Good afternoon. Thank you for joining us at the 2022 fourth quarter earnings conference call for Samsung Electro-Mechanics. Today, we will proceed first with a presentation by SEMCO, followed by a Q&A session with everyone joining our call. If you have a question, please press dollar and one on your phone. Now, we will start with the presentation by SEMCO.
Good afternoon. This is Taiyoung Kim, Head of IR and Planning team at Samsung Electro-Mechanics. Thank you for joining us today at the 2022 fourth quarter earnings conference call. Today, I am joined by EVP Kim Sungjin, our CFO, EVP Kim Won-taek, Head of the Strategic Marketing Office, Park Gyu-taek, head of the support team at the component division, Lee Hyung-won, Head of the support team at the Optics and Communication Solutions Division, and VP Ahn Jeong-hoon, Head of the support team at the Package Solutions Division.
We will start with a presentation of our fourth quarter business results at the company and divisional level, followed by market trends and outlook by product before moving on to the Q&A session at the end. First, our fourth quarter results. In the fourth quarter, revenue recorded KRW 1.9684 trillion, which is approximately a 17% decrease QoQ and a 19% decrease YoY. Further details regarding revenue movement will be explained later by division when we cover the divisional results.
Fourth quarter operating profit was KRW 101.2 billion, approximately a 67% decrease QoQ and a 68% decrease YoY. Pre-tax profit in the fourth quarter was -KRW 5.4 billion, and net profit was KRW 112.2 billion. Next, on to financials. As of the end of 2022, total assets recorded KRW 10.9972 trillion, which is about a 2% decrease QoQ. Looking at key financial indicators, our liability to equity ratio recorded 43%, debt to equity 18%, and equity ratio 70%, same as in the third quarter. Next are our business results for each of the divisions and future business outlooks. First, the component division.
The component division's fourth quarter revenue was KRW 833.1 billion, which is down roughly 10% QoQ and around 29% YoY. Divisional revenue decreased as we saw reduced supply of MLCC for IT and industrial applications due to the delayed recovery in IT set demand from the economic slowdown, as well as continued inventory adjustments by customers. Automotive MLCC for EV and Tier 1 customers saw continued revenue growth driven by an increase in high-value MLCC shipments due to growth of ADAS and EV. In terms of our outlook for 2023 in the MLCC market, although IT demand remains uncertain, MLCC for automotive applications is expected to continue growth.
Based on this outlook, we'll focus on enhancing profitability by improving productivity and operational efficiency while extending our automotive lineup to include 150 degrees Celsius guaranteed high temperature products and 200 V+ high voltage products to achieve continued revenue growth. For electronic components, we plan to expand business centered around Power Inductors for DDR5. Next, moving on to our Optics & Communication Solution Division. Fourth quarter revenue was KRW 655.5 billion, which is around a 27% decrease QoQ, a 16% decrease YoY. As shipments to key Korean and overseas customers declined due to smartphone camera seasonality, the division recorded overall decline in revenue, despite the starting up of mass production of high-performance camera modules for new flagships of strategic customers.
However, automotive camera modules recorded solid sales driven by an increase in supply to overseas customers. Looking out to 2023, the camera module market is expected to see continued demand for differentiation, driven primarily by flagship smartphones, and we will focus on developing high-performance camera modules, applying the latest advanced technologies, and continue to expand available supply. The automotive camera module market is expected to see continued growth momentum driven by advances in ADAS and autonomous drive technologies. We will continue to adopt differentiated new technologies while proactively diversifying our customer base to drive ongoing business expansion. Lastly, for our Package Solutions Division, fourth quarter revenue was KRW 479.8 billion, which is roughly a 13% decrease, QoQ and a 0.2% increase year-on-year.
For BGA, despite the increase in supply for Arm processors, revenue decreased QoQ, reflecting a slowdown in demand from smartphones, which resulted in a decrease in substrate supply for mobile AP memory and 5G internet applications. Meanwhile, the Flip Chip BGA, while supply for PC substrates decreased, supply increased for network and automotive applications, resulting in revenue similar to third quarter levels. In 2023, while the package substrate market is expected to see weakened demand in certain applications such as smartphones and PCs, demand for high-end package substrates is expected to continue growth.
As such, we'll focus on expanding supply for high-end applications such as ARM processors, servers, networks, and automotive, while building up new overseas production capacity in a timely manner to stabilize mass production. That ends my presentation on fourth quarter results, and now I will pass it on to EVP Won-taek Kim, Head of the Strategic Marketing Center, to take us through market trends and outlook for each key product group.
Good afternoon. This is Won-taek Kim, from the Strategic Marketing Center at SEMCO. I'd like to update you on the latest market developments and outlook for the MLCC camera module and substrate markets respectively. First, MLCC. In the first quarter, while automotive demand remained solid quarter-on-quarter, demand for IT applications, such as smartphone, PC, and TV slowed down due to the global economic slowdown as well as the Chinese lockdown.
Demand for industrial applications such as network and server was also weak due to component inventory drawdowns by customers. In the first quarter, we continued to see complex economic crisis conditions persist, with continued downgrades to the global economic growth outlook and growing uncertainty overall, with a recovery in demand not very likely. By application, automotive is expected to continue growth driven by an increase in MLCC demand as xEV and ADAS become more widely distributed. However, in contrast, IT applications are expected to see weakened demand due to poor seasonality and contraction in consumer sentiment. However, if consumer sentiment recovers following reopening of the Chinese economy, leading to a rebound in smartphone demand, this is expected to have a positive impact on the MLCC business outlook.
Meanwhile, demand for industrial applications is expected to continue weak trends as global big tech firms make adjustments to their server and data center investment plans, and also due to reduced network applications demand from the Chinese market. With regard to MLCC market inventory, we expect it will gradually reach manageable levels as customers work to reduce their inventory and as suppliers reduce utilization. We intend to engage in proactive market sensing activities while reinforcing our relationship with customers, so that we can respond preemptively to rapidly changing demand from the market. We will focus on design-in activities for high-end applications such as small-sized, high-capacitance IT products, high temperature, high capacitance server products, and high voltage, high reliability automotive products to secure a solid revenue base that can drive sustainable growth. Next onto camera modules.
In the fourth quarter, camera module demand decreased quarter-on-quarter due to a slowdown in smartphone demand and also due to year-end inventory adjustment cycle. In Q1, while we expect smartphone demand to remain slow, we expect demand for our camera modules to grow quarter-on-quarter as strategic customers launch new smartphone models and also due to solid demand for automotive cameras. For camera modules, we are differentiating by adopting high resolution and multifunctional products. For example, applying 200-megapixel image sensors and 10X high power optimal optical zoom. For automotive camera modules, demand is expected to continue growth as global automakers expand their electrification lineup and as advances in ADAS technology continues.
In response, we will build on our technological strength in core components such as large-aperture lenses for use in big image sensors, ball-guided actuators to tap the high pixel, high performance smartphone camera market head on, while continuing to launch differentiated products to maintain leadership in the high value add camera module markets. Also, as ADAS cameras become more advanced with higher pixel counts, we will continue to build out our automotive camera offerings in line with these trends by adopting high value add technologies acquired on the IT market. Lastly, the Package Solution Division business and outlook. In the fourth quarter, BGA demand decreased for mobile apps, memory, and 5G antenna on reduced IT set demands for smartphones and memory. This was largely due to the slowdown in the global economy and also inventory adjustments by customers.
For FCBGA, despite solid demand for server and network applications and increased automotive demand driven by xEVs, supply demand dynamics eased as a result of reduced PC demand. In the first quarter, BGA is expected to continue to see a decline in demand as IT set demand for smartphone and memory applications weakens on concerns of a global recession and as customers are expected to continue to adjust their inventory downwards. For FCBGA, while we expect demand for high multilayer and large body substrates for server, and network applications to continue growth, as well as demand for automotive, driven by growth in xEV and ADAS technologies, still, the impact of weaker PC demand is expected to continue for some time, and overall market demand is likely to be similar to prior quarter levels.
In response, we will build on the strength of our highly reliable differentiated substrate technology, such as high multilayer, finer pitch, embedded passive components in package form, et cetera, to solidify our technological leadership on the market. At the same time, we will strengthen collaboration with market leaders to find new customers to expand our customer base so that we can actively expand into the high performance server network market. We'll continue to strengthen our competency in the package substrate space, expanding into the automotive market, which is expected to continue growth and securing a preemptive first mover position in the Arm processor market, which demands a high degree of advanced technology. Thank you.
Now Q&A session will begin. Please press star one, that is star and one if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. The first question will be provided by Jisan Kim from Kiwoom Securities. Please go ahead with your question.
Yes. I would like to wish everybody a very happy new year. I have two questions for you today. First, regarding MLCC results in the fourth quarter, including shipments, inventory, and ASP. Also if you could share your guidance on these metrics for the first quarter. Second question is regarding FCBGA. Recently in December, certain Taiwanese substrate suppliers downgraded their guidance for FCBGA CapEx. Previously, at your last quarterly earnings call, you projected a tight FCBGA supply conditions over the mid to long- term. Are there any changes to your views?
First to answer your question about fourth quarter MLCC shipment inventory and ASP as well as Q1 outlook. Well, during the fourth quarter, although automotive MLCC shipments increased, there was a delayed recovery in smartphone, PC, TV and other IT applications, as well as some seasonality from end of the year inventory adjustments by customers, which led to an overall decrease in MLCC shipments quarter-on-quarter. In Q4, although there was some downward pressure on pricing from Chinese customers, we managed to keep blended ASP similar to Q3 levels, as automotive sales increased as a percentage of our revenue mix. As demand declined, we adjusted capacity utilization in a flexible manner, which resulted in a slight decrease in inventory QoQ.
In the first quarter, although making accurate demand projection is challenged due to uncertainty surrounding the business outlook, we do believe shipments should see a slight increase versus the first fourth quarter due to the low comparison base following inventory adjustments by customers at the end of last year. Yes, let me address your question about our mid to long- term outlook for Flip Chip BGA supply dynamics. With the end of the PC market upside from the COVID pandemic, there were concerns about FCBGA tight supply conditions becoming eased following a decline in IT set shipments starting from 2022. However, our mid to long term growth outlook for high value added package substrates for server, network and automotive applications remain unchanged from before.
As we have shared our view with you in our previous communications with the Street, we have received requests from our global customers for an expansion in supply and are now doing capacity expansions for next-generation high value-add products such as server and network applications together in consultation with our customers. Therefore, we are now considering any adjustments to our CapEx plans on account of short-term weakness in the market.
The following question will be presented by Junhi Lee from Goldman Sachs. Please go ahead with your question.
Thank you for taking my question. I have one on MLCC and another one on camera module. On MLCC seems like your utilization rate has fallen again quite a bit during Q4. I would like to know when we can expect a recovery. Can we expect a recovery during Q1 of this year? On camera module, we haven't been able to see growth in the smartphone market for a while, but wanted to know if we will be able to see upgrades in camera specifications this year. Along with this, can we expect a margin improvement in your camera module business on the back of any potential ASP increases coming from the specification upgrades? Thank you.
Yes. Let me answer your first question on MLCC utilization. Well, in the first quarter, utilization is expected to partially improve thanks to an increase in shipment volume. Also, if reopening of the Chinese economy leads to improved consumer sentiment, this could have a positive impact on the MLCC business environment, which is why we are expecting a gradual improvement in market conditions after the second quarter. If demand improves, we can expect utilization rates to also go up. However, again, given uncertainty surrounding demand forecasting, we will be managing our production operations in a flexible manner based on ongoing monitoring.
Yes. Let me address your second question on our outlook for a possible spec upgrade to camera modules in 2023 and potential improvement in profitability.
Amid ongoing bipolarization within the smartphone market, our set customers have been strategically looking to improve their profitability through product differentiation, mostly of their flagship models. Key differentiation highlights for smartphones this year will likely include high pixel count, high resolution, picture quality features, applying 200-megapixel sensors or special aperture technologies, also slimmer models with advanced video and power zoom functionality, etc , which will all require continued upgrades to the camera module spec for implementation. In response, we intend to strengthen our design-in efforts for more differentiated high value added camera modules based on our core competencies in lens and actuator technologies, while also working consistently to improve our profitability by responding to our customer needs on a timely basis and expanding available supply.
The following question will be presented by Sung-Kyou Kim from Daiwa Capital Markets.
Please go ahead with your question.
Yes. Thank you for giving me the opportunity to ask two questions. First on package substrates and then second on CapEx for this year. First, I think last year in 2022, you saw a very rapid improvement in the profitability of your package substrate business. However, as you mentioned earlier, given the weak IT demand, including for PCs and smartphones, that we have seen recently, do you think that we could look forward to that kind of high profitability level this year, similar to last year levels? Second question regarding your CapEx guidance. It seems overall, if you look at last year's business results, they do appear to be slightly off or below our expectations.
Could you provide us with your CapEx guidance for this year and then perhaps break it down by business area so that we can see if there were any increase or decrease to the amount?
Yes. Let me answer your question on our profitability outlook for 2023. While up to the third quarter of 2022, the package substrate business did record significant improvement in profitability year- over- year due to favorable market demand conditions. However, starting in the fourth quarter, it recorded a drop in revenue and earnings versus Q3 as a result of a slowdown in set demand for smartphones and PC applications. At present, because of the significant uncertainty surrounding set demand due to expectations or concerns of a global economic recession in 2023, achieving profitability at last year levels does not look easy.
That said, however, we will expand supply, focusing on growth markets for server, network and automotive applications while carrying out internal activities to boost productivity and improve competitiveness so that we can enhance profitability further.
Yes. I would like to take your question on our CapEx plans for this year. On a company-wide basis, total CapEx is expected to be slightly below last year's levels due to sluggish demand from major downstream industries, including smartphones and PCs. For package substrates, we expect CapEx similar to last year, mostly for capacity expansion projects that we are aligned on with our customers. Investments in MLCC and camera modules will likely be less than last year levels.
We'll mostly focus on high growth, high value add sectors such as automotive, server, cloud and AI, and intend to be flexible in executing investments, taking into account changing demand conditions in order to enhance the efficiency of our investments.
The following question will be presented by Hyung-woo Park from Shinhan Investment & Securities. Please go ahead with your question.
Yes. Thank you for your hard work in preparing today's conference call. I have two questions regarding automotive components. First, EVs actually are also showing some signs of a decline in demand. Do you think that demand for automotive MLCC products from SEMCO will hold up without problem? What is your outlook for the automotive MLCC business in 2023?
Your business strategy going forward as well. Second question has to do with camera modules also for automotive applications. You have very frequently mentioned how you're working to strengthen business competitiveness. I know that you're giving a lot of thought to the camera module side. Could you provide us with your outlook in terms of the automotive camera module business, in terms of what you expect in terms of sales and profitability this year?
Yes. Let me address your question on our outlook for automotive MLCC demand and also our business strategy. Although a short-term change in demand from external economic factors may be possible, EVs, which have 3x higher MLCC content versus an internal combustion engine vehicle, is expected to see sales growth of more than 30% year-on-year.
Distribution of vehicles fitted with Level 2 and above ADAS solutions is also expected to increase by nearly 20% year-on-year, which is another reason why we believe the electrification trend in automotive applications will remain very much valid and intact in 2023 as well. We believe demand for automotive MLCCs will also continue to see growth. For automotive applications, securing quality and reliability is key in order to guarantee flawless functionality even under harsh driving conditions, which is why we are focused on developing high reliability materials to further advance our products and processes. We'll expand our offerings beyond infotainment and ADAS to also build a robust lineup of high temperature, high voltage products for powertrain applications in line with changing market demand.
This way, we will be able to strengthen promotion and sales activities, targeting global EV customers with strong growth potential and European Tier 1 customers as well. All the while exploring new prospective customers to grow our top line sales faster than the market. Regarding your question on our sales and profitability outlook for automotive camera modules in 2023. What we currently supply high pixel automotive camera modules to major overseas customers, utilizing camera module technologies that were first initiated in IT applications. We expect camera demand to increase going forward, driven by advances in ADAS and autonomous drive technologies as major automakers continue to roll out Level 3 autonomous drive cars in 2023.
As we expand supply of new EV camera modules for major customers, we will also be working to internalize core components while also diversifying our customer base, which is expected to help improve top line growth and profitability for our automotive camera module business.
The following question will be presented by Kang-h o Park from Daishin Securities. Please go ahead with your question.
Yes, thank you for giving me the chance to ask some questions. I have one first on Flip Chip BGA, and then second on more of a corporate issue. First for FCBGA, I understand that there was success in starting up mass production of substrates for servers in November. Assuming that your large scale investments in FCBGA that are currently underway proceed along as planned .
What kind of a change do you expect to the applications in the mid to long term? If you could share your outlook, I would appreciate it. Second, I would like to just hear your brief comments about your outlook for first quarter and also full year results in 2023, given what is expected to be challenging business environment going forward.
Yes, let me address your question on expected changes to Flip Chip BGA applications over the mid to long term. As we've explained previously, most of our capacity expansion projects are focused on server or network applications, which are expected to show strong market growth in the future.
Once the capacity expansion projects that are currently underway are complete, the share of server or network substrates will increase alongside our existing high-end substrates for premium PC CPU and automotive applications. This will allow us to diversify our FCBGA product portfolio, centered around high value-add products in the mid to longer- term. Yes, allow me to answer your question on our guidance for the first quarter and also our full year outlook. In the first quarter, despite the effect from new flagship model releases by major strategic customers, IT demand continues weak trends with continued impact from inventory adjustments by customers, which is why we believe revenue is not likely to see a big improvement from the previous quarter. Let me now comment briefly on our full year outlook for 2023.
Amid ongoing economic uncertainties, including geopolitical risk, policy tightening, against inflation, et cetera, the outlook for recovery in IT set demand for smartphones and PCs still appear quite unclear with the business environment overall likely to be challenging. However, promising sectors such as automotive and servers, which are most relevant to our business, are expected to continue solid growth. We will focus on pioneering these growth markets to create new opportunities for the company. We'll also continue to identify new customers and expand business, focusing on major product categories, for automotive and server applications, such as automotive MLCC, automotive camera modules, and package substrates for servers. We will also be actively engaging in activities to maximize internal efficiency, through productivity gains, cost savings, and improved efficiency on our investments.
We'll also make all our efforts for robust free cash flow and risk management, while also doing our best to minimize volatility in our business performance in spite of the uncertain environment. Thank you.
With that, we will now conclude our fourth quarter earnings conference call. Thank you for joining us today, and please forward any further questions to our IR team. Thank you.