Actively focusing on research and development, Novatech is rapidly diversifying applications for neodymium-based magnets to collaborate with new partners.
In recent months, international governments have rolled out trade policies aimed at promoting supply-chain realignments, such as the Biden Administration’s Inflation Reduction Act and Chip Act. Those policies are creating opportunities for Korean enterprises, as it positions them as an attractive option for the creation of IRA-compliant supply-chains. 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. How competitive are Korean SMEs in the global stage? Can Korean SMEs benefit from the global supply-chain realignment and policies such as IRA and Chips act?
To address the first question regarding competitiveness, I believe Korean engineers, cost-effectiveness, and technological prowess are unparalleled. It was the competitiveness of SME suppliers that contributed significantly to the success of Samsung, LG, Hyundai, and other conglomerates, elevating them to top-tier status on the global stage. This success was not solely attributed to the marketing or research and development efforts of those conglomerates but rather to the capabilities of Korean suppliers.
Regarding the second question about the global supply chain realignment, I believe it presents both challenges and opportunities. Korean SMEs that can seize the opportunities offered by the restructuring of the global supply chain stand to benefit, while those unable to navigate the crisis may face significant setbacks.
With a strong belief in an increasingly electrified and digitized world, investment in frontier technologies such as AI, IoT for industrial equipment and home appliances, and in the autonomous driving industry are growing. This phenomenon is exemplified, on one hand, by the semiconductor industry witnessing numerous billion-dollar investments for new fabs. On the other hand, consumer spending habits reflect the demand for the newest technologies such as for VR demand, which is expected to triple by 2027, reaching USD 5.7 billion globally. Looking ahead to the next three years, which sector will serve as the main growth driver for Novatech?
The automotive industry will likely be the biggest growth driver for Novatech. As we transition to the era of electric vehicles and autonomous vehicles equipped with advanced AI functions, the importance of controllers, sensors, motors, and other mechanical and electric parts used in these vehicles will only increase. Previously, internal combustion engines did not require these kinds of applications. However, with the shift to motor-powered vehicles, the demand for magnets, which we produce, is steadily rising.
In terms of home appliances and devices, as AI and VR penetrate these markets to realize advanced functions, the significance of sensors and actuators will also grow. We are already developing and introducing magnets or miniaturized motors for use in these sensors and actuators, which are now being rolled out in the market.
The EV segment, which was very popular, stagnated over the last two months, and mobile device growth has also plateaued over the last year, mainly due to interest rate cuts impacting disposable income. How do you see these two sectors evolving over the next three years, especially as interest rates are expected to decrease further?
I would like to elaborate from two perspectives. Firstly, global demand is poised to pick up in the not-too-distant future. As disposable income increases, purchasing power will also rise, thereby boosting overall demand for mobile devices. Additionally, there seems to be a pent-up demand that has been accumulating over the last few years. We anticipate seeing higher growth and demand starting next year and onwards. Regarding EVs, there have been certain pain points for EV users, leading to disappointment with certain functionalities. This is why more people are opting for hybrid versions of EVs. However, I believe there's always alternative technology to address user pain points. If we can meet global standards, such as reducing energy consumption, we can overcome technological barriers and focus more on EV development.
However, we cannot be overly optimistic about the future, as certain external factors are at play. For instance, ongoing conflicts and geopolitical tensions impact global markets. It's imperative for such conflicts to be resolved promptly for the global economy to recover. Additionally, the global supply chain realignment poses risks, particularly in potentially losing access to the Chinese market. While growth opportunities may arise in the U.S. and European markets, there's also the challenge of adjusting to this realignment. For a company like ours, the supply chain realignment may not be solely advantageous due to geographical disadvantages stemming from Korea's location. Therefore, we must carefully assess whether this realignment presents opportunities or risks for us.
Established in 2007, Novatech is a company specialized in neodymium magnet technology, with a portfolio covering magnets, shield magnets, and core materials for laptops, wireless charging pads, smartphone devices, as well as new opportunities in automotive sensors. Could you provide an overview of your business structure and expectations for the future?
Our headquarters, equipped with production facilities, houses both marketing and research and development teams. The Korean Institute of Magnetic Technology, dedicated to innovative technology development, focuses intensively on researching materials, techniques, and applications related to magnets. It collaborates with various OEMs and automotive component manufacturers for extensive research and development, particularly for field components such as automotive sensors. Additionally, in the neighboring city of Hwaseong, we have a factory equipped for magnet equipment production, catering to the secondary battery industry.
Our overseas subsidiaries include Ningbo Novatech and Novatech Kesheng in China, Novatech Vina and Novacos in Vietnam, and we are currently establishing Novatech Laos, specializing in rare earth mineral mining.
Each corporate branch serves different purposes, encapsulating our diverse business portfolio. Furthermore, as part of our ESG management, we have an affiliate called Novagreen, specializing in recycled magnet plates.
Novatech offers one-stop solutions for magnet technology, from research, to design and production. Novatech competes against established companies such as Hitachi Metals, Shin-Etsu, as well as innovative companies like NeoMaterials in Canada and Arnold Magnetic in the US. What are Novatech's competitive advantages? What is your strategy for expanding your market share worldwide?
Our competitive edge lies in our expertise in magnet application, wherein we meticulously analyze magnet properties and design them into our products. We have optimized shield magnets to enhance their lightweight nature and performance through directional induction, achieving remarkable results. Our relentless commitment to intensive R&D is where our unparalleled competitive advantage lies. For example, Apple’s iPad and Samsung’s tablet PC used to have 125 magnets per device. Through continuous research and development and collaboration with Samsung Electronics, we managed to significantly reduce the number of magnets in Samsung tablet PCs, from 125 to 27.
On the other hand, while magnets are essential components of motors, sensors, IT devices, and more, the magnet industry is a quite mature market. Therefore, expanding market share in the global market is not an easy task for us. Major competitors like Hitachi Metals, NeoMaterials in Canada, and Arnold Magnetic in the US offer end-to-end solutions, from neodymium extraction to production and design, yet they also face similar challenges due to the nature of the industry.
In the short term, we plan to continue collaborating with domestic companies while remaining open to securing new foreign partnerships. Looking ahead, our long-term strategy is focused on prioritizing innovation in both cost and quality to attract a larger customer base. As part of this approach, firstly, we are exploring vertical integration to mitigate China risks and maximize cost efficiency. As part of this initiative, we have initiated mining development projects in Laos. Secondly, to address the unique risks and cost issues associated with rare earth mineral extraction, we are focusing on research and development to discover alternative materials to substitute neodymium. Thirdly, we aim to diversify the field of application magnets through collaboration with various partners in Korea to foster further growth.
Novatech is collaborating with Korean and overseas partners, particularly in areas like consumer electronics with Samsung and automotive sensors with Mando. Among the various sectors you operate in, such as automotive, smart factories, and home appliances, where do you see the most potential for expanding your business overseas and attracting new customers in those regions?
The majority of inquiries we receive from overseas pertain to magnets and shield magnets. For instance, Indian car manufacturers and IT device makers often inquire about our magnet offerings. Our primary focus is on closely collaborating with our partners to optimize magnet applications through simulations, sample production, and testing.
While we recognize the importance of overseas clients, we're cautious about entering new markets hastily. We are aware that innovative cost-efficient solutions are essential for expanding overseas, but this is quite a challenging undertaking. For instance, supplying to prestigious German car manufacturers requires large quantities of motors and magnets, where we struggle to compete with Chinese competitors in terms of pricing. To address this challenge, we're exploring initiatives such as extracting rare earth minerals in Laos and manufacturing in Vietnam to mitigate such risks associated with costs.
MPS module
Novatech is a pioneer in the development of Motor Position Sensor (MPS) technology, which utilizes magnets to accurately measure the rotation of the steering wheel shaft. Could you elaborate on this technology and outline future steps for its broader adoption by OEMs?
As you are aware, we have been pioneers in MPS technology, accumulating years of expertise in this field. Currently, we're on track for mass production of MPS. Our next step for the next generation of MPS involves proposing our technology and solutions to global OEM, and we are currently collaborating with some of these companies.
Looking ahead, if we were to revisit this conversation in 10 years, what benchmarks have you set for yourself? What do you hope to achieve through Novatech?
For the first goal, I envision Novatech growing into a global entity with a solid presence on the international stage.
My second goal is for us to be recognized as an industry leader, renowned for our technological prowess and commitment to ESG management.
On a personal note, albeit unrelated to the business, I'm engaged in a small venture business in my hometown of Gangwon province, and I aspire that this business will be running smoothly in 10 years.
For more details, explore their website at http://www.mynovatech.com/eng/
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