Spel Semiconductor Ltd, a leading semiconductor IC (integrated circuit) assembly and test sub-contractor, has signed an agreement with the US-based California Micro Devices (CMD), to expand the capacity of its leadless moulded package (LMP) by installing two new small profile package lines at Spel's existing plant near Chennai.

CMD will contribute about $2.2 million in debt out of an estimated joint investment of $7.75 million required for the expansion.

The two new micro-thin package lines rolled out will be thin leadless moulded package (TLMP) and ultra-thin leadless moulded package (UTLMP).

The collaboration between Spel and CMD comes in the backdrop of the emerging demand for micro-thin LMPs due to the growing popularity of thin profile mobile handsets and other small portable devices such as portable media players, MP3 players and digital cameras and camcorders.

As part of the tie-up, Spel will assemble and test the chips sent from CMD and ship the same to CMD's end-customers. The collaboration is also the extension of the existing relationship between both the companies.

CMD has been one of Spel's major customers for the past five years and has accounted for a major share of Spel's circuit LMP capacity. Spel's present annual capacity is 252 million ICs.

Addressing a press conference, Ar Rm Arun, vice-chairman, Spel, said the company's additional investment for the project came by way of a $4-million loan from Indian Overseas Bank and $1.5 million through internal accurals.

While the equipment to manufacture the new lines will be in place by April, the line qualification for TLMP will be completed by June, and for UTLMP by August. With this expansion, Spel's capacity will increase by a further 142 million units per annum.

Robert C Dickinson, president and chief executive officer, CMD, said the company found Spel to be a reliable partner and the tie-up would provide CMD a cost-effective expansion of its assembly capacity.

Arun said Spel was exploring possibilities of setting up overseas units. Two countries in the Asia-Pacific region have approached the company for setting up assembly and test units, he said, adding that the plan is still in the nascent stages.

The company is hoping to take advantage of the incentives offered under STPI or SEZs. For now, it will wait for the government's decision on SEZs and extension of incentives under STPI.

Set up in 1988, Rs 46-crore Spel is currently on a $286-million expansion drive. It caters to companies in the US and Asia-Pacific.