DISCLAIMER: THE FOLLOWING INFORMATION IS TAKEN FROM FRONTKEN IPO PROSPECTUS DATED ON 22 JUNE 2006. SOME INFORMATION MAY BE OUTDATED OR NO LONGER RELEVANT.
Section 1: Industry Overview
1.1 Surface Metamorphosis
1.1.1 Surface Metamorphosis Technology Overview
Surface metamorphosis encompasses all processes that change the surface properties either metallurgically, mechanically, chemically or by adding a layer of coating, aimed at improving the component’s productivity, economic useful life, overall equipment effectiveness and/or aesthetic appearance. This in turn lowers production cost and the overall cost of ownership of the equipment. Thermal spray coating (TSC) is one of these processes for treating surfaces of engineering components.
Improving the characteristics of surfaces is the current trend for solving today’s many engineering problems, such as wear, corrosion, conductivity and thermal shock. These problems usually take place at the surface and the near-surface. Hence, it makes economic sense to focus research and development efforts on enhancing the properties of the surface, rather than to concentrate on developing new bulk materials. In order to enhance the surface characteristics, the surface of these components may require treatment. The purpose may be to minimize corrosion, reduce frictional energy loss, reduce wear, act as a diffusion barrier, provide thermal insulation, exclude certain wavelengths of radiation, promote radiation electronic interactions or simply improve the aesthetic appearance of the surface. The diagram in Figure 1 shows the different types of surface metamorphosis techniques, including thermal spray coating.
Wear resistant surfaces require certain material properties, and these properties Can be obtained by a variety of techniques. Sometimes a surface coating is the best way to get the desired surface properties; sometimes it is best to use hardened steel; sometimes diffusion hardening treatment is the best choice. In summary, hard·facing processes are very competitive in wear resistance and the choice of right material and method really depends on the particular application.
Once the wear and corrosion mechanisms and the surface properties needed to resist those mechanisms have been established, the other factors to consider before selecting a suitable coating process include costs, environmental impact and component geometry.
1.1.2 Definition of thermal spray coating
A thermal spray coating is a coating produced by a process in which molten or semi-molten particles, usually within the size range of five to 200 microns, are applied by impact onto a substrate. All thermal spraying processes rely on the same principle of heating a feedstock (powder, wire or rod) and accelerating it to a high velocity and then allowing the particles to strike the substrate. The particles will then deform and freeze onto the substrate. The coating is formed when millions of particles are deposited on top of each other. The benefits of thermal spray coating can be summarized as follows:
• Comprehensive choice of coating materials: metals. alloys. ceramics, cermets and carbides.
• Thick coatings can be applied at high deposition rates.
• Coatings are mechanically bonded to the substrate -can often spray coat materials that are metallurgically incompatible with the substrate.
• Components can be sprayed with little or no pre-or post-heat treatment, and component distortion is minimal.
• Parts can be rebuilt quickly and at low cost, and usually at a fraction of the price of replacement.
• By using a premium material for the thermal spray coating, coated components can outlive new parts.
• Thermal spray coatings may be applied both manually and automatically via the use of robotic arm.
There are essentially three components to the thermal spray coating technology: 1) the spray equipment/process; 2) the coating material; and 3) the technical knowledge and know-how in optimizing the most appropriate mix of spray equipment/process and coating materials that best meet the specific needs of end-customers.
R&D for the first two components is mainly undertaken by global OEMs such as Sulzer Metco and Praxair, and private and government-sponsored research institutions. Companies such as Tocalo and FCB, on the other hand, possess the technical know-how in optimizing these processes and coating materials.
Table 1 below provides a summary of thermal spray coating applications according to industry served.
1.1.4 Thermal spray coating process:
There are three basic steps in the thermal spray coating process:
Step 1: Cleaning and Surface Preparation. Before a part/component can be coated, its surface needs to be cleaned to remove contamination, including surface rust and scale (normally removed through machining). After cleaning, the surface is “activated” or roughened via grit blasting to increase the bonding strength between the coating material and substrate.
Step 2: Coating. There are four main thermal spray technologies that are commonly used in today’s industrial applications. They are Flame Spray, Electric Arc Spray, Plasma Spray and High Velocity Oxy-Fuel (HVOF) Spray. Each of these technologies yields different coating characteristic, as summarized in Table 2.
Step 3: Finishing polish, inspection and quality assessment. Finally the coatings are inspected and assessed for quality by either mechanical or microstructural evaluation.
1.2 Precision Cleaning -A complementary process
1.2.1 Cleaning Technology Overview
The common factor in all cleaning technologies is that they involve the removal of substances that have a negative impact on the objects or spatial environments. For a long time in industrial production, the cleaning of components or products was regarded simply as a cost factor that would have to be dealt with at some stage. A fundamental change in this attitude is evident today.
The manufacture of microelectronics, micro-optical and micromechanical systems entails particular problems where cleanness is concerned. Even nano-scale layers of dirt or particles can have a detrimental effect on the functioning of a product and render it worthless. In micro-production, therefore, special efforts have to be made
to ensure cleanness.
Cleaning processes can be classified into wet, dry and physical processes, as illustrated in Figure 2.
1.2.2 Definition of precision cleaning
Precision cleaning means cleaning to very exacting standards, with a very low tolerance for left over particles or other contaminants (particle size less than 0.3 micron). Parts requiring the most stringent cleanliness criteria are cleaned in environmentally controlled clean rooms. In many critical applications commonly found in high tech industries such as semiconductor, flat panel display (FPD), hard disk drive (HDD), aerospace and medical, precision cleaning is a prerequisite for newly manufactured parts prior to assembly, and for routine services and maintenance of manufacturing devices.
There are many precision cleaning systems available in the market today. The key factors influencing the choice of cleaning system are the level of cleanliness required, the type and thickness of contamination, and the base material (I.e. the substrate) and geometry of the component.
Section 2: Industry Structure
2.1 Thermal Spray Coating Industry Structure
Demand for thermal spray coating services globally and in this region is principally driven by the pursuit to achieve a desired functionality for the equipment/component and high replacement costs. Consequently, the thermal spray coating (TSC) market can be broadly divided into two major segments -the original equipment manufacturer (OEM) market (“primary” market) and the service and repair market (“secondary” market).
The primary market involves OEM collaborating with TSC specialists and/or research institutions to develop new and improved surface engineering solutions against material degradation of the component surface. Successful development of proprietary advance surface properties often accords OEM designers and manufacturers an added competitive advantage to stay ahead in the industry.
The service and repair market involves reclaiming used components as a result of material degradation processes such as wear and corrosion. The aim is either to bring the component back to its original state or to enhance the component’s useful life, performance and/or productivity to levels beyond that of new components.
The Southeast Asia market
Although TSC applications have been around for decades and have found a position in a broad spectrum of global industries, the regional TSC market within Southeast Asia remains relatively under-developed and the number of players is small. We list below some of the key factors that have inhibited growth in the TSC industry in this region.
• There are very few high-tech OEMs in the region to provide the required thrust in TSC R&D. However, there is an increasing trend where high-tech OEMs are gradually relocating a portion of their manufacturing activities to this region or outsourcing some of the component fabrication jobs to local companies. We expect these trends, if sustained, to bode well for the development of TSC industry in Southeast Asia.
• Due to the lack of marketing and promotion, many prospective customers are unaware of the benefits and advantages of TSC, especially with the advent of new, more high-tech technologies, namely the HVOF system.
• End-users of imported high-tech equipment are often bound by warranty covenants and/or service contracts to send components back to OEMs or their approved vendors for servicing, repair and refurbishment. This has to some extent discouraged investments in the local TSC industry. It is however a boon to existing players such as FCB who is increasingly being recognized by OEMs as a reliable and quality supplier of TSC and complementary services.
• Barriers to entry are high. TSC requires significant investments in thermal spray systems, knowledge and human capital. At present, the relatively small market size is a deterrent for prospective new entrants. Moreover, the market is highly fragmented in that its applications are spread over a number of industries. Given TSC requires specific industry knowledge, it may not be easy for a TSC service provider to expand horizontally across multiple industries. In many instances. these factors make new investments in TSC commercially not viable.
• While the general outsourcing trend holds true in the TSC industry, it bas not yet significantly materialized in this region primarily because local players generally lack track record and most could not meet the stringent quality requirements imposed by the OEMs. On the other hand, local players may not be prepared to commit huge investments without getting a reasonable assurance that there would be adequate business flows from the OEMs.
Among some of the existing players in this region, TSC merely constitutes an extension to or integral part of their core business activities. For instance, GE-Keppel Energy Services’ (GKES) is in the business of repair and overhaul of power generation equipment. Its thermal spray facility is solely to support the company’s principal activity and is not intended to be a separate business unit or profit centre. These companies are equipped with thermal spray facilities, but the applications are specific to the needs of their respective industry.
Another group of TSC players are the anti-corrosion specialists. These companies are in the business of providing anti-corrosion solutions to industrial processes, and TSC is one of the services they offer. Interestingly, there are not many anti-corrosion companies that offer TSC services. Among those who do are FCB, See Hup Seng, Plasma Precision and CRC Engineering. We believe this could be due to the fact that TSC involves a relatively large capital outlay (thermal spray systems can be quite expensive) and investment in knowledge and human capital (skilled labor, engineers, researchers).
There are no major foreign independent TSC service providers operating in this region. We believe this is mainly because the existing size of the TSC market is still too small and fragmented to warrant the selling up of separate operations here in this region. FCB has overcome this issue by diversifying its customer base to include several major industries -power, oil & gas, petrochemical and electronics/semiconductor.
2.2 Precision Cleaning Industry Structure
Like the thermal spray coating market, the precision cleaning market can be broadly divided into two major segments -the original equipment manufacturer (OEM) market (“primary” market) and the service and repair market (“secondary” market).
The primary market involves cleaning of newly fabricated components of high·tech devices, before they are assembled and packaged for delivery to end customers. This segment of the market is typically undertaken by the OEMs or their approved contract manufacturers themselves. The secondary market comprises regular cleaning requirement of manufacturing devices as a result of contamination from the manufacturing process, and cleaning of damaged components prior to and after repair (including coating).
Most semiconductor and high-end electronics manufacturing companies would have at least some in-house precision cleaning capabilities. However, many of these companies have opted to outsource some or most of their cleaning requirements to third party service providers such as FCB in order to focus on the core product development and manufacturing activities.
The Soutbeast Asia market
Precision cleaning services industry in Southeast Asia is similar to those in developed countries. The players comprise equipment manufacturers (e.g. VMS Semiconductor), semiconductor/electronics manufacturers (e.g. wafer fabs) and third party independent precision cleaning service providers (e.g. FCB).
In this region, there are only three major independent service providers, and they are FCB, Metron Singapore and UMS Semiconductor.
Section 3: Market Size of Thermal Spray Coating and Precision Cleaning
3.1 Market Size of Thermal Spray Coating (TSC)
3.1.1 Overall market assessment
The global TSC market reached US$5.6 billion in 2004 (Source: Sulzer Melco), compared to US$2.7 billion in 1996, US$3.5 billion in 2000 and US$5.0 billion in 2003 (Source: May 2004 International Thermal Spray Conference & Exposition in Osaka, Japan). This translates into an average compound annual growth rate of 9.5% in 1996-2004. both years inclusive. The industry is further projected to grow by 5-6% CAGR in 2005 to 2007 (Source: Sulzer Metco).
Closer to home, Japan’s TSC market size is estimated at US$830 million in 2003 (source: May 2004 ITSC). We estimate Tocalo Co. Ltd (“Tocalo”), the world’s largest independent TSC service provider (excluding equipment and coating material sales), has about 33% of the contract job market (US$336 million out of US$830 million) and about 13.6% of the overall TSC market in Japan, which includes the OEM market. Figure 3 shows the 11year revenue track record of Tocalo, which we believe gives an indication of the historical growth trend. In FY95-05, Tocalo’s TSC revenue grew by an average compound rate of 10.6% p.a.
There are no published data on the market size of the thermal spray coating industry in Southeast Asia. And it is difficult to estimate and track the market size in this region principally because it is difficult to extract the commercial value of TSC services from the overall engineering component repair and/or refurbishment process. This is particularly true in situations where the repair work is undertaken either in-house or by a third party engineering firm where TSC is provided as an ancillary service. Additionally, the TSC industry in this region is still at its early development stage, and has not yet grown to a size that justifies a comprehensive market study.
However, there is a reasonably strong correlation between TSC output and GDP output, as demonstrated in Figure 4. Using this correlation, we estimate the TSC market in Southeast Asia is worth RM335.4 million. As the region becomes more industrialized, we expect the TSC/GDP output ratio to gradually move towards the level of developed nations. Note the above estimates relate only to TSC services and exclude the value of complementary processes such as welding, fabrication, metal finishing and precision cleaning. For example, we estimate the repair and restoration market for the power industry alone in Southeast Asia to be RM262 million.
Figure 5 shows revenue trend of the FCB Group; revenue expanded by an average compound annual rate of 35% in 1999-2005. While this may not entirely represent the industry growth trend, we believe it is a good proxy given FCB’s leading market position and the relatively small size of its closest competitors.
3.1.2 lndustry specific assessment
TSC is widely used in the repair and refurbishment of power generating equipment, especially components of gas turbines, and to a lesser extent, steam turbines. According to Alstom, the global power service sector, which includes field services, parts supply, replacements, operation support., repair and restoration, troubleshooting and technical services, is worth about Euro44 billion. Out of this total, about Euro23 billion is outsourced to independent service providers such as the Wood Group (UK), while the balance of the services is supplied by OEMs such as General Electric (US), Siemens (Germany) and Alstom (France) and power generation companies such as Npower One (UK) and Energy East (US). We estimate the share of Southeast Asia power service market based on the region’s share of installed power generating capacity is Eurol.3 billion or RM6.l1 billion.
The segment under focus, repair and restoration, is a subset of the total power service outlay. Unfortunately, there is no separate disclosure on the size of the repair and restoration market globally and in this region.
However, based on the published data of GE Keppel Energy Services (GKES), we estimate the repair and restoration market in Southeast Asia to be worth S$119 million or RM262 million. GKES is a joint venture between General Electric Company (GE) and Keppel Corporation primarily to provide engineering repair and restoration work for GE’s turbines and other power equipment in Asia.
Oil & Gas and Petrochemical industries
Historically, TSC applications in the oil & gas and petrochemical industries are limited mainly to coating of rotating equipment such as pumps, industrial steam and gas turbines, compressors and blowers and fans. However in recent years, TSC has been increasingly accepted and recognized as a viable alternative coating technology for static equipment as well. These include condensers, reactors, hydro crackers, big structures; pressure vessels, spool systems and heat exchangers. The business potential from static equipment is significantly greater in volume and others tremendous growth potential in the future.
We estimate the historical market size of TSC in the oil & gas and petrochemical industries at RM19.9 million. This is done by adding up the relevant revenue of the major players in the market.
3.2 Market size of Precision Cleaning
As in TSC, there are no published statistics on the market size of precision cleaning in Singapore and Malaysia. We have used two methods to estimate its market size: the “installed capacity” method and the “revenue” method.
Installed Capacity Method
This method requires us to estimate the average amount a semiconductor wafer fabrication plant (“fab”) spends annually per 10,000-wafer capacity on precision cleaning. We then used this to multiply the total installed capacity of wafer fabs to estimate the market size of precision cleaning in these two countries. Based on this method, we estimate the total market size of precision cleaning in Singapore and Malaysia to be RM82.8 million in 2003.
The above however excludes three new wafer fabs that started commercial production in 2004 and 2005. They are UMC (12-inch), Chartered Semiconductor Manufacturing (CSM) Fab VII (12-inch) and Hewlett Packard (6inch). Assuming all these three plants reach their maximum monthly production capacity of 40,000,30,000 and 20,000 wafers respectively, we estimate it would add another RM60.3 million to the precision cleaning market, bringing the total market size to RM143.1 million.
The key advantage of the “installed capacity” method of estimating the market size of precision cleaning is it captures both the value of precision cleaning done in-house and hy independent service providers. The biggest drawback of this approach is it excludes the component of precision cleaning in media storage and flat panel display (FPD) industries. On our estimate, this would probably add another US$5-6 million (RMI9.0 million 22.8 million) to the precision cleaning market.
Under this method, we estimate the market size by summing up the relevant revenue of the key players, namely Melron Technology, UMS Semiconductor and FCB. Based on their latest annual accounts, we estimate the market size was RM43.3 million in 2004.
The difference between the “installed capacity” method (RM82.8 million) and the “revenue” method (RM43.3 million) can he explained by two reasons. First, the latter excludes in-house cleaning services. Second, our “installed capacity” approach assumes a 100% capacity utilization rate throughout the year. In reality, utilization rate was below 100% in 2003/04. We reckon the actual market size would be somewhere in between the two methods.
Section 4: Competitive Analysis
4.1 Thermal Spray Coating
4.1.1 Thermal spray coating competitive environment
The competitive environment of thermal spray coating varies depending on industry. Generally, the competitive space is more crowded in industries where customer demands arc comparably less stringent. The marine industry is one such example. Most of today’s marine applications are based on established thermal spray systems and commonly used coating materials. The level of skills and knowledge required to operate these processes are also lower.
Given the lower barriers to entry, the thermal spray coating market within the marine sector is relatively more fragmented, comprising a number of local players. The main participants in this arena are See Hup Seng, FCB, eRe Engineering and Plasma Precision.
In contrast, there is generally less competition in the high-tech industrial fields such as the aviation and power industries, where barriers to entry are substantially higher. Thermal spray coating applications in these sectors typically involve more advanced spray technologies and systems, which require specialized skills and knowhow to operate. As a result, large multinational companies dominate this segment of the market such as Pratt & Whitney via its two Singapore-based subsidiaries Turbine Overhaul Services and Turbine Coating Services, which provide a full range of aero-engine repair and overhaul services to the regional aviation industry.
In the power sector, GE Keppel Energy Services Pte Ud provides turbine repair and refurbishment services principally for GE’s turbines installed within the region. FCB, which has a Maintenance Repair Overhaul (MRO) contract with Siemens Power, is the only other Singapore-based player in this segment, serving the Singapore, Malaysia, Thailand, Vietnam and the Philippines markets. In Malaysia, there are Sapura Power Services and TNB Repair And Maintenance (Remaco).
We believe the petrochemical and oil & gas industries would fall somewhere in between the marine and aviation/power industries. Based on the research conducted by Lynch, there are only four major players in this segment: FCB, eRe Engineering, Plasma Precision and MTQ engineering. We believe this is due to the fact that TSC applications in the oil & gas and petrochemical industries (for Southeast Asia) have not yet been fully developed and accepted as part of the repair methodology. Consequently, while the growth potential is good, the existing market size of TSC applications is small. Few engineering shops are prepared to venture into this area given the small size of the market, which could not justify the heavy investments in thermal spray systems (HVOF and Plasma systems), R&D and manpower.
4.1.2 Thermal spray coating competitive factors
We believe the most important competitive factors are: I) the ability to develop and provide surface engineering solutions that meet specific customer needs; and, 2) having the right equipment, manpower and know-how to execute these solutions. This is particularly true for high-tech industrial field applications. Price, whilst important, is less of an issue in advanced thermal applications when compared to lower end thermal systems mainly because of the huge economic benefits derived and limited competition. Other factors considered important by customers include service and reputation.
Quality is key, given that choosing the wrong coating process and/or material can be extremely costly if they result in component/equipment damage or the lowering of component/equipment performance. Here lies the importance of R&D, engineering capabilities and end-user industry knowledge.
4.1.3 Thermal spray market share and positioning
Based on our estimated Singapore and Malaysia TSC market size of RM126.1 million, we estimate FCB’s overall TSC market share to be about 29% in 2004.
FCB is a leading regional player in advanced materials and surface metamorphosis technology with thermal spray as its core. The group operates the largest thermal coating facility in the region with a comprehensive range of spray systems and complementary processes such as welding fabrication and metal finishing. FCB also performs R&D in advanced materials and surface engineering technology to produce new and improved coatings for use in the protection against material degradation and to improve the productivity of industrial processes. Many of the Group’s R&D initiatives are directly related to materials performance in the operation and maintenance of industrial processes related 10 the oil & gas and petrochemical sectors.
Most of the TSC service providers in this region do not compete directly with FCB. For instance, GKES essentially provides repair and refurbishment services for the group’s GE turbines. Plasma Precision, CRC Engineering and See Hup Seng are probably the closest competitors of FCB in that they offer TSC services for the oil & gas and petrochemical industries, albeit in a much smaller scale.
4.1.4 Thermal spray Industry competitive analysis
4.2 Precision Cleaning
4.2.1 Competitive environment
Three players dominate the precision cleaning market in Singapore and Malaysia. They are Metron Technology Singapore (“Metron Singapore”), UMS Semiconductor (“UMS”) and FCB. Other than FCB, which has set up cleaning facilities in Penang for the semiconductor industry, none of the other three remaining participants has precision cleaning facilities in Malaysia.
4.2.2 Competitive factors
We believe the most important competitive factors in the precision cleaning business are quality, service and price.
The quality of the cleaning process is of utmost importance given the high investment cost of semiconductor equipment. Vendors must not only give assurance the components being cleaned will not be damaged in the process, but also the efficiency and efficacy of the devices would not be compromised after being re-assembled. Consequently, OEM accreditation is important, as it lends credit to the suppliers’ technical and service competence. While some wafer fabs do not place heavy emphasis on this, so long as the vendor is able to stand up to rigorous pre-qualification tests and audits, others would only consider using the services of a vendor that has been endorsed by the OEMs. FCB is an approved supplier for Lam Research and Ulvac.
Wafer fabrication facilities run 24 hours a day, seven days a week. Therefore, service reliability is critical in light that any unscheduled outage resulting from failure by suppliers to meet tight delivery deadlines could potentially disrupt the entire production process.
4.2.3 Precision cleaning: market share and positioning
We estimate FCB’s market share in 2004 was about 14.4% under our “installed capacity” method. Using our revenue method to estimate the outsourced portion of the precision cleaning market size, we estimate FCB’s market share to be about 28.4% in 2004.
The competitive landscape however may change with the acquisition of Metron Singapore by Applied Materials last year. Since the acquisition, Applied Materials has consolidated its precision cleaning division with that of Metron, and is currently using the latter as the platform to provide precision cleaning services to all makes of equipment.
According to an end user, there has not yet been any apparent change in either Metron’s pricing policy or the way it conducts its business. However, the same end user believes it is likely Applied Materials will want to sell itself as a one·stop shop to foundries, supplying semiconductor equipment, materials and component supplies, and after sales services, including regular cleaning and repair services. Note that Applied Materials also owns a minority stake in UMS and has historically been referring jobs to UMS. It remains to be seen if Applied Materials will eventually consolidate all its precision cleaning business under one roof. If so, the number of major players could potentially be reduced to two.
4.2.4 Precision cleaning: industry competitive analysis
4.3 FCB SWOT Analysis
Section 5: Industry prospects
5.1 Prospects and outlook for Thermal Spray Coating
The prospects and outlook for the thermal spray coating industry in this region are excellent. Not only is thermal spray increasingly being recognized and accepted as the preferred coating solution when compared to some of the other coating technologies such as chrome plating and spray painting, new processes and materials are continuously being developed globally through intensive research that would further widen thermal spray applications in the industrial fields in the future. Globally, the market value of thermal spray has risen from US$2.7 billion in 1996 to US$3.5 billion in 2000, US$5.0 billion in 2003 and US$5.6 billion in 2004.
In the petrochemical and oil & gas industries for instance, thermal spray, which has historically been used primarily to resist wear in rotating components such as valves, pumps and compressors, are increasingly becoming a prerequisite for new static equipment installations such as piping, heat exchangers, spool system, storage tanks and pressure vessels, as well. Companies like Shell, Exxon Mobil and Petrobas of Brazil have already taken the lead, and we believe more would soon follow suit.
Outside of Singapore, the awareness level of the benefits of thermal spray coating in the region remains considerably low until today. We attribute this to the absence of major independent thermal spray service firms to promote and educate end-users of the advantages and economics of thermal spray as a surface engineering solution. There are therefore tremendous opportunities that companies like FCB can tap on. In fact, FCB has in the last 18 months been beefing up its sales and marketing arm and has since earlier last year commenced regular road shows in Malaysia to promote its services to end-customers in the oil & gas industry.
There will also be more scope for expansion as the governments of Singapore and Malaysia continue to put in place the right policies and incentives to attract new foreign direct investments in the manufacturing sector, including semiconductor and electronics, oil & gas and petrochemical industries.
It is difficult to forecast future growth rates of the TSC industry in Southeast Asia due to the lack of independent market studies on the industry. However, we believe the pace of growth will largely depend on two important factors:
• The amount of marketing efforts by industry players in promoting TSC services, especially to the largely untapped markets like Malaysia, Thailand, Indonesia and the Philippines. TSC offers suitable solution to many of the existing manufacturing and engineering problems. However, in many instances, it is not adopted due to the lack of awareness and reliable local suppliers.
• The pace at which independent TSC service providers expand their scope of services through technological advancements. Currently, even the FCB Group, the leading player in the thermal spray coating industry, has limited applications in servicing the high-tech industrial sectors such as the power and electronic sectors. However, with continuous investment in R&D and technical collaboration with global specialists, we believe local players such as the FCB Group will be able expand their scope of services by moving up the technology ladder.
Based on FCB’s on-going R&D and marketing efforts, and its recent technical collaboration with OTS of Germany (specialist in the repair and refurbishment of power generation equipment), we believe the TSC industry will be able to continue growing at between 15% and 20% per annum in the next three years, compared to FCB’s average historical growth rate of3S% in 1999-2005 and global TSC industry growth estimate of 5% to 6% CAGR in 2005-2007 (Source: Suhzer Meteo)
There are two main reasons behind FCB’s superior growth rates:
(a) There is an acute shortage of competent local players. Historically, most of the demand for thermal spray coating services had been satisfied by foreign suppliers. However, with FCB’ emerging as a reliable independent thermal spray service provider in this region, more and more jobs are increasingly being conducted locally.
(b) New market creation by FCB through successful development and commercialization of new surface metamorphosis solutions. In order to sustain its growth and remain competitive, FCB continuously invests in and carries out R&D activities on tough engineering problems, which will address specific customers’ needs or resolve specific industrial problems. Upon completion, these R&D activities are commercialised, thus creating market needs for FCB’s services.
5.2 Prospects and outlook for Precision Cleaning
The prospects and outlook for the precision cleaning industry in Singapore and Malaysia look promising. For instance, in Singapore, UMC has in 2004 begun commercial production in its new 12-inch wafer fab in Pasir Ris. Chartered Semiconductor Manufacturing and Hewlett Packard also commenced commercial production in their new 12-inch fab (Fab VII) and 6-inch fab Jast year, respectively. STMicroelectronics, which has invested a total of USD2.4 billion to date in Singapore’s TechnoPark in Ang Mo Kio, has recently announced it would invest as much as another USDl.2 billion by the end of 2006 on expanding the capacities of existing fabs, and is considering building a new USD2 billion 12-inch wafer fab in 2006. Other semiconductor projects in the pipeline in Singapore include TECH Semiconductor’s new 12-inch and Hewlett Packard’s new 8-inch wafer fabs. In Malaysia, German semiconductor giant Infineon Technologies AG is building a new 8-inch fab with a total investment cost of USDI billion to mainly produce power and logic chips used in automotive and industrial power applications. Storage media companies such as Hoya Corporation, Fuji Electric Holdings Co., Ud, Showa Denko KK and Komag, Inc are also expanding capacities in Malaysia. The evolving trend in today’s manufacturing environment should also see wafer fabs outsourcing more and more of their non-core operations, including precision cleaning.
We estimate the above planned fab investments could potentially raise the total installed fab capacity in Singapore and Malaysia by 74% or 250,000 wafers per month to 587,000 wafers per month. Using the installed capacity method, we estimate this could more than double the precision cleaning market size from RM82.8 million in 2003 to RM200 million. Assuming these new capacities all come on stream by 2008, it will translate into an average compound annual growth rate of 19.3% in 2003-2008.