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                                                                    EXHIBIT 10.3

                              FIRSTAMENDMENT TO THE
                            SMITH INTERNATIONAL, INC.
                   1989 LONG-TERM INCENTIVE COMPENSATION PLAN
                 (AS AMENDED AND RESTATED AS OF JANUARY 1, 2005)

                               W I T N E S S E T H

      WHEREAS, Smith International, Inc. (the "Company") maintains the Smith
International, Inc. 1989 Long-Term Incentive Compensation Plan (the "Plan") for
the purpose of providing additional incentives to officers and other valued
employees of the Company; and

      WHEREAS, in Section 7.7 of the Plan, the Board of Directors of the Company
(the "Board") reserved the discretionary right to amend the Plan at any time;
and

      WHEREAS, the Board now desires to amend the Plan, primarily to clarify the
definition of Fair Market Value;

      NOW, THEREFORE, effective as of January 1, 2005, the Plan is hereby
amended by this First Amendment thereto, as follows:

      1. Section 1.2(o) of the Plan is hereby amended in its entirety and
replaced with the following:

            FAIR MARKET VALUE. While the Company is a Publicly Held Corporation,
      the Fair Market Value of one Share of Common Stock on the date in question
      is deemed to be (i) the closing sales price of a Share as reported on the
      New York Stock Exchange or other principal securities exchange on which
      Shares are then listed or admitted to trading, or (ii) the closing sales
      price for a Share as quoted on the National Association of Securities
      Dealers Automated Quotation System ("NASDAQ"), or (iii) if not quoted on
      NASDAQ, the average of the closing bid and asked prices for a Share as
      quoted by the National Quotation Bureau's "Pink Sheets" or the National
      Association of Securities Dealers' OTC Bulletin Board System. If there was
      no public trade of Common Stock on the date in question, Fair Market Value
      shall be determined by reference to the last preceding date on which such
      a trade was so reported.

            If the Company is not a Publicly Held Corporation at the time a
      determination of the Fair Market Value of the Common Stock is required to
      be made hereunder, the determination of Fair Market Value for purposes of
      the Plan shall be made by the Committee in its sole and absolute
      discretion. In this respect, the Committee may rely on such financial
      data, appraisals, valuations, experts, and other sources as, in its sole
      and absolute discretion, it deems advisable under the circumstances.

      IN WITNESS WHEREOF, this First Amendment to the Plan, as it was amended
and restated effective January 1, 2005, is hereby executed on this 16th day of
June, 2005, to be effective as of January 1, 2005.

                                       SMITH INTERNATIONAL, INC.

                                       By: /s/ NEAL S. SUTTON
                                           -----------------------
                                           Neal S. Sutton
                                           Sr. Vice President - Administration,
                                           General Counsel and Secretary

ATTEST:

By:  /s/ PAMELA L. KUNKEMOELLER
     ---------------------------
     Pamela L. Kunkemoeller
     Assistant Secretary