The atmosphere in the multilayer ceramic capacitor (MLCC) market, known as the 'rice of industry' found in all electronic devices, is becoming colder due to the impact of the tariff war. With increased uncertainty regarding tariffs, manufacturers of IT devices such as laptops and smartphones are reducing their MLCC orders. As demand shrinks, analysts believe it will be difficult to expect any warmth in the second half of the year, traditionally the peak season for the electronics industry. The business outlook for Samsung Electro-Mechanics, the top MLCC company in the country, is also gradually darkening.
◇ “MLCC manufacturers facing increased operating burden”
According to market research firm TrendForce on the 8th, laptop manufacturers are reducing their MLCC orders in the second quarter of this year. The peak season for education-related laptops, such as Chromebooks, typically begins in April, but the world's second and third largest PC companies, HP and Dell, are cutting their MLCC orders for education laptop models by 20-25% compared to the previous quarter. The influence of PC distributors purchasing laptops earlier in the first quarter in anticipation of tariffs has resulted in a further decline in demand in the second quarter, unlike previous years.
As demand in the IT sector, a primary consumer of MLCCs, shrinks, MLCC manufacturers, including Samsung Electro-Mechanics, are struggling to secure profitability. The MLCC market is experiencing fierce price competition, with prices for mid- to low-capacity commercial and automotive MLCCs falling to levels seen in the fourth quarter of 2019, before the COVID-19 pandemic. TrendForce noted that "intensifying price competition has significantly worsened the profitability of high-end MLCC products used in artificial intelligence (AI) servers," adding that "the burden of operation for MLCC suppliers is increasing amid economic recession, demand uncertainty, and concerns about exchange rate volatility."
Demand for MLCCs used in AI servers remains steady; however, this sector also cannot overlook tariff risks. TrendForce stated that "companies manufacturing AI servers in Mexico are shipping products normally under the U.S.-Mexico-Canada Agreement (USMCA), which provides tariff privileges," but noted that "the possibility of new tariff negotiations between the U.S. and Mexico resuming still exists."
◇ Samsung Electro-Mechanics faces dual challenges of ‘demand stagnation and price competition’
Given the situation, market expectations for Samsung Electro-Mechanics, the second-largest company in the global MLCC market, are also declining. The IT sector accounts for 60% of Samsung Electro-Mechanics' MLCC business. Automotive and industrial uses represent 23% and 18%, respectively. For the second quarter of this year, the consensus operating profit estimate for Samsung Electro-Mechanics decreased by about 9%, from 238.5 billion won a month ago to 217.1 billion won as of the 7th. Korea Investment & Securities downgraded their target stock price for Samsung Electro-Mechanics from the previous 197,000 won to 170,000 won. BNK Investment & Securities also lowered its target price by 11% to 160,000 won.
Park Sang-hyun, a researcher at Korea Investment & Securities, said, "Although revenue growth centered on high-value products for AI servers and automotive uses is positive, the recovery in demand for MLCCs for IT devices such as smartphones and PCs is slower than expected." He added, "The expected impact of the Chinese 'Iguhwan-shin' (old electronics replacement support policy) is not significantly influencing performance," stating that "the key is how well the second quarter can overcome the concerns of reduced IT demand due to U.S. tariffs and economic downturn through demand for industrial and Chinese-sourced MLCCs."