Riding the wave of artificial intelligence (AI), not only memory semiconductor companies but also South Korean electronic component manufacturers have secured a central position in the global materials, components, and equipment (Sobujang) supply chain. 

Major companies, including Samsung Electro-Mechanics and LG Innotek, have become key partners for large technology companies seeking to address AI bottlenecks. 

Analysts point out that a new "component-driven" era has begun, with South Korean companies no longer relying on orders from finished product manufacturers but moving away from the previous "outsourcing model" and taking control of the supply chain.

Samsung Electro-Mechanics and Broadcom

Samsung Electro-Mechanics incorporates Broadcom into its AI semiconductor substrates.

Industry insiders revealed on the 21st that Samsung Electro-Mechanics has successfully added Broadcom to its customer list for AI semiconductor substrates—flip-chip ball grid arrays (FC-BGAs). Following major tech companies like Nvidia, Google, Amazon, and Apple, Broadcom has joined Samsung Electro-Mechanics' customer base. Samsung Electro-Mechanics plans to supply substrates for Broadcom's cutting-edge AI accelerators starting in the second half of this year.

FC-BGAs are core components that connect semiconductor chips and motherboards to transmit electrical signals and power. Currently, only a few companies can produce these substrates, including Samsung Electro-Mechanics, LG Innotek, and Japanese companies Ibiden and Shinko Denki.

The multilayer ceramic capacitor (MLCC) market is also undergoing a dramatic transformation. Samsung Electro-Mechanics is supplying global tech giants, including Nvidia, with large quantities of ultra-high-capacity MLCCs used in AI servers. AI servers use three to four times more MLCCs than ordinary servers. Notably, AI servers require advanced technology to withstand high-temperature, high-pressure environments, thus their unit price is three to five times that of ordinary products. This is why South Korean companies with specialized technologies, such as Samsung Electro-Mechanics and Amotech, have become highly sought after by large technology companies.

Global AI supply chain

Furthermore, assessments suggest that the global AI supply chain is undergoing a restructuring, which would be unsustainable without the support of South Korean component suppliers. This is because South Korean companies possess unparalleled technological capabilities to overcome key bottlenecks determining the performance of AI accelerators.

An industry insider stated, "South Korean companies have entered an unprecedented golden age, as they have proven their irreplaceable technological capabilities in areas such as high-performance substrates and materials."

"The first step is to understand the production line plans of Samsung Electro-Mechanics and LG Innotek."

This has become routine for hardware design teams at major global tech companies. Verifying the production plans of these companies (which produce components such as multilayer ceramic capacitors (MLCCs) and flip-chip ball grid arrays (FC-BGAs), the substrates for AI semiconductors) has reportedly become a key performance indicator (KPI). In the past, finished product manufacturers would typically provide design blueprints to component suppliers and simply request "on-time delivery at the agreed price," but now the situation has completely reversed. This is because it is impossible to design AI accelerators for major tech companies without understanding the microfabrication limitations of component suppliers. Therefore, engineers from Silicon Valley have been setting up camp near the factories of major South Korean component manufacturers, voluntarily conducting "joint design" workshops with their engineers.

The hierarchical relationship in the global AI supply chain is changing. South Korean component manufacturers have transformed from contract manufacturing bases producing in batches to become key forces in solving AI performance bottlenecks. It is estimated that South Korean component companies, which previously grew rapidly thanks to the smartphone supply chain, have entered a "super-hierarchical" era in just ten years, surpassing the tech giants that rose with the AI boom.

As the technical difficulty of AI server components has reached a critical point, large tech companies are vying to collaborate with South Korean component suppliers. The success or failure of AI servers hinges on technologies that reduce power consumption and heat dissipation; therefore, large tech companies are establishing customized partnerships with suppliers, working closely from the design stage.

When Samsung Electro-Mechanics and LG Innotek design FC-BGA packages, it has become essential for engineers from large tech companies to be involved from the early stages. This is because if the circuit design fails to adequately consider the supplier's manufacturing capabilities, it could lead to unsatisfactory yields or even the cancellation of product launches. Even if server manufacturers stockpile large quantities of NVIDIA GPUs, they can only wait and cannot complete the construction of data centers without high-performance MLCCs and substrates supplied by South Korean companies.

Given this, "Just-in-Time" (JIT) manufacturing, which has been the bible of manufacturing for decades, has become a thing of the past in the age of artificial intelligence. Unlike the past approach of maximizing efficiency by minimizing inventory, a war of inventory, spearheaded by the slogan "stock up first, worry later," is now underway. The procurement strategies of large technology companies have been completely transformed after experiencing data center delays of more than six months due to a shortage of critical components.

MLCC and LG Innotek substrates

An industry insider stated, "Samsung Electro-Mechanics' high-performance MLCCs and LG Innotek's substrates are no longer 'always-available components.'" He added, "Large tech companies are going all out to secure supply while monitoring component suppliers' factory utilization rates in real time."

As the initiative shifts to component manufacturers, pricing power is also changing. Murata Manufacturing Co., Ltd., which monopolizes the global high-performance multilayer ceramic capacitor (MLCC) market, has signaled a price increase next month, and Samsung Electro-Mechanics is prepared to follow suit. Currently,

all factories are operating at over 90% capacity utilization. Samsung Electro-Mechanics President Jang Deok-hyun stated, "Since our substrate production lines are already operating at full capacity in the second half of the year, we will continue to expand our capacity." LG Innotek CEO Moon Hyuk-soo also announced last month, "We will double our substrate production capacity in the second half of next year."

The value of small and medium-sized enterprises is also increasing. Isu Petasis, which dominates the multilayer board (MLB) market for artificial intelligence accelerators, has received acquisition offers from Nvidia and Google. Daeduck Electronics, specializing in automotive substrates, and Amotech, which recently began supplying data center MLCCs to Marvell in the US, are also benefiting significantly from the trickle-down effect of artificial intelligence.

The "K-components" (Korean components) boom, which initially emerged in the field of AI servers, is now spreading to the fields of autonomous driving and robotics. Automakers like Tesla and robotics companies are collaborating with South Korean companies to obtain camera modules for Advanced Driver Assistance Systems (ADAS) (which are essentially the eyes of self-driving cars) and sensor cameras for humanoid robots. One industry insider stated, "Component suppliers who were once cautious about manufacturers in the smartphone era are now setting prices for major global tech companies."

Source: Compiled from hankyung

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