Good afternoon. This is EVP Dong Woo Lee, Head of IR and Planning Team at Samsung Electro-Mechanics. Thank you for joining our 2026 Q2 earnings conference call. On today's call, I am joined by our CFO Sung Jin Kim, EVP Tae-gon Lee, who is the Head of Strategic Marketing, VP Kyu-taek Park, Head of Support Team of the Component Division, EVP Panbae Kim, Head of Support Team, Package Solution Division, and Hyunjoon Kim, Head of Support Team of the Optic Solution Division. We will start with a presentation on our Q2 company level and divisional business results, followed by market trends and outlook by products before taking your questions. First, our second quarter results. Q2 revenue was KRW 3,457.2 billion, which is an approximately 8% increase QoQ and 24% increase on a YoY basis.
The details regarding revenue increase or decrease factors by division will be explained later during the divisional results. Our Q2 operating profit was KRW 440.4 billion, which is approximately 57% increase QoQ and around 107% increase on a YoY basis. Pre-tax profit in Q2 was KRW 433.3 billion, and net profit was KRW 315.7 billion. In terms of our financials, as of end of Q2, total assets was KRW 16,566 billion, which is roughly a 6% quarter-over-quarter increase. For major financial indicators, liability to equity increased two percentage points to 57%, and debt to equity was 28%, which is an increase of 2% versus Q1. Equity ratio was around 64%, similar to Q1. Are the divisional results and future outlook. First is a look at our Component Division.
The Component Division's Q2 revenue was KRW 1,649.4 billion, which is a roughly 17% increase QoQ and 29% increase YoY. Data centers related revenue tied to applications such as AI servers, networks, and power equipment reported strong growth, and automotive revenue also increased with advances in ADAS and XEV demand. Revenue grew across all applications, but particularly in the industrial and automotive MLCCs. Q3 MLCC market is expected to see continued growth demand for high capacitance, high reliability MLCC demand driven by ongoing AI infrastructure investments and AI chip performance gains. We'll focus on timely development and effective supply of cutting-edge MLCCs for AI applications, and we've entered into long-term agreements with 10 or so customers, including the top-tier hyperscaler and major semiconductor companies. We are currently actively responding to additional long-term supply requests from big key accounts.
The growing penetration of ADAS and growing XEV market is expected to support solid automotive MLCC demand, we will expand market penetration of our high capacitance products for ADAS applications and high voltage products for XEVs. Is the Package Solution Division. Q2 revenue was KRW 771.6 billion, roughly 6% increase QoQ and 37% increase YoY. For FC-BGA, supply of high-end substrates for major big tech AI accelerators and server CPUs continue to increase, we started the full scale supply of new AI data center network application products for a new customer. Also, supply of automotive substrates for ADAS and autonomous driving increased, leading to revenue growth led by AI server and automotive applications. BGA revenue also increased with increased supply of mobile AP and memory substrates. In Q3, FC-BGA market is expected to see continued strong demand for high-end FC-BGA for AI data centers.
We will focus on increasing revenue with mass production of new substrates for AI accelerator and server CPUs for global big tech customers to capture and expand production capacity in Korea and overseas to capture demand from almost all of the top-class semiconductor customers related with AI and data centers to increase supply of our high-end substrates. Lastly, the Optics Solution Division. Q2 revenue was KRW 1,036.2 billion, a roughly 4% decrease QoQ, but a 10% increase YoY. Even though IT camera revenue slightly fell QoQ due to seasonality, our supply of differentiating products for new flagship smartphones of Korean and overseas OEMs increased, including new mass production of the 200 MP folded zoom cameras and high-resolution large-angle OIS and slim OIS.
Automotive camera revenue increased given by increased supply of high-pixel sensing and all-weather cameras for the global EV OEM and adoption of in-cabin cameras in more vehicle models of the Korean OEM. Looking at Q3, IT camera module market is expected to enjoy increased supply of high-performance cameras for the new foldable phone unveiled by the strategic customer and continued demand from global mobile OEMs for differentiating camera modules. We will focus on strengthening our high-spec camera module lineup, including high image quality, slim OIS, and power prism folded zoom. Also, further advances in ADAS and new camera applications such as humanoids are expected to grow in the future.
We will focus on timely supply of specialty cameras for global EV OEM next-generation platforms, preparing pilot mass production of our high pixel sensing modules for humanoids, and focus on development of differentiating products such as AF and long-distance 3D sensing. That completes the presentation on Q2 results, and now our Head of Strategic Marketing, Tae-gon Lee, will take you through the trends and outlook by key products.
Good afternoon. This is Tae-gon Lee, Head of Strategic Marketing. I will share the market update and outlook for MLCC, substrates, and camera modules, respectively. First, MLCC. Q2 MLCC demand increased QoQ across all applications, including IT, industrial, and automotive. In particular, with AI infrastructure investments continuing and the accelerated increase in electric content in vehicles, demand for high-end MLCCs grew significantly.
By application, industrial MLCC demand was particularly strong for high-end MLCCs, such as the high temperature, high voltage, high capacitance MLCCs that are paired with high-performance AI accelerators and next-generation CPUs. Because AI servers have highest technology requirements, only a few companies are able to supply, making MLCC supply even tighter. Such growing supply uncertainties have led to long-term supply contracts already signed with 10 or so accounts, including top-tier hyperscalers and key semiconductor companies. We are also actively engaged with additional long-term supply requests from key customers. Automotive MLCC market also continues to grow, driven by penetration of eco-friendly vehicles and higher autonomous driving levels. In addition, in the MLCC, content per vehicle is increasing, and high-end MLCC for powertrain and ADAS is also continuing to drive solid demand growth. MLCC for IT applications also saw QoQ demand growth.
Regarding outlook for Q3, MLCC demand is expected to see another quarter of growth across applications. For industrial MLCC, supply is expected to become even tighter due to AI technology advances, driving significant increase in MLCC content per box and greater demand for higher reliability MLCCs with high temperature, high voltage, high capacitance characteristic needed for the harsh AI server environment. In particular, in the case of the 1005 mm 45 μF. Product, demand is expected to grow by more than seven times in 2027 versus this year, given the large quantities of the product being adopted in the big tech company's new platform. Considering the limited physical space in AI servers, demand for high capacitance MLCC is likely to increase, and so we're focused on launching next generation new products, including 68 μF and 150 μF to preempt this demand.
In response to data center adoption of 800 V systems and higher heat levels, we have been increasing the 1 kV high voltage lineup and design-in activities of the 125 degree, 150 degrees ultra-high temperature MLCCs. Meanwhile, the increasing power consumption in AI chips has been driving rapid increase in demand for solid capacitors. We have announced last May that SEMCO has successfully joined the key supply chain of global big tech companies and is in great position to expand supply to wider varieties of semiconductor customers. For automotive, we continue to capture the increasing demand for small size, ultra-high capacitance MLCCs needed for advanced ADAS. We're also expecting demand for 100 volt high capacitance components used for 48 V power systems to increase in the future, and so we're ready to respond quickly to this market shift.
Growing competition over EV range and charging time is driving wider deployment of ultra-fast charging infrastructure, and so we will actively seize opportunities to increase our market share. For IT applications, we expect to see another quarter of growing demand for high-end MLCCs, including the high, ultra-small, and ultra-high capacitance, low ESL products driven by strong demand for semiconductor packages and memory such as SOCAMM. We're working with key semiconductor companies on new qualification of our ultra-small size, ultra-high capacitance land side capacitors, and we'll focus on timely capture of growing demand for next generation low ESL MLCC products. We're also focusing on timely capture of high temperature, low profile MLCC products for next generation memory such as DDR6, LP6, SOCAMM to benefit from memory demand growth.
Regarding long-term supply agreements, MLCC demand is continuing to grow from a variety of applications, including AI, automotive, and industrial, and so we're engaging in strategic talks with major big tech customers. Regarding MLCC pricing, with even tighter supply expected due to increasing AI demand, we will take a strategic approach to pricing while carefully monitoring supply and demand situations. Next is substrate. Flip chip BGA market demand recorded solid growth in Q2 as the shift from generative AI to agentic AI drove server CPU demand. Demand for AI accelerators also recorded solid growth as big tech investments continued. This has led to a significant QoQ increase in our data center-related revenue, and we started full scale supply of our new AI data center network products to the new North American big tech account.
Q2 BGA market demand grew QoQ despite soft smartphone and PC set demand, thanks to the pricing adjustments in the industry to reflect higher raw material prices for BGA. Our revenue also increased, driven by increased supply of BGA for data center SSD controllers. FC-BGA is expected to remain a seller's market in Q3, with demand for server CPUs and AI accelerators continuing to remain strong and driving market growth. With supply remaining tight, we will continue to have pricing discussions with key customers. Supply of high-end products for data centers is expected to grow significantly on a QoQ basis in Q3, therefore driving further profitability gains. In data centers, larger area semiconductors require larger, high multi-layer substrates, leading to even greater shortage of FC-BGA supply.
We will leverage our strength in multi-core and embedded technology to continue talks with almost all of the top-class semiconductor customers related with AI data center projects about capacity expansion and long-term supply arrangements to maintain our edge in advanced substrate markets by adding new capacity at the right time. Q3 BGA demand is expected to increase QoQ, with mobile customers planning new product launches in the second half. We will focus on capturing demand from increasing supply of new Arm CPUs for PC and tablets, and the demand from data center SSD controller customers. At the same time, we will develop new applications tied to satellite antennas and data centers with heightened design activities. Lastly is a look at camera modules. Q2 IT camera demand decreased QoQ due to seasonality of major customers' flagship smartphones launched in Q1.
Automotive camera demand in our addressable market increased slightly QoQ with growing XEV demand. Q3 IT camera demand may be affected by the adjustment in Chinese OEMs' handset launch schedules to cope with memory supply issues. We look forward to strategic customers' foldable phone launch and also the U.S. OEMs' new flagship launch. We will differentiate ourselves with high-performance, ultra-slim, new feature actuator technology and the lens-integrated prism and miniature lens technology to break into new customers and applications. Q3 automotive camera demand is expected to be similar to Q2, and we will continue to expand high-pixel camera lineup targeting next-generation autonomous driving platforms, and actively capture the growing automotive camera market by winning new design ins of major North American customers to reinforce our technology leadership in the autonomous driving market.
We will also scale up mass production of camera modules for a global humanoid customer and pursue design in on high-resolution recognition modules to gain an early lead in the newly emerging physical AI market. Thank you.
[Non-English content]
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 Minkyung Kim from Hana Securities. Please go ahead with your question.
[Non-English content]
I have two questions regarding MLCC. The first question is related with the recent announcement of your additional MLCC supply contracts for AI applications. I am wondering if you have additional supply contracts that is currently being discussed. Also, what would be your MLCC capacity operation plans for this year? Second question regarding MLCC is your actual MLCC shipments inventory ASP data points in Q2 and your guidance on these data points for Q3.
[Non-English content]
[Non-English content]
To answer your first question regarding our supply of MLCCs for AI servers. As you have mentioned, with the continuing investments by hyperscalers in AI data centers and also advances in GPU compute performance, and also the higher speed networks that are being adopted on servers, there is continuing demand for adoption of cutting edge high-end MLCCs in AI data center servers. We expect this steep growth curve to continue for some time in the future. When we talk about cutting edge MLCC products, those would be the high capacitance products with 100 μF or above, or those that have high temperature characteristics of 125 degrees and above. These are products that require the highest level of technology in terms of performance and reliability, and only a few companies, including SEMCO, is able to supply at that level.
This is resulting in growing tension on the supply side of the market, and therefore customers, especially those that have AI server needs, are showing stronger needs and wishes to secure long-term supply agreements in order to secure stable MLCC supply volume going forward. Based on this, we have already signed long-term supply agreements with 10 or so customers, including the top tier hyperscalers and key semiconductor companies. In addition to the already signed LTAs, we are currently actively responding to additional long-term supply agreement requests from other major customers. You have also asked about our plans of running our MLCC capacity this year. We are focusing on improving the yield of our cutting edge MLCC products and improving the productivity in order to further strengthen our lead in the MLCC market for AI servers.
We've also budgeted a larger CapEx size versus previous years so that we'll be building a production base that could maximize supply. We're noticing that the technology demands for MLCCs for AI servers is rapidly becoming more and more sophisticated. We will be leveraging the already wide high capacitance product lineup that we have to launch a diverse combination of different cutting edge products, MLCCs in different size, voltage, or temperature conditions so that we'll be able to capture the variety of needs coming from our customer base. This year will remain focused on continuing our technology leadership in the MLCC market for AI servers to deliver a revenue growth that once again outpaces the market.
[Non-English content]
Your second question was about MLCC Q2 shipment inventory ASP and our third quarter outlook. In terms of second quarter MLCC shipments, shipment increased across all applications, but particularly around industrial and automotive applications. We saw a double-digit level growth in industrial and automotive MLCC shipments, supported by strong demand from data center applications, including AI servers, network and power equipment, as well as increasing demand for XEV applications. With growth in shipments, our overall inventory decreased. In terms of second quarter blended ASP with growing share of the high-end industrial and automotive MLCC in overall makeup, our blended ASP once again increased on a quarter-on-quarter basis. Regarding outlook for Q3, we do expect once again, there to be continued increase in demand for MLCCs for AI servers, especially coming from hyperscalers.
On the automotive side, according to third-party sources, the shipment of XEVs are expected to grow by double digits in Q3 versus Q2, and therefore we think that there will be solid demand being maintained for automotive MLCCs as well in Q3. Supported by such strong market demand, we expect our MLCC revenue to increase on a quarter-on-quarter basis, and with the higher share of high-end MLCCs, we expect our blended ASP also to increase.
[Non-English content]
[Non-English content]
The following question will be presented by Jay Kwon from JP Morgan. Please go ahead with your question.
[Non-English content]
My first question is about the FC-BGA. We've been told that you are considering increasing your capacity of FC-BGAs. If possible, can you share with us some details about that capacity expansion and how you plan to operate this additional capacity in the future? Second question is about the silicon capacitor. You've announced that back in May that you signed KRW 1.5 trillion silicon capacitor supply contract. Can you give us some market outlook on silicon capacitors? Is there a possibility of winning additional contracts?
[Non-English content]
To answer your first question about our FC-BGA capacity expansion and our operational plans. With the AI paradigm shifting from training models to inference and reasoning, the global big tech companies are now focused more on developing their own proprietary chips that specialize for reasoning and inference. More and more companies are participating in this development. With higher performance of AI chips are getting larger in sizes and adopting more and more HBM together, which means that the package substrate itself has to become ultra large size and high multilayer. This is actually aggravating the capacity consumption of these substrate suppliers. On top of that, recently, we're seeing that key customers are having stronger demand for high-end substrates that have multi-core or have embedded components.
At this level, there's only a few companies that are able to supply this with the right technology level and the mass production capacity. This limited supply is further aggravating the shortage in supply of high-end substrates. Given this market situation, we are talking with almost all of the top tier, top class AI and data center related semiconductor companies about long-term supply contracts, including investment support. We will plan our capacity expansions based on these talks. We are strengthening our collaboration with customers about developing next generation substrate products and focusing on securing differentiated technology. Our key priority would be to respond timely to customer demand by preparing our capacity expansion smoothly and to focus on expanding our business in the mid to long term.
[Non-English content]
To answer your question about our silicon capacitor and whether there's possibility of additional orders. Versus MLCCs, silicon capacitors have better electric characteristics, such as low ESL. Versus MLCC, silicon capacitors are thinner. Therefore, they are a key component that is mounted nearest to the semiconductor chip on an AI server semiconductor package, and play a critical role in guaranteeing overall system performance and reliability. There's been a shift or expansion of Silicon Capacitor applications from the traditional mobile to AI data centers, and we are expecting there to be an increase in Silicon Capacitor adoption in AI data centers and market size, therefore, to continue to grow. Based on the mutual complementary characteristics between MLCC and silicon capacitors, we are currently in additional talks about supply contracts with key semiconductor companies related with AI.
Also, SEMCO is the only company in the world that can provide on a turnkey basis, not only the silicon capacitor, but MLCC and package substrates. Therefore, we using that unique strength and leverage, we will focus on gaining a lead in the early market and to deliver significant revenue growth going forward.
[Non-English content]
[Non-English content] .
The following question will be presented by [ Jong-bae Kim] from Hyundai Motor Securities. Please go ahead with your question.
[Non-English content]
My first question is about the FC-BGA. There I think is growing expectations for stronger FC-BGA performance in your second half, given that you've announced that you've entered the supply chain with a new big tech account, and also there's been pricing adjustments in FC-BGA. Can you give us a bit more detail about your outlook for FC-BGA in the second half? Second question is about camera modules. There's also increasing market attention on camera modules, given that there's new applications emerging. In addition to ADAS, there's also humanoids and Physical AI. You've always emphasized these new applications. Can you give us some updates and details about your camera module business?
[Non-English content]
[Non-English content]
I'll answer your first question about Flip chip BGA outlook in the second half. With big tech companies continuing to invest in data centers and also developing their own proprietary chips to meet the AI demand, we're seeing rapid increase in demand for FCB-GAs, and we're getting various requests to participate in the supply chain from a large number of global big tech customers. We already have a track record of producing Flip chip BGAs for server CPUs and AI accelerators. Leveraging this, we already started supply of a new Flip chip BGA product for the AI data center network of a new big tech account in Q2. We also have mass production schedules throughout second half for new products to be supplied to key customers. In addition to the strong demand for package substrates and the higher specifications, there's been increase in raw material prices.
All of this is leading to steady increase in substrate prices overall. To summarize, we have plans of supplying new high-end substrates in the second half. We will also be responding strategically to pricing. Overall, therefore, we expect there to be a significant growth in revenue in the second half. We will continue to focus on continuing this growth trend of our package substrate business.
[Non-English content]
To answer your second question about our camera module business. First, look at somewhat smartphone cameras. Even though there is overall growth stagnation expected for the smartphone camera market overall due to a decrease in set supply tied to the memory supply issues, our key focus in the smartphone camera market has been the flagship camera modules. In that segment, we actually continue to see demand from our key customers for cameras that have differentiating performance, including high image quality, slim camera modules, and new folded zoom technology. The strength of SEMCO's camera module business is that we have a wide, diversified global customer base. Leveraging this strength, we will be focusing on providing customized solutions for each of our customers and also strengthening our technology leadership by developing next-generation camera module technology ahead of time.
On the automotive camera module side, we're seeing an expansion of automotive cameras to a wider variety of applications. In addition to the development of autonomous driving technology, we're seeing an increase in demand for high-precision sensing and high-reliability cameras for new applications such as driverless autonomous driving robotaxis. Therefore, our focus on the automotive side is to further our competitiveness in the automotive driving market by timely responding for the new platform that will be announced by the global customer, the OEM, and also by expanding the new automotive product lineup for the robotaxi applications. There's also the humanoid application side. We are planning to start pilot mass production of our humanoid-related camera module based on next-generation differentiating technology, quality, reliability, and also the fact that we have a global supply base.
We are also going to continue to work with top-tier customers to develop next-generation camera module products so that we will be in good position to actively respond to the newly growing physical AI market.
[Non-English content]
[Non-English content]
The following question will be presented by [Kang-ho Park] from Daishin Securities. Please go ahead with your question.
[Non-English content]
I have two questions. First question is related with substrates. If I understand correctly, you signed the main contract related with the establishment of a joint venture for the glass substrate business early July, earlier this month. Can you give us an update on the business development of the glass substrate business and future plans? Second question is about your third quarter outlook. As you mentioned during the presentation, this huge AI demand is driving growth of your MLCC and flip chip BGA business. Also, with the data centers and automotive growth increase, there's an increase in the high-end product share across your business lines. This is driving up market expectations for your Q3 earnings. At this point, can you share what you expect to see in Q3?
[Non-English content]
Tackling your first question about the glass substrates. Glass substrates have been one of the new businesses that we've been developing as a next generation package substrate solution. We have been developing the glass substrate business stage by stage. The joint venture agreement that you mentioned is the joint venture agreement that we signed with Dongwoo Fine Chemical, which is a subsidiary of Japanese company Sumitomo Chemical. We had the joint venture MOU signed last year and early July, early this month, we announced that we signed this main agreement for the joint venture establishment. This joint venture is to produce glass core, which is a key substance that's necessary for production of glass substrates. We are planning to own 66.2% stake of this joint venture. We're aiming to complete the establishment of this legal entity within this year.
In terms of the development of the technology, we have continuously been working with big tech customers that have data center needs in the development of large area, high multi-layer glass substrates. With some of these customers, we're already in sampling phase for engineering qualification. We have plans to develop this step by step, including deploying the production facilities, stabilizing the production process, and doing quality control and verification. Our current timeline is to have full scale operations from 2028. We will be aiming to secure early lead in the glass substrate market by timely responding to customer needs.
[Non-English content]
[Non-English content]
To answer your question about third quarter outlook, to look back on Q2, we had increase in our high-end MLCC and Flip chip BGA revenue from AI server network, as well as automotive applications. With this increase in share of high-end products, Product Mix improved, and we were able to therefore deliver better performance both on QoQ and YoY basis. Looking towards Q3, we do expect the demand for related components to continue to remain very strong, as the AI data center investments continue to expand and autonomous driving technology advancements continue. With stronger demand expected on these key components, we expect the supply to become even tighter for MLCC and Flip chip BGA in Q3.
We will focus on actively increasing supply of high-end MLCCs, so the high capacitance, high temperature, high voltage MLCCs that have the higher selling prices that will be supplying towards applications related with AI, server, network and ADAS. We will also be continuing to have strategic long term supply agreement talks with key hyperscalers and semiconductor companies, and also actively respond on pricing, taking into account the supply and demand situations. For Flip chip BGA, we will focus on actively increasing the supply of high-end substrates for data centers, including the mass production of new substrates for AI accelerators and server CPUs for global big tech customers. We will continue to have price talks with customers to reflect the market situation.
We will focus on carrying out the capacity expansions in Korea and overseas in line with these long term supply contracts and talks that we're having with the top class semiconductor customers. On the camera module side, we will focus on increasing supply of high-end camera modules for automotive applications, and also to increase and scale up the mass production of new camera modules for humanoid applications.
[Non-English content]
To summarize, in Q3, we expect the supply situation to become even tighter around our key high-end products, that's MLCC and Flip chip BGA. We expect to increase the number of long term supply contracts, and we expect there to be continued increased upward movement in our ASP. Overall, we do expect there to be an even more significant earnings growth on a QoQ and YoY basis versus Q2. At this rate, we are on track to setting a new earnings record in Q3. Actually, we expect this upward momentum to even become stronger as we move into Q4 and even 2027. We're expecting there to be continuous improvement in our overall business performance. As we've always done so, we will continue to focus on the high growth areas and markets such as AI, data center, and automotive.
We will also back this up with preemptive capacity expansions, so that we're able to quickly respond to changes in market situation and supply chain. At the same time, we will also develop our new businesses, such as silicon capacitors and glass substrates, by closely working with our key customers, including global big tech companies, so that we're able to, at the same time, prepare for mutual long-term business development.
[Non-English content]
This completes our second quarter earnings conference call. If you have any further questions, please forward them to our IR team. Thank you very much.