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Substrates gain strategic importance in the AI era

Strategic importance of FC-BGAs increasing amid supply chain realignment

We maintain our Buy rating and target price of W2,800,000 for Samsung Electro-Mechanics (SEMCO). FC-BGA substrates―critical components for AI semiconductors―are directly benefiting from ongoing efforts to realign global supply chains in response to geopolitical risks. Furthermore, growing non-China procurement demand from North American big tech customers is increasingly flowing to SEMCO, strengthening long-term visibility on both volume and pricing growth. Global PCB/substrate production remains heavily concentrated in mainland China, making supply chain diversification essential amid surging AI demand. As one of the few globally competitive substrate suppliers outside of China, we believe SEMCO has secured an additional structural re-rating catalyst.

Non-China capacity supports negotiating power

We believe SEMCO has secured solid medium/long-term growth visibility. We forecast FC-BGA capex of around W3tr in 2026 and W5tr in 2027. With substrates for AI accelerators now tied to national security considerations, North American customers are making non-China sourcing a top priority. The US share of global PCB production has fallen sharply over time, while mainland China now accounts for more than half of global production. Against this backdrop, securing stable access to AI components from non-China sources is becoming a strategic priority for big tech firms.

SEMCO is rapidly expanding its position within the big tech supply chain. It has secured first-vendor status for FC-BGAs used in an inference-focused LPU to be incorporated into a North American GPU maker’s next-generation AI platform. Separately, it is supplying server FC-BGAs to a North American chipmaker, while potential adoption by another North American company’s next-generation AI chip is being discussed. Against this backdrop, customers are increasingly willing to enter into long-term exclusive supply deals as well as provide prepayments and investment support. We also believe discussions over domestic and overseas capacity expansion are accelerating.