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Chips&Media Stands out in the Market of Core AI Infrastructure, NPU
Chips&Media Stands out in the Market of Core AI Infrastructure, NPU
Seoul, South Korea - May 13, 2024
Targeting both domestic and overseas markets with high-quality image NPU IP, CMNP launch
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[Tech Hanju] With the proliferation of AI across various fields, the demand for video data for AI learning and utilization is increasing, and video-specific NPUs that can support such video processing are becoming essential. Chips&Media, listed as a leading AI semiconductor-related stock in Korea, is at the forefront of NPU development.
NPU (Neural Processing Unit) is a processor optimized for deep learning algorithm operation, which is the core of artificial intelligence and serves as the brain of AI. Deep learning algorithms require parallel computing to handle more than thousands of operations simultaneously, and NPU is considered a key technology for implementing AI because it can efficiently perform these large-scale parallel operations.
It is designed to fit the ultra-large AI era and is regarded as the next-generation core semiconductor with computation speeds 10 times faster than NVIDIA GPUs while consuming only one-fifth of the power. As this efficiency makes NPUs key components in the on-device AI era, the market has started drawing attention to the NPU IP of Chips&Media.
▶ Specialized Video Technology
Chips&Media specializes in Silicon Intellectual Property (SIP) for video. SIP is blocks inserted into semiconductor chips to perform specific functions, commonly referred to in the semiconductor industry as semiconductor intellectual property or simply IP. Chips&Media's IP underpins video technology, which records, plays, and processes video. Although it does not produce semiconductors, it has overwhelming IP capabilities in semiconductor design, a business model similar to ARM.
Since its establishment in 2003, Chips&Media has focused on IP development, aiming at system semiconductor design IP. Its video IPs are licensed to semiconductor manufacturers, who then use the IPs to design, develop, manufacture, and deliver chips for devices, including smartphones and digital TVs. The idea of using IPs is not to develop all the technologies required for chip development directly but to reuse the technologies that others have or have developed before.
Chips&Media's application-specific NPU for image and video offers improved performance in Super Resolution (SR) and Noise Reduction (NR) algorithms, surpassing conventional algorithms by 1.51 db and 1.84 db, respectively. SR is a specialized technology that upscales low-quality images to high-definition images (improving image quality) through a deep learning-based algorithm, and NR removes noise in the image. Considering the practice of replacing products with 0.2db differences in the market, Chips&Media is outstandingly competitive.
It already completed the development of a high-quality video-specific NPU for the global market.
▶ Developed application-specific NPU for image and video with Chips&Media’s in-house Technology
Recently, Chips&Media has completed the development of high-quality video-specific AI semiconductor NPU to promote in the global market.
They developed the application-specific NPU for image and video, “CMNP” in September last year and are promoting it to domestic and overseas customers.
CMNP can be implemented at 10-20% the size of a regular NPU, which can also reduce cost. With CMNP, Chips&Media can expand its portfolio to processor IP in addition to its main product, video IP.
NPU license revenue will begin this year, and they will build a solution business model that provides customers with SR, NR, and OD algorithms.
Researcher Sangheon Lee from Hi Investment & Securities stated, "Chips&Media will be able to realize growth through license sales of ’CMNP' this year. The competition between the US and China for technological supremacy could create opportunities for revenue growth in the US data centers and the Japanese automotive industry, further accelerating the company’s stock market performance."
▶ Expect additional revenue with new licenses
The company has a dual revenue structure in which licensed IPs are commoditized into semiconductor chips, resulting in additional royalties based on sales volume. As of last year, sales accounted for 56.6% of licenses, 39.1% of royalties, and 4.3% of services and maintenance. Therefore, additional royalty revenue is expected as new licenses are applied to top-tier clients.
However, despite this potential, the most recent performance was subdued. Consolidated sales reached KRW 4.9 billion, reflecting a 24.3% YoY decrease.
It explained that “sales of global licenses temporarily decreased due to deferrals in the second half of the year, and a recovery is expected later this year.”
Loyalty revenue also declined slightly due to overall market contraction. License revenue in Q1 subsided 47.4% YoY to KRW 1.829 billion, and royalty revenue fell 2.7% to KRW 2.662 billion. With a decrease in sales profit, fixed costs became a bigger burden, leading to a drop in operating profit.
This year, Chips&Media will diversify by sector and sign new licensing agreements with existing customers in areas such as AI, data center, mobile, and automotive. In addition, they expect to acquire new global customers for US data centers and Japanese automobiles in the second half of this year, positively impacting sales growth in the mid-to-long term.
Kim Sang-hyun, CEO of Chips&Media, mentioned, “A new license for the NPU IP has been expected in the early second quarter. We expect to have a number of new licensing opportunities due to the increasing demand from customers for new video products released in the second half of the year.”
The biggest reason to invest in Chips&Media is the long-term growth potential of its NPU IP. Currently, AI data centers rely on GPUs from companies like NVIDIA and AMD. However, due to high cost, excessive power consumption, and workload inefficiency, a migration to ASIC chips such as NPUs and TPUs is expected.
A continuous stream of high-performance ASICs entering the market would likely fuel a significant surge in NPU adoption across the AI industry, potentially leading to even more substantial growth for Chips&Media.
Chips&Media’s One Year Line Graph [Photo = Naver Pay Securities]
An official from the securities market said, “The current NPU market is growing at an average annual rate of 17% from 2022 and can be expected to grow to a size of 150 trillion won by 2030. The corporate growth of Chips&Media with its powerful video-specific technology is fully expected in the System Semiconductor market.”
According to the Korea Stock Exchange, Chips&Media’s 52-week high is 37,900 won, while the low is 9,995 won.