Samsung Electro-Mechanics Says AI MLCC Content Doubles Annually as Long-Term Agreements Lock Up Over Half of 2027 Revenue
Third-quarter 2026 earnings call, October 28, 2026: record operating profit of KRW 691 billion, with management guiding to a record 2027 and growth in every quarter
Samsung Electro-Mechanics reported third-quarter operating profit of KRW 691 billion, up 57% from the prior quarter and roughly 165% from a year earlier, on revenue of KRW 3,763.3 billion, up 9% sequentially and 30% year over year. Net profit was KRW 468.7 billion. The more important message came in the outlook. Management said tight supply in both multilayer ceramic capacitors (MLCCs) and flip-chip BGA substrates will deepen in the fourth quarter and persist through 2027, and that the company expects "significant growth achieved each quarter after quarter starting from Q1" next year. The company absorbed an unfavorable currency move in the quarter and still posted a record, which suggests operating leverage from mix and pricing rather than volume alone.
The "AI MLCC law" and the 1005 47-microfarad part
The most useful new framing on the call was the company's explanation of why AI content per chip keeps compounding. Head of Strategic Marketing Tae-Gon Lee said the number of dies in AI GPUs and ASICs is rising from 2 in 2026 to 4 in 2027 and 8 after 2028, with power consumption rising in proportion. In his words, "MLCC capacitance requirements for GPUs or ASIC core power will also double each year. We have been referring to this as the AI MLCC law." Whether the law holds as stated is an open question, but it gives investors a concrete basis for sizing demand.
The flagship product is the 1005-size 47-microfarad MLCC, which is already supplied to every major big tech platform and which management expects to see roughly 8x demand growth in 2027. Next-generation AI "super chips" from global big tech companies entered mass production in the third quarter, and the company said this lifted its share of high-end MLCCs, a trend expected to continue in the fourth quarter. Blended MLCC average selling price rose by a double-digit percentage quarter over quarter, helped by the 1005 47-microfarad part and by ultra-high-capacitance 0603 10-microfarad and 1608 100-microfarad products. Shipments rose and inventory fell.
The fourth quarter is normally a seasonally soft period because of IT customer inventory adjustments. Management said MLCC demand will instead grow across all applications this year, and it guided to another significant revenue increase on higher ASP and richer mix.
Long-term agreements now cover more than half of next year's MLCC revenue
Samsung Electro-Mechanics said it has signed or is negotiating long-term agreements (LTAs) with about 50 customers covering high-capacitance, high-voltage and cutting-edge MLCCs. These are expected to account for more than 60% of 2027 MLCC revenue, a figure management also expressed as "more than half" in the Q&A. Executives argued the contracts secure demand early, allow more efficient production planning and pull the company's next products into customers' next-generation designs. They also noted that a large part of mid- to long-term capacity is already occupied.
The contracts do not appear to cap pricing. Management said customer demand is growing faster than expected, that capacity is being eroded by the shift to high-end MLCC production, and that "with supply expected to get tighter, we will continue to strategically respond to pricing." The company described its approach as LTAs combined with "market-sensitive pricing" and said ASP should stay on an upward trend "for some time." The risk investors should weigh is customer pushback if pricing becomes too aggressive. Nothing on the call suggested that was occurring yet.
New MLCC growth vectors: optical modules, 800-volt power and silicon capacitors
Beyond core AI accelerator power, management pointed to three emerging pools of demand. MLCCs for optical modules used in high-speed GPU links are expected to be a new growth engine in 2027, with revenue tripling year over year. The company noted that a 1.6 terabit per second optical module needs MLCC capacitance similar to that of a smartphone. Data centers moving to 800-volt power architectures are likely to use 1 kilovolt-plus MLCCs in their DC/DC converters. Management said this is the same specification already used in automotive onboard chargers, so the existing lineup can be redeployed quickly.
Silicon capacitors are the third. The company makes an embedded type, inserted in the interposer or main board, and a land-side type mounted on the substrate. It has signed 2-year supply agreements with global big tech accounts, including a KRW 1.5 trillion contract announced in May, with mass production planned for 2027 and talks under way with several other big tech customers.
Substrates: embedding technology, pricing and a KRW 6.8 trillion expansion
The Package Solutions division posted revenue of KRW 939 billion, up 22% sequentially and 58% year over year, with growth across all applications. Management described FCBGA supply as short not only at the high end but across all substrate products, as larger area and higher layer counts consume capacity. The company said it is in price talks, citing both the capacity shortage and higher raw material costs, to improve profitability while targeting above-market revenue growth. It has signed an LTA with a leading North American big tech company.
The differentiator management emphasized is embedding. By placing passive components inside the substrate, the company shortens the power delivery path and the signal path, which improves power efficiency and high-speed signal quality. Management said Samsung Electro-Mechanics is "the only company in the world" supplying passive components together with embedding flip-chip BGAs. It already mass-produces embedded, multi-core server CPU substrates and plans to double that supply volume in the fourth quarter. In 2027 it plans equivalent products for AI accelerators, network switches and automotive. Management also said future high-spec substrates may embed active components, not just passives.
The KRW 6.8 trillion investment announced in September covers Sejong, Busan and Vietnam and is backed by big tech customer investments and long-term supply agreements. Mass production starts in stages from 2027, with meaningful revenue contribution from 2028. Management gave no revenue figure for the capacity. It cautioned that the expansion "won't be enough to fully satisfy the customers' demand" and that further requests for volume continue to arrive. The timing and size of additional investment will be decided "prudently." Customers now treat substrates as a strategic component and want resilient supply chains and co-development, which supports the company's bargaining position.
Capex is heading higher
Asked about capital spending, management confirmed that this year's capex will exceed the original plan. Drivers include upfront costs such as land purchases and infrastructure, capacity for high-capacitance, high-voltage and high-temperature MLCCs, AI accelerator and network FCBGAs, silicon capacitors, and glass substrates, which are targeted for full operation in 2028. The MLCC plant in the Philippines starts mass production next year and will focus on cutting-edge high-end products. No updated capex figure was provided. With spending rising while the company is still adding capacity into a shortage, the investment cycle bears watching, although LTAs and customer co-investment reduce the demand-side risk.
Optics: the soft spot, with humanoids as an early option
The Optics Solutions division was the weak segment. Revenue was KRW 941.3 billion, down 9% sequentially and up 3% year over year. IT camera module demand fell on sluggish smartphone sales and higher handset prices linked to rising memory costs. This is a notable cross-current, since the same memory strength driving AI demand is dampening consumer devices. Year-end inventory adjustments will weigh on the fourth quarter, though the company is starting mass production of a 200-megapixel folded zoom module and supplying a strategic customer's next flagship and foldable phones. A new North American customer is also expected to be onboarded next year.
Automotive was stronger, driven by a global EV customer's next platform and by high-pixel all-weather modules for EVs and robotaxis. The company began supplying camera modules for humanoid robots to a North American customer in the third quarter and is expanding capacity in North America. Management described this as an early-stage opportunity and gave no revenue targets. The company is also working on 48-volt MLCCs, having developed a 100-volt, 100-microfarad part, and sees 48-volt adoption extending from vehicles to humanoids.
Balance sheet
Total assets rose about 3% sequentially to KRW 17,061.2 billion. Liabilities to equity rose 6 percentage points to 63% and debt to equity rose 5 points to 33%, while the equity ratio fell 2 points to about 62%. Leverage is moving up as the investment program accelerates, though from a manageable base.