Oppstar - A well run IC design house with huge ambition

1 March 2023

Background

Oppstar is a Malaysia-based semiconductor integrated circuit (IC) design service provider. The company designs chips that are utilized in various industries, including automotive, meteorology, telecommunication, consumer electronics, and industrial electronics. It was founded in 2014 by three IC industry experts, namely Meng Thai, Hun Wah, and Chun Chiat. All three founders gained extensive experience and networks from their time at Intel and Altera, and according to our background checks, they have a rock-solid reputation for integrity, down-to-earth attitude, and intelligence.

The IC industry is not well understood in Malaysia, and Oppstar is the first full-spectrum IC designer to list on Bursa. In contrast, there are at least 635 IC design firms in Taiwan, and probably about 4000 of such companies in China. However, many of these companies are small-scale with very few staff. Currently, Oppstar has around 230 staff, mostly engineers, and is aiming to expand its workforce very aggressive outside of Malaysia.

Development of IC design business

The development of Oppstar's IC design business has gone through several stages:

Level 1 – Employment agency model: Oppstar started by seconding its engineers to work at customers' offices on a cost-plus basis, which was similar to an employment agency model for big MNCs such as Intel and Microchip.
Level 2 - Task-based model: Oppstar upgraded to level 2 by providing design services on a task- based/outcome-based model. At this stage, it focused on a functional area within an entire IC and carried out backend jobs such as place & route and verification.
Level 3 – Turnkey project: Oppstar further upgraded itself in 2020 to provide full turnkey design services to customers, such as designing the entire chip from front-end high-level architecture all the way down to verification, simulation, and working with fabs like TSMC to tape out the silicon chip. One such turnkey project may require at least 120 IC engineers across various skillsets.
Level 4 - Offshore design center (ODC): An ODC is on top of turnkey, where Oppstar also manages R&D labs for clients. Oppstar has started an ODC for its American client working on cutting-edge chip designs that may only be available a few years from now.
Intellectual property (IP) owner – A successful IC design firm can develop its own IP over time, and generate revenue from selling or licensing the IP for others to use. Oppstar is working on several IP in- house, but it is a capital-intensive business, and selling IP through EDA companies or foundries is not always easy. ARM is an example of a successful pure IP owner that licenses its RISC-based IP to many companies that power the CPUs of our smartphones.
Product owner – The other route for IC design firms is to create and sell their own silicon chip as a product. Examples of such companies include well-known fabless chip makers such as Nvidia, MediaTek, and Xilinx. Developing such a product requires significant investment, but Oppstar may be able to leapfrog by partnering with its customers.

Goal

Since its founding, Oppstar has set its sights on establishing multiple offshore development centers (ODCs) with sizable workforces to provide IC design services for various customers. The company remains ambitious in scaling up its business and aims to win higher value-added business at the cutting edge. In fact, it's possible that one day Oppstar's large MNC clients will outsource entire turnkey jobs to them. Despite high demand, the key bottleneck of the business lies in the supply of good IC design engineers. Nevertheless, the company has executed several plans to ensure that it achieves its goal of reaching 500 staff within three years.

Competitive Edge

IC design companies compete on a number of factors, including track-record, skills/know-how, workforce, costs, and familiarity with foundries processes. Oppstar's competitive advantage can be summarized as follows:

Oppstar is familiar with the design rules and proprietary transistor models of multiple advanced nodes at foundries, including TSMC and Intel. With thousands of design rules at each node, this familiarity is a significant advantage.
Oppstar is also experienced with FinFET transistor models, which are used for chips from 20nm and below all the way to 3nm. This expertise in the latest technology puts Oppstar at the forefront of the industry.
As a Malaysian company, Oppstar is seen as a neutral party that can work with both Chinese and Western clients. This has become increasingly important in the ongoing China and US tension, as Chinese companies are cautious of using anything American and prefer to work with a neutral party.
Oppstar has a proven track record in delivering silicon-proven FPGA and ASICs. In the case of FPGA, there are only two major suppliers in the world, Altera and Xilinx, and both are US companies. As a result, advanced FPGA know-how is hard to come by. However, Malaysia has been fortunate to have groomed significant talent in this area thanks to Altera's presence in the country. This expertise is vital to industries such as telecommunications, meteorology, automotive, semiconductor ATE, and many others that rely on FPGA technology.

Although we subscribed to the Oppstar IPO placement, we were unable to obtain the desired position sizing despite our best efforts. This marks only the second IPO that we have subscribed to since the inception of our fund.