Shinhan Diamond, a specialist in diamond materials and parts technologies, leverages its extensive collaboration with semiconductor leaders to realize new CMP pad conditioners and grinding wheels.
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 the opportunities for the Korean suppliers in the global supply chains? How can Korean companies leverage the ongoing realignment of the supply chain, propelled by trade policies such as the IRA or the CHIPS act?
From a macroeconomic standpoint, historically, it was overseas clients who sought out Korean companies, driving advancements in our technological prowess. However, until now, Korean SMEs have faced challenges in marketing and public relations. Nonetheless, leveraging our extensive history of expertise and experience in marketing and PR, we have managed to navigate these hurdles more effectively than other companies.
While you mentioned the optimistic outlook of the global supply chain influenced by political dynamics, I am less bullish about the future due to high labor costs in Korea. Beyond our technological prowess, we currently lack highly favorable conditions. Regarding areas of business investment, we aim to diversify beyond the realignment of the global supply chain.
The metal cutting industry is a thriving yet often overlooked sector. Continuous innovation is essential for improving production efficiency in major applications such as automotive, construction, electronics and aerospace. Recently, we have witnessed growing demand for metal parts in other sectors such as the oil & gas industry, medical devices (due to the global aging population), and even the defense industry (due to geopolitical tensions). Looking ahead to the next 3-5 years, which applications do you foresee as the primary drivers of growth?
We have long anticipated the potential growth in the aerospace industry, but tangible benefits have been slower to materialize. Looking ahead to the next three to five years, I anticipate that gear dressers or reducers will become more miniaturized, and undoubtedly, the semiconductor industry will be one of the major driving forces.
You have diversified into a variety of applications, spanning from the semiconductor field to construction and stone sectors. Additionally, we've noticed your expansion into the mobility field and gear dressers. How do you manage to tailor your offerings to be compatible with such diverse industries?
Our ability to tailor solutions stems from our close collaborations with long-term partners, including Hanwha in the aerospace industry and Iljin in the bearing industry. These partnerships allow us to synchronize our tools with the materials and equipment they provide. Consequently, we strive to offer customized solutions through collaborative efforts.
I believe this adaptability is closely linked to the evolution of materials. As advanced materials emerge, so do advanced tools. Precision is paramount in our industry, and as materials become more precise, the tools must follow suit. To illustrate, in the machine tool environment, precision industry tools typically have a lifespan of 5-10 years. However, it takes about one to three years of preparatory work before these tools are adopted by our customers.
Established in 1978, Shinhan Diamond Industry has been a pioneer in developing diamond tools. The company gained recognition for introducing ARIX in 2005, the world's first diamond array product, which significantly enhanced the performance of diamond tools for construction work. Moreover, selected as a World Class 300 company by the Korean government, Shinhan Diamond Industry serves leading firms such as Samsung Electronics and SK Hynix. Could you outline your vision for the company and its organizational structure?
If I were to distill our company's essence into three keywords, they would be diamonds, digitalization, and automation. Diamonds, being the most stable element in the world, serve as our foundational material. While we primarily employ CBD technology for diamonds presently, we remain open to exploring alternative materials such as SiC, sapphire, or gallium. However, diamonds remain central to our operations, and we will continue to advance our technology in this domain.
In addition to diamonds, our focus lies on digitalization and automation. We prioritize investments in areas that are digitalized and automated, avoiding sectors lacking in automation. This strategic approach ensures our alignment with the evolving technological landscape.
ARIX technology was groundbreaking as it enabled the most efficient balancing of diamond lifespan. You have been able to not distribute diamond randomly, but to precisely place diamond grits in 3D patterns and maintain 100% control over inter-particle distance during segment manufacture. Could you delve into the evolution of ARIX technology over the last 20 years?
Over the past two decades, we have been continually enhancing the next generation of ARIX technology. In terms of quality, given the intense competition in the market, we introduced a new version last year. However, despite its excellent quality, the revenue has yet to match our expectations. We are actively expanding our distribution channels worldwide in collaboration with our ARIX partners to address this challenge.
Could you please provide further detail on the advancements of the next generation ARIX technology, particularly regarding its improved quality and technological enhancements?
The essence of our next-generation ARIX technology lies not just in the arrangement of materials, but in comprehensive control over all components within. When we first developed ARIX in 2004, our primary focus wasn't merely to secure the original patent, but rather to ensure efficient mass production. At that time, the prevailing trend was to arrange diamonds meticulously. While numerous competitors have since launched diamond array products, their technology remains limited to two-dimensional stacking of diamonds. In contrast, our products are three-dimensional, affording us the flexibility to adjust exposure percentages and angles as desired. This capability enables us to create customized patterns tailored to specific needs. We can manipulate performance by strategically placing diamonds between particles or removing unwanted elements.
Given the importance of providing tailored solutions to meet customer requirements, I am confident that the limitations of two-dimensional stacking will become increasingly apparent. As materials continue to evolve and grow more complex, I believe our technology will demonstrate its full potential and deliver tangible results.
Shinhan Diamond currently holds the top position in the domestic CMP pad conditioner market, crucial in the semiconductor industry for wafer planarization. This tool, used in combination with a liquid abrasive, applies a chemical and mechanical effect between the wafer and the pad. Additionally, the company has developed solutions such as back grinding wheels and dicing blades to meet the demands of the back-end processes. Could you outline the benefits of your solutions compared to other players such as 3M, Disco, and Nippon Steel?
Allow me to provide clarification. There are two distinct categories: the front end and the back end. Regarding the front end, the back grinding wheel was initially introduced in 1987, followed by the rollout of the CMP Pad Conditioner in 1999. The CMP Pad Conditioner predominantly serves the CMP process, a crucial step in semiconductor manufacturing. This process involves a fusion of slurry, pad, and conditioner in CMP tool. The significance of achieving flatness in the CMP process has amplified with the advent of multi-layer stacks. Over the past 20 years, our expertise and know-how in pad flattening have evolved significantly. The selection and design of diamonds, as well as their arrangement, have become paramount as ultra-precision has become imperative. As a material company, collaboration with pad and slurry specialists holds immense importance. We are actively engaged in joint technological development initiatives aimed at serving CMP materials companies(Global foundries, SK Hynix). Collaboration is essential because, ultimately, our clients rely on both our products and expertise to optimize their performance.
In 2022, Shinhan Diamond decided to invest KRW 10 billion in its diamond tool business in the semiconductor field, expecting a 20% increase in CMP DISK production and an additional production effect of 8.4 billion won per year. Why was making this investment in 2022 significant? As foundries worldwide, including Intel and TSMC, expand their production capabilities, which markets demonstrate the most growth potential for your semiconductor business?
I believe the markets with the greatest growth potential for our semiconductor business are Taiwan, followed by Korea, China, the US, and Japan. While Japan may currently rank lower on the list, I am confident in its ability to rebound. Ultimately, all five of these countries will play pivotal roles on a level playing field in the future. Although Singapore and Europe may also be significant players, I anticipate that the dominant forces will emerge from these five countries.
The investment in the semiconductor industry would generate an additional revenue of around 9 billion KRW year on year. Today, in 2023, your company has achieved a revenue of 138 billion KRW. What are your objectives for the next five years? Additionally, what will be the primary drivers and challenges you anticipate in achieving these objectives?
Due to the cyclical nature of the semiconductor industry, our growth rate has plateaued this year. Consequently, we are shifting our focus towards the construction and precision industries overseas. Currently, we have formulated a three-year plan spanning the next two years, projecting a 10% compound annual growth rate (CAGR) for this year and 20% for the following year.
In terms of geographical focus, we are targeting the Americas and Europe due to the substantial market size in these regions. Additionally, we are prioritizing India, which boasts significant potential among emerging economies. Within the precision industry, our focus lies on gear dressers and electroplated CMP disks. For the construction industry, we aim to introduce three new products this year, leveraging our next-generation ARIX technology.
While these objectives hold promise, we recognize the challenges inherent in market dynamics and competitive pressures. However, we remain committed to navigating these challenges through strategic planning and innovative solutions.
Establishing a robust distribution channel is paramount when expanding internationally. This allows for cost-effective distribution while providing valuable expertise as a specialist material company to potential customers. Earlier, you highlighted the necessity for partners in distributing ARIX within the construction field. Could you elaborate further on your international development strategy and the challenges you are currently facing?
For the American continent, we established two corporate entities 20 years ago and have since implemented strategic plans for expansion. Our business there is experiencing steady growth. In the European market, we have cultivated partnerships spanning two decades for distribution. These partnerships have matured considerably over time, providing a solid foundation for our operations.
Regarding the Indian market, we entered it a decade ago, relying solely on partnerships for business endeavors. Considering the distribution process, it typically progresses from agencies to wholesalers, followed by our own office establishment, and ultimately culminates in building factories or corporate entities. In the Indian market, we are currently at the stage of agencies and wholesalers. Our next step would involve establishing offices, factories, or corporate entities, but this decision is contingent upon the evolving circumstances.
If we were to interview you again on the final day of your tenure as president, is there a particular ambition or goal you aim to achieve during your time in office?
Shinhan Diamond currently operates on an older business model, and it is my responsibility to identify and implement a new, innovative business model that aligns with the evolving landscape.
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