South Korea’s fabless AI chip industry saw a slew 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 prominent fabless AI chip startups, Rebellions and Sapeon, have agreed to merge, the companies said on Wednesday.

The merger is a strategic move by Rebellions and Sapeon aimed at leading the fabless AI chip market in South Korea to take on global rivals like Nvidia.

The merged entity could go public in the next two to three years, according to two industry sources familiar with the companies’ plans who asked not to be named.

The companies said in a statement that they see the next two to three years as a “golden time” for South Korea to win the global AI chip market. In addition, due to the rapidly increasing demand for neural processing units (NPUs), they intend to strengthen their NPU business after the merger.

Indeed, the deal comes at a pivotal moment in the global chip industry.

Nvidia currently dominates this market, accounting for more than 97% of the global market for specialized AI chips, thanks to its early leap into providing data center services and software to help other companies build large language models and power AI applications. Still, for companies like Rebellions and Sapeon, there is enough ground to be gained by moving now: Compute is getting costlier as demand has shot up and chip availability has declined, and AI companies are already trying to break away from their dependence on Nvidia for hardware.

Apple last month said it would be using its own chips to power its AI data centers, and others like Google, Amazon, and Microsoft are already building their own hardware for AI applications. Meanwhile, Intel, AMD, Google, Meta, ARM, Broadcom and others have banded together to develop a standard to connect AI accelerator chips used in servers, in a move going directly against Nvidia, which has its own mechanism for connecting GPUs in servers.

The way ahead

Rebellions and Sapeon did not disclose the merger ratio, but said they will soon begin due diligence, which will take about a month, and aim to close the transaction in the second half of 2024. The Rebellion team will lead the management of the business, and all employees of both companies will be joining the new entity. Rebellion has 130 staff, and Sapeon has more than 100 employees in South Korea and the U.S.

Two of South Korea’s biggest telecommunications companies, SK Telecom and KT, will continue as stakeholders in the merged entity, as will the second largest memory chip maker in the world, SK Hynix. Sapeon is backed by SK Telecom and SK Hynix, and Rebellion is owned by KT.

It is not clear if Rebellions will continue its partnership with Samsung Electronics, which competes with SK Hynix in the semiconductor space, after the merger. Earlier this year, Rebellions told TechCrunch that the startup’s latest AI chip, Rebel, would use Samsung’s 4-nanometer fabrication process and be deployed in Samsung’s HBM3E memory chips, which are used for building and operating large language models.

Meanwhile, KT in 2023 incorporated Atom, Rebellions’ datacenter-focused AI chip, into its cloud-based NPU infrastructure. Rebellions said it would manufacture this particular NPU chip using Samsung’s 5-nanometer fabrication process. Atom is designed for data centers and language models of up to 7 billion parameters, while Rebel targets larger models.

The announcement comes roughly four months after Rebellions raised a $124 million Series B that valued it at approximately $658 million.

Founded in 2016 and spun out in 2022 from SK Telecom, Sapeon builds NPU hardware and full-stack software. Last November, the company launched a 7-nanometer AI chip, X330 NPU, for autonomous vehicles, and earlier this year, it said it would develop an on-device AI chip targeting the edge computing market. Sapeon last raised more than $45 million in a Series A in August 2023, reaching a valuation of over $380 million.