LG Innotek, a subsidiary of LG Group in the electronic components sector, is projected to record a quarterly operating loss in its camera module business for the first time in two years since the second quarter of 2023 (operating loss of about 28 billion won). This is attributed to the continuous decline of the dollar and a decrease in demand due to an influx of orders in the first quarter driven by tariff risks from the United States. Expectations for annual performance are also declining as specifications for camera modules included in new products from its main client, Apple, are not expected to change significantly compared to the previous year.
According to the securities industry on the 23rd, LG Innotek's optical solutions division, responsible for the camera module business, is expected to incur an operating loss of 10 to 20 billion won in the second quarter. In the second quarter of last year, the operating profit of the optical solutions division was around 102.5 billion won. The optical solutions division accounts for 83% of LG Innotek's total sales as of the first quarter. Park Sang-hyun, an analyst at Korea Investment & Securities, noted, "Seasonal sluggishness and the impact of exchange rates are expected to coincide to record a deficit."
The weak dollar is cited as a factor affecting LG Innotek's disappointing second-quarter performance. The materials and supplies needed for part manufacturing were purchased at high prices when the dollar was strong, but the analysis suggests that the timing of finished goods exports will negatively impact profitability as the dollar is weak. The researcher, Park, stated, "The won-dollar exchange rate dropped sharply from 1,452 won in the first quarter to 1,442 won in April and 1,391 won in May," adding, "Materials and supplies were purchased at high prices, but finished goods must be sold at low prices."
Additionally, demand has also shrunk as initial second-quarter order volumes were advanced into the first quarter due to tariff risks from the U.S. Park Kang-ho, an analyst at Daishin Securities, stated, "In preparation for U.S. tariffs, clients produced iPhone 16 and iPhone 16E in advance in the first quarter, leading to a slowdown in second-quarter sales."
The optical solutions division of LG Innotek recorded a deficit for the first time in two years since the second quarter of 2023 when smartphone demand was weak due to the IT market downturn. There is also an analysis that Apple's diversification of its supply chain for high-performance camera modules included in premium models has impacted profitability. An industry insider noted, "As Apple has begun sourcing components from local Chinese companies to reduce costs and target its main market in China, competition in the camera module supply has intensified," explaining, "Lowering component prices to defend market share has also contributed to declining profitability."
In the current situation, there is not much expectation for annual performance improvement due to the limited performance improvements in camera modules in Apple's upcoming new products slated for release in the second half of this year. Park, the researcher, noted, "Considering the possibility of delays in optimizing artificial intelligence (AI) features, along with the Trump administration's announcement of a 25% tariff on smartphones sold in the U.S., a conservative production strategy is anticipated," and stated that LG Innotek's annual operating profit estimate has been revised down from 734 billion won to 683 billion won.
LG Innotek plans to accelerate the development of new projects such as FC-BGA, a high-value semiconductor substrate, to reduce its heavy revenue dependence on Apple. LG Innotek aims to diversify its suppliers starting with FC-BGA, which is used in CPUs for PCs, expanding to servers and AI accelerators. To strengthen its competitiveness in FC-BGA technology, LG Innotek is building a smart factory in Gumi, Gyeongsangbuk-do, and has commenced mass production of PC-use FC-BGA for global big tech clients since December last year.