Neutrality Makes Many Friends
Worldwide, one in five display driver chips comes from Novatek, though it produces no displays itself. How did the fabless IC design house become the favorite of the world’s major flat panel makers?
Neutrality Makes Many FriendsBy Victoria Sun
From CommonWealth Magazine (vol. 383 )
Nowadays not one day goes by without the average person looking at bright LCD displays of varying sizes and purposes: We eye the 2-inch display of our mobile phone for fear we might miss an important phone call or SMS. Staring at a 12-inch computer display, we send e-mails or surf the Internet. Eyes fixed on the 32-inch screens of our flat panel TV, we follow every move of our favorite sports stars.
At chain restaurants, employees take orders via LCD displays. In subway stations passengers buy their tickets at touch-screen terminals.
There is a good chance that the images on these displays are produced by driver ICs designed by Novatek, Taiwan’s second largest IC design house, and no. 13 worldwide.
At least one IC is needed for a small 2-inch cell phone display, while a 30-inch LCD TV requires 10 or more such driver ICs. In principle the more driver ICs needed, the higher the resolution and the larger the display.
Panel Makers Can’t Do without Novatek
Global demand for driver ICs stands at about six billion per year, and on average every fifth display driver IC is from Taiwan ’s Novatek. Last year Novatek posted annual turnover of NT$31.6 billion. When it comes to LCD display driver ICs, Novatek is no. 2, trailing only South Korea ’s Samsung Electronics, and besting Japan ’s NEC.
Novatek chairman Ho Tai-shung keeps a low profile. He has virtually not shown up at a single institutional investors’ conference in the past year. With his silver-rimmed glasses the introverted, cultured Ho resembles a university professor rather than the top executive of a high-tech company. Ho loves to hike on the weekends. Many Novatek employees feel he resembles a Buddhist devotee, which also matches Novatek’s strategy of “neutrality” – building good relations with all sides.
Among the LCD driver design houses around the globe, Novatek stands out for its rare ability to supply all the major panel makers, from South Korea ’s Samsung to Taiwan ’s AU Optronics (AUO). It is also widely recognized as the leader in display driver IC technology. To stay competitive, panel makers have no choice but to use Novatek’s products.
Eyeing the huge display driver IC market, several panel makers have been nurturing their own driver IC companies to clearly delineate themselves from their competitors. AUO has set up Raydium Semiconductor Corporation, while the Samsung Group is carrying out vertical integration. Himax Technologies Inc., Taiwan ’s third largest driver IC design house and a member of the Chi Mei Group, supplies panel maker Chi Mei Optoelectronics Corp. (CMO). For AUO, using Samsung or Himax driver ICs is out of the question, while CMO would never use Raydium as its supplier. However, design houses that are backed by a certain panel maker often share the shifting fate of their exclusive customer.
Not so for Novatek. “Not one of our customers accounts for more than half of our sales,” says Ho in explaining why neutrality is the company’s strength.
As the world’s no. 2 in the LCD driver IC market, Novatek does not have its own panel maker for downstream products. Nonetheless, Novatek’s driver products are favored by a wide array of panel makers. The main reason is that Novatek products will always be technologically more advanced than the products developed by the panel makers’ own design houses, an industry insider asserts.
Since Novatek’s LCD driver ICs are the fastest in producing images, panel makers choose them for their newest products. For mature, mass-produced mainstream products, they use the products of their own design houses, but still use Novatek driver ICs to solve supply bottlenecks when increasing output.
“We are a specialty store for the best LCD driver ICs,” says Ho in describing what sets Novatek apart from its competitors.
Grabbing the Market While the Customer Grows
Being a market and technology leader is no easy job. LCD panels from different makers require different voltage and driver solutions. As a result Novatek needs to tailor its driver ICs to the products of each individual panel maker. At the same time the company must catch up with each customer’s product lifecycle. Only if the design house is always one step ahead developing new technologies can it introduce them just when its customers are entering a growth phase. For instance, iPhone applications necessitate the rapid integration of simple LCD driver ICs with currently popular touch-screen drivers, so that the IC design company can immediately supply its customers as soon as mass production begins.
Not only has Taiwan ’s panel industry undergone consolidation, international panel makers have also experienced a surge of mergers. Presently, there remain only a handful of top-notch South Korean and Japanese panel makers whom Novatek has yet to win as customers.
Last year the company succeeded in securing orders from Samsung, establishing itself as the world’s second largest LCD driver IC designer. Novatek’s competitiveness is also backed up by UMC’s mass production capability. “Scale is an obstacle,” Ho concedes.
Ho studied electronic engineering at National Chiao Tung University and National Tsing Hua University , and joined UMC as an R&D design engineer upon graduation, working under UMC executives John Hsuan and Tsai Ming-kai (now chairman of MediaTek) for many years.
Ho was just 40 when UMC underwent a major corporate restructuring and spun off its IC design section in 1997 to focus on the foundry business. After 14 years with UMC, Ho was already heading the company’s commercial product business department. So he jumped at the chance to found Novatek together with his teammates. “We were very happy to get an opportunity to run our own business, to perform on a bigger stage,” Ho recalls. Ten years later, 57 of Novatek’s 121-strong founding team are still with the company.
In its early years Novatek focused on ICs for consumer electronics, computer mice, keyboards and other PC peripherals, but found it difficult to boost revenue. By 2000 annual revenue still stagnated at around NT$4 billion.
Ho and his team were trying to find a breakthrough. Against this backdrop it came in handy that UMC had invested in Unipac Optoelectronics Corp., Taiwan ’s pioneer in small and medium-sized LCD screens (which would later merge with Acer Display Technology Inc. to form AUO in 2001). Ho sold off the consumer electronics section and readjusted resources to devote the company entirely to LCD driver IC development.
Boosted by the flat panel display industry’s emergence as one of Taiwan ’s star industries, Novatek’s business kept soaring and gradually ate away at Japanese IC design houses’ market hold. Four years ago Ho convinced Steve Wang, his old schoolmate from National Chiao Tung University and a former Unipac executive, to serve as Novatek president.
The LCD market has been growing vigorously over the past decade, but growth is also starting to slow down. “The market is still growing, but growth rates are declining,” Ho frankly admits. The Industrial Economics and Knowledge Center (IEK) under the Industrial Technology Research Institute predicts that the output value growth rate for LCD driver ICs will slow down between 2007 and 2009 due to a steady decline in average chip prices. It remains to be seen whether Novatek will again be able to find a growth industry for the coming decade.
Translated from the Chinese by Susanne Ganz
Chinese Version: 「中立」戰術通吃面板大廠