Business Overview

6. BUSINESS OVERVIEW 6. BUSINESS OVERVIEW
6.1 Pr’incipal Activities and Products This section outlines our principal activities as well as the range of products which are manufactured by us. 6.1.1 Principal Activities Our Group comprises Inari, Inari Technology and Simfoni. Our subsidiary companies’ activities are described below. Inari Technology Inari Technology is an EMS company principally involved in back-end semiconductor packaging, which comprises back-end wafer processing, package assembly and RF final testing for the electronics/semiconductor industry. The final product which is derived from our back-end semiconductor packaging is called SiP packaging. Presently, Avago is our key customer (having contributed more than 90% of our total revenue in the last three (3) financial years) and we supply our SiP packaging primarily for its wireless communication segment. Hence, we are servicing the wireless microwave telecommunication semiconductor segment primarily, a vertical market in the semiconductor industry. However, our capability is not limited to the wireless microwave telecommunication semiconductor segment; we are also capable of manufacturing the entire range of semiconductor products for other segments of the semiconductor industry. Our semiconductor packaging services are described in further detail below. 1. Back-End Wafer Processing We offer back-end wafer processing services (also referred as wafer sort), which encompass the processes of manufacturing semiconductors on Silicon and Gallium Arsenide (“GaAs”) wafers. Our back-end wafer processing services comprise the following processes: (i) DC & RF raw wafer testing -wafer probe;
(ii) Wafer back-grinding;

(iii) Wafer sawing; and (iv) Wafer inspection. Based on our knowledge, only a handful of EMS companies in the Malaysian semiconductor packaging industry offer wafer sort processing as it requires high initial capital outlay and expertise. We ventured into back-end wafer processing in 2007 and we have established a track record with internationally recognised product quality through our business relationship with Avago. Our wafers (also known as chips on the fabbed wafers) are mostly sourced from Avago (on consignment basis). Our back-end wafer processing and assembly operations are carried out in highly controlled clean room environment to ensure consistent high quality in our products and services offered. 6. BUSINESS OVERVIEW
2. Package Assembly We offer assembly in the form of QFN packages. Our assembly processes comprise two (2) primary assemblies, namely SMT and MCOBjCOB assemblies for semiconductor packaging, which are subdivided into the following processes: (i) Die attach;

(ii) Plasma cleaning;

(iii) Wire bonding; (iv) Moulding;

(v) Laser marking; and
(vi) Package sawing.

Our assembly processes use advanced technology to place multiple ICs and passive components into a single package. We are able to integrate a variety of die technologies and discrete components using our assembly processes. The devices assembled by us are typically used in RF and wireless applications in mobile phones, PDA, GPS devices, WiFi devices and Bluetooth products. Through our R&D efforts with Avago, we have successfully achieved the ability and competency level to provide fine-pitch SMT assembly service for very small components measuring 0.4 mm by 0.2 mm (0.01″ by 0.005″ -also termed as 01005). 3. Final-Test and Final Packaging Complementing our package assembly services, we offer a full range of final-test services. Inari Technology specialises in wafer “DC & RF” testing and finished goods RF testing on the SiP packages manufactured by us. Our competence in final-test services is in RF final testing. Inari Technology has advanced test machinery, test handlers and test equipment for performance testing, recording and cataloguing as well as measuring RF signals in the SiP packages we produce. All products manufactured by us are tested for functionality and quality. We have a high speed final-test system with the capacity of .testing up to 50 million units of ICs per month. In our final-test service division, we also offer failure analysis services for board level to package level/die using various failure analysis tools and eqUipment such as energy-dispersive X-ray spectroscopy, X-ray, scanning acoustic microscopy, X-ray fluorescence and cross section. We provide high speed and accurate root cause analysis and findings using our failure analysis methodology and procedures. Final packaging is a step in the chip production process in which the chip is either encased in plastic, ceramic or other forms of packaging; or mounted directly onto a PCB. The packaging will allow for power dissipation, physical and chemical protection of the chips, and proVide the connections to the PCB. The packaged chips are then tested for parametric and dynamic functionalities. The testing process screens out defective chips resulting from chemical or structural irregularities that degrade the product, weak chip devices and non-conformance to the functional specifications. The testing is carried out using automated test equipment which can handle high volume production. 57

6. BUSINESS OVERVIEW
4. Other Activities Aside from semiconductor packaging services, we are also involved in PCBA and Box­Build services. We have successfully manufactured various networking devices, such as HSDPA modems and routers for our OEM customers. Currently, the network devices that are manufactured by us are for VigSys Sdn Bhd (a wholly-owned subsidiary of Insas Technology) and they are branded under Vigsys. Additionally, we have also manufactured and exported wireless home broadband digital TV cards for our customer in Italy, and universal remote controls for our end customer in Europe. The universal remote controls are manufactured for NewICT Marketing (M) Sdn Bhd. Simfoni Simfoni is a property investment company which was established to acquire and manage Plant 3. Simfoni completed its acquisition of the said property in 2008 and subsequently rented it to Inari Technology for its manufacturing operations and expansions. Simfoni has no other actiVity apart from letting its property and providing management services to Inari Technology.

 

6.1.2 Principal Products The principal products/services of our Group are categorised into three (3) primary segments, namely: (i) SiP/QFN;
(ii) PCBA and Box-BUild; and

(iii) Universal Remote Controls. Product Picture Customers Application Market Categories SiP/QFN Avago RF mobile applications
PCBA and Box-Build
Vigsys Sdn Bhd Wireless modems Universal Remote
NewICT Marketing Remote Controls Controls (M) Sdn Bhd Avago is our key customer. A majority of our products manufactured and distributed are QFN SiP packages. Since inception, we have manufactured Ie chips of various miniature sizes, ranging from 2mm x1.6 mm to 8 mm x 5mm. 6. BUSINESS OVERVIEW
6.2 Key Achievements and Milestones We have achieved numerous milestones since our inception and some of the major milestones are listed below: Year Key Achievement Milestones .. Incorporation of Inari Technology. .. Inari Technology set up its first factory and commence its operation in SMT assembly, PCBA and Box-Build services for several OEM customers in the European markets. .. Inari Technology was awarded ISO 9001:2000 certification by SGS United Kingdom Limited and SGS (Malaysia) Sdn Bhd. .. Inari Technology secured a manufacturing contract from Avago Technologies to offer semiconductor packaging services started with COB and MCOB assembly services. 2007 .. Inari Technology obtained a Pioneer Status from IVlm. .. Inari Technology set up a second factory to commence fine-pitch SMT assembly service for Avago. .. Inari Technology was awarded ISO 14001:2004 certification from SGS United Kingdom Limited and SGS (Malaysia) Sdn Bhd. II
Inari Technology commenced back-end wafer processing services including DCjRF wafer probing, wafer back-grinding, wafer sawing, auto vision inspection and die preparation. 2008 .. Inari Technology established its R&D division to carry out R&D activities to enhance manufacturing technologies and processes as well as develop new products for different markets. .. Simfoni acquired a factory land and building at Plot 51, Phase 4, Bayan Lepas Free Industrial Zone and subsequently leased it to Inari Technology as its third factory. .. Inari Technology set up a third factory to conduct fine-pitch SMT assembly and wafer processing services. 2009 .. Inari Technology commenced DC and RF testing services in our third factory. .. Inari Technology expanded its PCBA and Box-Build operations with products such as wireless broadband networking devices (i.e., HSDPA modems and routers) for other OEM customers. 2010 .. Avago Malaysia subscribed for 1.215 million RCPS-A in Inari Technology. The RCPS-A were subsequently converted to ordinary shares. .. Inari Technology applied for the 15013485 certification for its medical sensor products. .. Inari acqUired 100% equity interest in Inari Technology and Simfoni. .. Inari Technology was awarded the Excellent Manufacturing and Outsourcing Support on Wireless Semiconductor Division Products 2009 Award by Avago. 2011 .. Inari Technology leased Plant A from Avago Malaysia to house its R&D, NPI and SMT business units

 

6. BUSINESS OVERVIEW
6.3 Business Operation Process Our Group’s back-end semiconductor packaging processes are outlined below:­Our Back-End Semiconductor Packaging Process Flowchart: Our Semiconductor Packaging Processes
——————————————-~~======:­Front End Back End 6.3.1 Back-End Wafer Processing Back-End Wafer Processing Flowchart:
The back-end wafer processing for Inari Technology begins with the receiving of the raw wafer from the supplier. Raw wafers are wafers that have been fabricated with ICs also known as dies. The raw wafers are visually inspected for any gross mechanical defect at 50 times magnification before being sent for wafer testing. Our in-house wafer testing includes both. DC and RF testing~ The test instruments are able to measure the current, voltage, frequency, signal and noise levels. All probed data (after testing) are stored in the wafer map. 6. BUSINESS OVERVIEW
Upon completion of testing, the wafers are sent for thinning. Wafer thinning is the process of grinding the back side of the wafer to the correct wafer thickness prior to assembly. This is also referred to as “wafer grinding”. We also have an auto wafer thickness measuring machine which measures and records the wafer thickness before and after the thinning process. Following on from the wafer grinding process, the wafers are sent for mounting and sawing. Wafer mounting is the process of providing support to the wafer to facilitate the processing of the wafer from wafer saw through die attach. Wafer saw follows wafer mounting and is the step where the wafer is cut into individual die for assembly in IC packages. We have various types of sawing machines (ranging from single to dual spindle) which can basically handle up to 8 inch wafers with 55 micron “saw street”. Details are as follows: (i) The frame-mounted wafer is automatically aligned into position for cutting;
(ii) The wafer is then cut through its thickness according to the programmed die dimensions using a resin-bonded diamond blade rotating at very high revolutions per minute; and

(iii) The wafer then goes through a cleaning process using high pressure deionised water sprayed on the rotating work piece and dried by air-bloWing. Once the wafers have been sawn, they are sent for auto visual inspection, where each individual die is inspected through a powerful microscope which feeds the visuals into a computer system to ensure that each die is in proper working condition. Upon completion of this task,· the wafers are kept in the desiccators at the die bank, to be transferred to the assembly section when ready. All the desiccators are purged with nitrogen as to prevent oxidation. [ Therestofthispageisintentionally lettblank} 6. BUSINESS OVERVIEW

 

 

6.3.2 SMT Assembly Process SMT Assembly Process Flowchart:
The process begins with solder paste printing, where the solder paste is printed on the PCB through a stencil which matches the component pattern layout. The components are mounted onto the printed paste and then conveyed into the reflow soldering oven. Inside the· oven, the temperature of the board and all the components are gradually and uniformly raised until a stage where the temperature is high enough to melt the solder particles in the solder paste, joining the component leads terminations to the solder pads on the PCB. The surface tension of the molten solder helps keep the components in place and automatically aligns the components on their pads during the reflow stage and upon solidification forms a reliable and strong solder joint. After soldering, the PCBs are sent for ultrasonic cleaning to remove flux residues and any stray solder balls that could short-circuit closely spaced component leads. Finally, the PCBs are visually inspected for visual defects such as missing, misaligned components. and solder bridging. After this the PCBs are then sent to quality assurance (QA) . for sampling inspection and finally to the COB assembly department for the next process. [ Therestofthispageisintentionally leftblank] 6. BUSINESS OVERVIEW
6.3.3 COB and MCOB Assembly Processes COB and MCOB Assembly Processes Flowchart:
IVULe!;: IQA incoming quality assurance IPQA in-process quality assurance OQA outgoing quality assurance The first step in the COB/MCOB assembly process is known as the die attach. This is the process of attaching the die onto the substrate using an epoxy. After the die is affixed to the substrate, it is baked to cure the epoxy, which will then hold the die in place permanently. However, this process may generate some form of organic contamination due to epoxy out­gasing and it may deposit on top of the die bond pads and potentially causing poor adhesion between ball bond and bond pad at the subsequent wire bonding process. Plasma cleaning is used to clean the die surface to remove contaminants by means of ion bombardment on the targeted surface. The use of plasma is an industry recognised way to clean any surface effectively without using hazardous solvents. The next stage is the wire bonding process which is the process of providing electrical connection between the substrate and the external circuits of the semiconductor device using very fine bonding wires (usually gold or aluminium). The connection or bonding is achieved using ultrasonic vibration under certain thermal environment so as to trigger diffusion process between two (2) different types of metal. Generally, it is a form of welding. After wire bonding process, the material is then sent for the third optical inspection whereby visual inspection under certain magnification is carried out using a microscope with the purpose to screen out defects from COB processes.

6. BUSINESS OVERVIEW
After completing COB processes ie. die attach and wire bonding, the chips are then sent down to MCOB processes with moulding as its first main process. During moulding, the chips are encapsulated in optimised temperature and pressure using epoxy moulding compound. Then, the chips are sent into the box oven for curing. The whole purpose of the moulding process is to provide the chips with a certain level of protection in accordance to the industry standard set by the Joint Electron Devices Engineering Council. The next step is the Marking process for putting identification, traceability and distinguishing marks on the top package surface of an Ie. The information marked on the IC package are the device name, company logo, date code, and lot identification. During marking process, laser beam is shot onto each Ie’s, resulting in permanent engraving of marking instruction onto the top surface of the moulded ICpackage. The package is then sent for sawing in order to singulate moulded panel into final individual units. 6.3.4 Final Testing Processes Final Testing Process Flowchart:
Notes: IQA incoming quality assurance
OQA outgoing quality assurance The last phase of our semiconductor packaging comprises the final testing processes, which consists of final quality control before the chips are actually shipped to our customers. Our final testing processes are divided into four (4) different divisions, which are Power Amplifier Module (“PA”), Thin Film Bulk Acoustic Resonator (“FBAR”), IIIIulti-Market (“MM”) and t-Ilillimetre-Wave (“mmWave”). 6. BUSINESS OVERVIEW (i) PA -consists of power amplifier, which is an electronic amplifier used to amplify low power RF signal into a larger signal strength, usually for driving the antenna of a transmitter.
(ii) FBAR -is a device consisting of piezoelectric material sandwiched between two (2) electrodes and acoustically isolated from the surrounding medium. FBAR devices are usually used as RF filters for wireless applications such as mobile phone.

(iii) MM -MM products are mainly Low Noise Amplifiers (“LNA”). LNA is a type of amplifier that is usually used at the front-end of a radio receiver circuit. It is used to amplify very weak signal while adding as little noise as possible. (iv) mmWave -mmWave are extremely high frequency products comprises devices such as low noise amplifier and power amplifier. All the products are tested using an integrated test system which comprises mainly Power Supply, Spectrum Analyser, Network Analyser, and Signal Generator connected to a computer which will run the test programme. Descriptions of these testing systems are as follow: (i) Power Supply -supply voltage and current source to the device under test (,’DUTil).
(ii) Spectrum Analyser -used to measure and examine the spectral composition of some electrical, acoustic, or optical waveform.

(iii) Network Analyser -used to measure the network parameters (e.g. s-parameters) of electrical networks. (iv) Signal Generator -used to generate electronic signals into the DUT. An automatic pick and place handler is also used to mechanically pick and place the DUT into the test system. We are currently using two (2) types of handlers sourced from SRM Integration (M) Sdn Bhd and Exis-Tech Sdn Bhd. All the handlers are incorporated with Tape and Reel process. The IC that passes the electrical test will go into the Tape and Reel process. Tape and Reel is the process of packing the assembled IC by loading them into individual pockets comprising what is known as a pocket tape or carrier tape. The units are sealed in the carrier tape with a cover tape by heat or pressure. The carrier tape is wound around a reel for convenient handling and transport. These reels are dust-free and compatible with a clean room environment. After they are packed, visual inspection is conducted to ensure the ICs are properly sealed within the tape. The assembled ICs are packed in moisture barrier bags according to the Moisture Sensitivity Level reqUirement. Vacuum sealing is also used to remove air from the moisture barrier bag and then sealing the bag in an impermeable package. This is to protect the devices from moisture as normal air contains moisture. AHumidity Indicator Card and Desiccants are packed together with the assembled ICs to indicate the humidity conditions inside the moisture barrier bag and also to absorb the moisture that may be present inside the bag. Subsequently, the final step of the process is to package the final product into boxes and to mark accordingly before delivery to customers. All the final products are securely kept in our lock storage area. Before the products are delivered to the customers, we will conduct another outgoing inspection to ensure that the product delivery information is correct and that it meets our Group’s quality control objectives.

 

6. BUSINESS OVERVIEW
6.3.5 Machinery and Equipment Many of our installed production machinery are supplied on consignment basis while the remainder are purchased outright. Our consignment machinery and equipment are mostly supplied by Avago as part of the technology transfer to us to carry out Avago’s production orders. Under the consignment basis, the machineries are owned by Avago but housed in our production facilities. The consigned machineries are only to be used for the manufacturing of Avago’s products. The consignment basis has allowed us to achieve the following: (i) immediate commencement of high-volume production operations; and
(ii) better focus on our core competency ie product improvement, manufacturing process improvement and process innovation.

We also purchased machinery and equipment from our machinery suppliers to cater for additional production orders from Avago. Our suppliers are primarily from Malaysia, Japan, Belgium, South Korea and the US. The audited net book value of the machineries and equipment owned by us amounted to RM15.19 million as at 31 December 2010. Machineries and Equipment  Description  Consigned  Owned  Total  Back-End Wafer  Process  Advance Dicing Technology UV irradiation system  Used for ultra violet cure adhesion tape  1  – 1  Fully automated wafer tape and reel machine  Used for wafer level chip scale packaging (WLCSP) tape and reel  – 1  1  Fully Automatic In-feed Surface Grinder  Used for wafer thinning  – 1  1  ICOS WI-2000 wafer inspection system  Used for wafer auto inspection  1  1  2  Scribe & Break  Used to scribe and break the wafer into dies  5  – 5  Semi automatic wafer thickness measurement system  Used for wafer thickness measurement  – 1  1  Wafer Prober  Used to test ICs  50  – 50  SMT  Automatic Cleaning System  Used for substrate / PCB cleaning process  – 2  2  Ekra XPRT3 Printer  Used for solder printing  – 1  1  MPMUP 2000 Hie -Auto stencil wiper with  Used for solder printing  – 3  3
6. BUSINESS OVERVIEW
Machineries and Equipment  Description  Consigned  Owned  Total  vacuum Purge/Zero Heat Regenerative dryer Reflow Heller Solder Wave l\1achine Ultrasonic Cleaning System  Used for substrate drying Used for solder reflow process Used for solder wave Used for substrate / PCB cleaning process  —- 2 3 1 1  2 3 1 1  Die Attach Automatic Epoxy Die Bonder  Used for die attach process  47  14  61  Wire Bonding  Used for wire bonding Used for bond pull and die shear measurement  70 4  32 – 102 4  Automatic Wire Bonder Royce System 552 Universal Bond Shear Tester  Mould Automold System  Used for molding  2  – 2  Saw Auto Dicing Saw  Used for saw dicing  13  18  31  Final Testing  Used to sort the IC chips in testing process  59  17  76 Test Handlers  Reliability Acid decap fume hood FocaI spot X-ray System Metkon Grinding & Polishing Machine, Micracut 125 precision Cutter  Used to decap IC packages samples for failure analysis Used for x-ray inspection and Failure Analysis Used for Failure Analysis  — 1 1 1  1 1 1
6. BUSINESS OVERVIEW
Machineries and Equipment  Description  Consigned  Owned  Total  SAM-TEC Evolution II Scanning Acoustic Microscope Vertax BOA X-ray  Used for Failure Analysis and package de­lamination Used for x-ray inspection and failure analysis  — 1 1  1 1  COB/MCOB Plasma Machine  Used to perform substrate cleaning  3  1  4  MCOB Laser Mark Machines  Used for laser marking  4  – 4
The total production capacity of the machinery and equipment mentioned above is set out in Section 6.3.6 of this Prospectus.
6.3.6 Production Capacity for our EMS operations Our EMS production operations run 24 hours a day and seven (7) days a week. The production output, capacity and utilisation of our production facilities for FYE 2010 are as follows: Annual  Production  Actual Production  Products  Capacity* (Million)  Output* (Million)  Percentage (0/0) Utilised  SiP Packaging with various chip  364  297  82%  sizes  Final Testing  637  563  88%
Note: * Includes capacity from consigned machineries. We are currently operating at 85% capacity on average. Due to growing demand for our services, ·we plan to expand our production capacity by acquiring more machinery and equipment as well as upgrading old ones. [ Therestofthispageisintentionally lettblankJ

6. BUSINESS OVERVIEW
6.4 TechnologyISolutions 6.4.1 Technology Infrastructure The technologies involved in the back-end semiconductor packaging are mainly back-end wafer processing, packaging assembly (SMT assembly, COB assembly and MCOB assembly) and final testing (DC and RF testing). The description of these technologies employed by us is explained below: Back-End Wafer Processing Technology Back-end wafer processing is a step of semiconductor device fabrication during which a wafer is prepared for packaging assembly and final testing. Back-end wafer processing typically consists of several steps such as wafer test, wafer back-grind, wafer mount and wafer saw. Wafer testing is a process to test all individual ICs that are present on the wafer for functional defects. The wafer testing is performed using test equipment called a wafer prober. Our wafer probers are able to test the electric characteristics of each chip created on a wafer, by sorting the good or defective chips. We have high-speed wafer handling probers with super magnification function and high-specification system that provides the testing system which meets the needs for the miniaturisation of the next-generation devices and stringent testing environment. Due to the increased demand for more complex and miniaturised ICs, thinner wafers are required. Wafer grind is commonly used to make a wafer thinner. After wafer grind, the next process is wafer mounting and this process prOVides support to the wafer while it is being taken from wafer saw through to die attach. During wafer mounting, the wafer and a wafer frame are simultaneously attached on a wafer or dicing tape. Wafer saw follows wafer mounting, and the wafer is cut into individual dice for assembly in IC packages. Surface Mount Technology SMT is a method of populating electronic circuit boards in which the components are mounted directly onto the surface of the PCBs. SMT uses flat pads on the surface of a board combined with components designed such that their connecting leads can be soldered onto the pads. This technology has replaced the conventional through hole technology where components had leads which passed through the board and which were soldered on the opposite side to the component body. The main advantages of SMi over through-hole technology are: (i) Both sides of a circuit board can be used (which helps to reduce the size of an assembly).
(ii) Multilayer circuit boards are easier to design and make with SMT, therefore leading to a decrease in size of PCBs.

(iii) Surface mount lends itself to automated assembly and therefore, when used for volume production, can offer lower costs. (iv) Smaller components can be used, allowing increased circuit density. 6. BUSINESS OVERVIEW
Flip-Chip Process Technology Flip-chip technology is gaining popularity in semiconductor packaging. In early 2010, we introduced flip-chip technology into our manufacturing processes. Flip-chip technology is a method for interconnecting semiconductor devices, in which the silicon die is directly attached to the substrate using solder bumps instead of wire bonds. This method provides the densest interconnect with the highest electrical and thermal performance. Flip-chip technology offers a number of advantages to end-users, including: (i) High density interconnection -Allows far higher I/O (input/output) counts than conventional packaging.
(ii) Low overall cost -Allows smaller die sizes than conventional packaging.

(iii) High thermal performance -Allows heat sink to be mounted directly to the die backside. (iv) High speed performance -Connection routes and induction can be minimised.
(v) Small component size -Array layout and elimination of wire and mould height.

 

Chip-on-Board and Multiple-Chip-on-Board Assembly Processes COB and I”1COB are referred to as the semiconductor assembly processes wherein the microchip or die are directly mounted on and electrically interconnected to its final PCB alongside other components, instead of undergoing traditional assembly or packaging as an individual Ie. The elimination of conventional device packaging from COB and MCOB assemblies simplifies the overall process of designing and manufacturing the final product, as well as improves its performance as a result of the shorter interconnection paths. Advantages offered by COB and MCOB assembly processes include: (i) reduced space reqUirements;
(ii) reduced cost;

(iii) better performance due to decreased interconnection lengths and resistances; (iv) higher reliability due to better heat distribution and a lower number of solder joints;
(v) shorter time-to-market; and (Vi) better protection against reverse-engineering.

 

Radio Frequency Testing Technology Our competence in the final testing service is RF testing, which is principally the testing of semiconductors for their RF transmission capabilities. RF testing equipment is used in conjunction with RF transmitters, electronic devices that create continuously varying electric current, encode sine waves, and broadcast radio waves. Most RF test equipment incorporates one or more RF meters. Examples of RF meters include RF power meters, RF field strength meters, and RF volt meters. An RF power meter measures the power of the transmitted RF signal. An RF field strength meter measures the strength of the transmitted electromagnetic

 

 

6. BUSINESS OVERVIEW
wave and an RF volt meter is used to test voltage signals which is the electrical potential difference between two points in a circuit. Others IT-related software/applications Apart from our semiconductor specialties and technologies, our Group has also installed advanced IT-related software/applications to ensure that we are operating effectively and efficiently. • Online Human Resource Management System -to monitor, control and manage our staff payroll, human resources information (for instance headcount by sections / operations, employee’s particular and its profile, and recruitment actiVities) and work management including overtime and attendances;
• e-Training -to track, monitor and manage staff training and records, and to evaluate the training competency / effectiveness;
• Online Production Shop-Floor Control System -a fully customised system to organise and control the overall factory resources and manufacturing process including preparing production data and workflow, equipment management, work orders management, production output and yield control, inventory control, and trace consumption of components into finished products;
• e-Statistical Process Control System -is a manufacturing process control system which is designed to improve our quality control with effective decision-making, root­cause analysis, improved operation and quality, improve problem management response time, enhanced customer satisfaction and better profitability;
• e-Material Test Reporting System -to manage, monitor, track and analyse the raw materials used by our Group. This is to ensure the quality meet its’ specification and Environmental standards;
• Online Spare Parts Control System -to monitor and manage on spare parts usage includes life span of spare parts, machinery breakdown, spare part expenditure as well as inventory control and inventory holding costs; and
• Enterprise Resource Planning System -to manage our Group’s financial, operational and customer relationship manClgement. It enables better insight into our businesses.

6.4.2 Technology Capabilities We place a high emphasis on the production of quality products. We regularly invest in high­technology machinery and R&D activities to strengthen our production capabilities and the quality of our products. Electronic components are becoming increasingly miniaturised and more complex. At the same time, quality reqUirements are growing more stringent. For most markets such as communications, automotive or aerospace, the zero-defect quality of components is a necessity. One major area affecting the reliability of electronic assemblies is the solder joint quality. In order to ensure the highest quality, we constantly undertake new and automated testing methods. We are equipped with the latest x-ray diffraction machines and failure analysis machines which provide the means necessary to inspect such components. Any defects which 6. BUSINESS OVERVIEW
show a noticeable effect on the shape of the solder joint can be detected through failure analysis. By using modern and advanced x-ray technology as well as advanced inspection software, we are able to detect imperfections beyond visual inspections. Through our continuous effort in enhancing our technology, we have been able to improve our production capabilities to meet the complex requirements of our customers. The table below highlights our capabilities in the production processes which we offer: Category  Description  Unit  Inari Technology I–_.Capabilitv  Wafer back-qrind -Silicon wafer  Yes  Max wafer size  in  8  Min thickness  um  125  Thickness accuracy  um  12.5  Wafer DC probe  Yes  Back-End  Wafer RF probe  Yes  Wafer Process  Auto wafer visual and reject capture into wafer map (inkless wafer map)  Yes  Manual wafer visual and inkinq  Yes  Wafer saw -Si wafer  Yes  Wafer saw -qallium arsenide (“GaAs”) wafer  Yes  Wafer scribe and break  Yes  Die level tape and reel (for die sell)  Yes  Smallest SMT component  01005  SMT  Die level SMT (qold pad)  Yes  Smallest 01005 Dad  um  175×225  Thinnest die (Si and GaAs)  mil  4  Smallest die size  mil  7.3×7.3  Die Attach (\lOA”)  Medium thermal eDOXV (3-10W/mK) Low thermal eDOXY «3W!mK) Biggest die aspect ratio for GaAs die with 4­5 mil thickness  Sumitomo 1295SA  Ablestick 84-1LMIS  2:1  Stack die capability .  Yes  Flip chip capability  Yes  Gold \<\!ire size  mil  1.0  AI pad bondinq capability  Yes  Die to die bondinq capabilitv  Yes  Gold ball bond, min bond pad opening for 1 mil wire  um  60 x 60  Wire Bonding  Gold ball bond, min wire loop for 1 mil wire  um  100(Std. Bond) 60(RSSB)  Minimum bond Dad pitch for 1 mil wire  um  75(Bond Dad on die)  Gold ball bond, min bond pad opening for 0.8 mil wire  um  55 x 55  Gold ball bond min wire loop for 0.8 mil wire  um  85  Minimum bond Dad pitch for 0.8 mil wire  urn  60  Available mould cap height  mm  0.5 and 0.6; 0.7 and 0.8  Mould  Ultra low stress compound -for product with high internal stress MouldlVlC with void vacuum (quantity) / total mould MC quantity Mould MC with panel vacuum (auantitv) / total mould  Yes  Yes  Yes
6. BUSINESS OVERVIEW
Category  Description  Unit  Inari Technology Capability  MC quantity  Saw  Package saw accuracy  um  50  Smallest packaqe  mm  1.6 x 2.0  Final Testing  RF/DC Test capability  Yes  Reliability  Infrared Reflow Oven  Yes  Unbiased Pressure Pot  Yes  Failure Analysis  . X-Section / Backlap  Yes  X-Ray  Yes  Scanning Acoustic Microscopy  Yes
Our technology capabilities in semiconductor packaging are benchmarked against the requirements and standards, for example, of our existing key customer, Avago. Our R&D division works directly with Avago to research, test and produce more precise, miniaturise and sophisticate products to use in the new and advanced wireless microwave technology products.

6.5 Demand and Seasonality There is seasonal demand trend for our products and services. We experience better sales during second and third quarters of the calendar year. The better sales are due to the anticipated strong demand for consumer electronics products during the Christmas/holiday period at the fourth quarter of the calendar year. The demand for our Group’s products and services is also dependent on the global economic backdrop and market trend for our products. We believe that however, that our capabilities will meet the future trends due to the fact that we are able to proVide high quality prodUcts, reliable services, commitment to meet and exceed customers’ requirements, and ability and willingness to change and adopt to technologies driVing future market trends.
6.6 Order Backlog and Interruption in Business Operations Currently, we are operating at apprOXimately 85% capaCity. We do experience some order backlogs when orders exceed the 100% capacity in our operations due to unforeseen circumstances such as seasonal surges in order, poor quality of incoming material batches and power outages. A typical power outage will result in a stoppage in our operations, and require few hours to power up the machinery to recommence operation. During the last 12 months, we have improved on these factors and we have not experienced any. significant interruptions in our production operations. Generally, we are able to reduce our order backlog to less than 5% of forecasted production load by customers so that we are able to catch up and reduce our backlog quickly if backlog happens. [ Therestofthispageisintentionally leftblankJ 6. BUSINESS OVERVIEW

6.7 Environmental Management 6.7.1 Environmental Policy We recognise that a healthy and sustainable environment is very important to our global society, our economy, our business and our people. We believe that we have a responsibility to manage and leverage our resources, and the work we do in a way that promotes a healthy environment. As such, we are committed to considering environmental issues in all aspects of our business, including how we evaluate the supply of material, products and how we conduct our process operations with consideration of customers’ as well as regulatory requirements. In our commitment to ensure our products and operations comply with relevant environmental legislation and regulations, we responsibly manage the use of Restricted of Hazardous substances in our process and products based on customers’ requirements. The European Union Restriction of Hazardous Substances Directive 2002/95/EC restricts the use of six (6) substances in electrical and electronic products namely lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls and polybrominated diphenyl ethers. Our policy denotes our intention and direction with regards to environment control. We aim to deliver green and safe products and services for the good of the environment. We are committed to proVide environmentally friendly products to our customers. This is achieved through our continuous efforts to provide and improve the work processes and work environments, so as to be cleaner and safer for the customers, employees and the society. Our environmental management system comprises the following instructions: (i) We use only environmental-safe raw materials in our products and processes;
(ii) We establish objectives, targets and standards for continual environmental improvement;

(iii) We prevent water, air and noise pollution, reduce waste and minimise the natural consumption of natural resources; (iv) We always comply with the relevant environmental regulations and customers requirements;
(v) We educate, train and motivate our employees to be· enVironmentally friendly in a responsible manner; and
(vi) We encourage and influence environmental protection among our suppliers, subcontractors and their work on behalf of our Group.

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6.7.2 Environment Management System Through our continuous efforts in providing safer working environments and environmentally friendly products, we were awarded with the 15014001:2004 certifications from SGS United Kingdom Limited and SGS (Malaysia) Sdn Bhd in 2007. The International Standard ISO 14001:2004 sets out requirements for an Environmental Management System used to measure and document their environmental impact. The Environmental Management System is established to conserve natural resources such as water and electricity, elimination of waste by improving process yield etc. We have successfully conserve/reuse reverse osmosis de-ionisation water discharge for our factory plant toilet flushing system, conserve electricity by reviewing facility control, recycle used carton boxes, paper and plastic by proper waste segregation and disposal in order to create awareness and involve participation from all employees. We are aware of the importance of clean industrial effluent discharge. Therefore, we invested in a Waste Water Treatment Plant to eliminate the discharge of contaminated effluent to inland water. We also established a proper scheduled waste management system to prevent adverse effect of pollution to environment. Scheduled waste are identified and properly segregated in schedule waste store and dispose via a licensed external collector. Inventories of such waste are tracked and report to Department of Environment. We have a complete system of identifying Environment Aspect and Impact where the evaluation of environment aspect and impact for new and updated processes are performed by trained and qualified environment and process personnel. We reviewed legal and other statutory requirements regularly. We have documented procedures which comply with pollution control directives on air,. water and noise. Environmental monitoring e.g. air monitoring comply to Environmental Quality (Clean Air) Regulations, waste water discharge monitoring comply to Environmental Quality (Sewage and Industrial Effluent) Regulation; and area noise monitoring which comply to Factories and Machinery Act (Noise Exposure) Regulation. Our safety and emergency response team will continuously identify areas of improvement in our Group’s safety management, and proVide regular training to ensure our staff can handle emergency events. Our safety training includes emergency evacuation exercises and chemical spillage control.
6.7.3 Health, Safety and Environment (“HSE”) To ensure a conducive and safe working place for our employees, we have a HSE policy in place. Our HSE policy lists out the principles governing how we conduct our business and how our employees conduct themselves in support of our HSE policy. Details are as follows: (i) To ensure a safe healthy operation, including handling and storage products, arid proper system of work; (ij) To prOVide adequate information, instruction, training and supervision on safety in· the workplace; (iii) To maintain a safe environment in the workplace;

6. BUSINESS OVERVIEW
(iv) To provide adequate facilities to protect the employees’ safety and health; and
(v) To comply with applicable statutory laws and regulations to our business.

6.8 Research and Development 6.8.1 Our R&D Division Our Group’s output is predominantly market-driven by the wireless microwave telecommunication market -a market where the technologies constantly evolve. As such, we are highly dependent on our continuous R&D initiatives, which cover engineering, production, testing and quality control of semiconductor packing processes. Since the establishment of our R&D division in 2008, our R&D activities are focussed on enhancing our manufacturing process capabilities as we develop new products for new markets. R&D is crucial to our business and is the key driver for our Group’s business expansion. Our R&D division has four (4) key personnel and is headed by Tan Boon Kiat. Our R&D staff experience in the semiconductor packaging industry range between six (6) years and 20 years. The key roles and job functions of our R&D staff are listed as follows: Year of Name Qualification Experience R&D Description Tan Boon Kiat Bachelor of 20 Vast technical/process knowledge in Engineering back-end wafer processing and Ie (Honours), assembly as well as RF testing. Mechanical Engineering Adhnan Bin Iiyas Bachelor In Electrical 13 Specialise in SMT assembly for new & Electronic prodUct process development. Engineering Teoh Boon Pin Bachelor of Science, 6 Specialise in back-end wafer Physics (Honours) processing to define probe test setting, visual pattern creation, wafer thinning and sawing processes characterisation. Phang Tong Hui Higher l’Jational 12 Specialise in RF testing system Diploma in Electrical development using Agilent test & Electronic instruments; optimise test performance and troubleshooting on the performance of devices using Agilent Network Analyser and Infinium Scope. [ Therestofthispageisintentionally lettblankJ

 

6. BUSINESS OVERVIEW
6.8.2 Achievements Through our efforts in R&D, we have achieved the following in the development of new products and processes. Year of Implementation Achievement
2008 Assembly -Achieved 1 mil die placement accuracy for critical die attach process. 2008 Assembly -Developed 60 um pad opening wire bond capabilities. 2009 SMT -01005 SMT components capabilities. 2009 Wafer Sort -Gallium arsenide wafer sawing 2009 Wafer Sort -Wafer level chip scale packaging test, saw; tape and reel processes . 2009 Assembly -Developed coreless PCB die attach and wire bonding processes capabilities. 2009 Successful released 16 RF products into production mode on time and collaborate with our customer. Through our R&D division, we also offer our customers New Product Introduction (NPI) services to assist them in bringing their new products to market. Our NPI services to our OEM customers include: (i) formulating strategies for materials;
(ii) manufacturing and testing in the concept phase of a product development;

(iii) collaboration on the electrical and mechanical design of the product in meeting their cost; and (iv) establishing quality and cycle time requirements for volume production. Since inception, the R&D division’s standard practice is to work closely and regularly with experienced technical professionals from both the supply side (machinery and equipment manufacturers) and demand side (our OEM customers). We work with the machinery and equipment manufacturers to conduct customisation works on the machinery and equipment used in our factories to improve their capabilities and efficiencies. We work with the technical professionals of our OEMs customers for data collection to achieve desirable R&D performances.
6.8.3 Planned R&D Activities The core elements of our planned R&D activities include: (i) Focusing our solutions on core technologies to minimise overlap and provide a clear choice for customers; and
(ii) Establishing a long term strategic vision for future products and manufacturing processes which combines our complementary pieces of technology into a common, cost-optimised architecture. .

 

6. BUSINESS OVERVIEW
Our planned R&D activities are to improve and strengthen our main capabilities in the following processes: (i) Back-end Wafer Processing The challenge in back-end wafer processing is to customise and configure our machinery parameters and processes to support thinner and smaller street sawing capability to enable more gross dies per wafer. We have paved our roadmap to support and develop thinner wafer grinding with smaller saw street, as small as 45 um which is 22% smaller than our current capability. We also plan to start the development of copper pillar bump grinding and sawing processes from end of 2010. Back-end Wafer Processing Roadmap:
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(ii) Die Attach Technology We are committed to developing flip chip process capabilities on both assembly and SMT pick and place with 20 um placement accuracy. This development will enable our customers to simplify the die attach and wire bond processes with cost improvement and shorten the Ie processing time by 10% to 15%. Die Attach Technology Roadmap:
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(iii) Wire Bond Technology We are continuously improving our wire bonding process to minimise wire bond material cost, through reducing the gold wire (also known as Au Wire) diameter. The challenge we face is to minimise the bond pad opening and pitch for the small die size (which is 20% smaller than original) that is required by our customer to fit into more miniaturised sophisticated mobile RF component. We also intend to develop copper wire bonding capability in lieu of gold wire. This is to mitigate the high price in gold in recent years. Copper is much cheaper than the gold wires we currently use but has different material properties Wire Bond Technology Roadmap:
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6. BUSINESS OVERVIEW
(iv) Plasma, Mould.and SMT Technology With the IC package conversion to COB flip chip process, we are continuously optimising our mould parameters to fill up the gap between the solder pad and flip chip components with smaller fillet size mould compound acquired from reputable suppliers. We have recently completed the SMT 01005 component capability and this will gives our customers options to design miniaturise SiP packaging with smaller SMT assembly components. Plasma, Mould and SMT Technology Roadmap:
6.8.4 R&D Expenditures The amount spent on R&D activities and their percentage shares on revenue over the last three (3) years are as follows: FYE 2008 FYE 2009 FYE 2010 RM’OOO RM’OOO RM’OOO Revenue 100,232 123,357 154,800 R&D Expenditure 144 674 2,705 % of Revenue 0.14% 0.55% 1.75% % R&D growth (year 368% 301% on year) Our R&D expenditures comprise setting up our R&D facility to carry out R&D activities as well as salaries paid to the R&D personnel and training. To remain competitive in the market and ensure sustainable growth in the future, we plan to budget an average of 2% of revenue for future R&D activities.

6. BUSINESS OVERVIEW
The R&D expenditures budgeted will mainly be spent on R&D overheads, purchase of software and hardware, technical training for R&D staff and training for production staff on new product introduction and production processes. Our R&D division will set up a packaging laboratory in the next two (2) years for future package development and install various state-of-the-art machinery and equipment such as die attach bonder, wire bonder with gold and copper bonding capabilities, flip-chip bonder, auto mould machine, wafer laser cut machine, wafer/package saw machine, package laser mark machine, wafer automated optical inspection machine, and wafer thinning machine for silicon and sapphire wafer. 6.9 Licenses, Permits, Registrations, Certifications and Awards We have obtained all the necessary licenses for the operations of our businesses from the respective local and federal authorities. The licenses, permits, registrations and certifications held by our Group for our business activities are as follows: Issued Authority To Type of Licence Validity Mm Inari Manufacturing License (for wireless n.a. Technology microwave telecommunication filters wireless home broadcast digital TV card) Royal Malaysian Inari Letter of approval to register a new n.a. Custom Technology factory in the Free Industrial Zone (for manufacturing actiVity of wireless microwave telecommunication filters and wireless home broadcast digital TV card) Labour Department Inari Exemption from prohibition of night work n.a. of Penang Technology for women employees under Section 34 of the Employment Act 1955 SGS  United  Inari  ISO  14001:2004  (for  Electronic  21.12.2010  Kingdom Limited  Technology  Manufacturing  Services  in  assembly  of  and remains  PCB  using SMT COB  processes and IC  valid subject  testing services)  to satisfactory  surveillance  audits  SGS (Malaysia) Sdn  Inari  ISO  14001:2004  (for  Electronic  21.12.2010  Bhd  Technology  Manufacturing  Services  in  Assembly  of  and remains  PCB  using  and  COB  processes  and  IC  valid subject  testing services)  to satisfactory  surveillance  audits  SGS  United  Inari  ISO  9001:2008  (for  Electronic  18.01.2013  Kingdom Limited  Technology  Manufacturing  Services  in  Assembly  of  PCB  using  and  COB  processes  and  IC  testing services)
SGS  (Malaysia) Sdn  Inari  ISO  9001 :2008  (for  Electronic  18.01.2013  Bhd  Technology  Manufacturing  Services  in  Assembly  of  82
6. BUSINESS OVERVIEW
Authority  Issued To  Type of Licence  Validity  PCB using and testing services)  COB  processes  and  IC  Atomic Licensing Board  Energy  Inari Technology  License to buy, possess, use, manage, store, import and export radioactive apparatus  19.04.2013
Mm Inari Pioneer Status for 5 years to 01.02.2007 ­Technology manufacture Wireless Microwave 31.01.2012 Telecommunication Filters and wireless home broadcast digitallY card 6.10 Quality Assurance Management We have a QA department responsible for product quality. We have implemented quality control points at every stage of the production process, from product realisation and planning to final product delivery. Being a reputable company and recognised brand in the semiconductor industry, the quality of our products and services is our number one priority. Quality will determine our Group’s future in the semiconductor industry. 6.10.1 Quality Objectives and Policy (i) Quality Policy We are committed to delivering best-in-c1ass quality services and products to our customers. This is achieved through: (i) QMS compliance based on ISO 9001:2008 reqUirement and to continually improve its effectiveness;
(ii) Compliance of customers’ reqUirements and improve customers’ satisfactions;

(iii) Cost effective manufacturing; and (iv) On time delivery [ Therestofthispageisintentionally lettblankJ 83 6. BUSINESS OVERVIEW
(ii) Quality Objectives Our quality objectives are as follows: (i) Achievement of 100% customer satisfaction through fulfilment of customer expectations regarding product quality according to product specifications and delivery efficiency;
(ii) Reduction in internal process rejection; and

(iii) Training of employees. 6.10.2 Quality Management System In the semiconductor industry where technical specifications are highly complex with limited room for errors, quality control is most essential in the product manufacturing process. We have adopted stringent internal quality management assurance policies to ensure that the products produced and services offered by us are of high quality and meet the specifications and requirements of our OEM customers. Inari Technology was awarded the ISO 9001:2008 certification in recognition of its QMS in the manufacturing and assembly of PCB using SMT and COB assembly processesbySGS United Kingdom Limited and SGS (Malaysia) Sdn Bhd in 2006. These accreditations are a testament to our Group’s ability to comply with international standards and quality. Our in-house QA team carries out internal quality audits on our QMS, in addition to an annual management review. We conduct quality inspections at various stages of the production process to facilitate corrective actions in order.to eradicate any cause of deviations on their sources. We have eqUipped ourselves with advanced technology inspection equipment, such as high powered measurement machines, thickness measurement machines, and auto visual inspection machines to ensure that the products consistently meet the customers’ requirements and specifications. Our customers also send their own QA personnel to conduct quality inspections at our Group’s production floor regularly. This audit process strengthens the customers’ confidence in our Group’s products. We offer a full range of semiconductor packaging services which include testing service. This testing service is a semiconductor process to check the quality of the ICs and ensure they are operative. To comply with our customers’ stringent requirements, we conduct 100% inspection on the ICs we produced. All manufactured processes and inspection control are defined in the respective product family control plan. In general, we use control plan as a management tool to identify and monitor the activity required to control the critical inputs or key outputs for a process to ensure the process will continually meet its product or service goals. Our control plan sets up control points along receiving, incoming quality control, real-time inspection, and in-process control and outgoing control processes. 6. BUSINESS OVERVIEW
Below are our QMS activities: (i) Process control parameter and sample size, inspection or control method in respective process step, are established for crucial product control. There are procedures and work instructions established to describe detail processes and controls. These documents are registered and controlled via document control procedures.
(ii) Change control procedure is implemented whereby process changes are systematically revised and tracked, and where required, customer approval is obtained.

(iii) Quality assurance resources are made available in various control processes. We have a comprehensive audit system in place for system, product and process audit. Audits are planned in appropriate intervals to assess our processes for compliance against documented procedures and specifications. (iv) Failure Mode and Effect Analysis is used for the respective product family to document any potential failure mode and formally documented for preventive action.
(v) Process testing and measuring equipment are properly calibrated and ‘bought off’ prior to release to production.
(vi) Statistical Process Control is used in critical control processes as a preventive measure to monitor process performance.

(vii) All process and QA personnel are trained and certified prior to release to operation. Training l\Ieed Analysis is performed to assess the gap between the knowledge, skills and attitudes that the people in our Group and the knowledge, skills and attitudes that they require to meet the organisation’s objectives. We proVide regular training to our workforce to keep their knowledge up to date. Our commitment to regular training is enhanced through our development of a customised e-Training System to keep track of upcoming training programmes and document trainings attended by employees. (viii) Customer feedback, delivery, manufacturing process indices, internal and customer audit results are analysed and regularly reviewed during management meetings; (ix) Key projects for continual improvements are identified and led by our respective heads of department.
(x) Full QMS review is done annually to address changes affecting system, regulatory and customers’ requirements~

We are constantly seeking improvements to our QMS activities. Below are some of the precautionary measures that we have adopted to minimise the risk of production interruption and to ensure high quality output for our plants. 6. BUSINESS OVERVIEW
6.10.3 Electrostatic Discharge ESD is one of the major causes of device failures in the semiconductor industry. To prevent any failure in the products that we produce, we have implemented an ESD programme and several control procedures. When the staffs are carrying out their work in the production floor, they must comply with operating procedures. We have electrostatic protective areas in production area where highly charged materials are prohibited in the vicinity of ESD sensitive electronics, all conductive materials are grounded, workers are grounded, and charge build­up on ESD sensitive electronics is prevented. We also use the appropriate ESD-safe packing material, conductive filaments on garments worn by assembly workers, wearing wrist straps and foot-straps to prevent high voltages from accumulating on workers’ bodies, anti­static mats or conductive flooring materials to conduct harmful electric charges away from the work area, and humidity control. We also provide regular training on our procedures to all our existing and new staff. To ensure high quality standard of products and services, we have implemented Class 10K c1eanroom facilities on our Assembly and Wafer Sort production floors, and Class lOOK c1eanroom facilities on our Test production floor. We use nitrogen gas where required to maintain a dry environment in our production facilities. 6.10.4 Poka-Yoke Poka-Yoke means “fail-safe” or “mistake-proofing”. Our Poka-Yoke system is a lean manufacturing process that helps us avoid mistakes in our production process. Its purpose is to eliminate product defects by preventing, correcting, or draWing attention to human errors as they occur. Our assembly, wafer sort and test operations are implemented with Poka-Yoke control systems where bar codes, jigs and fixtures, timer programme settings, alarm systems, test programme upgrades and shop-floor control etc., are used in appropriate processes. 6.10.5 6S Programme We practise the 65 Programme i.e. 55 and Safety in our factories. Our 65 Programme seeks to improve quality through the practise of appropriate housekeeping and to promote good standard and discipline. Our 65 Programme is certified by third party i.e. Malaysia ProductiVity Corporation (“MPC”) in April 2010. With the guidance of MPC, we had developed a complete management system to review and assess 65 implementation and enhance productivity and thus develop an excellent working culture. 6S Programme Rules and Instructions SEIRI o Identify and remove all waste, unused and damaged items from (Sort) work areas SEITON o Place and return all reqUired items to its designated place (Set in order) o Place and arrange all materials in storage, stable, secure and with Kanban o Place and arrange raw material on the line and staging area neatly
o Practice first-in-first-out

SEISO o Wipe down and clean work area (Shine) o Remove dust, dirt and trash from workplace 86 6. BUSINESS OVERVIEW
6S Programme Rules and Instructions SAFETY o Emergency instructions at the workplace o Safety awareness at all times SEIKETSU o Proper Kanban for related area, material or process (Standardise) o Wire and cable management to prevent trip or fire SHITSUKE o Eat and smoke at designated areas (Self o Work following the standard Discipline/Sustain) o Adhere to safety rules and regulations
o Wear proper and clean uniform and shoes
6.11 Major Customers Our major customers (accounting for 10% or more of our revenue) of our Group for the latest three (3) financial years and FPE 2011 are as follow: Sales Contribution (%) Company Year of FYE FYE FYE Name Country Relationship Product Sold 2008 2009 2010 Avago US 4 Back-end wafer 99.8 99.8 99.9 (including its processing, package
subsidiaries) assembly and RF final testing Other Customers 0.2 0.2 0.1 Total Sales 100 100 100 The bulk of our revenue comes from our key customer, Avago. Avago has contributed more than 90% of our revenue for the last three (3) financial years and FPE 2011. Therefore, we are currently very dependent on Avago for our business. Our sales to Avago (or its subsidiaries) are governed by a development and manufacturing agreement first entered into on 21 December 2006 and renewed on 1 May 2010. Salient details are as follows: (i) Inari shall develop and maintain a manufacturing process and production line to fulfil its obligations to manufacture in accordance to the standards and specifications as proVided by Avago;
(ii) Avago shall issue an order forecast that estimates future purchase requirements for a particular product/service. Thereafter, Inari Technology will provide a quotation to Avago setting out the pricing and/or pricing formula for that particular product/service, after taking into consideration its direct and indirect manufacturing costs, industry pricing standards, level of manufacturing complexity and forecasted volume;

(iii) As and when required, Avago will issue Inari Technology a confirmed purchase order for a particular product/service based on the quotation. The said confirmed purchase order will set out inter-alia, the exact unit price and quantity, shipping destination and delivery date; (iv) It is also agreed that Inari Technology shall aggressively work on cost reduction initiatives and to share any cost reduction with Avago (i.e. to revise the price and/or pricing formula); and 87 FPE 2011 99.6 0.4 100 6. BUSINESS OVERVIEW
(v) The agreed payment is 45 days from the date of receipt of invoice. Our final sales volume to Avago depends on the requirements of Avago’s end clients. In the last three (3) years of operation, there were no significant deviation between the actual sales volume and the forecasted volume. The development and manufacturing agreement is effective for a period of three (3) years unless earlier terminated in accordance with the following provisions: (i) Either’ party may at any time for its sole convenience, give 180 days written notice of termination to the other party to terminate the agreement. Subject to agreement in writing between the parties, Inari may be entitled to reasonable compensation from Avago for any outstanding cost incurred for investment on equipment and machinery. Inari will not, however be compensated for work done after receipt of Avago’s notice, nor for any cost incurred by Inari’s vendors or subcontractors after Inari receives the notice, nor any costs Inari could have reasonably avoided; and
(ii) Either party may terminate the agreement if the other party defaults in performance of any material obligation which continues for a period of 30 days after a written notice was served to the defaulting party.

Upon termination or expiration of the agreement, all obligations of the parties shall be terminated. In the event Avago terminates the agreement under the ground of default in performance, eligible purchasers may procure products similar to the products as to which the agreement is terminated. Notwithstanding any limitation of liability, Inari agrees to reimburse Avago for all additional cost incurred by Avago in purchasing, qualifying and testing such similar products less any cost save on account of Inari’s breach. There are prohibitions by Avago for the Group to supply to other parties under the follOWing situations: (i) the devices/products manufactured are competing with Avago’s products;
(ii) the customers/parties are competing with Avago;

(iii) the technologies used are developed by Avago; (iv) the intellectual property to be used are owned by Avago; and
(v) the equipments/machineries to be used are consigned by Avago.

Since early 2010, we have started to expand our customer base by securing semiconductor projects from other OEM customers in Malaysia and overseas. To date, customers under our portfolio are listed ,below. We will continue to diversify our revenue stream through our business development strategies. 88 6. BUSINESS OVERVIEW
Details of our other customers are as follows: Customers Country Products and Services Application Markets of Origin VigSys Sdn Bhd* Malaysia PCBA and Box-Build Wireless communication -modem/router Ceedtec Sdn Bhd/\ Malaysia Electronic Product Design, PCBA Wireless communication and Box-Build -modem/router Duolabs SpA Italy Satellite 1V card 1V card NewICT Marketing Malaysia PCBA & Box-Build 1. Remote control (M) Sdn Bhd 2. Medical Sensor Wi2Wi Inc. US RF SiP Wireless communication -WiMAX SILQ (Malaysia) Sdn Malaysia LED Illumination Bhd Note: * VfgsysSdnBhdisasubsidiary companyofInsasTechnology, ourPromoter. /I Ho Phon Guan, our Director and Promoter is a substantial shareholder ofCeedtec Sdn Bhd. 6.12 Major Suppliers The major suppliers (accounting for 10% or more of our purchases) of our Group over the last three (3) financial years and FPE 2011 are as follows: Purchases (RM 0/0 of Length of Products No. Name Country Million) Purchases Relationship Purchased
2008 1. Marubeni Japan 31.0 48% 2 PCB / Substrate ASEAN Pte Ltd
2. Advanced China 9.0 14% 2 PCB / Substrate Semiconductor Engineering (Shanghai) Inc.

2009 1. Marubeni Japan 20.0 30% 3 PCB / Substrate ASEAN Pte Ltd
2. Advanced China 12.5 19% 3 PCB / Substrate Semiconductor Engineering

(Shanghai) Inc.
2010 1. Advanced China 13.9 21% 4 PCB / Substrate Semiconductor 6. BUSINESS OVERVIEW
Purchases (RM 0/0 of Length of Products No. Name Country Million) Purchases Relationship Purchased
Engineering (Shanghai) Inc.
2. Marubeni Japan 13.8 21% 4 PCB / Substrate ASEAN Pte Ltd
3. Tanaka Malaysia 6.8 10% 4 Gold Wire Electronics (M) Sdn Bhd

2011 1. Advanced China 6.3 13% 5 PCB / Substrate Semiconductor Engineering (Shanghai) Inc. Over the last three (3) FYE 2010 and FPE 2011, there were three (3) suppliers which contributed more than 10% of our Group’s total cost of purchases, namely Advanced Semiconductor Engineering (Shanghai) Inc., Marubeni ASEAN Pte Ltd and Tanaka Electronics (M) Sdn Bhd (for FYE 2010 only). The major raw materials purchased from these suppliers are primarily PCB/substrate and gold wire. We have established business relationships with these major suppliers since we started our EMS business back in 2006. We are of the view that we are not dependent on any single major supplier and our Management does not foresee that there will be any risk of over-dependency on any of the major suppliers due to the global availability of suppliers for our major raw material requirements. 6.12.1 Raw Material Source The main raw materials used by our Group are PCB/substrate, passive/active components and indirect materials such as probe tip, wafer saw blade, gold wire, test connector, and test _pin. Set-out below is a breakdown of the raw materials used by our Group, together with their respective sources of supplies. Supplies Country PCB/Substrate Japan, Taiwan, and China Wafer Probe Tips US Wafer saw blade Japan, Singapore Passive/Active components Japan, Singapore, and Malaysia Gold Wire IVlalaysia Test connector, test pin US Test connector US
Our raw materials are sourced from both Malaysia as well as from overseas countries, n9mely Taiwan, Japan, China, Singapore and the US. As these raw materials are easily available locally and globally, we have not experienced, nor do we foresee any supply problems that would adversely affect our assembly and testing operations. We also acquire raw materials from approved vendors from our customers, with the competitive pricing and favourable terms pre-determined between our customers and suppliers. We purchase raw materials from our suppliers through purchase orders on as­6. BUSINESS OVERVIEW
needed basis, based on our customers’ purchase orders and forecasts, on a back-to-back commitment basis. This eliminates the risk of over-stocking of raw materials. Due to the single source nature and currency fluctuations, we always negotiate and contract that fluctuations in raw materials prices (any increase in the raw materials price) which may affect our profit margin are passed on to our customers. Whereas for the indirect materials, we are able to source from multiple suppliers (whosoever prOVides the most competitive prices and meeting the reqUired quality) in order to keep costs low. Nevertheless, our Board believes that the volatility of our raw material cost is manageable, as our supply orders are based on production orders and not on long-term or open supply contracts. Generally, most of our products are sold based on the customers’ production forecast and the matching amount of raW materials reqUired is purchased. As such, the impact of the price movement of our taw materials, if any, would be minimal, since the current cost of raw materials would form part of the quotation to our customer. Over the years, we have built strong working relationships with our suppliers as we have established good track record for our purchases and payment commitments. This has resulted in access to regular supply of raw materials at competitive prices. The typical financial arrangement with our Group’s suppliers is either cash terms or credit terms ranging between 30 and 90 days. 6.13 Business Location We are currently operating in Malaysia only. Our business location details are listed in the table below: Name of  Plant!  Registered  Land Area  Owned!  Owner  Address  Purpose!Description  (sq m)  Leased  Plant 1/  No.5, Phase  4,  Bayan  Plant 1/0ffice and Factory  6,136  Owned  Inari  Lepas  Free  Industrial  Used  for  COB  and  MCOB  Technology  Zone,  11900,  Bayan  assembly operations  Lepas, Penang, Malaysia
Plant 3/ No. 51, Phase 4, Bayan Plant 3/0ffice and Factory 8,332 Owned Simfoni Lepas Free Industrial Used for conducting SMT Zone, 11900, Bayan assembly, wafer sort and final Lepas, Penang, Malaysia testing operations Plant A/ No 17, Jalan Kampung Plant A/Factory 3,623 Leased Avago Malaysia Jawa, Kawasan Used for conducting R&D, Perindustrian Bayan NPI and SMT operations Lepas, Fasa 3, 11900 Bayan Lepas, Penang [ The rest ofthis page is intentionally left blankJ 6. BUSINESS OVERVIEW
We are currently operating from three (3) factories, situated in Bayan Lepas Free Industrial Zone where many of our customers are located. Each of the factory plant has its own operations and purpose, as described below: Plant 1 Plant 1 is a 3-storey building and it is principally used for COB and MCOB assembly operations. Our MCOB and COB assembly services are carried out on the first and second floors of the factory, respectively. The third floor is mainly used for the storage of raw materials as well as assembled products for the next production processes. Plant 3 Plant 3 is a 3-storey factory. The first floor of this factory is used to carry out our SMT assembly services and storage of finished products. The storage areas are installed with a security access system to ensure no unauthorised personnel have access to the premises and tamper with the final prodUcts. The second floor of the factory houses our administrative office and back-end wafer processing facility to carry out back-end wafer processes, storage of raw wafers received from customers and storage of processed wafers (die bank). The third floor is our testing facility where all the ICs manufactured by us are tested. Our failure analysis activities are also carried out in this testing facility. Plant A Plant A is a single storey warehouse/ manufacturing leased from Avago Malaysia in December 2010. Plant A houses our R&D, NPI and SMT business units. 6.14 BUSINESS DEVELOPMENT STRATEGIES 6.14.1 Principal Markets We are an export-oriented EMS proVider. As at FYE 2010, total revenue generated from the local market was approXimately RMO.18 million, whereas apprOXimately RM154.62 million was generated from export sales globally, representing approXimately 99.9% of total sales. For FPE 2011, total revenue generated from the local market was approximately RM0.32 million, whereas approximately RM80.10 million was generated from export sales globally, representing apprOXimately 99.6% of total sales. 6.14.2 Business Development Strategies Our target customers are mainly OEM companies involved in wireless microwave telecommunication products, We position our services to meet the outsourcing requirements of these OEM companies, who, following global trends, contract out or out-source their manufacturing processes (from back-end wafer processing to final testing) to external EMS companies, like us. Most of our current revenue comes from our key OEM customer and shareholder, Avago, with more than 90% of our Group’s total revenue for the last three (3) financial years. Avago takes up approximately 90% of our available production capacity. Based on our Management’s estimates, we expect sales to Avago (as a percentage to our total revenue) to reduce to below 90% and 80% for 2012 and 2013, respectively. These targets form the objectives of our immediate business development strategies. 6. BUSINESS OVERVIEW
Our immediate business -development strategy is to enlarge our customer base, through offering our EMS to other companies in the semiconductor industry (non Avago customers). Since inception, we have focused on building capability and capacity, alongside a stable, responsive and high quality standard for our products and services, as a strategy to bring in long term businesses and projects from existing and potential customers. The initial marketing efforts were led and managed by our key founding shareholders. The rapid ramp and growing demand of our production outputs were both a bane and boon for Inari Technology. Until early 2010, all resources within our Group were absorbed with the servicing of our key customer and shareholder, Avago. As we recognised the lack of spare capacity in our Group and the risk of over dependence on a single customer earlier, we worked on business development with the overall strategy of long-term entrenchment of our Group in the global EMS supply chain using limited mid-term marketing/sales efforts to balance our need to grow, our need for customer diversification, and our Group’s finite resources and production capacity. We recognise that the correct positioning in the business development and management of our Group has allowed us to sail through the recent 2008/2009 period of the global financial crisis years unscathed. We also recognise the need for greater focus on new customer acquisition and product diversification to maintain our margins, growth and mitigation of single customer dependency risk. Our business development division is headed by our IVlanaging Director, Dr. Tan Seng Chuan. While Dr. Tan is primarily responsible for our Group’s new business development particularly in setting our Group’s business strategy, all four (4) Executive Directors are actively involved in the sourcing and management of relationships with new and potential customers directly and through our business partner channel. More specifically, Mr. Tan Lee Pang leads the operations and existing business development discussions with our customers while Mr. Ho Phon Guan guides the underlying technologies required to service our Group’s prospective and acquired customers. As at the LPD, we have a team of five (5) business development support staff who are currently headed by our Operation Manager (NPI and Business Development Support), IVlr Tan Boon Kiat. Our marketing and sales modes/activities include: (i) Working directly with key customer Since Avago is our key customer, we have a dedicated team of business development and operations personnel primarily led by Mr. Tan Lee Pang to work closely with Avago to plan and manage our manufacturing services for Avago. Mr. Tan Boon Kiat leads the product development and process improvement for our Avago business. We will continue to invest in new and improved machinery and equipment to cater for Avago’s current and future business demands. We place high priority on Avago’s production requirements. We work closely with Avago to ensure we are able to meet the delivery schedules of Avago. Our business from Avago is expected to be stable based on the quality and commitment of our services. 6. BUSINESS OVERVIEW
(ii) Referrals I Word-of -Mouth We have built a reputation for the quality of our production and services in the market over .the last three (3) years and we continue to position ourselves as a reputable player in the global ElVIS industry. Many of our new customers and prospect enquiries are now secured through referrals and by word-of-mouth. This will continue to be an important source of new businesses for our Group. (iii) Working with Business Partners We have business partners to help us market our products and services in the overseas markets. Our Group’s business partners are AmPacific Engineering Sdn Bhd and Eutegra AG, who are responsible for our marketing activities in the North American and European markets respectively. (iv) Participation in Trade Fairs, Conference and Exhibitions We participate in EMS trade fairs, conferences and exhibitions globally to promote our products and services as well as to meet prospective customers. Such participation in trade fairs and exhibitions is significant as our Group is then able to demonstrate and present our full range of quality products and services to the attendees directly. Below listed out the EMS trade fairs,conferences and exhibitions participated by our Group over the last three (3) years, between 2008 and 2010. Year of Events Location Objectives Participation Globetronics Show Singapore To introduce Inari 2008 2008 Technology to the EMS marketplace Productronica Munich, Germany Meeting venue with 2009 Show European prospects Nepcon Penang Penang, Malaysia Meeting venue with 2008, 2009 and prospects and -2010 technology suppliers Semicon Show Singapore Meeting venue with 2010 prospects and technology suppliers (v) Internet We operate a website, http://www.inariberhad.com, which is designed to promote our Group and our products to our existing and potential customers. Our customers can search for our Group’s information as well as the products and services we offer.

6. BUSINESS OVERVIEW
6.14.3 Business Partner Channel We have both local and international OEM customers. All our sales are generated through our sales office at our headquarters in Penang. We do not use distributors in our business ­instead, our marketing strategy is based on the business partner channel model to extend our market coverage to existing and new OEM customers. Our Business Partner Channel:
Our business development strategy is to contact and offer our products and services to prospective OEMs as well as working with existing customers on new products and processes. We employ two (2) types Qf business development channels-the direct marketing approach and through external business partners, who may act in different roles as intermediaries, project consultants or introducers, to promote our products and services to existing and potential OEMs/customers. The business partners typically focus on markets where they have specialised skills or business relationships. The varying roles of the business partners are the result of market requirements and supply chain complexities. The underlying objective is to maximise margins for all parties involved in the manufacturing by simplifying the supply chain complexities while maintaining high product quality. In practice, we typically carry out direct marketing activities when dealing with local customers and work with business partners for overseas customers. Our direct marketing approach enables us to work closely with our customers to evaluate and attain a better understanding of their requirements, as well as getting direct feedback channels for continuous product and service improvement. On the other hand, the business partner channel approach allows us to stay focussed on customers’ manufacturing requirements while utilising capabilities of our business partners to service the customers and extend our market coverage without the need for significant investments in marketing and related costs. As at LPD, we have appointed two (2) business partners, namely Eutegra AG and AmPacific Engineering Sdn Bhd to promote our products and services in the European and North American markets, respectively. We have a direct working relationship with Eutegra AG. Eutegra AG has a strong marketing strength and relationship with many OEM companies in the European market. We are partnering with AmPacific Engineering Sdn Bhd through our 6. BUSINESS OVERVIEW
founding shareholder, Insas Technology, to promote our Group in the North American market. AmPacific Engineering Sdn Bhd has strong marketing presence and principal officers working in the Silicon Valley, US. We have established good working relationships with these business partners. Through our business partner channel model, we will continue to expand our market coverage and business volumes in the electronics semiconductor industry. We intend to expand our global coverage by appointing three (3) more business partners in FYE 2011 to cover the North Asian, the South American and the Australian markets. 6.15 Employees and Training We place great emphasis on providing a pleasant working environment for our employees; ensuring skills development across our Group and identifying employee performance improvement opportunities for career advancement. As at LPD, we have a workforce strength of 1,323 employees, of which 739 employees are IVialaysian and 584 employees are foreigners. 6.15.1 Employee Segmentation The functional distribution of our total number of employees from 30 June 2008 to LPD isas follows: 30 June 30 June 30 June LPD 2008 2009 2010 Management & 384447 56 Professional Engineering/ Executive 578892 100 Technical/ R&D 50 101 111 136 Supervisory 54 9292 103 Admin & Clerical 334545 45 Production 306 389 372 417 General Workers 12 2122 26 Contract Workers 190 366 401 440 Total 740 1,146 1,182 1,323 These employees are responsible for the full range of work functions in our Group. In the employee breakdown by years of service, 37.5% of the employees have less than a year’s tenure with our Group, while 62.5% of our employees have been with our Group for an average of between one (1) and five (5) years. Employee breakdown by years of service as at LPD is as follows:  Less than  Category  1 Year  1 to 5 Years  Management & Professional  12  44  Engineering/ Executive  32  68  Technical/ R&D·  52  84  Supervisory  7  96  Admin & Clerical  13  32  Production  167  250  General Workers  11  15  Contract Workers  202  238
Total  496  827  0/0  37.5%  62.5%
6. BUSINESS OVERVIEW
Our Group’s employees are not represented by any union and our management enjoys a cordial relationship with our employees. We have not been engaged in any industrial disputes since our inception. We build our operational effectiveness by providing our employees training, resources and necessary equipment to enable them to deliver good performance. We provide a working environment for employees in our Group with emphasis on good moral values and ethical behaviour. Our Group places high priority on ensuring that there is continuity in our Group’s management team so as to ensure continuity and to maintain our level of competitiveness in the industry. To achieve this, it is the policy of our Group to groom new management staff to gradually assume the responsibilities of senior management and also as part of our employees’ career advancement programme. Our Group’s strategy for management continuity is driven by our top management who is responsible in identifying key competencies and requirements of candidates. 6.15.2 Training and Development We provide a series of continuous and comprehensive training and development programmes for our technical as well as the non-technical employees, which include in-house workshops and external professional training to update all the employees in our Group on their skill and knowledge. The technical employees receive the latest technical and prodUct training from our Group’s in-house and external experts while the non-technical staffs are exposed to management, communication and self development skills and basic IT knowledge etc. We also offer safety, quality and environmental management trainings, both internally and externally, to our production staff to comply with the ISO certification and other statutory requirements on a continual basis. Below are a sample list of programmes attended by the employees of our Group over the past few years and planned/on-going for 2011.  Course Title  Organiser  Radiation Safety & Health  Agensi Nuklear Malaysia  X-ray Machine Training  Internal  Store and Stock Management  Malaysian ProductiVity Corporation
Effective Calibration System Neville-Clarke (M) Sdn Bhd FMM Certificate in Safety and Health Officer Federation Manufacturer Malaysia Seminar On Continuous Emission Monitoring Department of Environment System Integrating lean manufacturing approach Malaysian ProductiVity Corporation Die placement measurement point Internal Chemical Storage & Handling Procedure Internal Radiation Safety Program Internal 6S Training Internal [ Therestofthispageisintentionally leftblankJ 6. BUSINESS OVERVIEW
6.16 Competitive Strengths Described below are our competitive advantages, which we believe allow our Group to compete effectively in the industry that we are operating in. 6.16.1 Strategic Partnership with Affiliates Our Group has benefited as a member of Insas Technology group of companies which has IT operations in Malaysia and overseas. This affiliation has produced some synergies as lnsas Technology has established working relationships with business partners. Furthermore, lnsas Technology has provided us with business development support through funding for our growth and expansion of our business over lnari’s start-up years. This strategic partnership has enabled us to produce steady business development and growth. 6.16.2 Strong Relationship with Machinery Manufacturers Our business relies on the accuracy and precision of the equipment we use to manufacture products to meet our customers’ needs. Our production processes require the use of advanced machinery, equipment and tooling. We source our machinery and equipment from reputable local and international machine manufacturers. We work closely with our machine manufacturers to share ideas, research and knowledge in the customisation and development of the proper machinery, equipment and tooling, to achieve the precision that our manufacturing processes need. Since our inception, we have acquired our machinery and equipment from ASM Assembly Automation Ltd, Kulicke And Soffa Global Holding Corporation, Disco Hi-Tech (Singapore) Pte Ltd, ICOS Vision Systems Pte Ltd, SRM Integration (M) Sdn Bhd, Exis Tech Sdn Bhd and Trans-Technology Pte Ltd and we continue to maintain strong relationships with these manufacturers, who have the capabilities to cater for the reqUired machine specifications and performance. For example, through our R&D and working relationship with the machine manufacturers, we have successfully customised our machinery and equipment to achieve the production of smaller chip sizes, (up to 1.6 mm x 2.0 mm), which we believe have positioned us ahead of our competitors. . The strong working relationship with the machine manufacturers also allow us to purchase equipments at competitive prices, favourable payment and equipment financing terms, qUick turnaround of repairs and spare parts and be constantly well positioned in the semiconductor industry’s cyclical demand/supply swings. 6.16.3 Experienced Management Team and Dedicated Skilled Workers Our Executive Directors play vital roles in our success, as they each have extensive experience in the semiconductor packaging industry, ranging between 10 and 30 years individually. Their strategic planning and direction, and technology leadership have given us the competitive advantage to compete effectively with our competitors. Our Board also believes that a capable and dedicated senior management team is a key factor to the successful operations of our Group. All heads of division are tasked to carry out their duties to ensure all operations within their scope meet our Group’s objectives. The heads of division ensure that all employees make good use of their skills, carry out new staff training as well as to support our Group’s growing business operations. Since a good working environment is essential for human resource development, the senior management team encourages new staff to learn their roles and job functions as fast as they can while receiving 6. BUSINESS OVERVIEW
on-the-job training. Within all divisions, the heads of department are expected to stay in constant communication and collaboration, which allows for all departments and designated employees to be updated on the latest technical, operational and quality control matters in our Group so that commensurate action can be effected within the shortest time. 6.16.4 Fully Equipped Infrastructure Our Group began servicing customers in the semiconductor industry in 2006 from a single factory. Today, we are operating from two (2) fully-eqUipped factories in Malaysia providing comprehensive semiconductor packaging services to our local and international MNCs. Our production capacity has grown year-on-year to prodUcing more than 360 million IC chips per annum currently. We have invested significantly into high quality machinery and equipment as well as providing training for and hiring skilful employees knowledgeable in the semiconductor industry. 6.16.5 Offering Comprehensive EMS Solutions Our Group possesses a vertically integrated operation whereby we have the flexibility to cater for the entire back-end value chain of semiconductor packaging processes. In addition, one of our main competitive offerings is our ability to provide comprehensive EMS solutions, unlike some of our competitors which focus on only one (1) or two (2) areas of the required processes. With our vertically integrated process capabilities, we are in a better position to serve as a one-stop solution centre for our customers as well as being able to price our products and services competitively. In the industry, EMS companies who are able to offer the entire gamut of support services in a particular area are preferred as they can assist to improve resource allocation/efficiency, integrate technical solutions, reduce risk for customers and deliver better quality performance. 6.16.6 Market Recognition and Quality of Products and Services We place heavy emphasis on the quality of the products and services we offer. We believe our strong market presence in both the international and local markets is based on our ability to produce and provide first-class quality products and services and to meet or exceed our customers’ expectations’ and requirements. We have implemented a stringent QMS for the before, during and upon completion of our production processes. From time to time, our OEM customers visit our facilities to .audit and inspect our production activities to ensure we are in compliance with its requirements. In addition, the OEM customers who are MNCs also conduct their own audits of our production systems. Although not direct customers of our Group, these MI’JCs have approved out production facilities’and recognised the quality of the products and services from us. In July 2010, Avago presented us with the Excellent Manufacturing and Outsourcing Support on Wireless Semiconductor Division Products Award for Year 2009. This is testimony to our ability to meet the high standards of being a world-class manufacturer in addition to being competitive in the semiconductor industry. 6.16.7 Competitive Pricing We endeavour to work closely with our customers to identify opportunities to reduce costs. Our Group is constantly re-engineering our business processes to better manage the various cost drivers. Appropriate internal and external benchmarking activities are undertaken periodically to determine our performance and cost structures vis-a-vis our peers in the industry. These measures have contributed significantly towards lowering our production costs, thus allOWing our Group to price our products and services at attractive and 99

 

6. BUSINESS OVERVIEW
competitive levels. This has enabled our Group to retain our customers as evidenced by our relationship with our long-term customers since inception. 6.16.8 Focus on Customer Service Our Group’s ability to provide high quality of products and services and meeting prompt delivery dates has helped us gain customers’ support and loyalty over the years. Our commitment to customer service is evidenced by our Group’s ability to secure and retain OEMs, such as Avago, VigSys Sdn Bhd, NewICT Marketing (M) Sdn Bhd and Wi2Wi Inc, as our customers. The ability to meet tight delivery schedules is critical as any delay from Inari’s production will cause knock-on effects further down the supply chain, ultimately affecting the production schedules of our OEM customers. Our Group has put in place an efficient and proven planning process and team to meet the tight deadlines set by our customers.
6.16.9 Established Track Records Our Group places priority in establishing a good rapport and strategic relationship by providing high quality, prompt delivery and competitively priced products and services to our customers. We view our customers as business partners, in order to create win-win business relationships. We have also continuously strived to surpass requirements of our customers, by paying close attention to customer feedback and working in tandem with the customers’ requirements to improve on product quality and to reduce production cost, as well as to achieve timely delivery.
6.16.10 Strategic Partnership with Avago We are one of Avago’s main EMS companies in Malaysia and we consider Avago as our business partner. Avago’s wireless communications market segment recorded revenue of USD796 million in 2010, up 28% from 2009 (source: Avago3-Annual Report, 2010). Consequently, the demand for our products has also grown, as reflected in our revenue growth of 25.5% in 2010, as compared to 2009. Our partnership with Avago has strengthened our business performance and position in the semiconductor industry. Our joint NPI efforts and investments help improve our competitiveness and keep abreast with the latest technology changes in the wireless communication markets. Our business relationship with Avago is further strengthened through Avago’s investment in our Group. On 1 May 2010, we extended our manufacturing contract with Avago Technologies for a further period of three (3) years. ‘ To our knowledge, Inari is the only EMS company in Malaysia with strategic relationship with Avago (i.e. equity participation by Avago). 6.17 Prospects and Future Plans Overall, our growth is not only in terms of physical capacity expansion, but also in terms of our ability to meet the expanding needs of our customers, both existing and potential. We have the capability to respond to changes in technology in both product development and quality improvement to meet the challenges in the semiconductor industry. 6. BUSINESS OVERVIEW
Our future plans for the next three (3) years are summarised below: Year Future Plan 2011 • Expand production capacity, by acquiring new die attach, wire bond, SMT pick and place, moulding and various machines and to upgrade of our existing machinery and equipment • Construction of new factory
• Set up a TAP
• Commence pre-mass production for LED products

2012 • Continue expand on our production capacity, by acquiring more die attach, wire bond, SMT pick and place, moulding and various machines • Increase customer base -e.g : medical products
• Commence production of assembly services for LED products
• To expand R&D activities

2013 • Continue expand on our production capacity, by acquiring more die attach, wire bond, SMT pick and place, moulding and various machines • Commence production of assembly services for medical sensor products
• Increase customer base

6.17.1 Expand Operations There has been a rapid growth in the mobile phone market in the last few years. According to the IMR report, the global unit shipments of cellular phones reached 1.4 billion units in 2010 and it is expected to attain 1.6 billion units in 2014. We plan to upgrade existing machinery and equipment and acquire new ones to cater to the expected business growth and the expansion of our products and services. Hence, we are investing approximately RIV13.0 million to acquire/upgrade our new/existing machinery and equipment to further increase our existing production by between 15% and 20%. It will be funded via proceeds from the IPO. We will source our machinery and equipment from reputable machinery and equipment manufacturers from Japan, South Korea, Hong Kong and Singapore. As part of our business expansion plan, we plan to invest RM7.5 million (financed from internally generated funds) to acquire new machinery in order to increase our existing production capacity by about 20% in 2012 for both Avago and non-Avago businesses. In addition, RM9.0 million (financed from IPO proceeds) is expected to be invested to acquire new machinery for new businesses, mainly for non-Avago customers in 2011 and 2012. These new machineries will be housed at Plant 5. 6.17.2 _Construction of New Manufacturing Facility We intend to construct a new manufacturing facility (Plant 5) to cater for our business growth as well as to expand and further develop our core competencies in the semiconductor industry. Plant 5 will be built within the vacant land area of Plant 3 within 12 months from the Listing. The new manufacturing facility will be a 3-storey bUilding with a total built up area of approximately 5,351 sq m. Plant 5 will be used to house our new manufacturing lines and 101 6. BUSINESS OVERVIEW
also the transfer and expansion of the R&D office and facility from Plant 3. The manufacturing lines will be used to cater for both Avago’s new products, and non-Avago customers (includes the planned production of medical sensor products, LED based products, PCBA and Box-Build for consumer and business market solutions). Alongside the R&D facility will be a failure analysis laboratory. The estimated cost of construction of our new manufacturing facility is expected to amount to RM5.5 million whilst the estimated cost of purchase of new machinery and equipment for Plant 5 is expected to amount to RM9.0 million. It will be funded through the proceeds from the IPO. 6.17.3 Set up a TAP We will establish a TAP as part of our R&D plan. The purpose of the TAP is to allow our Group to obtain the latest market and technological information in and around the semiconductor industry to enable us to plan our future R&D, production activities and investments more effectively. The TAP will consist of four (4) to six (6) international members with expertise in the related fields and they will conduct meetings on a yearly with our senior management team. The meeting will breakdown into three (3) sessions. In the first session, our senior management will present to the TAP on the milestones of our past R&D activities, and product and business developments achieved in the last six (6) months. In the second session, the experts will evaluate our achievement as well as providing advice and new ideas for our future R&D direction. In the final session, we will fix planned R&D activities for our Group to follow in the next 12 months before another round of TAP meeting. During the intervening 12 months period, the senior management may engage directly with individual TAP member for advice or consultancy work. Beside the appointed TAP, our R&D team has engaged Eutegra AG as our technical advisor to act as the path finder in term of technology roadmap with the objective of capture the niche ICsj5iP market segment in the European market. 6.17.4 Increase Market Exposure To mitigate the dependency on a single market, our R&D division is working toward process innovation to develop new chip products to increase our market presence in other vibrant sectors of the electronics industry. We are also applying for the 15013485 certification from 5G5 United Kingdom Limited for the production of medical sensor products. These medical sensor products include blood temperature sensor devices used for monitoring blood temperature changes during blood transportions. We expect the approval to be around fourth quarter of 2011 and we plan to commence production of medical devices by second quarter of 2012. These medical sensor prodUcts are for non-Avago clients and are intended for export. We are also planning to venture into the illumination market by producing LED products. We are working with MNCs to offer our assembly services for LED products which shall include die attach manufacturing services and wire bond manufacturing services. These processes are to be done in a class 10K clean room. We estimate the R&D will be completed before end of 2011 and we can start production during 2012. These LED products are for non-Avago clients and are intended for both the overseas and local market. 6. BUSINESS OVERVIEW
6.17.5 Expand R&D We have been, and will continue to place strong emphasis on our R&D activities. With technology rapidly advancing in the electronics industry, we anticipate demand for more precision and sophisticated electronic components and parts. Our ability to improve our technical capabilities is crucial to stay competitive in the markets. As part of our R&D expansion, we plan to explore other processes in the semiconductor value chain. 6.17.6 Increase Customer Base Major OEMs prefer to work with EMS companies that possess proven track records and are able to provide high quality products and services. We have been in the semiconductor packaging business for more than three (3) years and we have built a strong corporate brand and image in the semiconductor industry through the provision of high quality products and services as well as providing comprehensive back end semiconductor packaging for our existing OEM customers. This is evidenced by our repeated business with our main customer (Avago) and new OEM customers such as NewICT Marketing (M) Sdn Bhd, Wi2Wi Inc. and SILQ (Malaysia) Sdn Bhd. We intend to further expand our market piesence in the semiconductor business by securing new projects from new and existing customers. We intend to invest about RM25.0 million during 2011 and 2012 for new businesses by building a new factory (Plant 5), adding about 50 units of die attach, wire bond, SMT pick­and-place equipment, moulding and various other machines. Out of RM25.0 million, RM17.5 million will be financed through IPO proceeds and the remaining will be financed through internally generated funds (With minimum bank financing such as hire purchase and term loan). Summary is as follows: Estimated cost Details (RM million) Year To upgrade existing production capacity 3.0 .2011 To increase production capacity 7.5 2012 Construction of Plant 5 5.5 2011/2012 Purchase of new machinery for new business 9.0 2011/2012 Total 25.0 6.17.7 Working Closely with Our OEMs Worldwide, there is a growing trend for EMS companies to work together to fulfil the demands of the OEMs. In the late 1990s, EMS companies had largely focused on PCB assembly and Box-Build products. Since then, EMS companies have ventured into other parts of the value chain and into semiconductor assembly, stretching from design to system assembly, test, delivery and logistics, warranty and repair, network services, software and silicon design, and customer service. Hence, with the option and by outsourcing the complete 103 6. BUSINESS OVERVIEW production process, the OEMs can then concentrate their resources on design, branding and marketing of the final products in the global market place. Thus, our Group aims to work closely with our OEMs and to assist them in achieving better efficiency in their value chain. 6.17,8 Providing More Complementary Services Recognising the fact that the OEMs increasingly prefer to deal with as few EMS companies as possible in today’s competitive business world, we are contemplating to offer more products and services to be supplied as a bundle to the OEMs. We have already ventured into the provision of semiconductor packaging (back-end wafer processing, package assembly and RF final testing), so as to complement our existing electronic component products for the telecommunications market. Furthermore, there is a growing demand for smartphones in the telecommunications market, and our Group aims to capitalise on this aspect. By furnishing these complementary services to the OEMs, the latter are able to deal with fewer vendors. The supply chain is also flattened and the finished goods from point-of-origin to point-of­consumption shortened. The speedy time to market alleviates product obsolescence, due to the short product Iifeq;cles of many electronic products in the market place. [ Therestofthispageisintentionally leltblankJ 104

 

 

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