MLCC Demand Falling in China
The ongoing trade war between the United States and China is affecting Korean multilayer ceramic capacitor (MLCC) manufacturers such as Samsung Electro-Mechanics, which depends on China for 40% of its sales.
According to industry sources, Samsung Electro-Mechanics’ sales and operating profit for the fourth quarter of this year are estimated at 2.1 trillion won (US$1.9 billion) and 310 billion won (US$279 million), up 24% and 196% respectively from a year ago. Although the operating profit is estimated to double from the previous year, it is approximately 50 billion won (US$45 million) short of previous market expectations.
Many South Korean securities companies recently lowered their operating profit estimates for Samsung Electro-Mechanics after the MLCC business unit of the company was significantly affected by inventory adjustment in the Chinese market.
The inventory adjustment resulted from the trade war. With the war escalating this quarter, Chinese companies’ MLCC demands fell. At present, Samsung Electro-Mechanics is exporting more than half of its MLCCs to China. Some experts point out that the sluggish demand in China will decrease the South Korean company’s sales by 20%.
Under the circumstances, Samsung Electro-Mechanics is trying to find a breakthrough with high-end MLCCs characterized by high technical entry barriers. “Fortunately, the price of high-end MLCCs is on the rise,” said Korea Investment & Securities research analyst Jo Chul-hee, adding, “In addition, Samsung Electro-Mechanics is increasing its supply of automotive MLCCs, which are expected to account for more than 10% of the company’s sales next year.”
In the meantime, the camera module business unit of the company is expected to show a stable business performance this quarter based on satisfactory product yields and flagship model production initiation at major clients. Meanwhile, its substrate business unit is likely to post a loss of 60 billion won (US$54 million) due to panel level packaging-related depreciation and so on.
Nonetheless, Samsung Electro-Mechanics’ annual operating profit is likely to exceed one trillion won (US$900 million) for the first time ever. The company’s sales and operating profit for this year are estimated at 8.29 trillion won (US$7.46 billion) and 1.08 trillion won (US$970 million), respectively. For reference, the sales and profit were 6.8 trillion won (US$6.1 billion) and 306.2 billion won (US$275.5 million) last year.