Goldman Sachs hosted a non-deal roadshow (NDR) for Samsung Electro-Mechanics (SEMCO) in the United States and recently published a research report summarizing eight essential takeaways, highlighting the robust tailwinds that artificial intelligence (AI) provides for multi-layer ceramic capacitors (MLCC) and ABF substrates. The investment bank expects steady year-on-year operating profit growth, propelled by solid MLCC demand from AI servers and automobiles, along with strong FC-BGA business expansion driven by the scaling of AI customers. Consequently, Goldman Sachs has assigned a “Buy” rating to Samsung Electro-Mechanics’ shares listed on the Korean exchange, with a 12-month target price of 2.25 million KRW, implying a 60.7% upside from the previous Friday’s closing price of 1.4 million KRW.

Earnings Guidance Maintained Amid Currency Headwinds Signals Underlying Improvement

The company has maintained its revenue and operating profit guidance for the third quarter of 2026 despite an unfavorable exchange rate environment this quarter, with the Korean won having appreciated roughly 13% against the US dollar. Goldman Sachs interprets this as an indication that the outlook for the company’s core fundamentals has actually improved. Management attributes the strength of its core business to both the MLCC and substrate divisions, with the former expected to deliver quarter-on-quarter revenue growth of approximately 10% to 20% plus in the third quarter of 2026, alongside an operating margin near 20%. The latter is projected to achieve 20% revenue growth quarter-on-quarter with a similarly robust operating margin of approximately 20%.

Tight Supply Supports Favorable MLCC Pricing Dynamics

Given the constrained market supply, Samsung Electro-Mechanics has implemented two price increases for MLCCs sold to distributors this year, a channel which represents roughly 10% of its MLCC revenue. For the remaining revenue derived from direct customers, discussions concerning potential price adjustments are currently underway, with outcomes possibly determined in the near term.

Long-Term Agreements to Anchor a Major Share of MLCC Revenue

Growing customer concerns over MLCC supply availability, with some mobile phone clients now apprehensive about potential shortages over the next two to three years, are driving clients to secure capacity in advance through an increasing number of long-term agreements (LTAs). Samsung Electro-Mechanics anticipates that approximately 60% of its MLCC revenue next year will be covered by LTAs, with typical contract terms of one year, though some clients are requesting longer durations. Under these agreements, volumes are guaranteed, while pricing is adjusted based on market conditions relative to reference prices.

AI Data Center MLCC Revenue Share Could Reach 40% by 2028

With a substantial increase in MLCC usage per AI server and significantly higher price premiums, Samsung Electro-Mechanics believes the AI data center MLCC market could grow by 70% to 80% this year. The company further projects its own AI MLCC revenue growth will outpace the market, expanding by roughly 100% year-on-year, with acceleration expected next year. Consequently, the company forecasts that AI will approach nearly 20% of its MLCC revenue this year, climb above 30% next year, and potentially reach approximately 40% within two years.

Higher AI Mix Presents Significant Tailwinds for MLCC Profitability

While the overall operating margin for Samsung Electro-Mechanics’ MLCC business currently stands at around 20%, the company indicated that its AI data center MLCC operating margin is approximately 30%, with certain high-end products achieving margins approaching 40%. As such, a greater mix shift toward AI MLCCs is highly likely to provide a considerable boost to the company’s overall MLCC profitability.

Silicon Capacitors Emerge as a Potential Long-Term Growth Driver

Samsung Electro-Mechanics emphasized that silicon capacitors are not a substitute for MLCCs but rather a complementary product, as their smaller and thinner form factor enables placement closer to the chip and delivers superior noise filtering. The company is attracting significant customer attention, exemplified by a silicon capacitor contract valued at approximately USD 1 billion signed with a single major tech customer in May. Meaningful revenue recognition is expected to begin next year, with a substantial portion set to be realized in 2028. Goldman Sachs believes Samsung Electro-Mechanics is well positioned in the silicon capacitor market, given its capability to develop high-capacitance silicon capacitors and the support of Samsung Group’s own foundry business for production. Over the long term, the bank highlights the company’s unique positioning to offer turn-key solutions for silicon capacitor-embedded packaging substrates, which could generate strong customer interest.

ABF Substrates Also Benefit from AI Momentum

The ABF substrate business of Samsung Electro-Mechanics is also gaining strong traction from AI data centers, with data center applications (servers/networking) currently accounting for approximately 60% of its ABF revenue, a share that could rise to 70% within two years. Given tight ABF supply, the company has begun adjusting prices since the first quarter of 2026. Combined with an improving product mix toward AI data centers, its ABF business margins continue to rise. Samsung Electro-Mechanics plans to expand new production capacity in Vietnam and Korea starting in 2028, targeting a doubling of its ABF capacity by 2030 relative to last year, while also expecting its ABF revenue to more than triple from this year’s level by 2030.

ABF Tightness May Exceed MLCC, with Longer-Term LTAs Being Signed

The supply tightness for ABF may be more severe than for MLCC, as the former is a customized product, and the larger size and higher layer counts required for AI data center applications make achieving high yields difficult. Given the constrained ABF supply, the company is engaging with customers on LTAs, aligned with clients’ chip roadmaps, with terms extending as far as 2032. Customers are making advance payments to secure capacity, while annual capacity utilization is guaranteed to a certain degree.