The supply shortage has expanded to memory boards... Domestic companies engage in pricing negotiations as Samsung Electro-Mechanics announces a $67.8 billion expansion and Broadcom makes direct investments... Competition for securing volumes intensifies.
Samsung Electro-Mechanics Secures $4.3 Billion in Long-Term Contracts; Global Firms Also Focus on Securing Production Facilities
Samsung Electro-Mechanics (009150) has drawn attention to the supply shortage in the semiconductor packaging substrate market after securing $4.3 billion worth of long-term supply contracts this year. Following the high-performance boards for AI servers, a competition for securing volumes is now unfolding in the memory board segment. Global semiconductor companies have initiated efforts to secure long-term supply chains by either directly investing in production facilities or providing financial support to suppliers.
#### Samsung Electro-Mechanics' $4.3 Billion Long-Term Contract; Global Companies Also Secure Production Facilities
Samsung Electro-Mechanics signed a $360.5 million long-term supply agreement (LTA) for memory semiconductor packaging substrates with a global key client on the 19th of last month. The supply period is from January to December 2027.
Since May, Samsung Electro-Mechanics has expanded its supply contracts to include silicon capacitors, AI server multilayer ceramic capacitors (MLCCs), inductors, and now packaging substrates, following the trend. Including this latest contract, the total number of long-term supply contracts disclosed this year is seven, with a cumulative value of approximately $4.3 billion.
Advanced Substrate Technologies Joins the Race
*Late-session selling pressure* has intensified as market participants react to the recent developments in the semiconductor industry. The establishment of new manufacturing facilities by key players highlights the growing demand for advanced substrate technologies.
AST's Singapore Move
Advaned Substrate Technologies (AST), a joint venture between U.S. based Broadcom and Japan's Toppan Holding, opened an advanced FC-BGA substrate factory in Singapore on September 29th. This move underscores the criticality of securing a stable supply chain, prompting semiconductor designers to directly participate in substrate manufacturing.
Major Substrate Players Respond to AI Server Demand
Taiwan's Unimicron and Nanya PCB, leading substrate manufacturers, are also expanding their production capacities to meet the increasing demand for AI server substrates.
Samsung Electro-Mechanics' Strategic Investments
Samsung Electro-Mechanics announced a significant investment of KRW 6.78 trillion (approximately USD 5.1 billion) in FC-BGA production facilities. This includes KRW 4.27 trillion for its Sejong plant and KRW 2.51 trillion for its Vietnamese production subsidiary. The Sejong facility aims to commence mass production by September 2028, while the Vietnamese plant targets operations by June 2030.
Global Collaboration and Supply Security
This investment initiative is driven by a unique funding model, where global clients provide financial support and secure long-term supply quantities. By bearing the production facility investment costs, these clients ensure a stable supply of the required substrates in the future.
Memory Board Prices on the Rise: Expectation for Daedeok Electronics and Simtek
The ongoing supply shortage has been concentrated on the ABF series boards used in high-performance semiconductors for AI servers. Recently, there has been increased competition for securing supply of the BT series boards primarily used in memory semiconductors.
In a report released on the 20th, KIYUM Securities evaluated Samsung Electro-Mechanics' recent contract as a signal of expanding supply shortages to include BGA boards, following the FC-BGA boards.
Meritz Securities also estimated that a significant portion of the contract will be attributed to BGA boards. Assuming the BGA supply amount to be approximately $3 billion, this would account for roughly 26% of Samsung Electro-Mechanics' related sales last year.
According to Meritz Securities, major domestic memory board manufacturers such as Daedeok Electronics, Simtek, and Korea Circuit are currently discussing additional price increases for the fourth quarter of this year and the first quarter of next year.
The background for these board price increases has also changed. While previous price hikes reflected the rise in raw material costs, recent customer orders have exceeded production capacity, giving suppliers greater leverage in price negotiations. Major Taiwanese ABF board manufacturers are also pushing for price increases.
Chipset Shortage Persists, Driving Up Profits for Samsung Electro-Mechanics and Domestic Board Manufacturers
Despite Samsung Electro-Mechanics' plans to construct a new factory, the transition to full-scale production will take considerable time. The company's new facility in Sejong is expected to commence production in the latter half of 2028, making it challenging to alleviate the supply shortage in the short term.
The ongoing chipset shortage has presented an opportunity for Samsung Electro-Mechanics and other domestic board manufacturers to enhance their profitability. By securing long-term contracts and negotiating higher selling prices, these companies can capitalize on the current supply constraints.
