A healthy appetite for chips drives Korea’s rapid growth
01/01/2007
South Korea’s global leadership in semiconductor manufacturing is on the rise. As of this writing, Samsung is solidly ranked behind Intel as the world’s second largest semiconductor manufacturer, and Hynix (formed in 1999 when Hyundai Semiconductor acquired LG Semiconductor) is listed among the world’s top ten chipmakers. Further highlighting the steady expansion of the South Korean semiconductor manufacturing infrastructure, more than 50 fabless chip makers in the region are actively designing and developing sophisticated chips for a broad range of applications.
As semiconductor exports of South Korea continue to rise, so also does the region’s use of semiconductor devices led by Samsung and LG Electronics, both ranked among the top 20 OEMs with strong market positions as manufacturers of mobile handsets, FPDs, and other consumer electronics. Thus, market analysts agree that the Korean appetite for advanced chips will grow at a healthy double digit rate over the next five years. By some estimates, South Korea will account for >30% of chip sales into the Asia-Pacific region by 2010.
 Figure 1a. Sales of all chips into Asia-Pacific. (Source: Semico Research and SIA/WSTS) |
According to Joanne Itow, Semico Research analyst, “The sale of chips into the Asia-Pacific region has grown dramatically over the past five years, from $39.8 billion in 2001, to $103.4 billion in 2005. This growth momentum will continue over the next five years as Asia-Pacific semiconductor sales approach $190 billion in 2010 or about 50% of total worldwide sales. For both fabless companies and foundries, this surging demand represents a significant growth opportunity.” Worldwide sales of all semiconductor devices are forecasted to grow to more than $383 billion in 2010 up from $227 billion in 2005. Over this same period, as Fig. 1 shows, sales of all devices into the Asia-Pacific region are forecasted to grow to nearly $190 billion.
Korea’s emergence as a global technology hub was underscored last year when US trade representative Rob Portman entered negotiations with South Korea on a free trade agreement to remove tariffs and other trade barriers between the countries. SIA president George Scalise applauded this move, noting that the Korean semiconductor market, worth ~$4.5 billion in 2005, will outpace growth in the rest of the world over the next four years.
The opportunity to serve the growing demand for advanced chips by South Korean manufacturers has not gone unnoticed by Japan. Indeed, NEC established a wholly owned subsidiary in Seoul last year because of “the rapid growth of the Korean semiconductor market in line with the expanded production of thin panel TVs and digital consumer electronics.”
South Korea exports
South Korea currently ranks as the world’s 10th largest economy, with an annual gross domestic product rapidly approaching $1 trillion. South Korea’s IT exports exceeded the $10 billion mark for the first time in September 2006. Significantly, this new high mark was driven by sales of semiconductors, mobile phones, and display panels. According to the country’s Ministry of Information and Communication, September 2006 semiconductor exports rose 21.9% year-on-year to $3.34 billion due mainly to brisk sales of logic chips ($680 million), multichip packages ($360 million), and wafers ($540 million). The DRAM sector accounted for $980 million in exports, much of it in support of the Windows Vista operating system.
 Figure 1b. Sales of nonmemory chips into Asia-Pacific. (Source: Semico Research and SIA/WSTS) |
A significant growth opportunity exists both within and outside of South Korea to sell nonmemory semiconductor devices. The region’s foundries and fabless ventures have generated a groundswell of design, development, and manufacturing activity focused on SoC devices. Foundries such as Dongbu Electronics are supporting the South Korea fabless companies by providing mature process technologies at 130nm and 180nm nodes to manufacture SoC devices for mobile and display applications. Worldwide sales of all semiconductor devices are predicted to grow to more than $383 billion in 2010, up from $227 billion in 2005. Over this same period, as shown in Fig. 2, sales of nonmemory devices (comprising logic, mixed-signal, and optoelectronic chips) into the Asia-Pacific region are expected to grow to more than $104 billion in 2010, accounting for 27% of worldwide sales.
Fabless-foundry-customer relationships
Successful fabless ventures establish strong collaborative relationships with systems companies, who are their customers, and with world-class foundries that provide comprehensive support. Historically, such tripartite relationships would seem to develop more quickly when two or more parties are located within the same geography and/or business culture.
Within the Asia-Pacific region, we have seen Taiwanese fabless ventures such as MediaTek grow rapidly because of its strong relationships with Taiwanese systems companies targeting the PC market, as well as with major domestic foundries, such as TSMC and UMC. (See “South Korea vs. Taiwan” above.) In a similar fashion, the rapid growth of fabless ventures in China has been largely driven by demand from system manufacturers, which have moved their operations to China, and by foundries such as SMIC and GSMC, which are supported by the Chinese government.
While fabless-foundry-customer relationships may develop more quickly within the same geography and/or business culture, there is no shortage of successful win-win scenarios where two or more parties are located at different spots on the globe. Among the 2000 fabless companies worldwide, for example, more than half operate within the US to serve customers worldwide while using foundries based in the Asia-Pacific region.
CMOS image sensors
According to Semico Research, the worldwide market for a sub-category of optoelectronic chips-which includes both CMOS image sensor (CIS) devices and charge coupled devices (CCDs) combined-was $13.7 billion in 2005, more than double the market size in 2001. Semico anticipates this market will roughly double again in five years, exceeding $26 billion, driven by the increasing demand for CIS devices. Further, Semico Research forecasts unit shipments of CIS image sensors to triple from 2005 through 2010, growing at a compound annual growth rate of almost 24% over the next five years.
Recently, two fabless manufacturers of CIS devices forged some win-win relationships. One company was located in South Korea and the other in Silicon Valley, and the same foundry in South Korea served them both. The first company is SiliconFile Technologies Inc. Based in South Korea, it has specialized in the development and marketing of CMOS image sensors since its founding in 2002. As the first Korean fabless company to export CIS devices to Japan in 2004, SiliconFile reports that its CIS devices have been designed into more than 70 handset models manufactured in Japan and in the Asia-Pacific region.
SiliconFile cites strategic relationships it developed with Samsung and Dongbu, both located in South Korea, as essential ingredients to establishing a foundation for success. With all parties in close proximity and sharing the same business culture, SiliconFile believes it achieved an economic efficiency that is difficult to quantify with numbers.
The second company is Silicon Valley-based Foveon Inc. Founded in 1997 by Carver Mead, a pioneer in solid-state electronics and VLSI design, Foveon has emerged as a leading innovator in the design and development of image sensors for a wide range of digital capture products using its proprietary X3 direct image sensor technology.
Working closely with Dongbu as technology development partner and foundry wafer supplier, Foveon succeeded in bringing one of the world’s highest resolution CIS devices to market in 3Q06, proving that win-win relationships can be forged across an ocean. Featuring resolutions up to 14.1 Megapixels for high-quality digital photography, Foveon’s new CIS device enabled Sigma Corp. of Japan to introduce its SD14 (D-SLR) and DP1 (DSC) cameras at Photokina in Cologne, Germany, in September 2006. Such an achievement required a close collaboration among Sigma, Foveon, and Dongbu-each located in a different geography.
Acknowledgment
X3 is a registered trademark of Foveon Inc.
Aabid Husain is head of Dongbu Electronics USA and VP of sales/marketing, for the North America region. Dongbu Electronics, 2953 Bunker Hill, Suite 206, Santa Clara, CA; ph 408/330-7415, e-mail [email protected].
Jae Song serves as EVP of Dongbu Electronics, 135-523, 32F Dongbu Financial Center, 891-10, Daechi-Dong, Gangnam-Gu, Seoul, South Korea; ph 82/2-3484-2470, e-mail [email protected].
South Korea vs. Taiwan
Fabless SoC companies in South Korea have grown significantly in recent years. For example, the market capitalization of Core Logic and MteK Vision in the KOSDAQ market have exceeded their paid-in-capital by more than 100 times. Leadis Technology and Pixelplus have successfully listed their stocks on the NASDAQ exchange. Moreover, TLI secured a $7 million investment in 2006 from Carlyle Group and Intel Capital. Other South Korean fabless ventures such as LCD, DMB, and WiBro have achieved significant growth in their respective emerging high-tech markets
South Korean fabless SoC companies still have a long way to go before they match revenue generated by their Taiwanese competitors. The combined revenue of KOSDAQ-listed fabless companies is currently ~10% of the combined revenues of Taiwanese fabless companies. If South Korea is to catch up with Taiwan in five years, there needs to be at least three fabless companies whose revenues range from KRW 500 billion to 1 trillion (~US$500 million to $1 billion).
Taiwanese fabless companies emerged as the world’s leading semiconductor design specialists in a short period of time, thanks to the support of foundries such as TSMC and UMC amid the expansion of the PC industry in the 1990s. In South Korea, Samsung Electronics and LG Electronics have emerged as global leaders in the display and mobile device markets. Together, these two giants have achieved an economy of scale that promises to stimulate rapid growth within the South Korean fabless-foundry infrastructure.
As the largest pure-play foundry in South Korea, Dongbu Electronics is well positioned to serve the growing demand for foundry services among the South Korean fabless ventures. Moreover, large South Korean IDMs such as Samsung and smaller ones such as Magma are also positioned to expand their offering of foundry services during periods when they have excess production capacity. While South Korean fabless companies may find it advantageous to use foundries within their country, there is no guarantee that they will do so. The fabless-foundry industry is truly global, and there are numerous instances of successful collaboration among companies in different geographies. Thus, we should expect South Korea and Taiwan foundries to compete for fabless customers not only within their own countries, but throughout Asia-Pacific and around the globe.