By elevating Korean raw materials to high-grade chemicals, ENF is now poised with major international ambitions, seeking to seize opportunities in the thriving semiconductor sector.
Over the last few years, the South Korean industry has lived through a series of supply-chain disruptions, including shortages caused by the COVID-19 pandemic and Japan’s unfamous restrictions on export of semiconductor materials in 2019. As a result, the Korean government and industry made the creation of an independent and resilient supply chain a national priority. How successful has Korea been in creating a domestic supply chain?
In the past, most raw materials consumed in Korea came from China while the underlying technology and equipment mainly came from Japan. However, regulatory changes combined with import restrictions pushed the country to change its supply chain structure. Industry giants such as Samsung and Hynix were facing serious supply challenges as they could not get the raw materials required on time. Consequently, these large corporate groups started looking for alternative suppliers, one of which was ENF TECHNOLOGY.
Through the processing of raw materials, our primary emphasis lied on the augmentation of product quality, especially that of hydrofluoric acid (HF) and bio-solvents. This enabled us to enhance the properties of low-grade Korean materials, transforming it into superior-grade output through our specialized methodology. A silver lining to this challenging situation has been our ability to react, adapt, and deliver timely solutions to customers confronting difficulties. Our capacity for dynamic adjustment was highlighted as we established a new production protocol, something that we did not have before. This newfound flexibility, which allowed us to adapt swiftly, showcased our resilience. As an end product of this three-year journey, we have succeeded in elevating raw materials into high-grade commodities, solidifying our advantageous position within the industry.
As the South Korean industry continues to grow into a key global player in critical fields, such as electronic materials and advanced machinery, critics claim that the country’s SMEs might find themselves ‘sandwiched’ between new and established manufacturing powers or that they will be incapable of diversifying their client base away from Korean MNCs. How can Korean SMEs become more competitive? What advantages do they hold over their global peers?
After taking the lead in semiconductor production, the Korean government and industry converged in 1990 on a shared vision: to nurture domestic corporations. This approach encouraged support for local firms manufacturing electronic components or semiconductor-related products, even if they couldn't match the quality of Japanese offerings. Governmental backing for domestic production was an important aspect of this strategy, although considerations remained regarding the cost-effectiveness and logistics cost of these lesser-quality materials.
The creation of a domestic supply chain acted as a catalyst, propelling the growth of the Korean semiconductor industry on a global scale. Companies like ours, which are engaged in material processing, found themselves in a spirited race to innovate and improve. In line with this pursuit of excellence, the industry sought collaborations with Japanese and Chinese corporations operating in South Korea.
Over the past two decades, our efforts have been dedicated to technology localization, thereby amassing considerable expertise in production practices. After the restrictions imposed by Japan in 2019, Korean makers realized how dependent they were for the supply of products like hydrofluoric acid, which Japan had been supplying. This was a great opportunity for companies such as ENF. This circumstance spurred us into investing more diligently in the development of our own products and technologies, thereby increasing our commitment to domestic technological growth.
Today, our procurement strategy is based upon the diversification of our supplier base, sourcing materials from China and Southeast Asia. Despite various challenges, Korean semiconductor makers have already expanded overseas, establishing a presence in markets like China and America. As such, material suppliers, such as ENF, that work with these foundries have echoed this commitment to globalization. By using the prosperous relationships we established in the domestic market, we are able to accelerate our expansion overseas.
Today, we are advancing through major industrial changes, including the expansion of the Electric Vehicle (EV) market, with companies such as Tesla already producing more than 1.5 million EVs per year. Korean corporations are starting to play major role in this expansion, especially as they have taken a leading position in the secondary battery industry, especially in terms of materials. What is interesting here is that Korean makers not only produce these materials on a domestic basis, but also on an international one, as they have opened bases to cater to major EV hubs.
When Korean SMEs engage with giants like Samsung or Hynix, they gain a great learning opportunity: we gain insights from their swift decision-making, work culture, and industrial habits. Despite the potential superiority of Japanese or American tech companies, the agility, rapid response time, and quick action of Korean SMEs are key assets. Upholding the time efficiency demanded by companies like Samsung and Hynix allows Korean firms to accelerate growth, aligning perfectly with our rapidly evolving industry.
As a result of increased inventories and a drop in demand due to tightening monetary policy, the semiconductor industry has experienced a significant downturn over the last months. Nevertheless, all major companies expect a significant rebound in the second half of the year. At the center of this optimism is an expected drop in inventories combined with a consumption-driven recovery in China, a pause in interest hikes, and a spike in demand for microchips utilized in new applications such as AI. How do you see the evolution of the semiconductor sector over the next 12 month?
While there's a broad spectrum of opinions from different analysts, I firmly believe that we are on the verge of a tremendous surge in the semiconductor industry. This expected boom is largely due to the rising prominence of big data and artificial intelligence (AI), with demand projected to skyrocket by tenfold, possibly even a hundredfold, within the next decades. Looking at the long-term perspective, the current semiconductor supply is unlikely to keep up with the advancing technology landscape, especially as it draws in a larger consumer base. In my view, this indicates a highly optimistic future, making it an opportune moment to invest in the semiconductor sector.
Despite this promising outlook, the industry is currently experiencing a slight slump. Samsung, along with other key players, opted to curtail their production for H1 2023. However, it's essential to note that the pandemic sparked a significant upswing in demand due to an increased reliance on data centers among other digital resources. The semiconductor industry experienced explosive growth during COVID-19, and that growth could simply not be sustained. Consequently, we are currently living a minor contraction and deceleration, which I believe to be a temporary phase.
Rekindling demand levels might require some time, perhaps a year or more, and will most likely be driven by both existing customers and by a fresh wave of demand for new chips, especially as applications such as Generative Pre-training Transformers (GPT) and other AI-driven products require large amounts of chips. Despite this momentary slump, Samsung continues to manifest its faith in the sector's future, as exemplified by the fact that the company is currently expending its plants and persisting with factory enlargement initiatives.
Once the extra inventory produced during the pandemic goes down and demand starts to increase, the sector will expand again. That is precisely why we are currently working on the construction of our American factory, located in Austin, Texas. On the short-term, we believe that starting early next year, demand will be back on track.
Over the past three years, ENF’s revenue expanded impressively, jumping from 486 billion KRW in 2020 to 600 billion in 2022, a growth of nearly 40%. What factors do you attribute to this considerable success?
As a company with a 23-year tenure, ENF has focused on material processing and has grown with the collaboration of its affiliate, Korea Alcohol Industrial, which contributes by producing processed solvents. Our assortment of products also extends to electronic materials including thinners, strippers, etchants and cleaners, among others. A cornerstone of our achievements in the Korean market lies in our capability to understand and cater to the demands and specifications of SK Hynix and Samsung. These companies play a crucial role in the industry as they require industrial grade materials that necessitate a high degree of competence. Their support and preference for domestic brands, like ours, paved the way for our business expansion. Furthermore, whenever Samsung or Hynix expanded to China and America, we followed them in their international expansion and met the requirements of their oversea factories.
Ignoring short term fluctuations, the semiconductor industry is in an rapid state of expansion with new plants opening not only in America and Korea, but also in China and Europe. In China and across the world, semiconductor factories receive government support as producing chips domestically is seen as both a political and industrial necessity. By having clients from across the world, we can catch up and enter the Chinese and European markets.
Despite the trade and political crisis between China and the U.S., we must continue to expand in international markets. As we do so, the fact that we are a Samsung supplier means that our products already abide to a high level of quality. This shows other chip makers that we are qualified and that we can deliver. A contributing factor to our more than 30% growth is our decade-long experience in the semiconductor industry, which has equipped us with advanced skills.
While your partnerships with Samsung and other prominent companies have undeniably boosted your growth, the criticism often leveled at Korean "hidden champions," or strong small-to-mid-sized enterprises, is an over-reliance on these domestic giants. How do you plan to mitigate this dependence?
Indeed, our industry is experiencing rapid growth, with international semiconductor businesses expanding at an even faster pace. While we have cultivated a mutually beneficial relationship with Samsung and Hynix, we understand that our growth cannot solely rely on these partnerships. Our next strategic move is to extend our influence to the American and Chinese markets, striving towards independence and expansion. Convincing global giants, such as Micron or Intel, to utilize our products is an important part of this strategy. Leveraging our reputation as a “hidden champion” of Korea and the endorsement from Samsung, we aim to extend our market overseas, a vital step for future growth.
Driven by the trend of miniaturization, the architecture of semiconductor and electronic devices is becoming increasingly complex. As devices become finer and more layered, the photoresist process faces challenges in terms of sensitivity, line edge roughness, and resolution, among others. How are these challenges impacting the product development strategy of ENF?
As technology continually evolves, we face challenges, but the key is how we support and adapt to these advancements. Central to this adaptation is the feedback loop between our customers and our engineers. Upon receiving feedback, we adjust our production protocol to meet their demands, familiarizing ourselves with the challenges posed by new technologies.
In the past, customers provided us with the technology required for production. However, this has changed. Today, we must develop our own technology in order to meet customer requirements. Ironically, our role is to be a “fast follower,” as we must quickly assimilate the feedback of our customers and incorporate it into the early stage of our R&D process. In turn, these greater requirements allow us to be competitive both locally and globally.
If we were to come back in 7 years, for the 30th anniversary of ENF, what goals or ambitions do you hope to have achieved?
Our current revenue is around 600 million USD, but our vision is set firmly on a future where this figure reaches the one billion mark. Traditionally, a significant proportion of our revenue came from the Korean market. The absence of semiconductor factories in China meant that there was little to no opportunity for revenue generation there. However, with a slow yet steady development of factories and manufacturing units dedicated to OLED and LCD displays in China, we are now able to generate additional growth.
Furthermore, our new factory in Austin, Texas, is strategically located near a primary Samsung factory. The objective of our US operation is to comprehensively cover the demands of Samsung’s facility and to start business relations with US foundries such as INTEL, Global Foundries and Micron. But our vision is more ambitious than that. Looking ahead, our aim is to become a global supplier that is trusted by major corporations in all semiconductor countries, including America, Japan and Taiwan.
We are currently expanding our hydrofluoric acid mass production capability. Upon further expanding in the Korean market, we intend to broaden our reach by exporting it internationally as well. To further enhance our global footprint, we are considering a joint venture with an American materials company. The objective is to supply them with semiconductor products specifically catered to the demands of the U.S. market.
Despite the impressive growth we've experienced over the past 20 years, we acknowledge that there is always room for improvement, particularly in terms of technical expertise and human resources. As such, we are initiating plans to recruit fresh talent to bolster our Research and Development department, thereby facilitating further expansion.
In light of recent announcements by SK Hynix and Samsung to expand production in the Yongi chip-cluster and Pyeongtaek area respectively, we have set in motion plans to augment our manufacturing capacity there and have already secured land, with the ultimate aim of adequately supplying the new facilities of our customers.