Good afternoon. This is Chaeyoung Kim, Head of IR and Planning Team at Samsung Electro-Mechanics. Thank you for joining our two thousand and twenty-four Q3 earnings conference call. On today's call, I am joined by our CFO, Sung Jin Kim, EVP Won Taek Kim, Head of Strategic Marketing, VP Kyu Taek Park, Head of Support Team, Components Division, Sung Jung Kim, Head of Support Team, Optics and Communication Solution Division, and VP Hong Jin Kim, Head of Support Team, Package Solution Division. We will start with a presentation on our Q3 company level and divisional business results, followed by market trends and outlook by product, before taking your questions. First, let's go to our two thousand and twenty-four Q3 results.
In Q3, our financial results continued an upward trend, both QoQ and YoY, despite some challenges posed externally, including slowdown of demand in key downstream industries and a stronger Korean won. Q3 revenue was KRW 2,615.3 billion, an approximately 2% increase QoQ, and 11% increase YoY. The details regarding revenue increase, decrease factor by division will be explained later on during the divisional results. Q3 operating profit was KRW 224.9 billion, which is about a 6% increase QoQ and around a 20% increase YoY. Pre-tax profit in Q3 was KRW 142.8 billion. Net profit, KRW 115.2 billion. Next, in terms of the financials, as of end of Q3, total assets was KRW 12,603.9 billion, which is roughly 1% QoQ decrease.
For the major financial indicators, liability to equity decreased to 47%, and debt to equity was 23%, a slight decrease QoQ. Our equity ratio was 68%, which is a slight increase QoQ. Next are the divisional results and future outlook. First, the Components Division. The component division's Q3 revenue was KRW 1.197 trillion, a roughly 3% increase QoQ, and about a 9% increase YoY. In Q3, our supply to key industrial applications, including AI, server, network, and power equipment, increased, and also our automotive revenue also increased, supported by the trend of greater electronics in vehicles, resulting in increase of revenue across all applications, particularly industrial and automotive.
Regarding Q4, while MLCC market demand is expected to slow down due to factors increasing year-end component inventory adjustments, demand for automotive MLCC is expected to maintain its upward momentum, driven by increasing electronic content. So we will respond with stronger promotion of our small size, high-capacitance MLCC for IT applications and high temperature, high-capacitance MLCC for industrial applications. We're also working on designing of new automotive high temperature, high voltage, high-capacitance MLCCs. For electronic components, we will also focus on increasing supply to overseas smartphone customers. Next, in the Optics and Communication Solution Division, Q3 revenue was KRW 860.1 billion, a roughly 6% decrease QoQ, but 5% increase YoY.
In Q3, our automotive camera module revenue to global EV customers increased, but for IT camera modules, despite the full mass production of high-spec camera modules for the strategic customers' flagship, supply to overseas IT customers decreased, resulting in a QoQ fall of the division's revenue. In Q4, for the IT camera module market, demand for higher performing camera modules for new flagship smartphones, such as high pixel folded zoom cameras, is expected to continue, and we will focus on timely mass production of differentiating camera modules for key Korean and global customers. Also, for automotive camera modules, we will focus on expanding our lineup, including supply of all-weather camera modules, to capture demand for the advancing ADAS and EV market, and also on diversifying our customer base, including breaking into Korean traditional auto OEMs. Lastly, the Package Solution Division.
Q3 revenue was KRW 558.2 billion, which is a roughly 12% increase QoQ and a 27% increase YoY. BGA supply increased mainly around high-end products, including the ARM CPU substrates to overseas customers, and flip chip BGA supply also increased around high-end, large-size, high multilayer substrates for server, AI, and automotive ADAS applications, driving QoQ revenue growth for us. Q4 package substrate market is expected to see some seasonal weakness in smartphone and PC demand, but demand for high-end flip chip BGA for server, AI network, and automotive applications is expected to remain solid in Q4. So we will focus on expanding supply of high-end substrates for server, AI, network, and automotive to key Korean and global customers, and also increasing our production volume, leveraging the stabilized mass production of our new overseas plant. That completes the presentation on our Q3 results.
And now, Won Tek Kim, our Head of Strategic Marketing, will talk about the market trends and outlook by key product group.
Good afternoon. This is Won Tek Kim, Head of Strategic Marketing. I will go over the current market situation and outlook for our MLCC, camera modules, and substrates, respectively. First, MLCC. In Q3, MLCC demand continued another quarter of growth across all applications, including IT, industrial, and automotive. IT MLCC demand increased QoQ, driven by the new model launch by key Korean and overseas smartphone customers, combined with solid commercial PC demand. Industrial MLCC demand also continued to grow, supported by growth of AI servers. Automotive MLCC demand also continued to increase as electronic content in vehicles, such as ADAS and infotainment, continue to grow.
That said, in Q4, despite the seasonal demand drivers, such as U.S. Black Friday and Chinese Singles' Day, MLCC demand is expected to somewhat decrease versus Q3, due to delay in recovery of consumer sentiment and year-end component inventory adjustments. Despite overall softness, demand for automotive MLCC is expected to continue growth even in Q4, supported by the seasonal demand increase of finished vehicles, including xEVs, and increasing electronics per vehicle. We will focus on, therefore, improving product mix around high-end products and new products, such as small size, high capacitance MLCC, low ESL MLCC, and continue to increase share of the automotive revenue. For IT MLCC, we will focus on design-in of new products, especially our cutting-edge, small size, high capacitance MLCC for mobile, low ESL MLCC, and high voltage MLCC for PC applications, which are in greater demand as AI features require higher specifications at set level.
For industrial MLCC, we will focus on stronger promotion of higher temperature MLCCs, including the 100 microfarad ultra-high capacitance, to capture the growth in AI servers, and focus on increasing high-end MLCC revenue, including the 100 volt high capacitance MLCC for high-speed data communication and small size, ultra-high capacitance for power modules. For automotive MLCC, we will focus on customer design-in of new products, especially the high temperature, high capacitance MLCC for ADAS and infotainment, and high voltage MLCC for electronic powertrains in order to be designed in into more new projects of major OEMs and Tier 1s. Next is camera modules. During Q3, despite the launch of foldable phones by the strategic customer, the Chinese camera market mainly grew around the mass tier products, and demand relevant to Semco slightly decreased on a QoQ basis.
For automotive camera modules, demand relevant to Semco increased as finished car sales volume improved QoQ for major customers. In Q4, demand is expected to decrease QoQ due to seasonality and customer year-end inventory adjustments. Now, we will aim to increase revenue around high-end products by focusing on early preparation for the new flagship models of key Korean and global customers for next year, and offering innovative technologies such as slim OIS, continuous zoom, lens-lead folded zoom, and super macro to capture the ultra-slim, high-performance telescopic needs of IT camera customers. For automotive cameras, we will focus on increasing revenue by starting mass production within the year of heating cameras for always-on sensing and interior cameras for driver monitoring, needed for improved autonomous driving performance, and leverage our track record for stronger promotions to break into new OEM accounts. Lastly, our substrates.
In Q3, BGA demand decreased slightly QoQ due to a fall in memory demand, despite the continued demand for ARM CPU and launch of new products for premium AP. Flip chip BGA demand continued to grow, driven by demand for server CPU, AI accelerators, and GPU. Looking towards Q4, given overall seasonality, BGA demand is expected to decrease QoQ, mainly around commodity-grade products, including memory substrates. For flip chip BGA, demand for PC substrates is expected to fall slightly QoQ due to customers' year-end inventory adjustments, despite the launch of new CPUs for AI PCs. However, demand for high-end substrates, such as AI servers and network applications, is expected to continue growth on a QoQ basis. For BGA, we will focus on on-time design-ins and increase supply of new products for the ARM CPU and premium AP, where demand is expected to grow.
For flip chip BGA, we will focus on increasing supply of server CPU substrates, while also breaking into AI accelerator markets and diversifying our customer base to increase the share of high-end products. Key cloud service customers have been asking for new technologies, such as multilayer core and silicon cap embedding for their next generation projects. These are technologies where Semco already has a strength, and we will prepare thoroughly to win these new projects early on. Thank you.
The first question will be presented by Rokho Kim from Hana Securities.
[Foreign language]
I have two questions on MLCC. First question is, can you share with us your shipment, inventory level and ASP results for Q3, and also share your outlook for Q4 on MLCC? Our second question is, if you look at this year, due to the strong industrial and automotive MLCC business, both your utilization and business performance on MLCC seems to have improved on a year-on-year basis. Now, we're looking towards next year. Can you give us some outlook for next year's utilization for MLCC and some outlook by application?
[Foreign language]
To answer your first question about third quarter MLCC shipment inventory, ASP, and also fourth quarter outlook, in Q3, our MLCC shipment increased slightly on a quarter-on-quarter basis, thanks to the new product launch by the global smartphone customer and also solid demand across key industrial applications, such as AI and server, as well as automotive demand. Inventory number of days for MLCC remained similar to Q2. Blended ASP in Q3 increased due to the increased share of our industrial and automotive MLCC. Looking towards Q4, high-end demand, including automotive MLCC, is expected to remain solid in Q4, but overall shipment is likely to slightly decrease, reflecting seasonality, including customers' year-end inventory adjustments. Your second question was about MLCC utilization outlook for next year and also outlook by applications.
Actually, when we look at, compared to last year, 2023, this year, our MLCC utilization has been improving as our shipment volume increases, supported by gradual IT market recovery and also the continued growth in industrial and automotive markets. Looking towards next year, in 2025, in the IT sector, in addition to the moderate growth of key products such as smartphone and PC, MLCC content per box is expected to increase, with higher performance required at the set level, led by AI devices. For industrial, set level growth is expected mainly around the AI server side, and in automotive MLCC, the increase in electronic content and electrification of vehicles is likely to continue. Given that our MLCC revenue growth has been continuing to outpace market growth, we expect our utilization next year to be higher than this year.
[Foreign language] The next question will be presented by Giuni Lee from Goldman Sachs.
[Foreign language]
I have two questions. Question is about the level of revenue that you have been generating in connection with AI servers. So that would cover your MLCC and also your flip chip BGA business. How much is that currently? And how much do you think that could grow next year? Second question is related with the new Vietnam plant that you've started to operate from Q2. In connection with that, can you give us an update on your flip chip BGA business and outlook, including other server substrates?
[Foreign language]
To answer first, your question about our businesses related with AI servers. In the case of MLCC for servers, this year, our MLCC for server revenue is expected to more than double that of last year, and most of this appears to be for AI server-related. In terms of scale, we understand this to be industrial top-tier level. Currently, we think that it is possible for our AI server-related revenue to repeat the significant growth again next year, and we will actively capture this growing market using our high-end MLCC products to achieve our revenue targets. For Flip Chip BGA, for servers and AI, this year, we expect our revenue to roughly double, mainly around CPU substrates. We also plan to start mass production of Flip Chip BGA for AI accelerators.
Looking forward to next year with the server CPU flip chip BGAs continuing to grow together with the AI accelerator products in mass production, we expect significant year-on-year growth next year from our flip chip BGA for server and AI applications. We will concentrate on ensuring stable supply of products and also to actively get designed in on future projects by adopting the next generation technologies that customers are asking for.
[Foreign language]
Your second question was regarding our flip-chip BGA business, current status and outlook. Regarding our Vietnam plans, our Vietnam plant has been successfully performing design-in and mass production of high-end products in line with customer demand, resulting in double-digit QoQ growth of our flip-chip BGA revenue in Q3. Going forward, market demand for high-end package substrates, which require significant technology expertise, is expected to remain solid. Semco will focus on maintaining stable supply of our high-end products to key customers and also engaging in co-development projects with various customers. Also, securing differentiated technology in order to drive the continued growth of our flip-chip BGA business.
[Foreign language]
[Foreign language] The next question will be presented by Sung Kim from Daiwa.
[Foreign language]
[Foreign language]
I also have two MLCC related questions. First question is whether this rapid growth of the server, especially by the AI server growth, has had any changes to your MLCC strategy? Recently, while EV market growth has been leveling off, we're seeing very strong growth from servers, specifically the AI server. Has this changed your MLCC strategy? Second question is about the semiconductor related with MLCC channel inventory. Currently, there's talk in the capital markets that there is increasing share of commodity-grade semiconductor inventory. Previously, you've mentioned that your MLCC inventory is flat on a QoQ basis. Can you give us some sense and update on the channel MLCC inventory that you're seeing?
[Foreign language]
I'll answer your first question by addressing the automotive market. As you mentioned during your question, in the automotive market, EV growth rate is expected to fall somewhat versus last year. That said, the hybrid vehicle sales continue to grow, and there's wider penetration of ADAS. So considering all of that, the automotive MLCC market overall is expected to record mid-single-digit level growth. Accordingly, we will remain focused on our existing automotive MLCC strategy, which is to drive revenue growth that outpaces market by adding new automotive accounts and also winning new design-ins. We are currently strengthening our competitiveness across both the development and manufacturing side by expanding our automotive high-temperature, high-voltage lineup, and also by diversifying our production network and improving yield and increasing our production capacity.
Regarding AI servers, AI servers require more GPUs and also have significantly higher power consumption. This is expected to bring significant increase in MLCC requirements, especially for small size, ultra-high capacitance, high temperature MLCCs. Semco already has the technology for small size, ultra-high capacitance MLCC from our IT MLCC business, and also the high reliability technology from our automotive MLCC business, which we have been leveraging to grow revenue in line with market growth. Going forward, we will focus on our capabilities on seizing the leadership over these growing markets.
[Foreign language]
Your second question was about MLCC channel inventory. Considering the solid demand for stock of the AI server related high-end MLCC and also the solid level of demand for automotive MLCC continuing, the current inventory level across the supply chain is believed to be similar to last quarter and also at healthy levels. We do expect a routine level of year-end inventory adjustments and some revenue declined tied to this revenue adjustment tied to this inventory adjustment. But MLCC demand growth is expected to continue next year, driven by the AI and automotive demand, and inventory levels are expected to remain stable next year. We will continue to carefully monitor market situation and our inventory levels while we continue to respond to customer demand.
[Foreign language] .
[Foreign language]
I have two questions. First question is about your automotive camera module business. Even though the EV market growth rate has been declining in Q3, your automotive camera module business seems to have grown. Can you give us an update and outlook of your camera module business, including automotive cameras? Second question is about your new business development. It seems that your new business development works are starting to deliver some visible results. Can you give us some updates on where your new business development projects are currently at?
[Foreign language]
To answer your first question about our automotive camera module. In Q3, our automotive camera module revenue increased QoQ, thanks to active response to global EV customers requirements and also on time supply using our stable quality competitiveness and our supply capabilities. With advances in autonomous driving technology and expansion of EV, there is a growing need for higher specification, higher precision, and high reliability camera modules, and we have been continuing to strengthen our automotive camera solutions and products, such as all-weather camera modules and hybrid lenses. We will continue to expand our automotive camera module business by expanding the supply of the five meg plus high pixel camera modules and also diversifying the customer base by adding on new accounts, including Korean traditional auto OEMs.
[Foreign language]
To answer your question about our new businesses, as mentioned earlier this year, we have selected core components of future industry, including silicon capacitors, hybrid lens for automotive cameras, and a small size all solid state battery for mobile devices as our new businesses, which we have been successfully developing. For silicon capacitors, we have been starting mass production from Q4 for a global semiconductor company, mainly in connection with packaged substrates for high performance semiconductors, for example, for AI applications, and from two thousand twenty-five next year, we plan to expand supply to Korean and global customers. For hybrid lens, which is a differentiating solution for automotive cameras that provide maximum design flexibility and also price competitiveness, we are preparing for mass production and business development next year in two thousand twenty-five.
In the case of all solid state batteries, this uses solid oxide electrolytes, unlike the conventional lithium ion batteries, providing better stability. Also, it can be designed into various form factors, including both prismatic and cylindrical. We have been leveraging our technology advantage, including the core MLCC layering technology, and are currently in customer testing using an ultra small battery test product for wearables. Our mass production target is in 2026. Glass substrates and other new business projects are also making progress in technology and product development as planned, and we will keep you updated on future developments in our new business pipeline.
The next question will be presented by Kang-ho Park from Daishin Securities.
I have one question. It's an enterprise-level question about your Q4 and also next year outlook. There are uncertainties continuing in Q4. Also Q4 traditionally is a slow season in terms of seasonality, and combining those factors, I think the market is expecting your performance in Q4 to be less than what you have delivered in Q3. I would like to ask, if possible, for you to share your outlook for Q4 and some guidance for 2025. I'll answer your question first by recapping Q3 results.
In Q3, despite some challenges in business environment, such as slower than expected downstream demand recovery and also the stronger Korean won, our Q3 results improved both on QoQ and YoY basis, thanks to the strong sales of high-end products tied to AI, server, and automotive demand, such as our MLCC and flip chip BGA tied to the AI and server demand, and also our MLCC and camera modules related with automotive. In Q4, it is likely that there will be weaker than Q3, given a continued soft IT set demand due to external uncertainties and the usual year-end component inventory adjustments. However, we continue to increase our supply of high-end MLCC and flip chip BGAs related to growth markets that are focused, such as the automotive, AI, and servers.
So we expect our growth trend in high-end products to continue in Q4. Looking towards next year, two thousand and twenty-five, even though it is difficult at this point to share specific outlook, given the external uncertainties such as global trade disputes, geopolitical risk, and foreign exchange volatility, we expect revenue of products related with AI, such as MLCC and substrates, to expand next year, as AI and servers are expected to continue high growth and also on-device AI is expected to expand across PC and smartphones. Given that our automotive product business, including automotive MLCC, is also expected to continue growth, overall, I expect our business to grow in two thousand and twenty-five versus this year.
We will continue to focus on securing the core technologies in material, equipment, and manufacturing process to actively meet customer requirements and also to further widen the technology edge that differentiates us. Also, we will increase our supply capacity in demand growing areas to further expand our presence in growing markets such as AI, server, and automotive. Furthermore, we will concentrate on improving our internal efficiency through better productivity, stable quality, and cost savings to build in a stable profit structure. Thank you.