'IT Demand Slump Direct Hit' Electronics Component Industry, The Second Half Is Different

LGD, Samsung Electro-Mechanics, and LG Innotek Report Weak Q2 Earnings
Improvement Expected in Second Half with Smartphone and Automotive Electronics Effects

Domestic electronic component companies received a disappointing performance report for the second quarter of this year. This was due to the slowdown in IT demand caused by the economic recession. However, there is an analysis that performance improvement can be expected in the second half of the year due to inventory improvement and the launch of new flagship smartphones.

LG Display recorded an operating loss of 881.5 billion KRW in the second quarter of this year. This marks five consecutive quarters of losses since the second quarter of last year. However, the deficit narrowed compared to the first quarter of this year (operating loss of 1.0984 trillion KRW). Sales decreased by 15.5% compared to the same period last year, amounting to 4.7386 trillion KRW.

LG Display Paju Plant view. [Photo by LG Display]

Kim Seong-hyun, CFO of LG Display, stated, "We believe that the inventory adjustment in the upstream industry, which has continued since last year, has largely progressed as of the first half of this year," adding, "In the second half, we expect panel purchase demand to increase due to the recovery of overall inventory health in the industry, and the performance of order-based businesses such as mobile product shipments will improve."

In this regard, Kim Dong-won, a researcher at KB Securities, analyzed, "LG Display is expected to achieve quarterly profitability in the fourth quarter of this year for the first time in about two years since the first quarter of 2022, marking the seventh quarter," and "Depreciation of small and large OLED production lines will end between 2024 and 2025, further improving performance."

Samsung Electro-Mechanics and LG Innotek also could not avoid the downturn. Samsung Electro-Mechanics’ operating profit for the second quarter was 205 billion KRW, down 43.1% compared to the same period last year. Sales were 2.2205 trillion KRW, a 9.6% decrease from a year ago. This was the result of shrinking demand for smartphones and PCs. However, considering that Samsung Electro-Mechanics’ second-quarter consensus was sales of 2.0746 trillion KRW and operating profit of 190.5 billion KRW, it is evaluated as a solid performance.

Samsung Electro-Mechanics power inductor installed in autonomous vehicles. [Photo courtesy of Samsung Electro-Mechanics]

A Samsung Electro-Mechanics official said, "Demand decreased due to the seasonal off-season effect of flagship models from major clients," adding, "Performance improved compared to the previous quarter due to the launch of new smartphone models in the Greater China region and expanded supply of automotive and industrial products." He continued, "We plan to strengthen the mid- to long-term growth foundation by increasing the proportion of high-value-added products such as high-spec MLCC (multilayer ceramic capacitors) and flagship camera modules, as well as automotive and server products."

LG Innotek barely avoided a loss. Its operating profit for the second quarter was 18.4 billion KRW, down 93.7% compared to the same period last year. Sales increased by 5.5% to 3.9072 trillion KRW. The company explained that profitability declined due to the seasonal off-season, global economic recession, and weak upstream IT demand caused by high inflation. However, LG Innotek added, "In the second half, performance is expected to gradually improve as the supply of parts for new customer models begins in earnest."

In the securities industry, there is a forecast that LG Innotek will achieve an operating profit of about 430 billion KRW in the third quarter. Park Kang-ho, a researcher at Daishin Securities, predicted, "High growth is expected due to the launch effect of Apple iPhone 15 and the rise in the average selling price of camera modules," adding, "The 48-megapixel model will expand to four, and the adoption of folded zoom cameras and internalization of OIS (optical image stabilization) will increase the average selling price."

This content was produced with the assistance of AI translation services.