In the short span of four years, fabless chip design company Key ASIC Bhd has made a significant impact, especially on the US and Taiwan. But while the company is said to be one of the most advanced in terms of technology in Malaysia’s semiconductor industry, it does not receive as much recognition here as it does overseas.

According to Key ASIC chairman Eg Kah-Yee, it is a similar story for Uni­sem Bhd, MPI Bhd and Hong Leong Group unit Carsem (M) Sdn Bhd, which are among the top 15 test and packaging companies in the world in terms of revenue.
“In our business, we compete in the world marketplace from day one. There is almost no business locally, and none of us counts on any local business anyway,” Eg tells netv@lue2.0.

It is noteworthy that Key ASIC is only the third application-specific integrated circuit (ASIC) design company to be listed in the world. The first two — Faraday Technology Corp and Global Unichip Corp — are based in Taiwan. Key ASIC’s chips cater mostly for the mobile phone, with about 80% of its designs related to it.

The company has also set its sights on the digital television chip market. Says Eg, “We are targeting devices such as DVD players and Astro set-up boxes to merge into a single box. We are also targeting digital television.” An ASIC chip is customised for a particular use, and is not intended for general purposes. For example, a chip designed solely to run a cellphone is an ASIC.

Where brains excel
The success of Key ASIC has not gone unnoticed. The company has attracted institutional investors such as Khazanah Nasional Bhd, which is its second-largest shareholder with a 21.3% stake. Only Key ASIC Ltd, controlled by Eg, has a bigger stake with 40.5%. Khazanah’s equity is held via its wholly- owned subsidiary Atlantic Quantum Sdn Bhd. “Khazanah invested in Key ASIC because it wanted to help build an ecosystem in the Malaysian semiconductor industry,” Eg explains.

Key ASIC was set up to complement the semiconductor foundry business that was initiated by the government with the setting up of Silterra Malaysia Sdn Bhd in Kedah in 1995, followed by 1st Silicon in Kuching, Sarawak, in 1998. Incidentally, Eg was appointed CEO of Silterra in 2007 by Khazanah, which owned the foundry. He resigned last December.

Key ASIC became profitable in 2006, just a year after its incorporation, and Khazanah came in as shareholder later that year. The company was listed on the Mesdaq Market in January 2008, and transferred to the Main Board last month.
What is the secret of Key ASIC’s success? Eg attributes it to the “brains” in the company, particularly its R&D engineers. “It is a company, a place, where great brains, regardless of age, race or gender, get to excel. This is a company with the highest concentration of brains. Some90% of the employees are engineers but not just engineers. They are R&D engineers. The sole job of the company is to do R&D and design the chips or SoC [systems on chips],” he explains.

Recognising the importance of rewarding and retaining its greatest assets, the company allocates 15% of employee stock options to its employees, Eg says. Another noteworthy point is the predictability of Key ASIC’s revenue. The company can chart its revenue for at least three years when a chip goes into production, says Eg. “We design a chip, it goes to production and we know it is good for three years, hence, we can predict our revenue for three years,” he adds.

Analysts, he says, can predict Key ASIC’s revenue for at least three quarters based on the number of designs that it has in production or that is going for production. This could explain the recent surge in its share price. Key ASIC rose to a 15-month high of 70 sen in active trade on May 19 after it announced that it was partnering IBM to offer the latter’s semiconductor technology to its customers.

As part of the deal, Key ASIC will design its chips using IBM’s process technologies and will fabricate its wafers at an IBM foundry. Key ASIC will also sell IBM-produced wafers or chips, which contain design content and services from Key ASIC, to its customers. It has also licensed the Power PC microprocessor from IBM.

“The company has designed 65nm (nano metre, equal to one billionth of a metre) SoC with IBM technology. Not many design companies in the world have done this. It is definitely a first in the country,” Eg says.
Despite its achievements, Key ASIC is not resting on its laurels.This year, the company is expected to spend more than RM10 million on R&D. Last year, it spent RM7 million. The R&D cost for one chip, says Eg, is about RM5 million to RM10 million.

Moving forward, Key ASIC is on the prowl for acquisitions. “Over the next three years, we want to continue to have high growth organically and to acquire companies. We have done this for a year now. This year, we hope to close at least one deal, be it in the form of a merger or an acquisition. This will give us a higher swing of growth,” Eg says.

He adds that Key ASIC is looking at horizontal acquisition which will be complementary to its business. “Most of the potential targets are in the personal electronics industry while some of them are more government defence security related. We are looking at companies in Taiwan, China, Japan and the US.”

Key ASIC has the balance sheet strength to embark on acquisitions. It had cash and cash equivalents amounting to RM91.5 million as at Dec 31, 2008, and no borrowings. That said, Key ASIC has not been spared the brutal impact of the global financial crisis on the semiconductor industry as its customers held back orders and delayed new product development.

“We are affected by the downturn in the short run. Our fourth quarter was affected, and likewise the first quarter this year (which has not been announced yet). Because the market was in a panic due to the financial crisis, customers cut back or depleted their inventory. In general, the electronics market has been down by about 10% or so over the last few months but the business looks like it is coming back to its normal level,” Eg says.

The bright spot, he adds, is that demand for electronics — especially for consumer products priced between US$49 and US$399 — did not slow down.
“Key ASIC is not in the areas of electronics that were hit severely by the downturn and our products are not concentrated in the US or European markets,” Eg says.
Key ASIC may not be an iconic company in Malaysia yet but if it continues on its global growth path, it will definitely be hard to ignore.

This article appeared in netv@lue2.0, the technology section of The Edge Malaysia, Issue 756, May 25 - May 31 2009