LG Innotek runs semiconductor substrate factory at near-full capacity amid surging demand

LG Innotek's semiconductor substrate business — a segment the company is cultivating as a future growth engine — is running its factory in effect at full capacity as demand continues to climb.

The company is also in the final stages of long-term supply agreement negotiations with three North American chipmakers, and plans to announce a large-scale substrate investment as early as this year to keep pace with rising orders.

According to the Financial Supervisory Service, the average utilization rate at the Gumi factory, which produces semiconductor substrates, reached 94% in the third quarter. The plant has the capacity to produce 697,000 sheets of semiconductor substrate per quarter; it produced 658,000 sheets during the period.

The substrate factory has been running harder all year. The annual average utilization rate stood at 81% last year but has held in the mid-90 percent range this year — climbing above 90% for the first time in the first quarter at 92%, reaching 94% in the first half, and sustaining that level through the third quarter.

The higher output has translated directly into stronger earnings. The Package Solutions division, which oversees the substrate business, posted sales of 1.42 trillion won ($1.06 billion) and operating profit of 135.7 billion won through the third quarter. The division's full-year sales last year came to 1.72 trillion won, with operating profit of 128.9 billion won — meaning the unit has already surpassed last year's full-year operating profit in just three quarters.

Growth in the semiconductor substrate business is attributed to expanding demand for high-value-added products. LG Innotek's core lineup includes RF-SiP (radio-frequency system-in-package) substrates for communications semiconductors, FC-CSP (flip-chip chip-scale package) used in mobile application processors, and FC-BGA (flip-chip ball grid array) applied to central processing units.

The company has been accelerating capital expenditure in the substrate segment. It invested 96.2 billion won in the Package Solutions business through the end of September. Capital spending had reached 33.6 billion won through the first half, meaning 62.6 billion won was deployed in the third quarter alone.

In June, LG Innotek broke ground on an expansion of its semiconductor substrate factory in Haiphong, Vietnam. The first phase of investment, totaling 1 trillion won, covers the expansion of RF-SiP and FC-CSP lines. Should the expansion extend to FC-BGA lines, the total investment would grow further.

Domestically, the company is expanding its lines with a focus on high-value-added FC-BGA. LG Innotek announced a 600 billion won investment plan for its Gumi facility last year, but the company believes that level of spending will not be sufficient to meet the volume of demand now coming in.

LG Innotek recently held a non-deal roadshow with securities industry analysts, during which it outlined the surge in substrate demand and its investment plans.

At the event, the company said supply discussions in the FC-BGA segment are progressing actively. It had previously supplied PC CPU substrates to a single North American fabless chipmaker, but said it began supplying FC-BGA to a global CPU maker this year.

The company plans to finalize and announce its investment plan as early as this year. Large-scale investment is expected from this year through 2028. LG Innotek is also exploring the possibility of receiving financial support from customers — similar to the model used by global substrate makers that expand production lines jointly with their clients.

Park Hyung-woo, an analyst at SK Securities, said the company is in the final stages of long-term supply agreement negotiations with three North American chipmakers in the substrate business, adding that the size and timing of advance payments related to substrate investment and future earnings will determine the visibility and stability of the medium-to-long-term financial structure.

LG Innotek is developing semiconductor substrates as a core medium-to-long-term growth business. Its sales target for the Package Solutions division by 2030 is 2 trillion won from FC-BGA and another 2 trillion won from its existing substrate lines. The company also aims to grow operating profit to around 1 trillion won by that time.