' key products such as MLCC (multilayer ceramic capacitor) and FC-BGA (flip-chip ball grid array) is growing within the AI industry to a level comparable to that of memory semiconductors. Backed by rising product demand, the share price has surged sharply and securities firms have been racing to raise their target prices.

AI-driven explosive growth sends MLCC powerhouse Samsung Electro-Mechanics' share price soaring

MLCCs are core components in electronic circuits that control the flow of current and store electricity, then supply it stably when needed, playing a role similar to a dam. They are therefore called "the rice of the electronics industry." They are mainly mounted in mobile and information technology (IT) devices, and in recent years their applications have been expanding into AI servers and automotive electronics (in-vehicle electronic equipment).

In the past, Samsung Electro-Mechanics supplied most of its MLCCs to smartphones, but it is now expanding supply to AI servers. In AI servers, power density is increasing due to high-performance graphics processing units (GPUs) and large-capacity memory integration, which creates demand for advanced MLCCs capable of stably controlling voltage fluctuations.

MLCCs for AI applications are more technologically demanding than products for mobile and IT, but their prices are more than three times higher and the number of units used is overwhelmingly greater. An AI server contains around 25,000 MLCCs, far more than a general-purpose server, which uses around 2,000. Considering that the latest AI server platforms are equipped with around 20 boards each, an estimated several hundred thousand MLCCs are required per server.

Lee Jongwook, an analyst at Samsung Securities, said, "The number of MLCCs to be mounted in Nvidia's latest servers is estimated at around 600,000 units, more than 30% higher than in existing servers," adding, "Server clients are more than 80% dependent on tier-1 MLCC suppliers such as Murata and Samsung Electro-Mechanics."

The sharp recent rise in Samsung Electro-Mechanics' share price has been influenced by news that Murata plans to raise prices for MLCCs used in AI. In the AI server MLCC market, Samsung Electro-Mechanics competes with Japan's Murata for the number one and two positions globally. In a media interview on the 17th, Murata President Norio Nakajima said the company is reviewing a price increase for MLCCs, stating, "We are assessing the real demand for AI to determine whether price changes are realistic, and we hope to make a decision by the end of March."

President Nakajima said, "Inquiries about our most advanced MLCCs are currently running at twice our production capacity," adding, "There is a high possibility that supply will be very tight this year and next year." He also noted, "The AI investment boom is likely to continue for at least another three to five years, and next-generation AI chips could increase demand for high-end MLCCs by more than tenfold."

Some observers forecast that the compound annual growth rate of demand for AI MLCCs will exceed 30% through 2030. A Samsung Electro-Mechanics representative said during last month's earnings conference call, "In the first quarter of this year, the blended average selling price (ASP) of MLCCs is expected to increase quarter-on-quarter, supported by the launch of new smartphone models by strategic customers and growing demand for high value-added products such as AI server and automotive MLCCs."

Lee Changmin, an analyst at KB Securities, said, "For some IT-oriented components such as those for PCs and mid- to low-priced smartphones, demand weakness is expected as downstream customers begin to adjust production in response to the surge in memory prices." However, he added, "For AI-related components, including those for AI servers and power infrastructure, the tight supply-demand situation continues, and this should be sufficient to offset the demand weakness for IT-oriented components." Lee emphasized, "In particular, for high value-added MLCCs, the impact of price hikes will begin to be fully reflected in earnings from the second quarter of this year."

Also standing out in high value-added semiconductor substrates FC-BGA, with securities firms raising their targets

Samsung Electro-Mechanics is also distinguishing itself in FC-BGA, a high value-added semiconductor substrate for AI. FC-BGA is a type of semiconductor package substrate that connects semiconductor chips to the mainboard. It is mainly used in AI servers and GPUs that require high-performance computing, as well as in autonomous driving chips for automotive electronics. As the AI revolution drives a surge in semiconductor demand, FC-BGA is also shifting toward a seller's market.

During the earnings conference call, a Samsung Electro-Mechanics representative said, "Due to trends such as larger area and higher layer counts in package substrates stemming from the increase in the number of semiconductors adopted, we expect capacity to be constrained, and existing customers are continuously requesting increased supply, while new clients are also requesting supply." He added, "Accordingly, we expect our FC-BGA lines to approach full utilization in the second half of this year, and we will actively pursue capacity expansion if necessary, based on our analysis of client requests and the supply-demand situation."

Park Junseo, an analyst at Mirae Asset Securities, said, "FC-BGA is evolving into a seller's market as utilization rates at major manufacturers rise and fall," explaining, "Due to AI-driven tight supply-demand and high utilization, favorable price increases are also expected for Samsung Electro-Mechanics."

As expectations grow for MLCCs and FC-BGA, Samsung Electro-Mechanics' share price has jumped about 70% so far this year. The securities industry believes the stock still has room to rise further. KB Securities recently raised its target price, saying the share price could climb to 460,000 won. Samsung Securities set a target of 450,000 won, while Korea Investment & Securities suggested 440,000 won.

Park Sanghyun, an analyst at Korea Investment & Securities, said, "MLCCs for AI servers are difficult to manufacture, so Murata and Samsung Electro-Mechanics effectively divide up this market, but capacity expansions planned by the two companies for this year are far more limited than demand," adding, "We raised our target price in light of the tight supply-demand conditions and rising selling prices."