[Click eStock] "Neotis, Boosted Pricing Power for AI Server Drill Bits... Double Benefit from SoCAMM2"

Hanyang Securities has analyzed that Neotis is now beginning to fully benefit from the rising demand and price increases for drill bits, driven by the trend toward higher specifications of printed circuit boards (PCBs) for artificial intelligence (AI) servers. In addition, the company’s performance is expected to improve further this year as it adds revenue from routers for next-generation memory modules, such as SoCAMM2.

Junseok Lee, an analyst at Hanyang Securities, stated in a report on August 12, “With the adoption of higher layers and more advanced PCBs for AI servers tightening the supply and demand for PCB drill bits, Neotis is now seeing its advantage fully materialize.”

PCB drill bits are tools used to make fine holes in PCBs. The PCBs for AI servers require more layers and are more difficult to process than those for ordinary servers or IT equipment, which leads to increased use of drill bits. In particular, as the application of high-hardness copper-clad laminates (CCL) expands, drill bits wear out faster and require more frequent replacement.

Analyst Lee explained, “Adding more layers means each PCB requires more processing, raising drill bit consumption; and applying high-hardness CCL accelerates bit wear, shortening the replacement cycle. As the adoption of high-durability, advanced coated bits increases, the company benefits from both higher volume and an improved product mix.”

Neotis holds around a 40% market share in the domestic drill bit market and approximately 70% in the router market. With major PCB companies such as Samsung Electro-Mechanics, Daeduck Electronics, Simmtech, and Korea Circuit among its clients, Neotis is well-placed to benefit directly in its results from the expansion of the AI server PCB market.

In fact, Neotis’s microbit business is growing rapidly. Microbit revenue increased from 16.1 billion won in 2024 to 23 billion won last year. In the first quarter of this year, sales reached 8.1 billion won, up 73% from the same period last year. Microbits have now overtaken the company’s traditional core business to become its largest division.

Lee commented, “The sophistication of AI PCBs is simultaneously increasing drill bit usage and driving the transition to high-value-added products. This acts as a structural growth factor that lifts both prices and volumes for Neotis.”

Of particular note in this cycle is that the environment allows not only for volume increases but also for product price hikes. It is estimated that drill bits account for about 7% of the manufacturing cost in high-layer PCBs; however, even if drill bit prices rise by 20%, the added burden to total PCB production cost would be only around 1.4%.

Meanwhile, as AI server PCBs become larger and incorporate more layers, the processing becomes more challenging. Therefore, PCB manufacturers are now prioritizing machining quality and yield stability over tool prices.

Lee stated, “For AI server PCBs, machining quality and yield stability are now more important than individual tool prices. Even if prices rise, the limited impact on the total PCB manufacturing cost gives drill bit suppliers a stronger negotiating position.”

Global competitors are also supporting this supplier-favorable market environment. Japan’s Union Tool is raising prices, and Taiwan’s Topoint is increasing the share of premium coated drill bits, thereby improving profitability.

Neotis is also projected to have secured a new growth driver with routers for SoCAMM2. SoCAMM is a next-generation memory module that adopts high-speed, high-bandwidth memory to improve AI server memory performance and efficiency, requiring sophisticated PCB processing technology.

Routers are products that can optimize design according to PCB materials and thickness. Given Neotis’s higher market share in routers compared to drill bits, the company is expected to benefit from the growth of the SoCAMM2 market.

Lee stated, “Neotis has built competitiveness in the router segment based on its long business track record. Revenue from SoCAMM2-related products is expected to gradually increase from the second half of the year and become a key pillar of growth in the latter part of the year.”

Accordingly, Neotis’s earnings level is expected to rise to a new tier from this year. Hanyang Securities forecasts Neotis’s revenue will reach 96.16 billion won this year, up 40.0% from last year. Operating profit is estimated at 17.69 billion won, a 127.4% year-on-year increase.

Lee emphasized, “2026 will see improvements in both price and volume for microbits, raising Neotis’s earnings level. Higher selling prices driven by supply shortages, the increased adoption of advanced coated drill bits, expanded production capacity, and the addition of routers for SoCAMM2 are all contributing to further growth.”

The growth momentum may accelerate even further in 2027. This is because the production capacity expansions taking place this year will be fully reflected, and revenue from SoCAMM2-related products will make a substantial contribution to results.

Lee projected, “2026 will mark a year in which Neotis’s earning power and corporate value are re-evaluated in tandem. In 2027, with expansion effects and SoCAMM2 making a full contribution to results, the company is poised to enter a phase of accelerated growth.”

This content was produced with the assistance of AI translation services.