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South Korea's SK Telecom launches AI semiconductor company targeting US market


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South Korea's SK Telecom launches AI semiconductor company targeting US market

A new chipmaker focused on products specialized for AI services is taking aim at the U.S. market.

Sapeon Korea Inc. launched in South Korea and the U.S. in April following an 80 billion won investment by South Korean telco SK Telecom Co. Ltd.; its affiliate and semiconductor supplier SK hynix Inc.; and SK Square Co. Ltd., an investment company spun out of SK Telecom.

SAPEON designs semiconductor chips that can execute large-scale calculations required for AI services at high speeds with low power consumption. The company aims to sell to data centers and Big Tech players, initially in the U.S., said SAPEON CEO Soo-jung Ryu in an interview.

"The amount of data that needs to be processed is increasing exponentially as AI services expand rapidly and improving data center performance is becoming critical," Ryu said.

SNL Image

SAPEON's X220 AI chip.
Source: SAPEON

The AI semiconductor market is expected to reach $70.9 billion in 2026, up from $10.9 billion in 2021, according to market data company Statista.

After the U.S., SAPEON plans to target the European market, particularly Germany.

"We would like to test case the SAPEON chip in multi-access edge computing and we see telecom operators like Deutsche Telekom AG as possible partners to collaborate [with] in Europe," CEO Ryu said.

Multi-access edge computing refers to a network architecture that provides cloud computing capabilities and an IT service at the edge of the network, reducing latency while ensuring efficiency. It allows operators to move application hosts away from a centralized data center and closer to end users.

The global multi-access edge computing market size is anticipated to reach $23.36 billion by 2028, representing a compound annual growth rate of 42.6%, according to data from market research firm Research and Markets. Driving this growth is the rise in the adoption of over-the-top media streaming services and demand from users for personalized content, as well as increased adoption in the telecom, data centers and automotive industries.

In terms of competition, NVIDIA Corp., Google LLC and Intel Corp. are all eyeing the AI market; Intel and Nvidia both launched new chips for AI and data centers this spring.

"SAPEON will face a certain level of competition as a new entrant," said Shelley Jang, director and secondary rating analyst at Fitch Ratings.

SAPEON faces a more uphill battle in the U.S. versus SK Telecom's home markets, where its connections could offer more advantages, said John Abbott, infrastructure analyst at 451 Research.

"In Korea and Asia, it can benefit from its close associations with SK Telecom, given its strong presence in key [areas] such as smart factory, real-time voice translation, healthcare and enhanced reality gaming where AI is a requirement," Abbott said.

SAPEON could eventually access SK Telecom affiliate SK hynix's sales network to gain a foothold in the U.S. market, said Sanghyun Park, an analyst at research portal Smartkarma. SK hynix sells semiconductor products in the U.S. through its unit SK hynix America Inc.

SK hynix is one of SAPEON's investors. At the moment, SAPEON does not utilize SK hynix's sales networks, SAPEON's Ryu said.

In terms of design, SK hynix's memory expertise with AI processors from SAPEON may result in processor-in-memory products that provide some differentiation from its competitors, Abbott said.

While it might seem like a good time for a new semiconductor company to launch, given the global chip shortage, Abbott pointed out that SAPEON is a fabless semiconductor company, meaning it does not manufacture its own chips. This presents its own challenges as contract manufacturers such as Taiwan Semiconductor Manufacturing Co. Ltd. may prioritize higher-volume orders from customers such as Intel and NVIDIA.

"They [smaller customers] go to the back of the queue when capacity at a fab is portioned out," Abbott said.

When asked about the global chip shortage's impact on the company, SAPEON's Ryu said that although they are not experiencing problems in terms of supplying chips to customers, the company is "closely monitoring the situation" while also "working with a wide array of partners to provide our next AI chip to the market."

451 Research is part of S&P Global Market Intelligence.