Samsung Electro-Mechanics (009150.KS) has entered the heart of the "AI supercycle" attracting global capital by securing supply contracts for high-value FC-BGA (flip-chip ball grid array) substrates with Company N, the world's largest artificial intelligence semiconductor firm.
Advanced FC-BGA substrates used in servers are approximately five times larger in area than those for general PCs and have more than twice the number of layers, making production capability limited to a handful of companies. Japanese firms have dominated the supply chain due to their strength in advanced materials. Japan's Shinko Electric and Ibiden have maintained a virtual monopoly supplying advanced FC-BGA to global AI chip companies including Company N and AMD, leveraging their long-standing expertise and materials technology.
However, Samsung Electro-Mechanics began supplying FC-BGA for AI semiconductors to big tech companies including AMD and Amazon last year. This year, the company has joined the supply chain of Company N, known for its stringent technical requirements, triggering a seismic shift in the industry landscape.
Samsung Electro-Mechanics plans to aggressively expand its business starting this year, using Company N's substrate supply as a springboard. The advanced FC-BGA market that Samsung Electro-Mechanics has penetrated is experiencing rapid growth amid "structural shortages" driven by worldwide AI infrastructure investment expansion.
As global big tech firms like Nvidia and Google, along with hyperscalers such as Amazon Web Services and Microsoft, compete to invest in AI data center infrastructure to secure dominance in the AI industry, demand for FC-BGA for AI semiconductors is surging. Market research firm Prismark forecasts the semiconductor substrate market will grow from 4.8 trillion won in 2024 at an annual average rate of approximately 14 percent to reach 8 trillion won by 2028. Advanced FC-BGA for AI semiconductors is expected to exceed the substrate market's average growth rate.
If Samsung Electro-Mechanics expands its supply chain from the "NV Switch" substrates it is currently supplying to higher-value GPU products, CEO Chang Deok-hyun's push for "transformation toward high-value products" is expected to accelerate. The company plans to rapidly shift its entire FC-BGA business toward high-value products this year, increasing the proportion of FC-BGA for data centers including servers, power chips, and networks to at least 60 percent.
Samsung Electro-Mechanics also plans to expand production capacity to handle increasing orders including NV Link switches. The FC-BGA factory's utilization rate could reach 100 percent for the first time since the company's founding as early as the second half of this year, potentially exhausting production capacity.
Samsung Electro-Mechanics, which started its substrate business in 1991, has invested approximately 1.9 trillion won ($1.4 billion) since 2021 in Vietnam, Busan, and Sejong to install FC-BGA lines targeting AI semiconductors in response to generative AI demand. However, the surge in orders now requires additional expansion. CEO Chang said earlier this month, "FC-BGA is expected to enter full operation from the second half, so we are cautiously considering expansion plans." This is why observers expect the company to expand using idle land in Vietnam and remaining space within existing factories.
Samsung Electro-Mechanics is expected to post record-breaking results this year as FC-BGA supply increases following its MLCC (multilayer ceramic capacitor) business, which is also benefiting from AI infrastructure expansion. The MLCC business recorded operating profit of 620 billion won last year, up more than 40 percent year-on-year, and the company is accelerating expansion of a new factory in the Philippines to meet surging demand.
With FC-BGA shortages compounding this year, some forecasts project Samsung Electro-Mechanics' operating profit will reach 1.2 trillion to 1.3 trillion won. Some securities analysts expect operating profit to exceed 1.5 trillion won this year. If the company achieves 1.5 trillion won in operating profit, it would surpass the record of 1.4869 trillion won set in 2021.