In an exclusive interview, Kang Doo-Hong, President of Asflow, delves into Asflow's pivotal role in the semiconductor industry. Highlighting their expertise in Ultra High Purity (UHP) technology and comprehensive product lineup, Jeong discusses competitive advantages, R&D efforts, and strategic goals.
The success of Korean conglomerates has had a positive trickle-down effect on domestic suppliers, providing them with growth momentum and core capabilities. However, in recent times, due to an increasingly saturated and competitive domestic landscape, it has become essential for enterprises to think globally to continue their growth trajectories. In order to achieve this goal, Korean companies will need to find their place in the global supply chain. What are the challenges and opportunities for the Korean suppliers in the global supply chains? How can Korean companies benefit from the ongoing realignment of the supply chain, promoted by governmental policies such as the IRA and CHIPS Act?
In the domestic market, Korean MNCs and chipmakers are engaging with us due to our competitive pricing and reliable delivery. Chipmakers are fostering competition with overseas suppliers to drive down overall costs, benefiting themselves and elevating the technological proficiency of domestic suppliers to match global standards. A drawback of overseas suppliers is their extended delivery times, rendering us more appealing to Korean MNCs. However, we steadfastly uphold our quality standards, understanding that any compromise would deter business with Korean MNCs. Primarily targeting mid- to low-cost products, we operate within the utility and process tool segments of the semiconductor market. While entry into process tools presents challenges due to high barriers, process gas offers relatively lower entry hurdles. Although equipped with core technologies and technical prowess to venture into process tools, it remains a challenge, despite our two-decade partnership with Samsung.
Our collaboration with Samsung over two decades has endowed us with expertise and experience, facilitating our penetration into the challenging process equipment sector. Alongside, encounters with industry giants such as Applied Materials, Lam Research, and TEL underscore our potential. In 2018, we attained registered partnership status with Applied Materials, followed by Lam Research in 2022. A decade ago, technology exchanges and product piloting with these companies occurred. Micron conducted an onsite visit, and plans are underway to engage in Samsung’s Taylor project in the US. Anticipated encounters with Texas Instruments, Intel, and TSMC, as they onshore their plants, are on the horizon. However, many Korean SMEs may find such endeavors daunting without a similar foothold. Our partnership with Samsung has fortified us with the requisite expertise and experience.
A significant challenge for Korean SMEs lies in contending with Taiwanese and Japanese competitors. Japanese companies often favor domestic suppliers, while Taiwanese counterparts may lean towards Japanese contenders, perceiving Korean suppliers as direct competitors. Engaging in OEM businesses with both Taiwanese and Japanese entities, delivery to TEL, and to TSMC Taiwan and TSMC Kumamoto plant via other intermediaries.
China constitutes a pivotal pillar in the global market. Two decades ago, we established a trading entity in China to penetrate its market. Out of last year's revenue of 85-86 billion KRW, approximately 15 billion was invested in China. However, our competitive edge in China is compromised by factors like the geopolitical tensions between Korea and China, and the US-China dynamics. Efforts are underway to construct a fab in China to bolster our market presence there.
Regarding the IRA and the CHIPS Act, they may not directly impact smaller companies like ours, as tangible outcomes related to them are not apparent. Consequently, we lack concrete insights into their relevance, potentially making them more pertinent to conglomerates or mid-sized enterprises.
Your company has a longstanding collaboration with a well-known company from Japan. The Japanese market is known for its reluctance to engage with overseas suppliers. How have you managed to overcome this barrier?
Our partnership spans over a decade, focusing on essential components such as fittings and tubes. While they predominantly source fittings from Ihara, they utilize our parts for the remaining requirements. For in-house tube production, they integrate our components. The valves and gasket filters, falling within the mid to low-cost range, are seamlessly integrated into equipment supplied to TEL. Over the years, we've expanded our product range and profitability steadily.
In OEM businesses, prices of process equipment parts tend to be exorbitant. For instance, while a typical gasket filter may cost around 80,000 KRW, ours come at approximately half that price, at 40,000 KRW. This substantial price advantage ensures our competitiveness. The well-known company from Japan has the liberty to select according to their preferences, benefiting from the best of both worlds. Despite our decade-long collaboration with them, they remain competitors in the market. They selectively procure what they require from us, yet are reluctant to share their own information. It's not a strictly win-win scenario.
An illustrative case involves Veriflo, a subsidiary of Parker US, specializing in fittings, valves, and pressure regulators for semiconductors. Initially keen on collaboration, they visited our facilities in Korea and were on the verge of signing a contract. However, at the eleventh hour, Veriflo's CEO perceived us as potential competitors, leading to the dissolution of negotiations. Similarly, our Japanese registered partner also operates as competitors. While some partnerships falter, even successful ones are limited in scope. It's not a symbiotic growth dynamic.
These dynamics present both challenges and opportunities for us. The formidable entry barriers in the process tool sector pose significant challenges. Established players like Applied Materials, Lam Research, TEL, and ASML have long standing relationships with incumbent vendors, making it arduous to breach this trust and established connections, despite potentially inflated prices. Despite our superior quality and OEM operations, the entrenched barriers pose formidable obstacles. However, they also signify a window of opportunity. As the semiconductor industry experiences upswings and resultant shortages, our status as a registered vendor with a track record of quality and OEM capabilities positions us favorably for future opportunities. We are diligently preparing for such eventualities, recognizing the dual nature of these challenges as opportunities for growth.
The semiconductor industry endured a significant five-quarter downturn. However, 2024 signals a promising turnaround. Notably, grants under the CHIPS Act have been awarded to industry giants like Samsung, Intel, and Micron, instilling confidence in a forthcoming industry resurgence. How do you envision the evolution of the semiconductor sector in the future? What strategies do you propose for companies considering further investment in new fabs?
If I were to delineate the semiconductor market, it bifurcates into two primary segments. Firstly, the fab construction market, where our parts and equipment find application during the establishment of new fabs by industry leaders like Samsung, Micron, and Intel. Secondly, the tools market, where our components are integrated into equipment and tools, presents formidable barriers to entry due to high costs. While both segments thrive during periods of industry expansion, downturns pose distinct challenges. Newly constructed fabs see less frequent replacement of parts and equipment, as customers do not engage in regular upgrades. Conversely, the tools market demands constant upgrades and replacements, rendering it more challenging to penetrate, albeit with a market size tenfold larger.
I'd like to introduce an additional sector to this framework, dividing the semiconductor market into three: the fab construction market, the tools market, and the module market, in a ratio of 1:10:10. Recently, we entered the module market, recognizing its substantial potential. This sector encompasses the assembly and modularization of tools into integrated systems, constituting a significant portion of the market.
Presently, our focus primarily lies within the construction market, valued at 1 trillion KRW. Our optimization for this sector stems from our longstanding partnerships with industry giants like Samsung Electronics and SK Hynix spanning two decades. However, our foray into the tools and module markets is in its nascent stages, yielding modest revenues as we navigate this new terrain. Despite establishing a dedicated module team within our company, their activities remain limited due to our recent entry into this domain. Nonetheless, our decision to diversify into the tools and module markets is underpinned by their significantly larger market sizes, offering immense growth potential compared to the construction market.
How do you anticipate your product portfolio and revenue evolving over the next few years based on these strategic shifts?
Personally, I foresee the most significant growth potential stemming from the equipment, tool, and module markets, primarily due to their substantial market size compared to the construction sector. Our presence in the construction market is stable, fostered by our enduring partnerships with Samsung and SK Hynix. Within this segment, we aim to expand our OEM business to cater to TSMC's needs. Additionally, we are actively pursuing partnerships with industry leaders such as Microsoft or Intel. Encouragingly, former Samsung employees, now at companies like Micron and Intel, advocate for the use of our products, potentially securing deals by early next year. In essence, while we maintain stability in the construction market, our focus is on expanding our current product lineups, primarily targeting the US mainland, heralding our most significant growth momentum. However, the pivotal move is our entry into the tools and module markets, given their significantly larger market sizes.
Looking at the Korean market, the upcoming YongIn semiconductor cluster, valued at 100 trillion KRW and set to be established by 2030, presents a significant opportunity. Samsung's investments in Pyeongtaek and Taylor, along with substantial investments from Intel, Micron, Japanese companies, and Chinese industry peers in constructing new plants overseas, further underline the industry's growth trajectory. While the long-term perspective until 2030 appears buoyant for the semiconductor industry, the immediate impact may not be tangible this year, as fabs are still in their planning phases post-downturn. However, from next year onward, stakeholders involved in the construction market are poised to reap benefits as memory semiconductor inventory levels decrease, and chipmakers expand their capacity and profits.
ASFLOW can offer modules and ready-to-use packages for fabs and semiconductor production equipment in Korea and overseas. Could you elaborate on the role of Asflow within the industry? What are the competitive advantages that distinguish Asflow from its counterparts?
Our specialization in Ultra High Purity (UHP) technology empowers us to extend our solutions beyond the semiconductor industry, encompassing applications in OLED, biotech, and aerospace sectors. However, our current focus remains on the semiconductor industry as we endeavor to penetrate the tool and module markets. Another key competitive advantage lies in our comprehensive product lineup, spanning from tubes to filters. This holistic approach enables us to offer fully modularized solutions, presenting a distinct advantage over competitors who may need to source individual components separately. This integrated approach enhances our appeal to clients, as we provide a one-stop solution equipped with all necessary parts readily available for modularization.
When examining the construction aspect of the industry, the increasing size of pipes presents a multitude of challenges, such as maintaining consistent roughness on larger surfaces. Could you elucidate how you intend to uphold the quality of your products and technologies in the future, ensuring competitiveness against other market players?
Each company employs distinct electropolishing equipment, technologies, and processes. While the fundamental principles may align, the technologies themselves vary widely. Leveraging my prior experience with KUZE, a Japanese tube company, and Motoyama, now integrated into UCT, during the 1990s, I developed our company's proprietary technology. Drawing from these foundational experiences in Japan, we've fortified our position with unique technologies.
Given our comprehensive manufacturing capabilities—from tubes to filters—we possess robust expertise in process technology, surface treatment, electropolishing, welding, and membrane technology for nano-particle filters. This formidable technological foundation propels our ongoing investments in R&D, facilitated by our dedicated R&D Center. Additionally, the advantage of developing core technologies in-house cannot be overstated. It not only underscores our commitment to innovation but also ensures a significant competitive edge in the market.
Your company has developed various filter solutions, such as the gasket filters, capable of removing over 99.99% of particles sized less than 0.3 µm. What's particularly striking is your ability to achieve such performance while maintaining a price 50% lower than that of your overseas counterparts. Could you elaborate on your R&D efforts? What new technologies are currently in development, and what new products do you anticipate bringing to market in the next three years?
Our primary challenge lies in adapting our existing products to our clients' equipment rather than focusing solely on further innovations or R&D investments. Gasket filters constitute only 1% of the total filter market. We have developed numerous other filters that have yet to be implemented. Despite these advancements, equipment technologies often outpace those of chipmakers. Consequently, even with a range of filters available, their utilization remains limited. For instance, a major company utilizes our gasket filters alongside more advanced alternatives. Additionally, while we are registered as Samsung's utility supplier, final decisions regarding equipment suppliers typically rest with semiconductor equipment makers like Applied Materials or Lam Research. Thus, our current emphasis is on integrating these filters into equipment.
Our ongoing efforts revolve around enhancing our filters further, particularly as the industry moves towards even smaller scales, with nanometers reducing from three to 1.7 nanometers. This necessitates more effective particle filtration. Another area of focus is Atomic Layer Deposition (ALD), where deposition occurs at the atomic level. Valves in such systems operate at up to 20 times per second, demanding increased durability to prevent breakdowns. Consequently, we are directing attention towards ALD valves. Nevertheless, our primary objective remains the application of our existing products to our clients' equipment.
While gas flow and pressure control are pivotal, particularly in processes like ALD driven by the advancement of intricate 3D architectures in memory chips, ASFLOW has developed diaphragm valves, bellows valves, check valves, and regulators to meet industry demands. For instance, ASFLOW has introduced the AR 300 regulator, designed to connect to a ¾ inch diameter tube (19mm) and maintain consistent pressure within the pipeline. Could you elaborate on your valves and regulators tailored for such applications?
Our valves and regulators have already demonstrated their quality in the utility market. However, breaking into the tools market poses significant challenges due to the diverse array of valve types and formidable entry barriers. For instance, diaphragm valves, pivotal for ALD processes, demand exceptionally high durability. While the standard threshold for diaphragms used to be 30,000 cycles, ALD valves require endurance up to 100 million cycles. This necessitates rigorous testing of our products up to 200 million cycles to ensure reliability for 100 million cycles, a standard we have successfully achieved.
Regarding regulators, we supplied regulators valued at 10 billion KRW to TSMC through a Japanese intermediary, attesting to their advanced capabilities. However, establishing direct entry into the regulator market hinges on garnering the confidence of chipmakers, an endeavor we are actively pursuing.
What personal goals, ambitions, or objectives would you like to have achieved by 2030?
My primary goal is for Asflow to emerge as a globally recognized top-tier company, renowned for its excellence worldwide. While major chipmakers like Samsung and SK Hynix have established systematic structures and garnered global acclaim, the landscape lacks prominent Korean-based parts and materials companies on the global stage. I aim for Asflow to fill this void and attain such status. To realize this vision, we are planning to establish global production hubs in the US mainland and China by 2025-2026, surpassing the scale of our operations in Korea. These production facilities will boast a production capacity exceeding 1 trillion KRW. Additionally, we are securing adjacent locations to these plants to facilitate future expansion, while concurrently mobilizing capital and manpower to support our endeavors.
Our primary target market is the US, owing to its vast market size. We are set to collaborate with two proficient distributors starting in June, having received invitations from Micron and Intel. Moreover, we are registered as a supplier to industry giants like Applied Materials and Lam Research. Building on these partnerships, our aim is to establish production sites within the US, enabling us to manufacture and deliver our products more efficiently in-house. Furthermore, the higher price environment in the US compared to Korea presents an opportunity for us to enhance our price competitiveness.
For more details, explore their website at https://asflow.com/en/
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