The fabless and system semiconductor industry is rapidly expanding in the global semiconductor market. The system semiconductor industry, which has grown nearly three-fold in 20 years, is larger than the memory market and is drawing attention as a future growth market in Korea as it can create high added value.

■ Global fabless companies are on the rise, while the number of domestic companies is decreasing

According to a survey by IC Insights on the 7th, fabless companies accounted for 34.8% of global IC sales, and from 2011 to the 10-year period, the compound annual growth rate (CAGR) of IC sales for fabless companies (10%) was twice that of IDM companies (5%).

The sales of fabless and system semiconductor companies worldwide are expected to increase by 167%, from $66.4 billion in 2011 to $177.7 billion in 2021. IDM semiconductor sales increased 63% from $203.9 billion to $332.8 billion over the same period, with the fabless sector outperforming in terms of growth rate.

In 2003, fabless and system semiconductor sales accounted for only 14% of the total market, but last year, in 2021, it more than doubled to 34.8%. In 2017 and 2018, when the market share was pushed back amid the overall upward trend, it temporarily decreased in line with the rapid growth of the memory market.

The domestic fabless ecosystem has been on a downward slope since peaking at around 200 companies in 2009. The number of design companies registered with the Korea Semiconductor Industry Association (KSIA) is 76, and even this number includes many companies other than specialized fabless companies such as LG Electronics and Hyundai Autoever.

LX Semicon is the only domestic fabless company in the top 10 in 2021. With sales of approximately KRW 1.9 trillion, LX Semicon's sales are equivalent to 77% of the sales of the top 9 companies combined. While LX Semicon has nearly half of the domestic market share, the global market share of domestic fabless companies is just over 1%.

Kim Yang-paeng, a senior researcher at the Korea Institute for Industrial Economics and Trade, expressed concern in his SWOT analysis report on domestic system semiconductors, saying, “If you look at the growth of the top 10 global fabless companies in terms of sales, many of them are showing even growth,” and “With the exception of a few companies, domestic fabless companies are not seeing particularly high sales growth.”

■ Intel and Samsung cannot be satisfied with IDM alone
The gap between the growth of fabless and IDM in the global market has become more pronounced over the past three years. In order to overcome the growth limit in business, expanding the area is one of the survival strategies for companies. Traditional IDM companies Intel and Samsung are also seeking a breakthrough by expanding their areas to foundries and system semiconductors.

IC Insights pointed out that IDM revenues plunged 20% in 2019, which was a slump in the memory market. In contrast, fabless revenues only decreased by 1%. The following year, fabless recovered growth by a rapid 22%, but IDMs grew by a relatively low 9% in the same year. In 2021, when demand for semiconductors skyrocketed due to the COVID-19 pandemic, fabless and IDM recorded high sales increases of 36% and 21%, respectively.

IC Insights noted, “Interestingly, if Intel were excluded from total IDM revenue in 2020 and 2021, IC revenue would have grown 29% last year, an additional 8 percentage points of CAGR.” Intel’s revenue grew 8% year-over-year in 2020, but declined 0.3% in 2021, falling far short of the overall IDM revenue growth rate of 21%.

Intel is struggling to turn things around by riding the tailwind of the expansion of the U.S. semiconductor supply chain, including by expanding its investment and entering the foundry business.

Meanwhile, amidst Intel's temporary slump, Samsung Electronics is showing a strong will to foster the system semiconductor sector. In May, it announced a plan to expand investment by 450 trillion won over five years to foster future food sources, and mentioned system semiconductors, including the creation of a fabless ecosystem. Samsung's fabless and system semiconductor fostering moves are expected to lead to the joint growth of the 'fabless · system semiconductor ecosystem', including fabless, design houses, packaging, and testing.

Samsung Electronics announced in May that it plans to “secure competitiveness centered on fabless system semiconductors and sensors essential for implementing the 4th industrial revolution, such as high-performance, low-power APs, ultra-high-speed communication semiconductors such as 5G and 6G communication modems, and high-definition image sensors.”

IC Insights forecasted that “in the long term, fabless/system semiconductor companies and foundry companies that receive production orders and produce are expected to account for around 30% of the overall semiconductor market over the next five years.”