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Semiconductors

LG Innotek, Samsung Electro-Mechanics benefit from wafer shortage

Soaring wafer prices to raise LG Innotek, Samsung Electro-Mechanic’s operating profits by 210%, 30% in Q3

By Sep 06, 2021 (Gmt+09:00)

Semiconductor substrate
Semiconductor substrate

South Korea’s semiconductor substrate producers including LG Innotek and Samsung Electro-Mechanics are benefiting as a global wafer shortage raised product prices by 30-40% from a year earlier.

LG Innotek and Samsung Electro-Mechanics accounted for 31% and 27% of the global wafer market in the first half, up more than 10 percentage points from 2019. LG Innotek mainly produces semiconductor substrates for mobile devices, while Samsung Electro-Mechanics makes wafers for PCs, servers and mobile devices.

A wafer is a key component required for packaging, serving to connect semiconductors that they can properly function on the product’s main board. Samsung Electro-Mechanics manufactures the FC-BGA, used for PCs and servers, as well as the FC-CSP equipped in mobile devices. LG Innotek churns out the FC-CSP and the RF-SiP, a wafer for mobile communication.

SOARING PRICES

Global semiconductor makers have been scrambling for securing wafers amid the chip shortage since last year. The substrate prices soared over 30% this year compared to 2020, according to the semiconductor industry sources.

The Wall Street Journal (WSJ) reported the wafer’s supply squeeze in a story titled “The Chip Shortage Has Made a Star of This Little-Known Component.”

“The sector's relatively low margins have led to underinvestment and, in recent months, added to the pain of a global chip shortage that has constrained personal computer sales, caused some auto makers to idle plants and raised costs for electronic devices,” the WSJ said.

Nicholas Stukan, chief business development officer at Zhuhai Access Semiconductor Co., a substrate manufacturer based in southern China was quoted as saying that chip makers are begging for supply and are willing to pay much higher prices than usual to satisfy antsy customers.

Intel Chief Executive Officer Pat Gelsinger expected the chip crunch to last into 2023, saying "this is a challenging demand environment," according to the report.

FOCUSING MORE ON WAFERS

South Korean makers such as LG Innotek and Samsung Electro-Mechanics were regarded as key beneficiaries from the shortage given their strong technologies, according to the industry sources. Revenues of wafer-related companies were forecast to grow about 20% this year, those sources said.

Samsung Electro-Mechanics and LG Innotek are focusing on semiconductor substrate production. Samsung Electro-Mechanics is known to plan to concentrate more on the substrates rather than RFPCB which is used for display or cameras.

LG Innotek set up a task force to expand the wafer business, starting a technology review to produce the FC-BGA. The company is expected to roll out the substrate for PCs and servers from the next year, the industry sources said.

Their earnings are likely to leap in the third quarter, the brokerage industry forecast.

LG Innotek is predicted to post 277.5 billion won ($239.8 million) in operating profit with sales of 3.3 trillion won during the July-September period, according to the financial data company FnGuide Inc. The profit and the revenue were 210% and 47% higher than a year earlier, respectively.

Samsung Electro-Mechanics’ operating profit was also expected to jump more than 30% to 393.5 billion won as its revenue was seen growing 9% to 2.5 trillion won.

“Other companies want to start the business, but it takes about two years only to build production lines and a factory. So, semiconductor makers will have no choice but to keep relying on the existing wafer producers,” said an industry source.

Write to Sin-Young Park at nyusos@hankyung.com

Jongwoo Cheon edited this article.

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