Samsung co. in $500M Intel circuit-board deal


Samsung, which analysts say is emerging at the global level, saw its stock rise 3.57 percent and outdo the broader market

SEOUL, South Korea (Reuters) -- South Korea's Samsung Electro-Mechanics has won a $500-million deal to sell cutting edge circuit boards to Intel Corp. by 2005.

Analysts say the deal moves the Samsung company ahead of rivals and shows the electronic parts maker is emerging as a global player.

The new boards allow closer connection with semiconductors through direct lead welding, a vital element for CPUs which require faster data processing.

Semiconductors, which are to be used in the new circuit board, don't need to have centipede leg-shaped connections.

"The amount and the price of our products will vary year by year, reflecting changes in market conditions," Samsung spokesman Kim Myung-hyun said on Thursday. "But the contract is worth about $500 million."

Moving ahead of rivals

Some analysts said the deal with Intel would put Samsung Electro-Mechanics ahead of its rivals in a foray into the fast-growing market for next-generation printed circuit boards (PCBs) for semiconductors.

The Korean company had vied with rivals, such as Shiko Electric of Japan and Compeq of Taiwan, to win the Intel order, local media reported.

"Samsung Electro-Mechanics has so far depended heavily on sister firm Samsung Electronics for supplies of its products," said Koo Hee-jin, analyst at LG Securities "But the contract with Intel means Samsung Electro-Mechanics has emerged as a global player."

Spending $144 million over 12 months

Samsung Electro-Mechanics will spend 170 billion won ($143.8 million) by next July to expand production capacity for the circuit boards, called BGA (Ball Grid Array) circuit boards, to 7.5 million units per year from 2.5 million currently.

The value of the global market for BGA printed circuit boards, where Intel is virtually the sole buyer, was put at $200 million in 2002.

But demand is likely to soar as CPUs and other high-speed chips used in mobile phones and network equipment require parts that allow faster information processing.

Samsung Electro-Mechanics started producing BGA circuit boards in 1998 for chip maker Anam Semiconductor Inc 01830.KS , which supplies CPUs to Intel.

Stock outperforming broader market

Conventional circuit boards for CPUs would be replaced completely by the new-generation boards by 2007, Samsung officials and analysts predicted.

The company's shares closed up 3.57 percent at 58,000 won, outperforming the broader Kospi index, which rose 0.08 percent to 745.75.

Samsung Electro-Mechanics posted first-half net profit of 137.2 billion won in line with market expectations, despite weak PC demand that has clouded full-year forecasts for the firm.

Preliminary net profit rose 49 percent from the same period last year, while sales of 1.65 trillion won were up 10 percent.

Samsung competes mainly against Japanese rivals such as Murata Manufacturing Co. in the market for passive components such as capacitors used in PCs and mobile phones.

Its performance for the quarter ended June 30 also improved, though gains were more modest than those for the full first half of 2002.