Leading industrial gas company Air Products and Chemicals Inc. (APD) has clinched a major supply contract from Samsung Electronics (SSNLF). The company will supply its integrated gases and other solutions to the South Korean electronics giant’s new memory fabs in western China. The new fabs in Xi’an, Shaanxi Province, represent Samsung’s biggest ever overseas investment.
Under the supply pact, Air Products will provide its ultra-high purity nitrogen and other bulk gases to Samsung’s fabs in Xi'an High Tech Zone, which is expected to come online in second-half 2013. The Pennsylvania-based company will also construct large air separation plants in that region. The memory products made in the Xi’an fabs will be used in portable devices including smart phones, tablet PCs, digital cameras and USB drive.
Air Products’ first foray into Shaanxi Province’s electronics industry was back in 2006. The company, in April 2012, opened a new office in Xi'an High Tech Zone as part of its strategy to boost its growth in western China. The new office will address the growing demand for industrial gases from a host of industries in the region.
Air Products has been providing its solutions to the global electronics industry for over four decades. The Samsung deal strengthens its global leadership position as a supplier to the electronics industry and also expands its footprint in western China, which is an emerging and fast-growing region in China. The company has already signed a number of new contracts in the region.
Air Products, which competes with Praxair Inc. (PX), had sales of $10.1 billion in 2011. It offers industrial gases as well as a variety of polymer and performance chemicals and serves technology, energy, industrial and health care customers globally.
Air Products is among the first multinational industrial gas companies to invest in China. The company has a strong foothold in that country serving an array of industries.
Air Products benefits from a long-term take-or-pay contract, a consolidated industry structure, diverse customer base and sustained pricing power. The company’s healthy project backlog and solid bidding activity strongly position it to achieve its long-term growth target. However, soaring energy and raw material costs pose a threat to margin expansion.
We currently have a long-term Neutral recommendation on Air Products, which is in line with its short-term Zacks #3 Rank (Hold).
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