Artificial intelligence (AI) semiconductors are one of the hottest fields in the capital market these days. Both listed and unlisted companies are receiving keen attention from investors. As the AI semiconductor industry is now blooming, each company is often still in its infancy, and the chief financial officer (CFO) must play a comprehensive role covering housekeeping and IR. We will meet with the CFO, who carries out core duties within AI semiconductor companies, to hear about the company’s future core strategies, such as financial conditions and investment attraction plans.

“It was the first time in Korea to obtain the Taiwan foundry (consignment production) TSMC value chain partner (VCA) status, and became an official design partner (AADP) of ARM, a British semiconductor design asset (IP) company, and an ‘IP OEM partner’ of Synopsys. We were also the first to introduce an open recruitment system among design house companies, contributing a lot to talent development.”

CFO Lee Ji-suk (pictured) explained the identity of AD Technology as a leading company with many firsts in the domestic design house industry. She said, “I have seen many changes (in the design house industry) while working for the company for 15 years, but the fact that I am at the forefront of the change has not changed.”

The design house acts as a bridge between fabless and foundry and provides fabless with a one-stop service for the entire consignment production process from design to production and post-processing. TSMC creates a VCA and Samsung Electronics a Design Solution Partner (DSP) ecosystem, and these VCAs and DSPs design process drawings tailored to each foundry process. Now, the design house has evolved into a ‘design platform’ by adding the architecture (design) business area of the foundry fabless.

CFO Lee is a veteran who has led AD Technology’s management since 2007. She joined AD Technology, which was launched in 2002, five years after its founding, and served in the finance team, watching the company’s history, including listing on the KOSDAQ in 2014.

However, giving up TSMC’s VCA in 2020 and switching to Samsung Electronics’ DSP was a huge financial burden. CFO Lee said, “At the time, it was a big decision with risks, but in the end, I think the judgment is going to be right.” I met CFO Lee at the head office of AD Technology in Suwon, Gyeonggi-do on the 26th of last month.

◇ Switching to Samsung DSP opens up new opportunities

As the company gave up TSMC VCA, it had no choice but to sever relations with existing customers, and a decrease in performance was inevitable. Sales, which were 322.1 billion won in 2021, decreased to 164.2 billion won last year. It posted an operating loss of 5.9 billion won in the first quarter of this year. CFO Lee called it a “prepared deficit.”

She said, “This year marks the third year since switching to DSP, and the past two years have been a time when we have been focusing on identifying the design infrastructure and process characteristics of Samsung Foundry, and there have been restrictions on overseas expansion due to the COVID-19 pandemic.” This year’s deficit has already been predicted, and rather than performance, please take a meaningful look at how development sales, which have been concentrated in Korea so far, are expanding to the world, including Europe and the United States.”

CFO Lee said, “As TSMC has a policy to restrict business in Korea (if it continues with VCA), I thought that the maximum annual sales would be 500 billion won for major domestic conglomerates and mid-sized fabless companies.” “We changed our strategy to enter the overseas market by switching to Samsung Electronics’ DSP, which guarantees business freedom.”

She continued, “In the past, when TSMC VCA had limited sales in Korea, the largest single turnkey (batch order) project development amount was around $6.6 million, but now, as a DSP, it has increased significantly to $17 million.”

In fact, in October of last year, it signed a contract with Videantis, a German artificial intelligence (AI) semiconductor company, to develop an advanced self-driving system-on-chip (SoC). By combining an AI platform for automobiles developed by AD Technology with an image processing chip made by fabless Vidiantis, we will create a semiconductor that can realize autonomous driving level 4 and mass-produce it in Samsung Electronics’ 5nm (1nm is 1 billionth of a meter) process.

CFO Lee said, “We are actively engaged in sales activities to win orders for advanced driver assistance systems (ADAS), AI, and high-performance computers (HPC).”

◇ Spurring overseas orders… 1 trillion in sales is not a dream

The sales structure of a design house is largely divided into development and mass production sales. CFO Lee said, “The process of receiving an order (from a customer) and delivering a semiconductor prototype that meets the specifications desired by the customer is seen as the development stage.” What happens at that stage is mass production sales,” she explained.

As of the end of last year, AD Technology had sales of 123.8 billion won in mass production and 38.9 billion won in development, but in the first quarter of this year, sales of mass production and development reversed to 8.4 billion won and 9.1 billion won, respectively. Regarding this, she said, “It is safe to view the large development sales compared to mass production as a green light to expect overall sales growth.”

The decline in mass production sales this year was due to the development and mass production of NAND controllers by domestic customers using TSMC Foundry, which accounted for a large portion of AD Technology’s existing sales.

Instead, new development costs were raised as Samsung Electronics’ DSP. An increase in development sales means that there is high room for growth by switching to mass production sales in the future. CFO Lee said, “We are steadily winning orders targeting Samsung Foundry,” and “we expect sales growth and profitability improvement to be possible in the future.” It has set a goal of achieving 1 trillion won in sales by 2030. She explained, “Global Unichip (GUC), the world’s No. 1 design house, has sales of 400 billion won by 2021, which is not much different from us, but jumped to 1 trillion won in sales last year.” It is explained that it is possible to achieve 1 trillion won, as it was the only domestic design house to exceed 300 billion won in sales in 2021.

A view of the headquarters of AD Technology located in Gwanggyo, Suwon-si, Gyeonggi-do, South Korea

◇ Strong financial soundness, M&A possibility open

AD Technology’s financial soundness is solid with a debt ratio of 46% and net cash of KRW 71.9 billion as of the first quarter. CFO Lee said, “We have maintained the available funds at 100 billion won since listing,” and added, “This liquidity and stability are the basis for the company’s strategic decision-making and investment.”

In fact, AD Technology established subsidiaries in Europe and the US in September last year and last July, respectively. It also plans to invest about 15 billion won in research and development (R&D) this year. CFO Lee said, “In order to design a difficult task, a large investment in facilities is required. We will invest 15 billion won to expand the server infrastructure.”

As a design house, evolution never stops. CFO Lee said, “To respond to the next-generation 3D packaging process technology, the ‘Chiplet Solution’ organization is developing joint technology with Samsung Electronics.” In addition, “it has a technology that increases power efficiency and shortens the development period by having a separate organization for developing a specialized foundation library and an organization that implements an ARM-based platform,” she said. It is an element that can be reborn as a company,” she emphasized.

Regarding the merger and acquisition (M&A) plan, she added, “If there is a company that can expect synergy, we will actively do it, and at that time, we will consider procurement in the stock issue market (ECM) and bond issue market (DCM).