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Company Analysis: Securities Highlight High Potential for Chips&Media's AI-Driven Sales Growth

Seoul, South Korea – Dec 24, 2024

High Expectations for Sales Boost with China Joint Venture (JV) Established in September 2024

Securities Recommend Mid-to-Long-Term Investment Amid Anticipated AI Market Growth

Chips&Media specializes in video codec intellectual property (IP). Founded in 2003 and listed on KOSDAQ in 2015, the company develops and licenses semiconductor IP to chip manufacturers. These chip manufacturers utilize Chips&Media’s IPs to design, develop, and deliver semiconductor chips for applications such as smartphones, digital TVs, and automobiles.

The company focuses on video IPs for image processing. Its primary revenue streams include license sales, which occur upon IP supply; royalty sales generated when semiconductors—using Chips&Media’s IPs—are produced and sold by customers; and maintenance services for IP offerings. Recently, the potential benefits of the AI boom have garnered significant investor attention.

▶ High Expectations for Sales Boost with China Joint Venture (JV) Established in September 2024

Chips&Media is viewed as a hidden beneficiary of AI's proliferation due to the relevance of its products in AI technology development.

According to the stock market on December 23, 2024, the company's flagship product, video codec IP, plays a critical role in various industries requiring high-quality video processing. Sales performance can expand if demand for ultra-high-quality video processing technology expands across sectors such as automotive infotainment systems, autonomous vehicles, surveillance cameras, data centers, drones, robots, and sports cameras alongside smartphones and TVs.

This is because semiconductor companies are adopting strategies to occupy new markets by quickly launching products. Furthermore, service companies and IT platforms that plan to own their own chips can present numerous opportunities for Chips&Media. For example, these companies either license IPs directly from IP providers or manufacture chips through ASICs (Application-Specific Integrated Circuits). Both platform companies and ASIC companies are customers of Chips&Media.

Chips&Media facilitates artificial intelligence technology by providing video codec IPs to customers developing other AI chips, such as GPUs (Graphic Processing Units) and NPUs (Neural Processing Units) for servers in domestic and international data centers and NPU chips for edge devices. Since 2020, Chips&Media has directly developed and licensed Super Resolution (SR) IP, one of the AI IPs.

In 2023, Chips&Media completed the development of its own Neural Processing Unit (NPU) capable of driving Super Resolution (SR), Noise Reduction (NR), and Object Detection (OD) functions.

Their application-specific NPU is optimized for better than Full-HD quality with high-definition image processing and is implemented with a size of approximately 10-20% compared to general-purpose NPUs. Since it processes data without DRAM access, it is an effective technology for customers to improve AI chip computational power and reduce costs.

Latency occurs because the General NPUs utilize DRAM when processing data. In vehicles and smartphones requiring real-time data processing, an NPU that does not require DRAM access can effectively process data.

In the future, the technology of Chips&Media can be utilized on a broader variety of devices with the increase in projects for the technical implementation of future vehicles—represented by autonomous vehicles and electric vehicles—cloud services, and meta-verse. In the IT industry and various sectors, each aims to make 2025 the first year of developing its own AI technology. This is why the stock price of Chips&Media has been rising lately.

The stock price of Chips&Media has been rising over the past two weeks. On December 20^th, the stock price recorded KRW 15,400. It started at KRW 11,320 on the 9th, KRW 11,960 on the 10th, and KRW 12,900 on the 11^th of December 2024. The transactions on the 12^th and 13^th concluded at KRW 12,780 and KRW 13,110, respectively.

On December 16th, the stock price increased to KRW 13,800; on December 17th, it rose to KRW 15,740. On the 19th, it climbed to KRW 16,290. The market's highest price on December 19 was KRW 17,590, with subsequent price declines.

A securities official stated, "The stock price trend of Chips&Media over the past two weeks has deviated from the prevailing trend. The stock price experienced a slight decline on December 20th, likely reflecting fatigue caused by the recent stock price surge.” He further explained, “Recently, the company’s potential to benefit from the development of the AI industry has been highlighted, leading to a rise in the stock price."

In fact, the stock price of Chips&Media fluctuated, declining from the beginning of this year until December 9th. Examining the highs based on the closing price—KRW 36,900 on January 3^rd, KRW 32,100 on February 22^nd, KRW 26,150 on May 31, KRW 22,600 on July 11, and KRW 16,600 on August 20. Since then, the stock has maintained a trading range between the upper KRW 11,000s and KRW 15,000. 

Establishing a joint venture in China underscores Chips&Media's potential for AI-related benefits. The China joint venture is known for its strengths in artificial intelligence (AI) semiconductors.

Sales of video codec IPs in the Chinese market and further development of specialized IPs for existing IP-based data centers can directly target the Chinese data center market. This will strengthen the company’s sales competitiveness in China and maximize sales of semiconductor design licenses through the joint venture. As China strives to build its own semiconductor ecosystem amidst its political and economic confrontation with the United States, demand for AI semiconductors is steadily increasing, and it is likely to expand its share in the Chinese market by joining the Chinese semiconductor ecosystem through the joint venture.

 ▶ Securities Recommend Mid-to-Long-Term Investment Amid Anticipated AI Market Growth

The securities industry foresees that Chips&Media will enjoy an atmosphere where stock prices exhibit positive momentum for the foreseeable future. This year's performance was not as strong as the previous year due to the economic slowdown. However, it is noted that many positive factors can drive future performance expansion, such as global customer projects in vehicles and mobile devices, and data center AI chips in China. Notably, as a new business item, it has developed Super Resolution (SR), one of the artificial intelligence IPs, leading to the expansion of its product line.

In a report titled 'Hidden AI Beneficiary,' on December 19th, 2024, Hyundai Motor Securities offered 29,000 won as the target share price and recommended buying the investment.

This represents a potential upside of more than 80% compared to the current stock price. Hyundai Motor Securities Analyst Yoon Dong-wook stated, "Sales in the third quarter increased by 16.2% QoQ to KRW 1.7 billion while operating profit surged by 174.5% QoQ. In the third quarter, sales of new licenses from existing customers and royalty sales from major customers slightly rebounded, and the company secured its first NPU IP license agreement."

He further analyzed, "The future investment focus lies in the China joint venture, completed around September this year, which is expected to increase sales demand from AI chipmakers in China. In particular, the recent surge in interest in ASICs (application-specific integrated circuits) within the global semiconductor industry is expected to augment the penetration of Chips&Media’s NPU into ASIC markets."

Chips&Media has established a joint venture with a distributor in China and plans to more actively deliver their IPs to AI chipmakers in China through the JV. As the AI competition between the United States and China intensifies, China is projected to intensify its efforts to develop its own AI chips.

"In 2024, the stock price trend of Chips&Media was not particularly strong until the beginning of December, but volatility has increased, particularly with the recent surge in the stock price. The growth in the AI chip market for servers and the continued growth of on-device AI have benefited Chips&Media, and this trend suggests the company’s sustainable growth potential, leading to high expectations of sales expansion. Therefore, a medium-to-long-term investment approach seems more appropriate than a short-term approach,” recommended a securities official.

(http://www.businessreport.kr/news/articleView.html?idxno=47019)