LG Innotek Posts 11조 Won in Half-Year Revenue — It Kept 5 Won for Every 100 Won Sold

It sold 11조 won worth of products over six months.

This is the first time since its founding that first-half revenue has exceeded 10조 won. Yet operating profit for the same period was 5,411억 won.

In other words, it kept 5 won for every 100 won worth of products it sold. What does this company make to end up looking like this?

3-line summary
1. LG Innotek sold 11조 won in the first half and kept 5,411억 won.
2. Of its 5조5천억 won in second-quarter revenue, 4조5천억 won came from cameras.
3. Whether the 82% camera share declines is the next key point to watch.

That protruding part on the back of a smartphone

The product LG Innotek makes the most is camera modules.

You know the cluster of protruding lenses on the back of a smartphone. It is the integrated bundle of components that goes inside it. Lenses, image sensors that convert light into electrical signals, motors that focus the image, and devices that reduce hand shake are assembled into a single unit. Smartphone companies buy and install it.

Revenue from this business was 4조 5,179억 won in the second quarter. The company’s total revenue for the same period was 5조 5,272억 won. Cameras alone accounted for 82% of revenue.

This also explains why the company’s name may be unfamiliar. LG Innotek does not sell products directly to consumers. What is displayed in stores is the product of the company that bought and used these components, and only that company’s name appears on the box. Still, there is a fairly high chance that the screen you are reading this on contains a component made by this company.

What it means to say it increased 21-fold

Second-quarter operating profit rose 2,057% from the same period last year. That is 21-fold.

It looks remarkable when viewed only as a number, but a multiple like this usually means last year was bad. In fact, operating profit in the second quarter of last year was 114억 won. It sold more than 5조 won and kept 114억 won.

The picture is the same when expanded to the first half. First-half operating profit rose from 1,365억 won last year to 5,411억 won this year. Revenue rose 24%, but profit quadrupled.

This is how a parts maker’s profit and loss moves. The factories have already been built, and labor costs are largely fixed. If volume increases slightly or unit prices rise slightly, most of that difference goes almost directly to profit. The decline is just as steep on the way down.

That is why, in earnings articles about companies like this, phrases such as “increased several-fold” or “increased by several %” contain little information. They only become meaningful when viewed alongside the earlier number. Rather than saying 21-fold, the sentence “114억 became 2,458억” is more accurate.

It makes two more things besides cameras

It makes semiconductor substrates. Second-quarter revenue was 4,984억 won. This is the thin board placed between a semiconductor chip and a circuit board when the chip is attached. Think of it as an adapter connecting the chip’s extremely dense terminals to the circuit board’s thicker wiring. As AI chips become larger and more complex, these boards become more expensive as well. The company said it had begun expanding its Vietnam plant to meet demand.

It also makes automotive components. Second-quarter revenue was 5,109억 won. These include vehicle cameras, communication modules, and electric-vehicle power components. At a 10% growth rate, this was the lowest among the three businesses, but once automotive components are adopted, deliveries continue until that model is discontinued.

Even combined, the two businesses amount to only a little more than 1조 won. That is less than one-quarter of cameras.

The reason margins are thin lies in the number of customers

According to a Newsis report based on last year’s first-half semiannual report, a single customer accounted for 77.4% of revenue. That amounted to 6조 9,027억 won. The same report stated in its headline that the customer was Apple.

When there is only one customer, it also becomes clear which side sets the price. For a parts supplier to say, “We need to receive this price,” it must be able to afford losing that customer. But when three-quarters of revenue comes from that customer, it cannot say that.

Chinese parts makers have also entered the supply of the same camera modules. When more companies make them, unit prices decline. To maintain volume, suppliers must cut prices, and when prices are cut, profit margins are cut.

This is the backdrop to the profit margin remaining at 4.9% even as revenue reaches a record high. Selling a lot and selling well are different things.

This is also why the company keeps talking about semiconductor substrates and automotive components. Growing the two businesses means finding new growth engines, but it also means increasing customers from one to many.

Robots need more than eyes

President Moon Hyuk-soo used the phrase “a turning point in the era of physical AI” when releasing second-quarter results. It refers to the stage at which AI, previously confined to screens, gains a body like a robot.

On July 28, the company announced that it had joined hands with Japanese parts maker TDK. The plan is to combine LG Innotek’s cameras—the devices that see—with TDK’s inertial and position sensors and microphones, or devices that measure movement and sound.

Robots cannot move with eyes alone. They must also know whether they are tilted, what they just collided with, and whether someone is calling from behind them. The idea is to move technology developed for smartphone cameras into that area.

Three things to watch in the next earnings report

I will not make a stock-price or earnings forecast. Instead, these are things that can be checked when quarterly results are released.

Does the camera share decline? It is now 82%. This figure must fall for the business structure to have actually changed.

Does the profit margin exceed 5%? Revenue has already hit a record high. The remaining issue is the line below it.

The second half. Because new smartphone products are released in the fall, this company’s revenue is typically concentrated in the second half. The first-half 11조 won is the record preceding that.

News headlines always carry only the first line

The company that sold 11조 won in six months kept 5,411억 won.

A parts maker’s report card lies not in the revenue line, but in the two lines below it. News headlines always carry only the first line.