LG Innotek's semiconductor substrate business surpassed last year's full-year operating profit in just the first three quarters of this year. Driven by expanding demand for substrates for communications and mobile devices, as well as increased supply of FC-BGA (Flip Chip Ball Grid Array), production lines have also approached maximum utilization levels. LG Innotek is pursuing a strategy to develop its semiconductor substrate business into a "cash cow" following its optical solutions division, through entry into the high-value-added substrate market for AI (artificial intelligence) servers and expansion of production capacity.
According to LG Innotek's quarterly report on the 15th, the Package Solutions Division's cumulative operating profit for the first three quarters was 135.7 billion won, a 69% increase year-on-year. This exceeds last year's full-year operating profit (128.9 billion won). Cumulative revenue for the first three quarters also increased annually: 1.0767 trillion won in 2024, 1.2308 trillion won in 2025, and 1.4174 trillion won in 2026. The operating profit margin was 9.6%, the highest among all business divisions.
This is due to the impact of increased supply of FC-BGA for PC CPUs (Central Processing Units) from global customers, added to demand for substrates for communications and mobile devices such as RF-SiP (Radio Frequency System-in-Package) and FC-CSP (Flip Chip Chip Scale Package). Rising demand for high-value-added substrates has also boosted production line utilization. LG Innotek's average cumulative utilization rate for the first three quarters of this year was 94.4%, up 17.7 percentage points from the same period last year, approaching maximum operational levels.
The global shortage of high-value-added semiconductor substrates is also expected to present an opportunity for LG Innotek. Cho Ji-tae, head of LG Innotek's Package Solutions Division, explained at the "LG Innotek Media Tech Day" in June that "as the semiconductor substrate market grows rapidly, current production capacity cannot meet demand." Indeed, Intel recently stated in a quarterly report submitted to the U.S. Securities and Exchange Commission (SEC) that it is "unable to fully respond to CPU demand due to a shortage of packaging substrates." The company forecasted that supply shortages for core components such as substrates would continue through next year.
To respond to expanding demand, LG Innotek has moved to expand production capacity. In June, the company decided to invest 1 billion dollars (approximately 1.33 trillion won) in Hai Phong City, Vietnam, to expand its semiconductor substrate factory. Completion is targeted for May next year. The plan is to enhance productivity and profitability through a dual domestic and overseas production hub structure after the expansion. In particular, it is assessed that investment uncertainty for substrate manufacturers is decreasing as long-term supply contracts and advance-payment-based expansion contracts are spreading.
LG Innotek plans to gradually enter the high-end FC-BGA market for AI accelerators and servers, characterized by high layer counts and large areas, by 2028. It is known that the company is currently in discussions with multiple global customers regarding long-term supply. Kim Jong-bae, a researcher at Hyundai Motor Securities, stated, "Following discussions with key customers, mass production for server applications will begin in earnest from next year," adding, "Considering the severe supply shortage, there should be no strain on LG Innotek's volume plans."
Expectations for earnings growth are also rising. The average forecast for the Package Solutions Division's full-year operating profit this year, presented by eight securities firms (Hana Securities, iM Securities, DB Securities, Daol Investment Securities, SK Securities, Shinhan Investment Corp, Kiwoom Securities, Hyundai Motor Securities), was calculated at 181.2 billion won, representing an increase of approximately 40% from the previous year. The average forecast for next year reaches 331.3 billion won. LG Innotek aims to grow the Package Solutions Division's annual operating profit to a scale of 1 trillion won by 2031.
An industry official stated, "As demand sources for semiconductor substrates expand, robust demand is expected to continue," adding, "The fact that global companies are discussing long-term supply contracts to secure stable volumes is also an indicator showing this demand trend."
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