Good afternoon. This is Seong Jae-guk, and as the newly appointed Head of Finance, I will be in charge of IR here at Samsung Electro-Mechanics. First, thank you for joining our 2017 Q4 earnings conference call. Before going into the presentation, I would like to briefly explain the changes to our business unit names introduced at the end of last year. In order to adopt a more intuitive name and to facilitate customer communications, the DM division has been renamed as the Module Solution Division, LCR division as the Component Solution Division, and the ACI division has been renamed as the Substrate Solution Division.
Today, attending this call, we have, on behalf of the company's management, Lee Pyeong-jun, the newly appointed CFO, SVP Chul-sung Ka, head of support team of the Component Solution Division, VP Bo-yoon Jung, head of support team, Substrate Solution Division, General Manager Hyun-suk Seo, head of support team, Module Solution Division, VP Hwang Uk-tae, head of planning, and Kook-hwan Cho, head of marketing. We will start with a presentation on our fourth quarter business results, followed by results of each division and outlook before taking your questions. First, our Q4 results. In Q4 2017, SEMCO's revenue was KRW 1,717,000,000,000 , an approximately 7% increase Q-on-Q, but an approximately 28% increase Y-on-Y. Major factors that impacted revenue versus third quarter include the following.
For the Component Solution Division, revenue increased by about 15%, driven by strong MLCC demand, and the Substrate Solution Division revenue also increased by about 9%, driven by increase of RFPCBs for OLED. Revenue of Module Solution Division, which accounted for the largest share of revenue until third quarter, decreased by about 29% due to weak seasonality, resulting in overall company revenue decreasing slightly on a Q-on-Q basis. Despite decrease in revenue, our operating profit in Q4 reached KRW 106.8 billion, an approximately 3% Q-on-Q increase. This is mainly driven by the increased share of the Component Solution Division, which has relatively higher margins to 41% of total company revenue, as shown in the graph on the right-hand side of page two. Pre-tax profit was KRW 79.5 billion, including the KRW 27.3 billion of non-operating expenses such as finance expense. Net profit after corporate tax was KRW 54.3 billion.
Next, the financials. As of end of December 2017, total assets was KRW 7,767.4 billion, an approximately 5% decrease versus end of September. Major reasons for the asset decrease include decrease in cash equivalent assets due to facility investments and additional contribution to retirement pension programs, decrease in accounts receivables due to revenue decrease compared to the third quarter, and decrease in available for sale securities due to fall in share price of stocks owned, including Samsung Heavy Industries. All major financial indicators remain strong, with debt-to-equity at 79%, net debt-to-equity at 47%, which are slight improvements versus third quarter. Shareholders' equity ratio also increased to 56%. Next is the performance and outlook by each division. First, the Module Solution division. In Q4, the Module Solution division's revenue was KRW 580.8 billion, an approximately 29% decrease Q-on-Q.
This is mainly due to the weaker sales due to revenue inventory adjustments by strategic customer that comes at the end of each year, and the decline of Chinese flagship smartphone demand. However, unlike IT applications, cameras for automotive applications continued to increase in supply versus third quarter as we actively responded to customer demand increases. In 2018, the camera module market is expected to expand, especially around the high-end camera module for smartphones and automotive applications. For IT applications, adoption of dual cameras with new features is expected to increase in flagship models of major customers, and as more mass-segment smartphones are also expected to adopt dual cameras, revenue of the Module Solution division is expected to increase in 2018 compared to last year.
Meanwhile, with the wider adoption of ADAS and autonomous driving solutions, both highlighted at this year's CES, strong growth is also expected in the automotive camera market. We aim to secure product differentiation by deploying technologies acquired in the IT camera segment. Next is the Component Solution division. Revenue of the Component Solution division in Q4 was KRW 696.7 billion, which is approximately a 15% increase versus Q3 and approximately 56% increase Y-on-Y. This is mainly due to increase in sales of high-value MLCCs for IT applications, leading to improved product mix. Sales of high reliability MLCCs for network equipment servers, as well as global automotive Tier 1 suppliers increased. In 2018, demand for components is expected to increase for IT, as well as industrial and automotive applications.
As higher specifications are built in at the device level with wider penetration of VR and AI, demand for MLCC is also expected to grow significantly, and we plan to develop and launch new products with differentiation, such as thinner and noise reduction MLCCs, and actively respond to the high-end MLCC market. Given the strong growth expected in automotive and industrial MLCCs, especially around autonomous vehicles and EV, we will enhance our competitiveness by building a stronger lineup to meet such demand. Lastly, the Substrate Solution Division. The Substrate Solution Division's revenue in Q4 was KRW 434.5 billion, which is approximately 9% increase versus Q3 and approximately 46% increase Y-o-Y. The increase is mainly due to the significant increase in overall PCB revenue, driven by RFPCBs for OLEDs. In 2018, a significant increase in demand is expected, driven especially by high-end PCBs.
First, wider adoption of OLED displays is expected to drive greater demand for RFPCBs. Also, in the main board market, where technology change remained relatively slow, SLPs based on microcircuit technology is expected to drive demand. At the same time, the package substrate market is also expected to see greater demand around new applications such as automotive and 5G, which we will actively meet by strengthening our development and manufacturing competitiveness. That completes our fourth quarter results presentation. Now we will take your questions.
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 presented by Mr. Lee Jong-wook from Samsung Securities. Please go ahead, sir.
I have two questions. The first question is about the MLCC. It seems the MLCC industry, the market situation is quite positive. There are concerns that the situation demand from Apple or Chinese customers may become negative in the future. What is your outlook on the MLCC demand and supply situation? Until when do you think this positive flow can continue? Second question is about your supply to the new flagship S9. What would change in terms of component supply to S9 versus S8? Could you compare how much additional revenue you would be generating per handset?
To answer your first question about the MLCC. As you know, in 2017, there was significant increase in MLCC demand, especially from automotive applications as well as high-end IT applications, including from the Chinese market. Also, IoT and new application areas have generated strong demand for MLCC last year. This all resulted in very strong demand, and while the MLCC suppliers are focused on increasing capacity due to the technology difficulties and the high take-up of capacity by these high-end MLCC, the overall supply and demand situation last year remained tight. Looking forward to 2018, we expect that the supply shortage will continue throughout 2018.
In response to this market situation, we will first of all focus on improving the productivity efficiencies of our overseas plants so that we are able to meet customer demand on a timely basis, while also focus on developing and mass-producing new products so that we are, at the same time, able to improve our MLCC product mix by increasing the share of high-end MLCCs.
Regarding your second question of our supply to the new flagship model of our strategic customer, given the fact that the customer has not yet launched the product, there is not much we can describe to you. However, as was reported in the media, the customer is planning to unveil and also launch the flagship during first quarter in Korea as well as overseas. To this new flagship model, we are in the process of supplying camera modules, passive components as well as substrates, and we will focus on achieving our revenue targets by producing and supplying these components on a timely manner.
The next question will be presented by Mr. S.K. Kim from Daiwa Capital Market. Please go ahead, sir.
I have two questions. The first question is about the Substrate Solution Division. I'm wondering whether the division was able to turn around to a profit in the fourth quarter of last year. Also, can you give us a bit more detail of your outlook for this year? On one side, there are concerns regarding OLED and its adoption. On the other hand, SLP could be an opportunity to the Substrate Solution Division. Could you give us your view overall for this year? Second question is about the 3D sensing module, which is expected to be adopted on smartphones more and more this year. Can you give us an update on your development efforts and if you have any concrete supply plans?
Regarding your first question of the fourth quarter results of the Substrate Solution Division, as well as our 2018 outlook. As we mentioned during the conference call for the third quarter results last year, we have been focusing on turning around the HDI business. During third quarter we were able to achieve BEP on a monthly basis by focusing more on the high-end side of the substrate business. During fourth quarter last year, we were able to turn around, reach profits on a quarterly basis, especially because the Vietnam plant was in full production of the RFPCB for OLEDs. Regarding this year, as you mentioned, we are expecting that RFPCB for OLEDs and SLP to increase in terms of adoption. That will be a plus factor. As you mentioned, there's also the risk of a set demand being relatively weak this year.
We will respond by, first of all, diversifying our product as well as customer portfolio and enhancing our manufacturing competitiveness by further enhancing our quality and focusing on profitability. At the same time, on the package substrate side, we are currently in the process of co-developing with Tier 1 and 5G equipment manufacturers, which will provide us with a base of future competitiveness.
Regarding your question about the 3D sensing module. We have been monitoring the technologies related with 3D sensing modules since fourth quarter of 2017. We're currently in the process of developing these technologies. We expect to have the technologies ready during the first half so that we will be able to meet customer demands when they come.
The next questions will be presented by Mr. Lee Jae-yoon from Yuanta Securities. Please go ahead, sir.
I have two questions. First of all, there were some reports of Samsung Electronics doing a business or development related to PLP. What will be the impact of that on your PLP business outlook? Can you give us a bit more detail on the first quarter as well as the full year of expectations on your business?
To answer your first question, there were some reports last year that Samsung Electronics was involved with areas that would overlap with the PLP, actually that was not a correct report. Our PLP business is moving forward as planned, our collaboration with the semiconductor division of Samsung Electronics is also going very smoothly.
Regarding your second question, which was about the market outlook for 2018 and first quarter result expectations. As you mentioned, last year, 2017, actually, we recorded a strong revenue growth that was driven by a strong adoption of dual cameras by Chinese set makers, and also the very strong supply and demand situation in the MLCC market, which we strategically used for our pricing advantages. Also, at the same time, our Substrate Solutions business was able to enhance its yield and further strengthen its manufacturing competitiveness to improve its profitability. It was a very meaningful year in that sense as well. Looking forward to 2018, we expect in the smartphone segment growth to be mainly driven from the flagship, the high-end segment. We also expect the MLCC supply shortage to continue for the time being.
These two would be opportunities for us, but at the same time, the Korean won is expected to remain strong and there could be some upward pressure on the raw material side with perhaps a stronger oil price, and that could be a burden upon the overall business. Given this situation, we will, number one, secure a stable supply base, based on our strategic customer, while at the same time diversifying our customer portfolio, and also continue our focus on developing automotive and industrial supply opportunities to maintain our momentum of growth. We will be focusing on not only generating strong revenue, but also preparing a foundation for future growth. More close in the first quarter, as you mentioned, the strategic customer is planning to launch its new flagship model in the first quarter.
The MLCC demand and supply situation remains strong, so we're expecting our first quarter results to improve somewhat compared to the fourth quarter of last year.
The next question will be presented by Mr. Giuni Lee from Goldman Sachs. Please go ahead, sir.
Congratulations on the solid results. I have two questions, one on MLCC and another on automotive components. As also mentioned in the earlier question, it seems like your MLCC business continues to perform well as industry supply and demand is tight and pricing remains favorable. My first question is: What will be the implication of the supply shortage situation, specifically to your 2018 MLCC utilization rate and ASP? My second question relates to the automotive component business that seems like it is growing fast. What was your automotive component sales last year, and what kind of growth should we expect for this year? Thank you.
To answer your first question about our MLCC utilization and ASP. In the fourth quarter, as there was very strong demand from our global customers, especially on the IT application high-end side. There was strong demand from industrial and automotive applications. We were running our MLCC capacity at full utilization fourth quarter, and we're still running at full utilization as we enter 2018. In terms of ASP, in fourth quarter, our ASP did increase quarter on quarter, especially because new products were launched and our product mix overall was improved. In first quarter of 2018, the strong demand is continuing and our customers are launching their new sets, which will have high-end demand. We are expecting this upward trend on our ASPs for MLCCs to continue in the first quarter.
To answer your second question of our automotive component business. In 2017, we increased the number of qualifications for our MLCCs into global Tier 1. Our camera modules, there were requests for development and we've actively responded to these. We were able to increase revenue on both MLCCs and camera modules for automotive applications on a year-on-year basis. Even though the automotive component sale does not account for a large part of our total revenue yet, still in 2017, we were able to increase our automotive related revenue by about two times compared to the previous year. For 2018 outlook, we expect to further increase supply of camera modules for automotive applications. We have expanded the high reliability and high capacitance MLCC lineup to further penetrate into the automotive market.
In addition to camera modules and MLCCs, we are focusing on developing communication modules for automotive applications, especially related with 5G technology in order to be the first mover into this space. Given all of these new business opportunities, we expect that our automotive component revenue will also increase once again by about two fold on a year-on-year basis.
The next questions will be presented by Mr. Park Won-jae from Mirae Asset Securities. Please go ahead, sir.
My question is about the 5G service. There's a lot of market expectations regarding the pilot service of 5G communication. First of all, can you give us an update on your development efforts related with the 5G communication module solution? Also, what do you think would be the impact, or how much impact would the 5G modules have on your other component businesses such as MLCC?
Regarding the update on the 5G communication module development. We expect that 5G as a service will increase in market demand, especially following the pilot service that will be unveiled during the Pyeongchang Winter Olympics. We are supplying the key components to the communication module that will be used for this pilot service in Pyeongchang. For example, the high frequency, low loss material, the high heat dissipation, and the ultra-small package. These are the technologies that we have used to develop the components that go into the communication module. In addition to this, we are actively cooperating with the communication companies so that we are able to facilitate the commercialization of 5G service and also have the first-mover advantage.
About your second question, the impact 5G would have on the component side of the business. 5G can be divided into Above 6 GHz and Sub-6 GHz. In terms of the Above 6 GHz, the impact on the MLCC side won't be as significant compared to Sub-6 GHz. In the Sub-6 GHz segment, there will be an increased demand for MLCCs. Also, in order to implement 5G technology, about 30% space reduction is a requirement. Therefore, the adoption of 5G communication technology will drive greater demand for the high capacitance and smaller size MLCCs.
It appears we have no other questions in queue and therefore I would like to close the conference call here. Thank you very much for attending our conference call. If you have any further questions, please contact our IR team.