[This Week's Industry] From AI to Automobiles... Gaonchips Set for Continued Growth

System Semiconductor Design Solution Company
Design Partner of Samsung Foundry and ARM
R&D Accounts for 87% of Total Workforce
"Expecting Customer Diversification with AI Market Growth"

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Gaonchips is recording a historic rise this year. On the 22nd, its intraday price rose to 62,200 KRW, and it closed at 57,800 KRW, marking an all-time high. This represents a 307.4% increase compared to the end of last year based on the closing price. Recently, through large-scale order announcements, it has also proven its business growth potential. With artificial intelligence (AI) being recognized as the core of the Fourth Industrial Revolution, interest in Gaonchips is intensifying.

Growth from Design to Mass Production with Turn-Key Solutions

Gaonchips is a system semiconductor design solution company established in 2012. It provides total solutions from system-on-chip (SoC) semiconductor circuit design to assembly, testing, production management, and quality control for mass production. In system semiconductors, fabless companies first design the circuits, then design solution companies support the design and pre- and post-production processes. Afterward, foundry companies manufacture the chips. As a design solution company, Gaonchips plays a role connecting foundry companies and fabless companies during the system semiconductor development process.

Gaonchips is the only domestic company offering services starting from SoC circuit design to foundry design solutions, packaging design for system-level performance optimization, and off-chip PSI simulation solutions. Based on this technological capability, it has handled over 200 advanced process designs for Samsung Foundry’s cutting-edge processes below 28nm as of 2022. Given the technology-intensive nature of the business, most of its workforce consists of research and development (R&D) personnel. As of September 30 this year, Gaonchips has a total of 209 employees, with about 87%, or 181, engaged in R&D.

Gaonchips’ technological prowess has also been recognized in the global market. Among Samsung Foundry’s 12 design solution partners, Gaonchips ranked first in business performance and prospects, technological capability, and design solution development, earning the Best Design Partner award. It also received the Best Design Partner award from ARM just one year after signing a partnership agreement.

Gaonchips’ revenue structure is broadly divided into product sales and service sales. Product sales involve securing system semiconductor development projects from fabless clients, and after project completion, outsourcing production to foundry companies to manufacture prototypes or mass-produced products in wafer form, which are then sold to customers. Service sales refer to performing only the necessary development tasks within the scope reflecting customer requirements by applying various system semiconductor design solutions either integrally or partially. As of the cumulative third quarter this year, product sales amounted to 24.8 billion KRW, accounting for 58.13%, with automotive (20.55%), AI (15.26%), and security (12.26%) sectors included. Service sales accounted for 41.87%.

Gaonchips’ greatest strength lies in operating its business in a turnkey manner. It does not only design chips but also assembles and tests semiconductor chips in wafer form upon fabless companies’ requests, processing and supplying them as final finished products. Researcher Seok-Young Lee of Daishin Securities explained, “The company is undergoing a structural transformation from a development revenue-centered business providing design services to turnkey services responsible for mass production. It is estimated that the development-to-mass production ratio is about 7 to 3 this year, and ongoing projects are expected to lead to mass production, shifting the ratio to 5 to 5 by 2025.”

Performance Growing Every Year... Benefiting from AI and Automotive Semiconductor Growth

Gaonchips has a high potential for co-growth with foundry companies. As foundry companies expand, not only large fabless clients but also small and medium-sized customers increase. This inevitably expands the role required of design solution partner companies. For example, TSMC’s design solution partners Global Unichip, Alchip, and Faraday Technology already achieved annual sales exceeding 500 billion KRW as of 2022.

Gaonchips is also growing annually. Its sales were 17.1 billion KRW in 2020, 32.2 billion KRW in 2021, and 43.3 billion KRW last year. Operating profit increased from 2 billion KRW to 3.9 billion KRW during the same period. The cumulative sales and operating profit for the third quarter this year are 42.7 billion KRW and 2 billion KRW, respectively. It has already achieved results close to last year’s sales in the third quarter of this year.

Recent large-scale order announcements have raised expectations for future growth. On the 21st, Gaonchips announced two orders totaling 30.1 billion KRW, with 24.5 billion KRW and 5.6 billion KRW respectively. One order is for application-specific integrated circuit (ASIC) design, and the other is a prototype supply contract. Min-Jung Kwak, a researcher at Hyundai Motor Securities, said, “These semiconductors are related to high-performance computing (HPC) and will apply Samsung Foundry’s cutting-edge processes. This order reaffirms that the company has secured the highest technological competitiveness among domestic design house companies.”

Additionally, benefits from the growth of AI and automotive semiconductor markets are expected. According to market research firm IHS Markit, the global automotive semiconductor market size is projected to grow rapidly from about 76 billion USD (approximately 100.74 trillion KRW) this year to about 143 billion USD (approximately 190 trillion KRW) by 2029. The high-performance semiconductor market is also expected to steadily grow with the spread of AI. Researcher Min-Jung Kwak explained, “Gaonchips has a sales portfolio focused on automotive and AI semiconductors using advanced fine processes with high growth potential.”

The company also stated in its business report, “Most of Gaonchips’ AI semiconductors are products used in autonomous driving. Generally, automotive semiconductors have a long life cycle, so Gaonchips’ sales structure is expected to be continuous and stable.”

Securities firms also expect Gaonchips to continue growing. According to FnGuide’s aggregation, securities firms forecast Gaonchips’ sales and operating profit this year to be 60.5 billion KRW and 4 billion KRW, respectively, representing growth of 39.66% and 2.56% compared to the previous year. Next year, sales are expected to reach 96 billion KRW and operating profit 9.5 billion KRW, increasing by 58.68% and 137.50% respectively from this year. Researcher Seok-Young Lee said, “Customer diversification driven by the increase in fabless companies due to AI market growth will continue. Projects under development will lead to mass production, sustaining high-level external growth.”

This content was produced with the assistance of AI translation services.