Korean Semiconductor Supply Chain Checks Reinforce Positive Views on Samsung Electronics, SK Hynix, and Samsung Electro-Mechanics

Overview

Based on second-quarter 2026 results, company discussions, and industry data from four Korean supply chains—semiconductor equipment, substrates and CCL, chip testing, and HBM—the report concludes that memory- and AI-related demand remains strong. Rising backlogs, customer requests for earlier delivery, structural supply shortages, and capacity expansion plans further confirm Goldman Sachs' positive views on Samsung Electronics, SK Hynix, and Samsung Electro-Mechanics.

Core views

The report first compiles the second-quarter 2026 results of 20 Korean supply chain companies not formally covered by Goldman Sachs and combines them with meetings with 14 of those companies and additional industry data to map supply chain signals to Samsung Electronics, SK Hynix, and Samsung Electro-Mechanics. All four segments point in the same direction: memory manufacturers' capital expenditure is active, AI-related demand is expanding, orders and capacity utilization are rising, while the supply of DRAM, NAND, and critical substrates remains tight. In front-end equipment, the nine major Korean vendors generated aggregate second-quarter 2026 revenue of W1,716,498mn, up 20% year over year and 16% quarter over quarter; aggregate operating profit was W296,670mn, up 42% year over year, with an operating margin of 17%. Backlogs jumped significantly in the second quarter, providing a leading indicator for second-half results. Vendors interviewed generally stated that customers were requesting earlier delivery as DRAM and HBM fab schedules were accelerated and investment in NAND technology upgrades increased. New orders have risen markedly since the second quarter, leading companies to maintain positive views on their results for the second half of 2026 and 2027. Vendors guided to 2026 revenue growth of 25%—40% year over year, driven primarily by WFE demand. This order signal is consistent with Goldman Sachs' assessment of investment by memory manufacturers: Samsung Electronics' and SK Hynix's capital expenditure is expected to rise by 59% and 75% year over year, respectively, in 2026. Korean WFE imports increased by 73% year over year in the second quarter of 2026 and by 97% year over year in July 2026, further confirming strong domestic equipment demand. Spending is currently concentrated mainly on DRAM, although vendors are also optimistic about equipment demand generated by NAND technology upgrades. Despite higher capital expenditure, Goldman Sachs still expects DRAM supply deficits of 5.0% in 2026 and 5.9% in 2027, and NAND supply deficits of 4.4% in 2026 and 4.6% in 2027. Equipment demand is also supported by process migrations and long-term fab construction. As of the end of the second quarter of 2026, construction of SK Hynix's Yongin Phase 1 fab was 61% complete; Samsung Electronics' P5, P4 PH4, and P4 PH2 were 27%, 57%, and 23% complete, respectively. Given the multiple fabs under construction and memory manufacturers' long-term expansion plans, Goldman Sachs expects memory WFE capital expenditure to increase by 47%, 47%, and 38% year over year in 2026, 2027, and 2028, respectively, and sees substantial near- and long-term growth potential for the overall WFE market. Most equipment vendors have not yet encountered capacity bottlenecks, but capacity utilization continues to rise, with some companies approaching full utilization and evaluating expansion. Equipment prices have not risen broadly, although some suppliers are discussing price normalization. Delivery lead times are generally unchanged, but a few companies have already observed extensions. Component procurement has not yet faced significant shortages, but suppliers are prioritizing semiconductor equipment, which could extend delivery lead times for display equipment. The equipment sector also shows structural divergence. Some companies reported weaker results due to delayed shipments by foundry customers, increased R&D expenses, or one-off costs. Korea's WFE exports to China declined by 20% year over year in the first seven months of 2026. The report attributes this to China's semiconductor supply chain localization efforts, which pressure the long-term sustainability of Chinese orders for Korean equipment companies. Companies also engaged in display equipment cited weak display demand as a risk. In substrates and CCL, the six major Korean vendors generated aggregate second-quarter 2026 revenue of W2,395,215mn, up 44% year over year and 11% quarter over quarter; aggregate operating profit was W421,405mn, up 124% year over year, with the operating margin rising from 11% a year earlier to 18%. Growth was driven by stable end demand, higher shipment volumes, and improved average selling prices resulting from a greater mix of high-value products. All substrate companies tracked by Goldman Sachs recorded triple-digit year-over-year backlog growth in the second quarter, indicating that earnings growth is sustainable. Substrate and CCL companies interviewed generally reported tight supply, strong orders, and rising capacity utilization, with most expanding capacity or evaluating additional capacity. Goldman Sachs expects the ABF substrate supply deficit to widen from 8% in 2026 to 34% in 2027 and 51% in 2028, implying that shortages could persist for several years. Due to tighter supply and higher raw material costs, several companies raised prices between March and June 2026, while some also plan to increase prices for additional products. Companies expect 2026 revenue to rise by 40%—50% year over year, accompanied by significant margin improvement. This trend directly supports Goldman Sachs' forecast for Samsung Electro-Mechanics: driven by an improving industry environment and expanding AI revenue, SEMCO's substrate business revenue is expected to increase by 51% year over year in 2026, while its operating margin rises by 10 percentage points from 6% to 16%. Demand spans AI accelerators, 800G switches, automotive applications, GDDR7, SSD controllers, and optical modules. Simmtech stated that SOCAMM demand was growing faster than expected at the beginning of the year and raised its related 2026 revenue guidance by more than 50% from its initial forecast. Goldman Sachs expects SOCAMM demand to increase by 420% year over year in 2026 and account for 7% of global DRAM demand. Some companies mentioned tight supplies and longer delivery lead times for raw materials such as T-glass, but these issues have not yet reached a level that threatens earnings. More explicit risks include constrained raw material procurement and high customer concentration. In chip testing, demand for server CPU, memory, and HBM testing represents the main growth driver. ISC's second-quarter revenue increased by 41% year over year and operating profit by 55%, while AI revenue increased by 71% and its share of revenue rose from 67% to 81%, indicating continued strengthening in AI computing production demand. Due to constrained capacity, customers are willing to pay higher prices to secure production lines and are requesting long-term agreements. ISC plans to expand capacity to 2.5 times its current level by 2029. The company expects revenue to increase from W310bn in 2026 to W440bn in 2027 and W500bn in 2028, with its 2026 operating margin in the mid-30% range. Leeno Industrial's second-quarter revenue and operating profit increased by 27% and 38% year over year, respectively, mainly supported by seasonal peak demand for smartphone chip test sockets, which account for 60%—70% of its revenue. Higher test socket unit prices resulting from smartphone application processor specification upgrades, together with new AI and server demand, represent future growth sources. Techwing's second-quarter revenue increased by 16% year over year and operating profit by 97%. Orders for memory test handlers rose rapidly, customers requested shorter delivery lead times, and the company expects third-quarter 2026 results to exceed those of both the first and second quarters. Doosan Tesna's second-quarter operating profit turned positive year over year, ADAS testing demand remained resilient, and AI chip testing revenue is expected to begin contributing in the fourth quarter of 2026. Based on these signals, Goldman Sachs believes Samsung's foundry business losses are narrowing and expects it to achieve positive operating profit in the second half of 2027. Testing companies are generally positive on the AI market, although some are concerned about persistently weak smartphone demand. In HBM, supply chain companies posted solid second-quarter 2026 results, optimistic guidance, and positive corporate commentary. Based on recent data and company feedback, Goldman Sachs expects the HBM total addressable market to grow by 67% and 108% year over year in 2026 and 2027, respectively. This rapid expansion corroborates the order and capacity signals observed in the equipment, substrate, and testing segments, mapping positively to memory coverage centered on Samsung Electronics and SK Hynix.

Analysis framework

Goldman Sachs uses a supply chain cross-validation approach: it first compiles the second-quarter 2026 results of 20 uncovered Korean companies, then combines them with meetings with 14 companies to cross-check backlogs, delivery requests, capacity utilization, prices, delivery lead times, and expansion plans against WFE imports and exports, fab construction progress, and supply-demand forecasts. Finally, it maps changes in the equipment, substrate, testing, and HBM segments to Samsung Electronics, SK Hynix, and Samsung Electro-Mechanics.

Methodology notes

• (Method outside the vocabulary)

  Supply chain earnings mapping and company checks

  The report uses the results and management discussions of companies not formally covered as leading evidence, then maps these signals to memory and electronic component companies covered by Goldman Sachs.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-demand deficit analysis

  The report uses projected supply deficits for DRAM, NAND, and ABF substrates to assess the pricing environment, degree of capacity tightness, and duration of the industry upcycle.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Value Chain Transmission

  Capital expenditure and supply chain order transmission

  Memory manufacturers' capital expenditure and fab construction first translate into equipment orders, then affect the revenue, capacity utilization, and margins of substrate-, testing-, and HBM-related companies, ultimately mapping to Samsung Electronics, SK Hynix, and Samsung Electro-Mechanics.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Shipment volume, product mix, and average selling price decomposition

  The report decomposes growth at substrate and testing companies into higher shipment volumes, a greater mix of high-value products, specification upgrades, and price increases to explain concurrent improvements in revenue and margins.

• Cycle and Business Conditions FrameworkCycle Inflection Point Analysis

  Backlogs and earlier deliveries as leading indicators

  The report views the second-quarter jump in backlogs, customer requests for earlier delivery, and rising capacity utilization as leading indicators of improved results in the second half of 2026 and in 2027.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Samsung Electronics

  Signals from the equipment, testing, and memory supply chains support expectations for improvements in its capital expenditure, memory business, and foundry business.

  Strengths

  Goldman Sachs expects 2026 capital expenditure to increase by 59% year over year; DRAM and NAND supply remains tight; foundry losses are expected to narrow, with the business achieving positive operating profit in the second half of 2027.

  Weaknesses

  The foundry business is currently still operating at a loss.

  Comparison

  Its projected 2026 capital expenditure growth is lower than SK Hynix's 75%.

• SK Hynix (000660.KS)

  Strong HBM, memory equipment, and testing demand maps positively to its memory business and capacity expansion plans.

  Strengths

  Goldman Sachs expects 2026 capital expenditure to increase by 75% year over year; the Yongin Phase 1 fab was 61% complete as of the end of the second quarter of 2026; the HBM market is expected to expand rapidly in 2026 and 2027.

  Comparison

  Its projected 2026 capital expenditure growth is higher than Samsung Electronics' 59%.

• Samsung Electro-Mechanics (SEMCO)

  Tight substrate supply, expanding AI revenue, and a favorable pricing environment support growth and margin improvement in its substrate business.

  Strengths

  Goldman Sachs expects 2026 substrate business revenue to increase by 51% year over year, with the operating margin rising from 6% to 16%.

  Comparison

  Its forecast is directionally consistent with Korean substrate and CCL vendors' industry guidance for 40%—50% revenue growth in 2026.

Key data

• Equipment vendors' aggregate second-quarter 2026 revenueW1,716,498mnUp 20% year over year and 16% quarter over quarter
• Equipment vendors' aggregate second-quarter 2026 operating profitW296,670mnUp 42% year over year, with an operating margin of 17%
• Samsung Electronics' and SK Hynix's 2026 capital expenditure growth59%/75%Goldman Sachs year-over-year growth forecasts
• Growth in Korean WFE imports2Q26 year over year +73%; July 2026 year over year +97%Supports the assessment of strong Korean memory WFE demand
• Memory WFE capital expenditure growth2026 +47%; 2027 +47%; 2028 +38%Goldman Sachs global WFE team forecasts
• DRAM supply deficit2026 5.0%; 2027 5.9%Supply is expected to fall short of demand for two consecutive years
• NAND supply deficit2026 4.4%; 2027 4.6%Supply is expected to fall short of demand for two consecutive years
• Progress of fabs under constructionYongin Phase 1 61%; P5 27%; P4 PH4 57%; P4 PH2 23%As of the end of the second quarter of 2026
• Substrate and CCL vendors' aggregate second-quarter 2026 revenueW2,395,215mnUp 44% year over year and 11% quarter over quarter
• Substrate and CCL vendors' aggregate second-quarter 2026 operating profitW421,405mnUp 124% year over year, with an operating margin of 18%
• ABF substrate supply deficit2026 8%; 2027 34%; 2028 51%Goldman Sachs expects the shortage to continue widening
• SEMCO substrate business forecastRevenue year over year +51%; operating margin rises from 6% to 16%2026 revenue forecast and 10-percentage-point margin improvement
• SOCAMM demand2026 year over year +420%Expected to account for 7% of global DRAM demand
• ISC second-quarter resultsRevenue year over year +41%; operating profit year over year +55%AI revenue increased by 71% year over year, with its revenue share rising from 67% to 81%
• ISC revenue guidance2026 W310bn; 2027 W440bn; 2028 W500bnThe 2026 operating margin is expected to be in the mid-30% range
• HBM total addressable market growth2026 +67%; 2027 +108%Goldman Sachs year-over-year growth forecasts

Impact & implications

The report believes that pulled-forward equipment orders, progress in fab construction, widening substrate shortages, and tightening testing capacity demonstrate that memory- and AI-related capital expenditure is flowing through to supply chain earnings. Samsung Electronics and SK Hynix benefit from memory demand and HBM market expansion, while Samsung Electro-Mechanics benefits from tight substrate supply-demand conditions, higher AI product revenue, and margin improvement. Meanwhile, signs of recovery in the testing segment of Samsung's foundry business support the view that its losses are gradually narrowing.

Risks

• Korean semiconductor equipment companies that also operate display equipment businesses face the risk of weak display demand.
• China's localization of semiconductor equipment could weaken the long-term sustainability of Chinese orders for Korean equipment companies.
• Substrate and CCL companies face risks from tight procurement and longer delivery lead times for raw materials such as T-glass.
• Some substrate and CCL companies derive a concentrated share of revenue from specific customers.
• Some chip testing companies are concerned about persistently weak smartphone demand.