The surge in semiconductor demand driven by artificial intelligence (AI) is causing a supply crunch in semiconductor substrates. So-called “K-substrate” companies such as Samsung Electro-Mechanics and LG Innotek are responding by rapidly expanding production capacity or increasing the share of high value-added product lines.

● LG Innotek establishes plant in Vietnam amid supply shortage

LG Innotek announced on the 4th that it will build a semiconductor substrate plant in Hai Phong, Vietnam. This is an additional capacity expansion on top of its existing plant in Gumi, North Gyeongsang Province. On the same day, LG Innotek signed a memorandum of understanding (MOU) with Hai Phong City on investment in substrate capacity expansion. Construction of the Hai Phong plant will begin in July, with completion scheduled for May next year. The new plant will cover 320,000 m² (about 98,000 pyeong), equivalent to 45 football fields. LG Innotek stated, “By diversifying production locations, the company will grow the sales of its Package Solution business, which handles substrates, to more than KRW 3 trillion by 2030.” Last year’s sales for the Package Solution business were KRW 1.72 trillion, and the company aims to increase this by more than 70% over the next five years.

LG Innotek’s decision to expand plant capacity is due to the fact that supply of semiconductor substrates is failing to keep up with demand. Kim Dong-won, head of research at KB Securities, said, “At present, substrate production lines are operating at 100% utilization, in ‘full operation’ mode, even in the second quarter (April–June), which is typically the lowest-demand season,” adding, “In particular, big tech companies are offering LG Innotek’s substrate division support for new facility investments through advance payments.” Usually, the substrate industry enters its peak season in the second half of the year (July–December), when new smartphone models are launched and begin full-scale mass production.

Demand is especially increasing for FC-BGA substrates, a high value-added product. FC-BGA is an advanced substrate that connects high-performance semiconductor chips to the mainboard, offering faster data processing speeds and more efficient heat dissipation than conventional substrates. LG Innotek began mass production of PC-use FC-BGA at its Gumi plant at the end of 2024 and is currently preparing to produce FC-BGA for AI servers. At the shareholders’ meeting in March, LG Innotek CEO Moon Hyuk-soo said, “Production of FC-BGA for servers will be running at full capacity in the second half of next year,” adding, “At that time, total semiconductor substrate output will increase to about twice the current level.”

● ‘AI bottleneck’ spreads to substrates

Samsung Electro-Mechanics is also accelerating the expansion of its semiconductor substrate business in line with growth in the AI industry. According to Bloomberg, Samsung Electro-Mechanics plans to invest USD 1.2 billion (about KRW 180 billion) in Vietnam to expand its FC-BGA production facilities. The company is reportedly upgrading its existing production bases to focus on high value-added products such as FC-BGA. At the shareholders’ meeting in March, Samsung Electro-Mechanics CEO Jang Duk-hyun explained, “Demand for FC-BGA products exceeds production capacity by more than 50%,” and added, “We are simultaneously supplementing production lines and expanding plants.”

Samsung Electro-Mechanics began mass production of FC-BGA for AI servers in 2022, and the relevant production lines are currently running at full capacity. The company is known to have secured major big tech firms such as Nvidia and Google as clients. Park Jun-seo, a researcher at Mirae Asset Securities, said, “As the global AI component bottleneck spreads to substrates, big tech companies are rushing in with advance-payment investment support and multi-year exclusive contracts,” and forecast, “Starting this year, the scale of capital expenditures will increase for several years.”

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