Good morning. Thank you very much for joining the earnings conference call of Samsung Electro-Mechanics. We will start with a presentation by the company before taking a Q&A session. If you have a question, please press star one on your phone. Now we will start the 2025 Q1 earnings conference call of Samsung Electro-Mechanics. Good morning. This is EVP Dong Woo Lee, Head of IR and Planning Team at Samsung Electro-Mechanics. Thank you very much for joining our 2025 Q1 earnings conference call. On today's call, I am joined by CFO Seongjin Kim, EVP Taegon Lee, Head of Strategic Marketing, VP Kyu-Tae k Park, Head of Support Team, Component division, Chang Hyung Jo, Head of Support Team, Package Solution division, Hyungjun Kim, Head of Support Team, Optics Solution division, and VP Taeyeon Kim of the Planning Team.
We will start with a presentation on our Q1 company and division level business results, followed by market trends and outlook by product before taking your questions. First, our 2025 Q1 results. Q1 revenue was KRW 2,738.6 billion, an approximately 10% increase QoQ and 5% increase YoY. The details regarding revenue increase and decrease factors by division will be explained later on during the divisional results. Q1 operating profit was KRW 200.5 billion, an approximately 74% increase QoQ and around 9% increase YoY. Pre-tax profit in Q1 was KRW 173.8 billion. Net profit was KRW 133.7 billion. Next, in terms of financials, as of Q1, total assets was KRW 13,292.5 billion, a roughly 4% QoQ increase. For the major financial indicators, liability to equity increased to 47% from Q4's 42, and debt to equity was 22%, which is an increase from 17% in Q4.
Equity ratio was around 68%, a slight decrease QoQ. Next are the division results and future outlook. First is a look at the Component division. The Component division's Q1 revenue was KRW 1,216.3 billion, a roughly 12% increase QoQ and about a 19% increase YoY. In Q1, supply of IT MLCC increased supported by the strategic customer's new smartphone launch. Industrial automotive MLCC supply also increased tied to the AI server and ADAS. As a result, revenue increased across all applications. In Q2, industrial and automotive MLCC demand is expected to remain solid, supported by strong AI server demand and wider adoption of ADAS. We will focus on increasing revenue around high- temperature, high- voltage MLCC for AI servers, on capturing demand for ultra-high capacitance MLCC needs for ADAS, and on diversifying our automotive MLCC production sites. Next, the Package Solution division.
Q1 revenue was KRW 499.4 billion, a roughly 9% decrease QoQ but a 17% increase YoY. BGA revenue increased as mobile AP and memory substrate supply increased tied to the strategic customer's new smartphone launch. However, FC BGA revenue decreased QoQ due to seasonally weak demand of certain applications such as PCs. In Q2, solid BGA demand is expected, including substrates for ARM processors and memory, and FCBGA demand is expected to increase mainly around server and AI accelerators. We will focus on increasing substrate supply for applications with growing demand such as ARM CPU, and on scaling supply of substrates for overseas customers' AI accelerator, and on timely development of next generation large area high multi-layer substrates for further expanding the Package Solution business. Lastly, the Optics Solution division. Q1 revenue was KRW 1,023 billion, a 19% QoQ but a 12% decrease YoY.
Revenue of IT camera modules increased with full-scale mass production of high-performance camera modules, including the 200 MP high image quality folded zoom tied to the new flagship smartphone launched by Korean and overseas customers. Automotive camera module revenue also increased with the expanded supply of all- weather camera modules to the global EV customers. In Q2, IT camera module market is likely to show seasonal soft demand, but demand for differentiating cameras for flagship smartphones is expected to continue. We plan to expand our high-performance camera module lineup, including more differentiating slim camera modules for IT applications. For automotive cameras, demand is likely to grow with advances in autonomous driving, and we will focus on increasing supply of all- weather camera modules and on newly mass producing hybrid lens to timely capture demand for cameras specialized for automotive applications.
That completes my presentation on our Q1 results, and Taegon Lee, Head of Strategic Marketing, will talk about market trends and outlook by key product.
Good morning. This is Taegon Lee, Head of Strategic Marketing at Samsung Electro-Mechanics, and I would like to go over the current market situation and outlook for MLCC, substrates, and camera modules respectively. First, MLCC. In Q1, despite seasonal soft demand in key applications and weaker consumer sentiment reflecting global economic uncertainty, MLCC demand remained similar to Q4 thanks to effects of China's Old-for-New stimulus policy and preemptive demand in anticipation of U.S. tariffs. Samsung Electro-Mechanics MLCC revenue outpaced market growth and increased QoQ thanks to the strategic customer's new smartphone launch and increased supply of industrial and automotive MLCC. By application, demand for IT MLCC weakened QoQ due to soft set demand and seasonal demand decrease of a North American smartphone company.
However, there are also some positive factors, including the smartphone launch of the Korean strategic customer, effects of the Chinese stimulus policy, and certain preemptive demand tied to U.S. tariffs. Industrial MLCC increased QoQ as strong AI server-related demand continued. Automotive MLCC growth also continued with a wider adoption of ADAS by Chinese OEMs. For the Q2 outlook, the MLCC market demand is expected to increase QoQ, supported by seasonal demand recovery of key applications, AI server and ADAS-related demand, and effects of Chinese stimulus policy continuing. That said, the U.S. tariff remains a source of demand uncertainty. IT MLCC market demand is expected to be similar to Q1 despite recovery of set demand, including Chinese smartphones and AI PC, given the demand uncertainty in the aftermath of tariff-related preemptive supply that occurred in Q1.
Industrial MLCC demand is expected to increase, particularly around high-end MLCC, driven by the increase in network and power-related demand, demand tied to the new AI server GPUs, and the need triggered by DeepSeek to build independent AI systems. For automotive MLCC, despite uncertainty in vehicle demand posed by U.S. tariffs, the automotive MLCC market is expected to continue its growth trend as Chinese EV OEMs adopt more advanced autonomous driving systems and ADAS. For AI IT applications, Samsung Electro-Mechanics' focus will be on increasing customer certification of specialty MLCCs such as low profile and low acoustic noise MLCC for ultra slim and foldable phones, as well as X6S high-temperature MLCC for next generation memory. We will also focus on small size high-capacitance MLCC demand tied to AI PCs, as well as mid voltage MLCC needed for high-power output laptops and game devices.
For industrial MLCC, in addition to the MLCC for growing AI servers, we will drive revenue growth around the 220 microfarad and above ultra-high capacitance MLCC for network equipment and high-voltage high-temperature products for the 12 kW high- power output equipment. For automotive, we will focus on ultra-high capacitance MLCC needed for wider adoption of ADAS and increased customer certification of cutting-edge high-voltage MLCC for EV powertrain. Now, for substrates in Q1, despite the seasonal weak set demand, including for the North American smartphone company, BGA demand remains similar to Q4, supported by factors including the strategic customer's flagship smartphone launch. FC BGA demand also was similar to Q4 despite seasonally soft PC demand as AI server-related demand, including accelerators, remained strong.
Q2 BGA demand is expected to increase QoQ, supported by solid BGA demand tied to memory and ARM CPU, but we will continue to monitor changes in customer demand given uncertainties tied to the U.S. tariff policies. In Q2, FCBGA demand is expected to increase QoQ as AI accelerator demand continues strong growth and PC-related demand also recovers. That said, PC-related FCBGA demand is likely more sensitive to U.S. tariff issues and warrants continuous monitoring. For BGA, we plan on increasing supply of BGA for memory and ARM CPU and push for timely customer certification of our high-end BGA featuring coreless and fine pitch technology scheduled for launch in the second half of this year. For FC BGA, we aim to increase share of high-end products by starting full-scale supply for AI accelerators and by increasing supply of FCBGA for server CPUs.
From the mid to long term perspective, we will focus on securing a foundation for revenue growth by diversifying AI customers using our leading technology, including the component- embedded technology. Lastly, for camera modules in Q1, demand for IT cameras relevant to Samsung Electro-Mechanics increased QoQ thanks to the strategic customer's flagship smartphone launch. For automotive, demand relevant to Samsung Electro-Mechanics also increased QoQ as key customers resumed new model production following the year-end inventory adjustments that had been carried out ahead of the new model launch. In Q2, demand for smartphone cameras is expected to decrease QoQ due to seasonality, but automotive demand is expected to grow as supply of new vehicle models increases.
For smartphone cameras, SEMCO will propose innovative technology for high- performance cameras such as continuous zoom, lens lead, folded zoom, super macro, and iris, while also supplying ultra thin modules for ultra slim foldable phones to further increase our high-end product revenue. For automotive cameras, we will focus on increasing supply of all weather cameras and on new mass production of hybrid lens while also developing new customers as a driver, for driver monitoring interior cameras. Furthermore, we will also actively seek out new customers and new applications such as humanoid robots. That completes my presentation. Thank you.
[Foreign language] . 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. [Foreign language] . The first question will be provided by SK Kim from Daiwa Securities. Please go ahead with your question.
[Foreign language] . I have two questions regarding the Component division. First question, can you share with us the Q1 MLCC shipment inventory and ASP, as well as your outlook on these data points for Q2? Second question is tied to the Old-for-New policy in China.
What kind of magnitude of demand increase are you expecting from this policy in the smartphone and EV-related applications? [Foreign language] .
To answer your first question about Q1 MLCC shipment inventory and ASP and second quarter outlook, in Q1 MLCC shipment increased across all of our applications.
For the IT MLCCs, the new flagship smartphone launch, and for the industrial and automotive MLCC, solid AI server demand and ADAS adoption positively supported shipments. On top of that, the increased sales to existing customers and development of new accounts supported the shipment increase both on a QoQ and a YoY basis. On the back of such increased shipments, our days of inventory has decreased. Blended ASP in Q1 slightly decreased due to the product mix, including the increased volume of our mobile MLCCs. Looking towards the second quarter, in Q2, shipment and revenue is expected to continue increasing, supported by solid demand of industrial and automotive high-end products such as AI servers and ADAS. [Foreign language] .
[Foreign language] . To answer your second question about the impact of the Chinese Old-for-New, the stimulus policy, in Q1, China's smartphone demand appears to have increased YoY as Chinese domestic demand increased with the Old-for-New policy, and accordingly, MLCC demand has also increased.
In Q2, we look forward to smartphones that demand increasing given the Old-for-New policy and also the 618 or 618 promotion. Taking into account tariffs and other uncertainties, we will continue to monitor and check customer demand situations and respond accordingly. In Chinese EVs, EVs also continue to grow strong YoY with the extension of the Old-for-New policy leading to further EV purchases in China. The increase of ADAS by Chinese EV OEMs is also leading to increased MLCC content per vehicle, and automotive MLCC demand is expected to continue for some time. Even though macro challenges continue, including the tariff uncertainties and concerns over possible economic slowdown, we will focus on actively capturing the growth opportunities that have emerged, such as the Old-for-New policy in China and increased ADAS adoption by Chinese EV OEMs, to achieve revenue growth outpacing the market.
[Foreign language] .
[Foreign language] . The following question will be presented by Junhee Lee from Goldman Sachs. Please go ahead with your question.
[Foreign language] . My first question is on the adoption of ADAS by Chinese EV OEMs. Chinese EV OEMs have announced that they would be adopting ADAS across all of their models. This is expected to have a positive impact on your MLCC business.
Can you give us some more details about what kind of impact you are expecting and the outlook? Second question is on the camera module side. While the smartphone camera module market appears to continue to remain stagnant, there seems to be more opportunities expanding on the automotive and other applications. Can you give us more color on your camera module business direction given this market situation?
[Foreign language] .
[Foreign language]. T o answer your first question, yes, as you mentioned, the trend of ADAS adoption is continuing, especially around the Chinese EV OEMs. ADAS adoption means automotive processors will need to support faster compute speed and consume more power. This leads to more MLCC content per vehicle, especially more demand for small-size, high capacitance MLCCs, which is expected to stimulate the overall automotive MLCC market growth even further. SEMCO has already built a very diverse automotive high capacitance MLCC lineup using our small-size, high-capacitance technology accumulated from our IT MLCC business, and we have been continuously diversifying our automotive MLCC production sites to maintain stable supply capabilities.
We will also focus on entering new projects of Tier 1 customers and strengthen promotions, including the design in onto ADAS chip reference designs, to deliver another year of above-market revenue growth. [Foreign language] .
[Foreign language]. To answer your second question about our camera module business, as you mentioned, the smartphone camera market appears somewhat stagnant, but within that market, customer needs for higher specification cameras are increasing in order to differentiate their smartphones with telescopic cameras and smaller-sized cameras. With our own core technology based on lens and actuator design and manufacturing capabilities, we will actively capture customer demand for the high image quality and folded zoom performance enhancements and lead the flagship camera technology by strengthening our differentiated product lineup.
On the automotive side, advances in autonomous driving are expected to drive camera growth, and our focus is on driving growth through increasing supply of the high-reliability all-weather camera supply based on always-on performance differentiation and newly supplying hybrid lenses using technology accumulated from our IT business to capture demand for the differentiated automotive cameras and diversify our customer base. We are also currently working on developing new applications such as robotics or XR using our small and slim camera technology, which is based on our core component capabilities, including lens and actuators, and we will focus on this to create new business opportunities through collaboration with key business partners.
[Foreign language].
The following question will be presented by Junseo Park from Mirae Asset Securities. Please go ahead with your question.
[Foreign language] .
I have two questions regarding the substrate business. First is I've been hearing that SEMCO will start supply of its substrates for AI accelerators at a larger scale this year, and this is expected to have a positive impact on your flip chip BGA business going forward. Can you give us more details about your plan and also an update on where that currently stands? Second question is about the glass substrates.
I would also appreciate if you would give us an update on the business development and the technology development status of your glass substrates.
[Foreign language].
To answer your first question about the substrates for AI accelerators, with the wider adoption of generative AI, major CSP companies are increasing adoption of their proprietary chips, and this is driving demand for AI accelerator substrates. This demand is expected to continue to increase. SEMCO has been collaborating with key customers to prepare mass production of AI accelerator substrates and expects to see meaningful revenue starting from Q2, followed by gradual revenue increases going forward. SEMCO will focus on increasing revenue with not only scaling up the AI-related substrates but also timely supply of next-generation new server substrates. We will focus on maintaining stable mass production from the new Vietnam plant that started operation last year. Our goal this year is to deliver another year of double-digit FCBGA revenue growth YoY. [Foreign language] .
[Foreign language] . Your second question was about our glass substrate development. SEMCO has been closely collaborating with glass substrate-related material equipment companies, as well as other Samsung affiliates, and has been working on glass substrate business development, leveraging our FCBGA mass production experience. The glass substrate pilot line started operation in Q2, and we are currently actively engaged in glass substrate pilot product promotion targeting global big tech companies.
We are also developing products that reflect global customer needs and will prepare our glass substrate business in sync with customer roadmaps.
[Foreign language].
The following question will be presented by Woonho Kim from IBK Investment & Securities. Please go ahead with your question.
[Foreign language] . I have two questions. First question is that the reciprocal tariffs issue is becoming a global issue.
How much of an impact in terms of magnitude is SEMCO expecting from the tariff issues, and how are you preparing to cope and respond to this? Second question is your Q1 result is an improvement both on a QoQ and a YoY basis. Given the rising uncertainty, including the tariffs that were just mentioned, do you think that this improving trend can continue in Q2?
[Foreign language] .
To answer your first question about the impact of reciprocal tariffs, when we look at our products and exports, some of our MLCC and camera modules are directly exported to the U.S., but considering the scale of such exports, the direct impact is believed to be limited. However, higher tariffs may lead to inflation, weaker consumer sentiment, and in turn, less component demand, more competition, and so such indirect effects call for continuous monitoring and response. SEMCO is hedging the direct impact by securing various responses, including adjusting the logistics for our exports, and we will focus on expanding the high-end product sales tied to growing markets such as AI and automotive to minimize the impact of any tariff policies on our business performance. [Foreign language] .
[Foreign language]
[Foreign language] . Your second question was about our business performance outlook in Q2. In Q1, looking back on Q1, our results improved on a QoQ basis supported by the strategic customer's new flagship smartphone launch and the solid demand continuing from AI servers and ADAS, which drove increased supply of both our MLCC and camera modules. In Q2, the effects of the strategic customer's new mobile flagship would decrease, but we expect business results to improve with the growth of AI server and automotive MLCC, high multi-layer large area substrates for AI applications, and the automotive camera modules growing.
The tariff-related uncertainty is limiting visibility of the overall market outlook. That said, we will focus on strengthening the ultra-high capacitance, high-temperature, high-voltage MLCC for AI servers and network equipment, and the high- output power equipment growth opportunities, and increase the large area, high multi-layer, high-end AI and server substrate supplies to capture the industrial and automotive growth opportunities. We will also focus our capabilities on the high-end products by strengthening cutting-edge MLCC lineup for ADAS and EV powertrain, as well as the all-weather cameras and hybrid lenses on the camera module side. Also, we will execute on a timely manner our business development of new products such as silicon capacitors, and also timely execute our plans on next-generation technology development such as glass substrates.
Lastly, to prepare against changes in the business environment such as economic recession possibilities or low growth, we will concentrate on risk management based on careful analysis of customer demand and also a rapid response system to minimize the impact of these external uncertainties on our business performance. Thank you.