Nextin, Inc. emerges as key player in the wafer inspection market

Through the success story of Korean MNCs who have dominated both consumer markets and high-tech industries, Korea saw the emergence of domestic suppliers. As the Korean industry continues to grow into a key global player, critics claim that the SME sector might find itself ‘sandwiched’ between new and established manufacturing powers that will limit their international expansion. Do you agree with this argument? How can SMEs diversify their client base and reduce their dependence on Korean MNCs?

To be honest, Korea finds itself sandwiched between the new and the established, and this is a stark reality. The challenge with the Korean industry lies in its focus on enhancing and upgrading existing products at a lower cost rather than pioneering entirely new products that can lead the industry. I often remark that the French, Americans, Canadians, and East Europeans possess an engineering DNA that enables them to excel in developing innovative products, a trait that Korea could learn from.

In the semiconductor sector, the term "semiconductor industry" encompasses various sub-sectors, including device makers like Samsung, equipment manufacturers like Nextin, and materials and parts producers. Device makers such as Samsung and SK Hynix thrive in the market, leaving us with little choice but to depend on them. The value they create is made possible by equipment and material companies, predominantly from the U.S. and Japan. In the Korean semiconductor equipment industry, only 20% of equipment is localized, with over 50% for low-end technology and a mere 10% for mid-level technology. The localization rate for high-end technology is currently zero.

In 2015, China launched "Made in China 2025" and outlined a plan to develop materials and equipment before focusing on localizing device equipment. Notably, they allowed device companies to compete, anticipating a market leader to emerge through mergers and acquisitions. While the Chinese government provided extensive support to selected companies in materials and equipment sectors, Korean companies face a technological disadvantage. Chinese companies benefit from founders and workers with experience in Silicon Valley, resulting in higher technological levels compared to their Korean counterparts. This, coupled with China's substantial government investments, poses a threat to Korean businesses, confining them primarily within Korea.

Korean companies excel in the low-end technology sector, with companies like Koh Young and Intekplus having a technological edge over foreign counterparts. However, the entry of Chinese companies into this sector could lead to Korean companies being overtaken. The reality in Korea is challenging, with the Chinese government actively designating and nurturing specific companies in each sub-sector of the semiconductor industry.

In the inspection device sector, for instance, the Chinese government supports Skyverse, a company with a market valuation of 4 trillion KRW, significantly surpassing Nextin's 600 million KRW. Despite Skyverse's technological lag of five years, they pose a formidable challenge. Recognizing the technological gap, the Chinese government suggested Nextin move into China, leading my company to consider a joint venture to navigate these competitive dynamics.

In China, one of the key catalysts behind the ongoing global realignment is the WTO dispute, leading to tariffs during the Trump administration, and more recently, measures like the Chips Act and sanctions on Huawei. These protectionist steps by the U.S. and Europe towards Chinese companies are shaping the current landscape. How do you anticipate this global supply chain realignment impacting the future of the manufacturing sector, particularly concerning the competitive ability of Korean companies against China?

Historically, tensions arise when a new hegemony challenges the existing power, a dynamic that was traditionally resolved through war. With armed conflict no longer a viable option, the contemporary alternative manifests as a trade war. I believe this trade war will persist until the hegemonic struggle between the U.S. and China reaches resolution. Ultimately, the global supply chain will likely diverge, splitting between these two major players. While the supply chain challenge will eventually find a solution, it won't mirror historical resolutions.

In the past, China concealed its intentions, biding time for opportune moments. Presently, Xi Jinping is transparent about his vision, actively promoting the Chinese Dream, indicating a readiness to endure the trade war.

Do you see an opportunity for Korean companies to serve as a bridge between the U.S. market and Chinese manufacturers?

Korea stands at a crucial juncture. From Korea's standpoint, the ratio between the Chinese and non-Chinese markets is currently 50:50. Under the Moon administration, a balance was maintained between the two. However, with the Yoon government, there has been a pronounced shift towards the U.S., resulting in warnings from China. The future trajectory of this situation remains uncertain, even in the short term.

When we examine device makers, material manufacturers, and equipment makers, Korea found itself in a situation similar to China's current predicament a couple of years ago, particularly with the export restrictions on certain technologies. Notably, in 2019, Japan imposed sanctions against Korea, restricting the export of crucial materials and equipment, including etching gas. What's intriguing about Korea's experience is the subsequent emergence of domestic companies replacing foreign players. How would you assess Korea's response to this export restriction, and do you anticipate a similar effect on China's supply chain—whether it hinders or accelerates it?

The development trajectories of the semiconductor device and material industries in both Korea and China may seem similar at a glance, but they diverge significantly upon closer examination. In Korea, SMEs have predominantly focused on producing low-end products at competitive prices, resulting in limited growth due to the absence of government or large corporate investments, such as those from Samsung and SK Hynix. While it's often mentioned that Japan's export ban spurred rapid growth in the materials, parts, and equipment sector, the reality is that Korea has not fully replaced high-end products previously sourced from Japan. Our concentration has been mainly on low-end and some mid-end technologies. Notably, Soulbrain's success is attributed to its affiliation with the conglomerate SK Hynix, showcasing the pivotal role of support from device makers. In contrast, China possesses abundant resources and incomparable government investment in technological development, providing full support to its device makers. Chinese equipment and materials providers are strategically targeting high-end products from the outset, surpassing Korean counterparts. Although it may take time, China is poised to compete with Japan and the U.S.

Many advised me that achieving seven nanometers requires an EUV scanner, but I asserted that DUV could accomplish the same result. The limitation is not in technology but rather in its economic feasibility. However, with government investment, such feasibility becomes plausible. China is benefitting from substantial government support, orchestrated by a larger strategic vision. Consequently, Korean companies face a challenging prospect of competing with Chinese counterparts in the future.

Nextin stands out as a global leader in process defect detection and metrology, showcasing proprietary technology and innovative ideas within the semiconductor and display industries. In 2022, Nextin achieved a remarkable milestone, recording USD 89 million in revenue, marking a 103% increase from 2021, and USD 45 million in operating income. Could you shed light on the primary drivers behind this impressive growth?

In our realm of inspection equipment, our portfolio prominently features e-beam products and optical products. Optical products, in turn, encompass three key components: bright field utilizing reflected beams, dark field leveraging scattered beams, and macro. When addressing optical inspection systems, our focus narrows to bright field and dark field. In the bright field category, KLA holds approximately 70% of the market share and Applied Materials (AMAT) holding about 30%. An interesting shift occurred in 2010 when AMAT exited the dark field industry, leaving KLA with a complete monopoly. However, device makers prefer a competitive market, avoiding dependence on a sole vendor. Consequently, equipment companies like Lam, TEL, or AMAT generally maintain two suppliers, except for in the EUV and dark field sectors, which are dominated by a single company without competition. Recognizing the need to break this monopoly, Nextin is venturing into the dark field equipment market, aiming to compete with KLA. My client companies are providing substantial support in this endeavor.

Despite the advanced technology at Nextin's disposal, the size of our company posed challenges in supplying to larger corporations. The trade tensions between the U.S. and China created an opportunity as Chinese companies sought non-U.S. suppliers, positioning Nextin as a viable alternative. From 2020 to 2023, our growth was significantly driven by the Chinese market, and now, beyond 2023, we are strategically working towards expansion in the U.S. and Japanese markets.

As mentioned earlier, Korea excels in upgrading existing products rather than developing entirely new ones. Therefore, it's not realistic to envision Nextin surpassing KLA entirely. However, our growth strategy revolves around acquiring a substantial share of KLA's market, aiming for a maximum share of 30%. Beyond this point, we intend to pioneer entirely new technologies, including IRIS and TSOM (Through-focus Scanning Optical Microscopy).

AEGIS

IRIS

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Bright light technology boasts high precision and accuracy, yet it suffers from a significant drawback—slower speed. On the other hand, dark light, though less precise, offers enhanced productivity. This discussion becomes particularly pertinent within the context of the semiconductor industry, which has undergone significant disruptions in recent years. In this evolving landscape, where do you foresee dark light technology outshining bright light? Additionally, what distinguishes Nextin's technology from KLA's within this context?

It's essential to note that dark field and bright field technologies are not in direct competition. In the 90s, there was indeed a competitive dynamic between bright field, owned by KLA, and dark field, owned by Tencor Corp. At that time, I was engaged in competition while working at KLA. However, following the merger of KLA and Tencor, resulting in the formation of KLA-Tencor, these two technologies ceased to compete directly.

While bright field and dark field share common elements, each possesses unique characteristics. Consequently, clients often opt for a combination of both technologies to suit their specific needs. In the realm of bright field technology, KLA and AMAT offer distinct advantages and disadvantages. Despite KLA's superior position with a 70% market share compared to AMAT's 30%, it doesn't imply that 70% of companies exclusively use KLA technology while the remaining 30% solely adopt AMAT's technology. Instead, a typical scenario involves a company utilizing a blend of 70% KLA technology and 30% AMAT technology. This blending principle extends to the interplay between KLA and Nextin's dark field technologies, presenting a significant opportunity for us.

Your products, TSOM and IRIS, represent innovative solutions for 3D inspection, leading me to consider potential customers like Micron and Western Digital in the U.S. Can you elaborate on your strategy for entering their markets?

Our collaboration with major players such as Intel, Micron, and Kioxia (Japan) dates back to 2016.

As you may know, the Japanese market tends to be conservative. While Korea is often associated with the tagline "dynamic Korea" upon arrival at Incheon Airport, signifying its readiness to explore and adopt new equipment, Japanese clients exhibit a more cautious approach. Despite establishing positive business relations with Japanese companies pre-COVID-19, the pandemic severed these ties. However, Toshiba recently reinitiated contact, and we are currently engaged in discussions. In our previous collaboration with Toshiba in 2020, we discussed the AEGIS-DP product. Now, with upgraded versions like AEGIS-2 and AEGIS-3 featuring significant improvements, we are starting anew. Despite the need to restart from scratch, I'm optimistic about expediting the process.

A couple of years ago, you acquired a company named Zisys. Rumors suggest that you are currently involved in co-developing a machine to eliminate static electricity from the EUV process, specifically targeting segments where it was previously challenging to address. Considering the current limitations in EUV technology, lacking the yield for scalable and efficient mass utilization. When do you anticipate this technology maturing, and when and where do you foresee the commercialization of this machine?

Eliminating static electricity has perpetually posed a significant challenge in the semiconductor industry, with distinctions between high voltage and low voltage static. For instance, high voltage is akin to a cannon, while low voltage resembles an arrow. Dating back to the 1990s, during the 250-nanometer era, high voltage static significantly impacted yield. To counter this, an "ionizer" technology was developed to remove high voltage static and has since been applied in semiconductor processes. However, ionizers only target high voltage static and not low voltage. In the 250-nanometer design rule, the cannon's accelerated attack was effective, while the arrow posed no threat. Consequently, ionizers could overlook low voltage static without impacting yield. As semiconductor designs have evolved to dimensions below seven nanometers, the impact of low voltage static has become a critical concern.

Static electricity poses several problems, the first being pattern defects, and the second, pattern bias. LAM Research is currently in the process of developing a dry resist for EUV. If static is present on the film, regardless of whether it is positive or negative, when we apply resist and conduct etching after applying the mask, static may cause the light to curve. Although the affected volume may be minuscule, it can lead to a pattern bias of 1 or 2 nanometers.

However, the impact on yield caused by static is currently below 5%. This implies that until the EUV process achieves a yield exceeding 80%, the benefits of static removal won't significantly contribute to yield improvement. In essence, our system cannot effectively enhance yield until it surpasses the 80% threshold.

Traditional back-end processes, including wafer grinding, wafer-edge trimming, wafer sawing, and taping/de-taping, are recognized as dirty processes that generate a substantial amount of particles and debris. The standalone Nextin Twins device complements the Aegis and Iris systems by overseeing edge trimming, identifying cracks and chips, thereby preventing manufacturing delays, cost escalation, and the need for random sampling tests. Could you provide more insight into how Twins synergizes with Aegis and Iris? What benefits does your technology bring to the enhancement of back-end processes?

As mentioned earlier, our optical equipment includes bright field, dark field, and macro inspection tools. Macro differs from dark field and bright field due to its distinct application. Dark field and bright field equipment are considerably more expensive than macro equipment, making it challenging to utilize them for macro inspection. Moreover, dark and bright field equipment are slower compared to macro tools, as speed and sensitivity have an inverse relationship. In terms of speed, macro significantly outperforms dark field and bright field technology. Continuous upgrades are essential for macro equipment to keep pace with advanced technology.

The challenge lies in the sluggish development pace of existing players in the macro industry. While KLA excels in macro development, clients consistently seek superior equipment at a more economical price. Existing players face technological constraints in meeting these demands, opening the door for second-ranking companies like Nextin.

We are actively working on equipment that matches KLA's technology while offering greater price competitiveness. The product, named KROKY (formerly Twins during the project phase), is set to be introduced to one of our clients in the second quarter of the upcoming year.

Please envision a future interview on the last day of your tenure as the CEO. What dreams or ambitions do you hope to have fulfilled during your time leading Nextin?

In Nextin, we have a slogan that encapsulates our vision — to be a company where employees arrive at work with a smile, and where children take pride in their parents working for Nextin. I consistently convey to my team that while Nextin may not be the largest company globally, we can strive to be the best. Achieving this goal would bring me immense joy. What I mean by this is, while we may not produce products on the scale of BMW or Ferrari, we can aspire to create something akin to the beloved Beetle. Many people experienced genuine happiness driving a Beetle. I aspire to build a company that brings such joy to people's lives.

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