South Korea's fabless AI chip industry saw a spate of fundraising events over the last couple of years as demand for hardware to power AI applications skyrocketed and it seems the space is already consolidating. Two of the country's leading fabless AI chip startups, Rebellions and Sapeon, have agreed to merge, the companies said on Wednesday.

It is a strategic move by Rebellions and Sapeon to lead the market of fabless AI chip in South Korea and take on the global challengers like Nvidia. Fabless chip makers concentrate on designing, researching, developing, as well as marketing the chips and not the manufacturing itself.

The merged entity could list in the next two to three years, say two industry sources familiar with the companies' plans who wished not to be named.

The companies said the next two to three years hold a "golden hour" for South Korea to grab the global AI chip market. Because neural processing unit (NPU) demand is growing rapidly, they also plan to expand their NPU business following the merger.

Truly, the deal comes at an apt moment in the global semiconductor industry.

In this market, Nvidia currently leads at over 97% of global market share in specialized AI chips thanks to its early lead in providing data center services and software to other companies helping them build large language models and power applications. Yet there is sufficient ground for moves by companies like Rebellions and Sapeon: Compute shall only go more expensive due to increasing demand and scarce availability of chips, and AI companies are already trying to break away from dependency on Nvidia for the hardware.

Apple last month announced it will use its own chips to power AI data centers. Others like Google, Amazon, and Microsoft are now building their hardware for AI applications. Meanwhile, Intel, AMD, Google, Meta, ARM, Broadcom, and others, including all the rival chip makers except Nvidia, have banded together to develop a standard to connect AI accelerator chips used in servers. That attack is rather direct because natively Nvidia has its mechanism to connect its GPUs within a server.

The way ahead
Rebellions and Sapeon said that they would not make any statement concerning the merger ratio but begin due diligence from this month, completing the transaction in the second half of 2024. All the employees within the business will join the new company because the current management team of Rebellions will remain with the management. The company has 130 employees, while Sapeon has more than a hundred employees in South Korea and the U.S.

SK Telecom and KT, two of South Korea's largest telecommunications companies, will continue to be investors in the combined company, while the world's second-largest memory chip maker, SK Hynix, also will. Sapeon is a venture financed by SK Telecom and SK Hynix, while Rebellions is held by KT.

Confirmed on a call with TechCrunch that it will continue its partnership with Samsung Electronics, SK Hynix competitor in the semiconductor space, on future projects including Rebel. Rebellions informed TechCrunch in March this year that its newest AI chip, Rebel, would use the 4-nanometer fabrication process from Samsung and be used by Samsung on its HBM3E memory chips for the construction and running of large language models.

In 2023, KT incorporated Rebellions' AI chip, Atom, into its cloud-based NPU infrastructure. According to Rebellions, it will be making this specific NPU chip using Samsung's 5-nanometer fabrication process. Atom is designed for data centers and language models with up to 7 billion parameters, whereas Rebel is targeting bigger models.

Four months ago, Rebellions raised a $124 million Series B, valuing the company at around $658 million.

Based in South Korea, Sapeon was founded last year as a spin out from SK Telecom and builds NPU hardware along with full-stack software. The company, in November, launched a 7-nanometer AI chip called X330 NPU, an autonomous vehicle chip and said earlier this year that it would focus on the edge computing market for an on-device AI chip. Sapeon in August 2023 raised more than $45 million in a Series A at over $380 million valuation.

The story was revised to incorporate statements from Rebellions on their collaboration with Samsung.