Why did third-quarter profit beat expectations?

  • Samsung Electro-Mechanics’ third-quarter revenue was approximately 3.8 trillion won, slightly below Goldman Sachs’ forecast of 3.9 trillion won and in line with the Bloomberg market consensus. Operating profit was 691 billion won, above Goldman’s forecast of 670 billion won and the market consensus of 660 billion won.
  • Goldman Sachs attributed the profit beat to an improved mix of high-value-added MLCC and FC-BGA products. However, third-quarter net profit was 469 billion won, below the bank’s previous forecast of 513 billion won.

How is AI demand boosting the MLCC business?

  • Third-quarter MLCC revenue rose 14% quarter on quarter and 38% year on year. The company said growth in data-center MLCCs was particularly strong, driven by demand for AI servers and infrastructure.
  • The company expects the number of chiplets per AI GPU to double each year, with power consumption and the number of MLCCs needed for GPU power supply increasing accordingly. Goldman Sachs believes a higher share of high-value products, together with favorable supply and demand conditions, will help the company maintain profitability despite unfavorable exchange rates.
  • Goldman Sachs raised its MLCC operating profit forecasts for 2026 through 2028 by approximately 9%, 9% and 10%, respectively. This assessment faces risks from a greater-than-expected increase in industry MLCC supply and weaker-than-expected end demand, including for AI servers.

What underpins FC-BGA growth and price increases?

  • Goldman Sachs estimates that third-quarter FC-BGA revenue grew 30% quarter on quarter and 90% year on year, with demand coming from data-center applications such as server CPUs, AI accelerators and network switches.
  • The bank believes advanced packaging requires larger substrates, while incremental supply is limited. Together, these factors improve the pricing environment and create room for further increases in the company’s average FC-BGA selling price. On that basis, Goldman raised its substrate solutions operating profit forecasts for 2026 through 2028 by approximately 2%, 6% and 4%, respectively.

Beyond the earnings upgrades, what operating constraints remain?

  • Goldman Sachs raised its fourth-quarter 2026 operating profit forecast from 758 billion won to 856 billion won, mainly because of higher expected MLCC revenue and profit. However, unfavorable exchange rates and weak end-device demand led the bank to lower its camera module outlook.
  • Camera module operating profit fell from 61 billion won in the second quarter to 36 billion won in the third quarter. Goldman Sachs expects it to fall further to 8 billion won in the fourth quarter.
  • Capacity expansion also increases cash spending: Goldman Sachs expects capital expenditure of 6 trillion won in 2027, above operating cash flow of approximately 5.03 trillion won, with negative free cash flow of 1.02 trillion won.
  • Goldman Sachs raised its earnings-per-share forecasts for 2026 through 2028 by approximately 1%, 2% and 2%, respectively, maintained its Buy rating and raised its 12-month price target from 2.4 million won to 2.5 million won.