"Scatter to Survive"... Why DB HiTek Is Pushing for Fabless Spin-Off

Semiconductor Industry at a Crossroads... "Must Increase Customers by Eliminating Technology Leakage Concerns"
Fabless Spin-off and IPO Expected... Minority Shareholders' Opinions a Variable

[Asia Economy Reporter Han Ye-ju] Controversy is brewing over DB HiTek's plan to spin off its system semiconductor design (fabless) business division. DB HiTek aims to separate this division from its semiconductor foundry business to enhance individual competitiveness. The market views the decision to spin off as driven by a sense of urgency to diversify its client base and expand its revenue foundation amid concerns of a 'peak-out' (reaching a peak and then declining) in the foundry business, which has enjoyed several years of strong growth.

However, the spin-off must overcome opposition from DB HiTek’s individual shareholders. Shareholders strongly oppose the DB Group’s attempt to exploit the physical division of DB HiTek during its transition to a holding company. They have begun taking concrete actions, such as requesting access to the shareholder registry from the company.

According to industry sources on the 13th, DB HiTek is considering spinning off its foundry and brand business divisions within this year. DB HiTek is an 8-inch foundry company specializing in producing PMICs (power management integrated circuits). However, its brand business division also handles outsourced design for general-purpose products such as DDIs (display driver ICs). The brand division has about 150 employees and generates revenue of approximately 300 to 400 billion KRW, accounting for about 20% of total sales.

News of the brand division’s spin-off via a physical division method was first reported to the market on the 12th of last month. Although specific methods or timing have not yet been finalized after a month, the market expects the fabless division to be separated and proceed with an initial public offering (IPO).

DB HiTek is pushing for the spin-off to strengthen the competitiveness of its fabless business. Given the low profitability of the brand division’s main product, LCD DDIs, the company plans to actively expand into high value-added product areas such as OLED DDIs and PMICs.

In fact, DB HiTek reinforced its fabless capabilities this year by recruiting Hwang Kyu-chul, former executive director at Samsung Electronics’ fabless System LSI division where he worked for over 30 years, as head (president) of the brand business division. Hwang led the development of high-speed interfaces, low-power and thin-film technologies, contributing to Samsung Electronics’ global No. 1 market share in DDIs since 2002.

Another purpose is to focus solely on the main foundry business to avoid conflicts of interest with clients. If the company entrusted with manufacturing also has a design division, clients cannot be free from concerns about design leaks. From the design division’s perspective, aggressive expansion is difficult. If newly designed semiconductors overlap with existing foundry production areas, suspicions may arise.

The decision also reflects a proactive response to the slowdown in demand for the 8-inch foundry business, which had enjoyed an unprecedented boom due to supply shortages. According to Taiwanese market research firm TrendForce, the 8-inch foundry utilization rate dropped to a maximum of 90% in the second quarter. With global inflation intensifying and IT demand weakening, cancellations of orders from clients continue in legacy process products such as DDIs, image sensors (CIS), PMICs, and microcontroller units (MCUs).

An industry insider explained, "Until now, the boundary between design and production in domestic semiconductor companies has been ambiguous. The spin-off appears to be the result of deliberations on how to expand customer touchpoints amid uncertain market conditions."

DB HiTek’s move is expected to create synergy with the government’s system semiconductor development policy. The government has announced plans to increase the system semiconductor market share from the current 3% to 10% by 2030. It also plans to select 30 'Star Fabless' companies to provide focused support from technology development and prototype production to overseas market expansion, enabling domestic fabless companies to grow into global players.

However, if the fabless division is spun off via a physical division aiming for listing, securing shareholder approval is expected to be challenging. The special interest shareholders, including Chairman Kim Jun-ki’s direct 3.61% stake in DB HiTek, hold only 17.38%. With minority shareholders accounting for 67.59%, even if the National Pension Service, holding 9.58%, supports the plan, passing the shareholders’ meeting is uncertain.

On the 11th, the 'DB HiTek Minority Shareholders Alliance' sent an official letter requesting access to the shareholder registry. They established a nonprofit organization on the 28th of last month to secure financial transparency and carry out official activities such as sending official letters. Their goal is to gather more than 5% of shares by consolidating minority shareholders’ stakes. Currently, they have collected about 430,000 shares, equivalent to 1%.

Another industry source said, "The Minority Shareholders Alliance is concerned that the company might spin off the foundry division instead of the brand division at the shareholders’ meeting, or that even if the brand division is split as planned, it will not prevent a stock price decline. The company will likely need to provide explanations that satisfy shareholders along with additional measures to enhance shareholder value."