Sometimes failure is the handmaiden of later, sweet success. It was for Hwang Ki Soo. Back in 1997 he had hit a career wall. He had clearly lost the confidence of Hyundai Electronics' top management over his stewardship of the company's logic chip business, and with good reason: His unit had been bleeding cash after a nine-year quest to develop image sensors, microcontrollers, smart-card drivers, and image compression and other specialized chips.
Hwang simply wasn't making his numbers. The chip unit—which later merged with the LG Group's semiconductor business, was rechristened Hynix Semiconductor (HXSEY), and was spun off from the Hyundai Group—is now the world's second biggest memory-chip maker. But the market wasn't ready for the more specialized chips Hwang had in mind.
"With all the top management focus and attention on money-making memory chips, I was pushed to the corner," says Hwang.
ON A MISSION.
So Hwang left one of the most powerful jobs in South Korean high tech and launched Core Logic in 1998, smack dab in the middle of the Asian financial crisis that had caused a severe recession throughout much of the region.
Hwang, who earned a PhD in computer engineering from the University of Texas at Austin, staked his severance payment of $208,000 on a mission that even the country's semiconductor powerhouse Samsung Electronics could never quite manage. His company aimed to compete and win against big name players such as Texas Instruments (TXN) or Qualcomm (QCOM) in the rapidly evolving logic chip market.
Hwang has a long way to go. But for now the Korean startup is the fastest-growing mobile multimedia chip company in Asia. And local technology conglomerates such as Samsung Electronics (SSNGY) and LG Electronics (LGEIY) are relying on his company's chips for their camera phones and multi-functioning handsets.
A PLACE OF ITS OWN.
Indeed, Core Logic's recent expansion has been staggering. Sales of its chips for camera phones and multimedia handsets jumped to $169 million in 2005 from $43 million in 2003. The company forecasts revenues this year will top $240 million.
"It has carved out a unique technological edge for audio, video, and other multimedia application chips for mobile phones," says Kang Shin Woo, chief investment officer at Korea Investment Trust Management. "With handsets looking to be increasingly the center of information technology, Core Logic is poised to continue rapid growth in the foreseeable future."
Core Logic's success has a two-pronged explanation. First, the company has developed an innovative way of designing chips. Instead of relying on the software and computing power of a handset's main central processing unit, Core Logic engineers created dedicated blocks on its chip to carry out specific functions such as video decoding. This "hardware-centric solution" is somewhat inflexible but cuts costs, is super-fast on certain applications, and is extremely energy efficient.
Says 54-year-old Hwang: "For mobile devices, you need to find an optimal balance among flexibility, power consumption, cost, and performance."
Such a method will make it impossible for handsets using these chips to handle such complex applications as spreadsheets; then again very few would be interested in crunching numbers on their mobile phones. Yet these chips are well-suited to features in highest demand. They quicken decoding and encoding of audio and video signals needed to cope with MP3, camera, camcorder, and gaming functions.
The biggest advantage, though, is lower power consumption. For example an ultra-thin Samsung phone, the SGH-D830, equipped with Core Logic's chip has 17.
5 hours of music playback time, compared with 15 hours for a Sony Ericsson W900 phone and 10 hours for Nokia 3250. Core Logic officials say the architecture also allows the company to make chips at two-thirds the size of its rivals'.
CLOSE TO THE PHONE.
Another crucial factor for its success is the critical partnership with Samsung and LG, two companies that are using the Korean market as test bed for all sorts of gadgets before rolling them out in foreign markets. Korea's tech-happy consumers are always willing to give the next digital gadget a test run. And this in turn has provided a fertile breeding ground for chip makers, such as Core Logic, that do not have in-house manufacturing capabilities. It has quickly penetrated the fast-growing specialized chip market, dominated until recently by big Taiwanese and Western players.
Samsung and LG, respectively the world's third- and fourth-largest mobile phone makers, also created a big local market for chipmakers specializing in handsets. That's because the Koreans have been at the forefront of adding new functions such as camera, MP3 player, and mobile TV to their phones. "Working very closely with Samsung allows us to have very good understanding of where things are going," says Michael Jones, vice-president in charge of business strategy at Core Logic.
But Hwang's rags-to-riches tale hasn't been seamless. Company execs readily concede Core Logic would have gone under had it not been for Seoul government policies aimed at promoting startups. The government gave it a $1.5 million contract to develop camera chips in 1998; that kept it going until it won a contract to provide camera application processors for LG handsets in 2003.
The cutthroat competition in the handset business means Core Logic will always face pressure to cut prices. Its net profits fell by a third, to $27.7 million last year from 2004, as camera application processors became a commodity product. Its net earnings in the first six months of this year rose 39% to $17.9 million from a year earlier as more profitable multimedia processors gained popularity.
"The big challenge ahead is the task of constantly bringing out new application chips in competitive terms," says telecom equipment analyst Cheon Se Eun at CJ Investment & Securities in Seoul.
Hwang's goal is to quadruple sales to $1 billion within five years. It's a tall order but Hwang thinks he can get there by cutting deals with either Nokia or Motorola, and expanding into chips for portable gaming consoles, navigators, and personal multimedia players doubling as TVs.
That, he hopes, will attract partners. "We won't be a $1 billion company unless we tie up with baseband (modem) or RF (radio frequency) players in the form of mergers, technical partnerships, or joint ventures," he says. If Hwang pulls this off, he will make one of the splashier second-act comebacks in South Korean high tech.