Samsung Electro-Mechanics has secured a contract worth $294 million (454 billion won) to provide multilayer ceramic capacitors (MLCCs) for artificial intelligence (AI) servers to a major US tech company.
The company announced it has entered into a one-year supply agreement starting on January 1 of next year.
The agreement represents around nine percent of the component division's revenue projected for 2025, which is 5.2 trillion won.
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MLCC is a part that ensures stable power for semiconductors and various electronic devices. Power fluctuations in servers can directly impact performance, making MLCCs essential in AI server settings. AI server applications demand high-performance MLCCs that can endure the extreme operating conditions generated by demanding computing tasks, including elevated temperatures and increased stress from warping.
AI servers have over 10 times the number of MLCCs compared to traditional servers. An ordinary AI graphics processing unit has over 20,000 MLCCs, which means an AI server rack may hold as many as 600,000.
Samsung Electro-Mechanics holds around 25 percent of the worldwide MLCC market, trailing Japan's Murata Manufacturing, but dominates the AI server MLCC sector with over 40 percent market share.
The recent agreement is seen as a long-term supply contract, considering that the industry has typically established supply contracts quarterly or based on spot prices. As the demand for MLCCs grows alongside AI development, supply is still limited, prompting cloud service providers and AI server manufacturers to pursue long-term contracts for stability.
The firm stated that it is interacting with international clients and major technology firms to explore supply growth after 2027 following the recent agreement and will boost high-value items in its sales portfolio.
“The contract demonstrates that Samsung Electro-Mechanics’ MLCC technology has been recognized as a key component in the AI era,” CEO Chang Duck-hyun said. “We will continue to lead the market by developing next-generation cutting-edge products tailored to customers' needs.”
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Furthermore, Manufacturers of electronic components are becoming significant winners in the chip supercycle propelled by a worldwide increase in artificial intelligence (AI), as Samsung Electro-Mechanics and LG Innotek share a positive forecast following their strong earnings in the first quarter.
IBK Securities, Eugene Investment, and Meritz Securities increased their target price for Samsung Electro-Mechanics to 1.05 million won ($713), 1.03 million won, and 1.02 million won, respectively, establishing target prices over 1 million won for the first time.
Recent months have seen long-term supply agreements in the semiconductor market often viewed as an indication of consistent profitability. Conversations regarding these agreements suggest that customers are prepared to secure supply at existing price points, even if it requires agreeing to higher costs to guarantee volume. For suppliers, this indicates that the recent trend in earnings is expected to persist for the moment.
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Samsung Electro-Mechanics recorded 3.2 trillion won in revenue and 280.6 billion won in operating profit for the initial quarter, reflecting 17 percent and 40 percent growth compared to the previous year, respectively.