LG Innotek and Samsung Electro-Mechanics' camera module businesses suffer a dramatic profit plunge: a double whammy of sluggish smartphone innovation and intensified competition

LG Innotek and Samsung Electro-Mechanics' camera module businesses suffer a dramatic profit plunge: a double whammy of sluggish smartphone innovation and intensified competitionA recent report by TheElec, a South Korean media outlet, reveals that LG Innotek and Samsung Electro-Mechanics, two major South Korean electronics component manufacturers, are experiencing a continuous decline in their camera module business profitability, facing the dual pressures of stagnant smartphone market innovation and increasingly fierce competition. In 2024, LG Innotek's camera module business achieved record-high revenue of KRW 17

LG Innotek and Samsung Electro-Mechanics' camera module businesses suffer a dramatic profit plunge: a double whammy of sluggish smartphone innovation and intensified competition

A recent report by TheElec, a South Korean media outlet, reveals that LG Innotek and Samsung Electro-Mechanics, two major South Korean electronics component manufacturers, are experiencing a continuous decline in their camera module business profitability, facing the dual pressures of stagnant smartphone market innovation and increasingly fierce competition. In 2024, LG Innotek's camera module business achieved record-high revenue of KRW 17.8 trillion, yet operating profit plummeted by 10% year-on-year, resulting in a meager 3% profit margin. Samsung Electro-Mechanics' profit margin during the same period was only 4%, highlighting the severe challenges facing the industry.

LG Innotek's predicament is particularly stark. Its operating profit plunged from KRW 95.1 billion in 2021 to KRW 66.3 billion in 2023, with its profit margin falling from 8% to 3%. This is closely linked to the overall trend in the smartphone market. Samsung's smartphone shipments have declined from a peak of nearly 300 million units (excluding those manufactured by OEMs) in 2019 to 230 million units in 2023, directly impacting camera module sales due to shrinking market demand.

The report points to two main reasons for the drastic profit drop: customer price pressure and slowing smartphone innovation. Firstly, pressure from clients is mounting. With the entry of new competitor Cowell Electronics employing a low-price strategy, buyers like Apple are aggressively pushing down procurement prices, forcing LG Innotek and Samsung Electro-Mechanics to lower unit prices to maintain market share. This further squeezes profit margins and exacerbates the profitability crisis.

Secondly, smartphone manufacturers are no longer as keen on hardware upgrades as before, shifting their focus to software and algorithm optimization, such as AI algorithms. This has led to a slowdown in camera module specification upgrades, reducing component demand. The decreased demand for high-end camera modules further intensifies competition in the industry.

LG Innotek's market position has also shifted. In 2020, due to insufficient production capacity at Sharp in Japan, LG Innotek became a major supplier of camera modules to Apple. However, Apple transferred camera module calibration work to Foxconn in 2021, weakening LG Innotek's bargaining power. In 2023, Apple further introduced Cowell Electronics as a supplier, further depressing module procurement prices. Although LG Innotek remains Apple's largest camera module supplier, Foxconn and Cowell Electronics' market share is increasing year by year, putting LG Innotek under increasing competitive pressure, forcing it to concede on price and ultimately leading to a continuous decline in profit margins.

Faced with the severe situation of declining camera module profitability, LG Innotek and Samsung Electro-Mechanics are actively seeking transformation, shifting their focus to higher-margin areas such as chip packaging. Flip Chip Ball Grid Array (FC-BGA) technology is becoming a key focus for both companies. LG Innotek even plans to become the world's largest FC-BGA producer to compensate for the decline in its camera module business and seek new growth opportunities.

The plunge in profit margins for LG Innotek and Samsung Electro-Mechanics' camera module businesses is not an isolated case but a reflection of the overall trend in the smartphone industry. Smartphone market saturation and lack of innovation have led to slower demand for components and intensified industry competition. Emerging competitors, with their low-price strategies, are further eroding the profit margins of traditional manufacturers.

To address this challenge, LG Innotek, Samsung Electro-Mechanics, and other manufacturers must actively explore new business growth points and enhance their competitiveness. This requires adjustments in technological innovation, product differentiation, and market strategies. Simply relying on price reductions to maintain market share will only lead to a continuous decline in profit margins and hinder sustainable development.

Therefore, the transformation path for LG Innotek and Samsung Electro-Mechanics is not easy. It requires them to invest more resources in technological innovation and market development and actively address the challenges posed by emerging competitors. Only in this way can they maintain competitiveness in the fiercely competitive smartphone market and achieve sustainable development. The future direction may lie in developing higher value-added chip packaging technologies and actively exploring more innovative products and technologies to meet the ever-changing market demands.

In conclusion, the decline in profit margins for LG Innotek and Samsung Electro-Mechanics' camera module businesses is both a natural consequence of changing market conditions and a necessary strategic adjustment for the companies. In the face of challenges, active transformation is the key to survival and development. This case serves as a wake-up call for other smartphone component manufacturers, reminding them to prepare for market changes and maintain their competitiveness in the fiercely competitive market. Future development requires a close combination of technological innovation and market insight to find new opportunities and breakthroughs in the ever-changing market.

Currently, the global smartphone market is undergoing a significant transformation, and the future development of camera modules, as an important component of smartphones, faces numerous uncertainties. Whether LG Innotek and Samsung Electro-Mechanics can successfully transform and find new profit growth points will directly affect their competitiveness in the future market. This is also worthy of close attention and learning from industry insiders. Market changes are rapid, and only continuous innovation can adapt to the needs of the times.