Industry Overview

7. INDUSTRY OVERVIEW 7. INDUSTRY OVERVIEW SMITH ZANDER INTERI’JATIONAI_ SDN BHD (1051112l3-V) SlvtITH ZANDERSuite 23-3, Level 23, Office Suite, Menara ‘I M K, 1 Jalan I<‘iara, Mont’ Kiara, 50480 Kuala Lurnpul-, Malaysia, T +6036211 2121 5 April 2016 The Board of Directors SALUTICA BERHAD (Formerly known as Blue Ocean Genius Sdn Bhd) No, 3, Jalan Zarib 6 Kawasan Perindustrian Zarib 31500 Lahat Ipoh, Perak Malaysia Dear Sirs, Executive Summary of the Independent Market Research Report on the Global Consumer Electronics Market, Consumer Electronics Industry in Malaysia and Global Automotive Market in relation to the initial public offering (“IPO”) of 101,000,000 ordinary shares of RMO.10 each in SALUTICA BERHAD (formerly known as Blue Ocean Genius Sdn Bhd) (“Salutica” or the “Company”) (“share(s)”) in conjunction with the listing of and quotation for the entire enlarged issued and paid-up ordinary share capital of Salutica on the ACE Market of Bursa Malaysia Securities Berhad comprising:­a) A public issue of 78,000,000 new shares (“issue share(s)”) in the following manner: i.  19,400,000 issue shares made available for application by the Malaysian public;  ii.  9,700,000 issue shares made available for application by eligible Directors and employees as well as persons who have contributed to the success of Salutica Group;  iii.  10,100,000 issue shares made available for application by way institutional and identified investors; and  of private placement to  iv.  38,800,000 issue shares made available for application by way of private placement to identified Bumiputera investors approved by the Ministry of International Trade and Industry
b) An offer for sale of 23,000,000 existing shares (“offer share(s)”), made available for application by way of private placement to institutional and identified investors at an IPO price of RMO.80 per issue shareloffer share, payable in full upon application. This Executive Summary of the Independent Market Research Report on the Global Consumer Electronics Market, Consumer Electronics Industry in Malaysia and Global Automotive Market is prepared by SMITH ZANDER INTERNATIONAL SON BHD (“SMITH ZANDER”) for inclusion in the Prospectus of SALUTICA BERHAD, For and on behalf of SMITH ZANDER:

DENNI~A#-~’–­MANAGING PARTNER 7. INDUSTRY OVERVIEW (Cont’d)

1 DEFINITIONS AND SEGMENTATION Consumer Electronics The consumer electronics industry is a subset of the electrical and electronics (“E&E”) industry and includes electronic devices and peripherals that are intended for everyday use. These equipment are primarily used for communications, entertainment, and productivity. Consumer electronics in the market have evolved over the decades as technological advancements and lower manufacturing costs have allowed the range of such products to expand and rendered some of these products obsolete. Consumer electronics in the market today include mobile phones, personal computers, tablets, cameras. portable music players. and wearable technology such as electronic watches and fitness bands. The market for the E&E industry can be broadly segmented into two (2) main segments, namely the electronics segment comprising consumer electronics. electronic components and industrial electronics; and the electrical segment consisting of various types of electrical products. Consumer electronics industry -E&E market segmentation Segment Sub-segment -1’Description —-Electroni Audio-visual products, computers and peripherals, mobile telecommunication devices, cameras and electronic game consoles Semiconductors, passive components, printed circuit boards (“PCBs”). metal stamped parts and precision plastic parts Multimedia and information technology (“IT’) products such as computers and computer peripherals. telecommunications equipment, office equipment and box built products for industrial applications Electrical Distribution boards, control panels, switching apparatus, lightings, transformers. cables and wires, primary cells and batteries, solar cells cs  Consumer  Components  Industrial  Electrical
and modules, air conditioners and household appliances “”””” “Source: MalaySian Investment Development AuthOrity (MIDA’) The consumer electronics market is further segmented into five (5) major categories, namely audio-visual products, cameras, computers and accessories, mobile telecommunication devices and electronic game consoles. [The rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
Consumer electronics industry -consumer electronics product segmentation
The consumer electronics value chain experienced change in the early 1980s as brand owners and manufacturers, also known as original equipment manufacturers (“OEMs”), increasingly adopted the services of third party manufacturing firms for contract manufacturing services. These third party manufacturing firms allowed brand owners to meet the high demand for consumer electronics globally. The use of third party logistics services developed in parallel as OEMs began to recognise the cost saving potential of rationalised and outsourced distribution operations comprising transportation and warehouse management. The outsourcing of product distribution allowed fast growing brands to create a presence in key markets with minimal investments in distribution infrastructure. Outsourcing further allowed brands to compete in dynamic environments, especially in fast moving consumer goods industries where vertical integration alone does not provide sustainable competitive advantage due to rapidly changing markets and shortened product lifecycles. Over the years, fast growing consumer electronics brands have adopted a similar strategy throughout the growth phase, i.e. to outsource operations when high investments in business infrastructure were an undesirable position in dynamic markets. By changing fixed costs to variable costs, OEMs benefited from lower risks associated with capital investments in manufacturing facilities, positive impact on their profitability in the short term and growth through better availability of working capital in the long term. In selected instances, third party manufacturing firms also manage after sales services such as warranty claims on behalf of OEMs. In the late 1990s, a second wave of outsourcing was observed especially in the laptop industry where third party manufacturing firms evolved into design and manufacturing firms (also known as original design manufacturers, “ODMs”) by developing design capabilities. These third party design and manufacturing firms offered their developments to OEMs, thereby allowing OEMs to realise the benefits of extending their product lines without investing in product development, and allowing OEMs to offer products that were missing in their portfolio without incurring long development lead time. Since its inception, the ODM model has been adopted widely in the consumer electronics segment. ODMs may assemble and market products under their own brand name in addition to products assembled and marketed under OEM brands. 7. INDUSTRY OVERVIEW (Cont’d)
The value chain for consumer electronics manufacturing services comprises key activities in the consumer electronics products Iifecycle, namely research and development; design; supply chain management; production; and distribution and logistics, before these consumer electronics reach retail consumers and/or end-user industries. • Research and development
Research and development in consumer electronics manufacturing encompass primary and secondary innovation. Primary innovation refers to new product development while secondary innovation refers to incremental design enhancements on existing products in the market.
• Design

Design is an increasingly important element in the value of consumer electronics as unique designs enhance user recognition and improve the image of products in plastic and metal materials with complex shapes. Designing consumer electronics successfully is challenging. Designers face many specific challenges, including miniaturisation, maintaining functional aesthetics and overall efficiency. Design for manufacturability is a key concept in consumer electronics manufacturing where it refers to the general art of designing products in a manner that makes them easy to manufacture. Product prototyping is also key as it establishes the manufacturability of a design and represents a model of a product built to test a concept or process. • Supply chain management
In the consumer electronics industry, supply chain management focuses on material requirement planning, whereby it comprises material procurement and management. In addition to managing the movement and storage of raw materials, supply chain management also broadly encompasses the movement and storage of work-in-process inventory, and finished goods from point of origin to consumption.
• Production

Production refers to assembly and manufacturing services for consumer electronics. Printed circuit board assembly (“PCBA”) involves the placement of components such as integrated circuits and transistors on a PCB using surface mounting technology and/or plated through-hole technology. The assembly of consumer electronics include box-build assembly and product sub-assembly. Box-build assembly is the assembly of multiple sections and parts into a complete product. This involves the assembly of completed PCBAs, product sub-assemblies and other parts such as electronic and electrical components, electromechanical and mechanical parts into a final product. The final products are then subject to functional testing before they are packaged for shipment to retail and end-user industry customers. Product sub-assembly is the assembly of section(s) of a complete product. • Distribution and logistics The distribution and logistics offinal products encompass packaging activities, warehousing and delivery of consumer electronics. Distribution and logistics are typically outsourced to third party logistics firms that have extensive infrastructure to ensure wide reach. 7. INDUSTRY OVERVIEW (Cont’d)
Consumer electronics industry -industry value chain •A • …• I• •-• •–•I • . ~ •••.• • ••• . ….. ~~.,~~~..~Primary innovation: • Deslgnfor • Material requirement • Prlnted circuit board • Packaging • Retail consumers new product manufacturability planning assembly • Warehousing • End-user industries development • InlUal product • Material • Box-build assembly e.g. E&E, • DeliVery• Secondary prototyping procurement and automotive,• Product sub­lnnovation: management heaflhcare,assemblylncremenlal design aerospace, energy, enhancement defence elc.
Salutica. Berhad is involved in manufacturing services for the consumer electronics industry. Salutica Berhad is principally involved in the design, development and manufacture of Bluetooth devices for external brands; product conceptualisation, design, development, manufacture, marketing and sales of Bluetooth devices for its in-house brand, FOBO; and manufacture of other electronics and precision parts and components for external brands. As a vertically integrated manufacturer, Salutica Berhad acts as a design and manufacturing firm for external brand owners, providing design, development and manufacturing services for Bluetooth devices such as Bluetooth audio headsets, Bluetooth smartwatches and Bluetooth car kits primarily for multinational electronic and mobile communication device corporations. Further, Salutica Berhad provides manufacturing services of other electronics and precision parts and components primarily for multinational electronic products, IT products and mobile communication device corporations. Salutica Berhad is also involved in the product conceptualisation, design, development, manufacture, marketing and sales of Bluetooth-enabled automotive accessories and consumer electronics devices under its in-house brand, FOBO, comprising Bluetooth-enabled tyre pressure monitoring systems (“TPMS”) and Bluetooth-enabled electronic sensors, tracking devices and beacon transmitters. Salutica Berhad’s portfolio of products include security tags, namely FOBO Tag and FOBO MAX, as well as a broad range of TPMS devices for motorcycles, cars, light trucks and vans.
7. INDUSTRY OVERVIEW (Cont’d)
Bluetooth Technology Bluetooth is a form of wireless technology that allows for the establishment of a secure connection between compatible devices or peripherals over short distances for the purpose of data exchange. Bluetooth uses short wavelength ultra-high frequency (“UHF”) waves that utilise the 2.4 gigaHertz (“GHz”) to 2.485 GHz spectrum range that falls under the globally unlicensed industrial, scientific and medical (“ISM”) frequency band. These specifications limit Bluetooth capable devices to operate connections with other such devices within theoretical distances of 100 metres depending on the type of radio in use. The Bluetooth Special Interest Group comprises more than 25,000 companies and organisations across various industries that drive the development and implementation of Bluetooth technology worldwide. The Bluetooth Special Interest Group owns the Bluetooth trademark and oversees development of the Bluetooth standards, publishes technological specifications, administers its qualification program and protects Bluetooth trademarks. In order for a product to be permitted to use Bluetooth technology, the brand owner or reseller of the product must first be a member of the Bluetooth Special Interest Group and the relevant products must comply with standards and requirements determined by the Bluetooth Special Interest Group. Upon meeting these qualification requirements, the various applicable Bluetooth patents are licensed to individual qualifying devices. Bluetooth technology was first conceived in 1994 by Ericsson, a Swedish telecommunications company, and was conceived as a wireless alternative to traditional wired data cables used to connect devices for the purpose of data transfer and configuration. Intel was involved in further development of the technology together with Ericsson. In 1998, Bluetooth was launched as a wireless device-to-device connection protocol with IBM, Nokia and Toshiba as joint developers and promoters of the technology. The original promoters of Bluetooth technology, namely Ericsson, Intel, IBM, Nokia, and Toshiba, founded the Bluetooth Special Interest Group which was tasked with working together to preserve, educate, and further Bluetooth technology as a means to bring devices into a connected world. Since then, the adoption of Bluetooth technology worldwide has been rapid and has spanned across various industries and uses. Bluetooth functionality has become a standard feature even among lower-end devices that are more limited in functionality owing to the low cost and high adoption amongst devices and peripherals around the world. Bluetooth technology today is prevalent in devices such as mobile phones, laptops, personal computers, tablets, speakers, headphones and many other supporting electronic peripherals such as keyboards and mice. Since its inception in 1998, Bluetooth has evolved over the years through technological developments to keep up with the pace of technological development in the E&E industry and the pervasiveness of technology in everyday life.
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Bluetooth technology -evolution of Bluetooth technology
• Ratified as IllStituie of Electrical and Electronics Engineers (“IEEE’) Standard
• Faster connection discovery
• Higher transmission speeds

802.15.1 • Introduction of enhanced data rate
• lower power consumption
• Improved pairing experience

• Branded high speed as it boosted theoretical data transfer rates to 24 megabits per second (Mbps)
• Integration and utilisation oflEEE

802.11 standard within its connection • Power conservation through priorilisation mechanism • Enhanced power control • IntegratesBluetooth classic, Bluetooth high speed and Bluetooth low energy
• Lower power

consumption • Improved device discovery
• Improved security features

Bluelooth 4.1 • Software update from Bluetooth 4.0
• Improved audio architecture
• Limited discovery time
• long term evolution (‘lTE”) SUpport

 

• Hardware update from Bluetooth 4.1
• Security improvements
• Introduction of internet protocol (lP) connectivitylhat would improve interoperabilily

between devices in a smart home environment In 2011, the Bluetooth Special Interest Group introduced Smart Marks to differentiate devices in Bluetooth 4.0 under three (3) categories, namely Bluetooth, Bluetooth Smart Ready and Bluetooth Smart. Bluetooth refers to devices that are equipped the standard Bluetooth functionality while Bluetooth Smart Ready and Bluetooth Smart are targeted at specific end-user functions. Bluetooth Smart Ready Devices that would benefit from Bluetooth Smart Ready functionality would be devices such as mobile phones, tablets, personal computers, television and game consoles, where their dual radio infrastructure would enable these devices to receive data sent by standard Bluetooth and Bluetooth Smart devices, and feed received data into applications that turn data into useful information. Bluetooth Smart Bluetooth Smart devices are designed to gather specific information to be sent to Bluetooth Smart Ready devices. Its single radio power efficient infrastructure allows Bluetooth Smart devices to operate battery powered applications such as watches, fitness bands, heart rate monitors and toothbrushes. Developments in the E&E industry have allowed for an expansion in the range of E&E product offerings across industry and the miniaturisation of existing products as integrated circuits and other related key components become smaller in size, thus allowing for portability and reduced power reliance. These trends have created a drive for a more mobile connected environment that leverages on different wireless technologies to fulfil various functions across multiple devices, known as the internet of things (“lor). The loT refers to a network of devices and sensors that are able to communicate and transfer data between them and other parties in a seamless manner, and is a concept that seeks to leverage on communication technologies ‘to facilitate daily human activity and address urban development challenges. The loT is a concept of integrated computer-based systems of machine-to-machine communication and ubiquitous sensor networks that has been adopted as a global standards initiative by the International Telecommunication Union, a United Nations specialised agency for information and communication technologies. 7. INDUSTRY OVERVIEW (Cont’d)
With the introduction of the Bluetooth 4.0 ecosystem, the Bluetooth Special Interest Group has strengthened the position of Bluetooth technology in relation to the technological environment today, and has made Bluetooth technology adaptive to the evolving needs of the modern consumer. A fundamental strength of Bluetooth wireless technology is its ability to simultaneously handle data and voice transmissions, which provides users with a variety of innovative solutions such as wireless printing, audio entertainment and fax capabilities, hands-free headsets for voice calls, and wireless synchronisation for personal computers and mobile phones. Further, the introduction of the Adaptive Frequency Hopping (“AFH”) specification in Bluetooth version 1.2 improves resistance to radio frequency interference and this has resulted in connection stability and seamless performance of Bluetooth devices. The ability of Bluetooth technology to adapt to the evolution of the consumer electronics industry has made it a mainstay in devices across market segments and regions globally. While new technologies have developed new ways of allowing devices that communicate with each other in the spirit of the loT, Bluetooth has been able to stay relevant and has a track record of adapting to a changing technological landscape. Automotive The automotive industry consists of a wide range of industry players involved in the design, development, supply chain, production, distribution, marketing and sales of commercial and passenger vehicles. Passenger vehicles are generally defined as motor vehicles with at least four (4) wheels and a maximum of eight (8) wheels, and are used for the transportation of passengers. Commercial vehicles are motor vehicles that can vary in size and are used for the carriage of goods or fare-payi ng passengers. Commercial vehicles include light commercial vehicles, heavy trucks, coaches, buses and tractor vehicles designed for towing semi-trailers for the transport of freight. Motor vehicles have become a central part of economic activity since the invention of engines in the 1890s allowed for an alternative to horse drawn carriages. Manufacturers of automotive and automotive parts, components and equipment service two (2) sections of the automotive industry, namely the OEM market and automotive aftermarket. The OEM market consists of manufacturers who produce and/or process raw materials, components, parts and accessories for automotive that are of the motor vehicle manufacturer’s original specifications, by which these vehicles are assembled and sold as new units. The automotive aftermarket consists of components, parts and accessories that are not necessarily those that have been outlined by motor vehicle manufacturers for their models of motor vehicles, but are deemed compatible or acceptable additions to those that are specified as original components, parts and accessories or factory specifications, and/or operate within parameters deemed acceptable within the motor vehicle. Thus, the automotive aftermarket encompasses all components, parts and accessories which include, but are not limited to, the engine block, suspension, tyres and accessories such as navigation, telematics, entertainment systems and TPMS. [fhe rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
Global automotive market -industry value chain a Research and
Distribution and development
logistics
Primary innovation: Design for Material Vehicle assembly Packaging Retail consumers new product manufacturability requirement • Vehicle testing Warehousing • End~user industries development planning• Initial product • DeliverySecondary prototyping Material innovation: procurement and incremental design management enhancement • Raw materials
• Steel
• Rubber
• Plastic

 

• Components and parts
• Engine
• Suspension
• Tyres

 

• Accessories
• Navigation
• Telematics
• Entertainment
• TPMS

 

• Components and parts • Engine
• Suspension
• Tyres

‘II Accessories • Navigation
• Telematics
• Entertainment
• TPMS

 

a List of raw materials, components and paris, and accessories are not exhaustive TPMS are systems that allow the monitoring of tyre pressure on vehicles and reporting of tyre pressure data. Modern TPMS are typically electronic in nature and are designed to measure air pressure inside pneumatic tyres. The TPMS is able to report real time tyre pressure data via a gauge, pictogram display or a low-pressure warning. While there are various TPMS designs that are commercially available in the market, they primarily fall into two (2) categories, namely direct TPMS and indirect TPMS. Direct TPMS employ the use of external or internal pressure sensors that physically measure individual tyre pressures and reports it to a central reporting system that could be on the vehicle instrument cluster or an external device. Indirect TPMS measure air pressure primarily by monitoring individual wheel rotational speeds to ascertain tyre pressure on an individual wheel. These TPMS are available both as factory specified solutions or aftermarket solutions. Maintaining correct inflation pressure in tyres helps to keep vehicle handling and braking at its best, as well as improves fuel efficiency and tyre life. Additionally, it can prevent events such as tread separations and tyre blowouts which may cause drivers to lose control of their vehicles, thereby leading to accidents. Tyre pressure is one (1) of the aspects of road safety that has become a focus for authorities in developed countries owing to the correlation between insufficient tyre pressure and road traffic incidents. The United States has legislation in place in the form of the TREAD Act requiring the installation of TPMS on all light vehicles effective 1 September 2007. The European Union regulation ECE-R 64 requires vehicles to be equipped with TPMS as of 1st November 2012 with all newly registered vehicles required to be fully compliant from 1 November 2014. Japan, the Republic of Korea, the People’s Republic of China and India
7. INDUSTRY OVERVIEW (Cont’d)
SMITH ZANDER are all currently in the process of adopting similar legislation with the Republic of Korea confirming its intention with the passing of TPMS legislation. Japan, the People’s Republic of China and India are expected to follow with Japan estimated to enact TPMS regulations in 2017, the People’s Republic of China in 2018 and India in 2019. [fhe rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
2 ANALYSIS OF THE GLOBAL CONSUMER ELECTRONICS MARKET Industry Performance, Outlook and Prospects ConsumerEkctron~s The consumer electronics industry is a subset of the E&E industry and includes electronic devices and peripherals that are intended for everyday use. These devices can range from laptops, tablets and mobile phones to wearable technology such as electronic watches and fitness bands. Consumer electronics represents a sizeable portion of global E&E production and sales by value, and hence the global E&E market provides perspective for the global growth in consumer electronics. The global market for electronic products, based on worldwide production of electronic products, increased from JPY148.4 trillion (USD1.9 trillion)1 in 2011 to an estimated JPY234.5 trillion (USD1.9 trillion)2 in 2015, registering a CAGR of 12.1 %. Of the total worldwide electrical and electronic product sales in 2015, communications as well as computers and information terminals comprised the largest proportion, at an estimated 49.8%. Meanwhile, semiconductors, electronic components, audio-visual equipment and display devices comprised an estimated 43.9%, and other electronic equipment comprised the remaining estimated 6.3%. Global production of electronic products is forecast to reach ,IPY239.4 trillion (USD2.0 trillion)3 in 2016. Global consumer electronics market -global production of electronic products 300
….Audio-visual equipment ,'””Display devices ~ Other electrical equipment –Total “——~——–­e Estimate f Forecast 1 Exchange rate from JPY to USD in 2011 was converted based on average annual exchange rates in 2011 extracted from OANDA at JPY1 = USDO.01255 2 Exchange rate from JPY to USD in 2015 was converted based on average annual exchange rates in 2015 extracted from OANDA at JPY1 =USDO.00826 3 Exchange rate from JPY to USD in 2016 was converted based on average annual exchange rates in 2015 extracted from OANDA at JPY1 = USDO.00826 10
7. INDUSTRY OVERVIEW (Cont’d)
Latest available data indicates that the global market for E&E products, based on worldwide E&E product sales, is estimated to have grown from USD2.0 trillion (RM6.4 trillion)4 in 2010 to USD2.3 trillion (RM7.2 trillion}5 in 2013, registering a CAGR of 4.8% during this period. Consumer electronics such as mobile and wireless devices, televisions and home appliances are now the largest contributors to E&E product sales, comprising 36.5% of total E&E product sales worldwide. Growth in global electronic production is indicative of an increasing demand trend for electronic products globally. Technological advancements have driven the development of new devices that serve new functions in the everyday lives of consumers and have opened up new market segments within the consumer electronics landscape. These advancements have extended to creating more innovative manufacturing processes and techniques that enable the production of more complex precision components using machinery capable of nanometre-scale movements, allowing for miniaturisation of components and products. These improvements have also brought about production efficiency, which in turn have lowered the cost of manufacturing, enabling manufacturers to achieve economies of scale, providing a boost to the electronics manufacturing sector. The consumer electronics industry is typically cyclical, characterised by periods of growth and decline caused by economic cycles. The industry rose steadily in the early 1990s, driven by the widespread adoption of computers in businesses and homes during the period. This growth was augmented by the introduction of the Windows 3.0 operating system in 1990, which was the first operating system to gain popularity due to its ease of use and ability for improved graphics and virtual memory. In 1995, the growth in demand for personal computers propelled when the more user-friendly Windows 95 operating system was introduced. Growth in the consumer electronics industry over the last two (2) decades was primarily driven by continuous demand for personal computers and other consumer electronics products. Mobile Devices Mobile devices are a subset of consumer electronics and consist of devices that are equipped with some form of mobile communication technology. This includes various kinds of mobile phones, tablets and laptops that have the ability to engage in communication activity while being portable and not connected to physical communication infrastructure via power or data cables. The proliferation of mobile devices in recent years has made mobile devices a part of the lifestyle of modern consumers across the world. The pervasiveness of communication technology infrastructure and mobile devices that utilise this infrastructure allows people to stay in contact with one another and enables access to data services on the move. Global mobile cellular subscriptions increased from 1.8 billion in 2004 to 7.0 billion in 2014 at a CAGR of 14.5%. The growth in mobile cellular subscriptions is indicative of the penetration of cellular technology around the world and the increased access enjoyed by the world population. Asia had the most number of subscribers in the world in 2014 with 4.0 billion subscribers, having increased from 750.5 million subscribers in 2004 at a CAGR of 18.2%. Africa experienced the largest mobile cellular subscribership growth rate between 2004 and 2014 where the number of subscribers in this region increased from 80.5 million subscribers to 885.1 million subscribers at an impressive CAGR of 27.1 %. South America posted a promising subscribership growth rate as subscribers increased from 119.4 million subscribers in 2004 to 529.7 million subscribers in 2014 at a CAGR of 16.1 %. 4 Exchange rate from USD to RM in 2010 was converted based on average annual exchange rates in 2010 extracted from pUblished information from Bank Negara Malaysia at USD1 = RM3.2182 5 Exchange rate from USD to RM in 2013 was converted based on average annual exchange rates in 2013 extracted from published information from Bank Negara Malaysia at USD1 = RM3.1511 11 ** 109 7. INDUSTRY OVERVIEW (Cont’d)
Global consumer electronics market -global mobile cellular sUbscriptions 4,500  4,000  4,011.6  C 3,500 ~ ‘E ‘;;; 3,000 c o a’5 2,500 rn ..Cl :> (J) ‘0 2,000  Qi ..Cl§ 1,500 z  1,000  500 o  :;; 225.3 …. other  Ol 529.7 .£,i,!• North Am erica South America  Africa  Europe  Asia  m2004

Source: International Telecommunications Union Global consumer electronics market -regional split of global mobile cellular subscriptions in 2014 Others North America 3.2%
Source: International Telecommunications Union 7. INDUSTRY OVERVIEW (Cont’d)
Mobile cellular growth figures highlight the investments committed to cellular infrastructure in the individual regions and market potential in terms of mobile devices and peripherals to leverage on this infrastructure. Africa, Asia and South America recorded the highest growth rates of 27.1 %, 18.2% and 16.1 % respectively between 2004 and 2014, reflecting the scope for growth in these regional economies. As more developed economies approach subscriber saturation, populous developing economies present the strongest opportunity for growth in mobile cellular SUbscriptions and markets for consumer electronics manufacturers. As these developing economies continue to invest in infrastructure and their populations enjoy greater disposable income, these regions will increasingly become key markets for consumer electronics products. Internet penetration represents the percentage of a population with access to the internet. Internet penetration rates in developed economies in recent years have approached saturation, where the internet is accessible to a large portion of the popUlation. In 2014, the United Kingdom and Japan recorded internet penetration rates of 91.6% and 90.6% respectively, growing from 65.6% and 62.4% respectively in 2004. The United States and Germany achieved internet penetration rates of 87.4% and 86.2% respectively in 2014, growing from 64.8% and 64.7% respectively in 2004. Singapore, the sole developed country in Southeast Asia, achieved an internet penetration rate of 82.0% in 2014, growing from 62.0% in 2004. Global consumer electronics market -internet penetration rates for selected developed countries 100.0 91.690.6 Singapore Germany United States Japan United Kingdom 1iIl2004 _2014
Source: International Telecommunications Union Developing economies have lower internet penetration rates owing to telecommunications infrastructure that are not as vast or comprehensive. Internet penetration is seen as an important aspect of the development of an economy, with several governments of developing economies identifying the internet as a pillar for development, as the internet provides an avenue to access education, information and trade opportunities. Such access is considered a socio-economic balancing mechanism that allows trade to flow into rural areas and enables rural communities to participate in economic activity through access to 13
7. INDUSTRY OVERVIEW (Cont’d)
information. The lower internet penetration rates in developing economies signify growth opportunities available for intenet infrastructure, equipment and devices in these regions. Malaysia achieved an internet penetration rate of 67.5% in 2014 having grown from 42.3% in 2004, while Brazil achieved 57.6% having grown from 19.1 % in the same time period. The People’s Republic of China and Nigeria recorded staggering growth figures between 2004 and 2014 as their internet penetration rates grew from 7.3% and 1.3% respectively to 49.3% and 42.7% respectively. India achieved an internet penetration rate of 18.0% in 2014 growing from 2.0% in 2004. Global consumer electronics market -internet penetration rates for selected developing countries 80.0 70.0 60.0 ~50.0 2 r: ~ 40.0 r: Q5 lij 30.0 0.. 20.0 18.0 10.0 -~ 0.0 India Nigeria People’s Republic of Brazil Malaysia China Ii! 2004
Source: International Telecommunications Union Growing internet penetration rates in developing countries is also a factor that creates growth potential for new markets in the consumer electronics industry. As more populations have increasing access to mobile cellular coverage and the internet, there will be greater demand for devices and peripherals that will enhance the experience and add value to the utilisation of the internet and telecommunications infrastructure in general. These are trends that indicate potential growth in the consumer electronics industry as it accesses new markets and untapped potential moving forward. Bluetooth Devices Bluetooth has become one (1) of the most prevalent and pervasive wireless technologies available today and is only rivalled in ubiquity by cellular technology and Wi-Fi technology. Each of these technologies, however, operates in an environment where they each serve a separate purpose. While some functionality may overlap, they each fulfil their individual core functions. While cellular technology is used for long range cellular and data connections as part of a region or country-wide mobile network, and Wi-Fi functions as a means to wirelessly access data over short range local area networks, Bluetooth specifically fulfils the 14 7. INDUSTRY OVERVIEW (Cont’d)
purpose of connecting devices and peripherals to each other to share data and information among them. The role of Bluetooth in the connected environment has evolved with the advancement of technology and the expansion in the consumer electronics product lines to accommodate relatively new functions such as the connected home and wearable technology. With new low energy Bluetooth Smart Ready chipsets that have been designed to operate in low power environments, Bluetooth has gone beyond being present in smartphones, tablets, laptops and earphones to now operating in sensors, smartwatches, hearing aids, fitness and health trackers as well as being embedded in apparel. This expansion of its footprint and target markets has seen growth in devices and peripherals with integrated Bluetooth functionality in the last few years. Bluetooth-enabled device shipments worldwide grew from 1.8 billion units in 2011 to 3.0 billion units in 2014, representing an impressive CAGR of 18.6%. Global consumer electronics market -historical global Bluetooth device shipments 3.5 CAGR 18.6% 3.0Vl 3.0C a> E Co :.c Vl 2.5 a> 2.5
(J ~ .;;; .l!l 2.2~.§ -0 C a>0 2.0 :0= 1.8 ~e ep a> ‘<:-0 “0 ‘3 1.5 ~:g ::> 000 :;:0 -1.0 …. a> .0 E ::> z 0.5 0.0 2011

 

 

Based on SMITH ZANDER’s research, global Bluetooth device shipments in 2014 primarily comprised smartphones which accounted for 1.3 billion units or 42.8% of global Bluetooth device shipments in 2014. Other major Bluetooth device product segments in 2014 include laptops and personal computers, as well as tablets, that accounted for 315.9 million units (10.5% of global Bluetooth device shipments in 2014) and 229.6 million units (7.7% of global Bluetooth device shipments in 2014) respectively. Other Bluetooth­enabled devices inclUding products such as smartwatches, Bluetooth headsets, Bluetooth speakers, computer peripherals, and Bluetooth sensors comprised the remaining 1.2 billion units (39.0% of global Bluetooth device shipments in 2014). 7. INDUSTRY OVERVIEW (Cont’d)
Global consumer electronics market -global Bluetooth device shipment breakdown in 2014 a 3,000 Q) “C ~ 2,500 ~ Vi C ~ 2,000 :ca.Vi Q) () .~ ~ 1,500 “C§ “C~ .QlEL> ~ P!a> 1,000 .t o o •Q5 :::J 315.9iIi 500 ‘0 •L­229.6a> L> E :::J oZ Tablets Laptop computers Smartphones Other Bluetooth· Global Bluetooth and personal enabled devices· device shipments computers
• Other Bluetooth-enabled devices include smartwatches, Bluetooth headsets, Bluetooth speakers, computer peripherals and Bluetooth sensors With the continued rapid adoption of Bluetooth Smart technology as the primary wireless standard for various applications, including the loT, shipments of Bluetooth-enabled devices have witnessed strong growth in the last four (4) years. The application of Bluetooth Smart and Smart Ready technology across key verticals such as health and well ness, sports and fitness, consumer electronics, and industrial and home automation has bolstered this growth. Connectivity is a key capability required in loT applications, both for consumer and enterprise infrastructure devices. Consumer electronics are already popular around the world, driven by consumer enthusiasm and increasing internet access. Ownership of consumer electronics is expected to grow as consumers demand a more seamlessly connected environment that enables them to manage daily tasks in a time efficient and effortless manner. This is expected to drive demand for key products such as smartphones, tablets, and laptops as well as peripherals that are able to interact with them towards meeting this end. Bluetooth-enabled device shipments worldwide are projected to grow from 3.0 billion units in 2014 to 4.9 billion units in 2018 at a strong CAGR of 13.0% owing to the expansion in the role of Bluetooth in consumer electronics, as well as other end-user industries as loT further develops as a concept and expands into new areas of consumer lifestyle. 7. INDUSTRY OVERVIEW (Cont’d)
Demand Conditions -Key Demand Drivers Wide range of applications across multiple end-user industries drives global demand for electronics products The range of applications for E&E has broadened dramatically over the last couple of decades, and E&E products developed today play essential roles in consumer retail, medical, manufacturing, and telecommunications industries. Many of these industries cannot function without the use of E&E products. For instance, the medical industry requires the use of electronic medical equipment to perform diagnosis, monitoring and treatment of patients. The manufacturing industry today also largely consists of fully or semi­automated manufacturing facilities, and thus electronic machinery and equipment form an integral component of manufacturing activities. Latest available data indicates that the global market for E&E products, based on worldwide E&E product sales, is estimated to have grown from USD2.0 trillion (RM6.4 trillion)4 in 2010 to USD2.3 trillion (RM7.2 trillion)5 in 2013, registering a CAGR of 4.8% during this period. Consumer electronics such as mobile and wireless devices, televisions and home appliances are now the largest contributors to E&E product sales, comprising 36.5% of total E&E product sales worldwide. Global consumer electronics market -global and regional E&E industry product sales a. b 2..5 CAGR 2010·2013: 4.8%
2.0’C’ ~ E Cl ‘” 2 1.5<II ‘*<II 0 ‘0 ” [ 1.0 :llw £ 0 (3 0.5 0.0

a E&E product sales refer to sales of selected E&E products for electronic data processing, office use, control and instrumentation equipment, medical and industrial equipment, communications and radar equipment, telecommunications, semiconductor components as well as other consumer electronics including video equipment, audio equipment and personal consumer electronics (e.g. electronic watches, musical instruments and clocks) b Latest available as at 6 April 2016 4 Exchange rate from USD to RM in 2010 was converted based on average annual exchange rates in 2010 extracted from published information from Bank Negara Malaysia at USD1 =RM3.2182 5 Exchange rate from USD to RM in 2013 was converted based on average annual exchange rates in 2013 extracted from published information from Bank Negara Malaysia at USD1 = RM3.1511 7. INDUSTRY OVERVIEW (Cont’d)
Mobile and wireless devices, which comprise mobile feature phones, smartphones and tablets, have become a necessity as a means of communication and connectivity, particularly in urban areas. The penetration of mobile phones reached 73.0% of the global population, while smartphones had a 22.0% penetration rate in 2014. While mobile cellular subscriptions illustrated a healthy growth of 105.3% in a span of eight (8) years between 2007 and 2014, active mobile broadband (which enables the use of smartphones and tablets) grew eight (8) times faster with a growth of 758.2% during the same time period, from 268.0 million subscriptions in 2007 to an estimated 2.3 billion subscriptions in 2014 6 and thus, much of the growth of the consumer electronics industry is expected to be driven by the rapidly increasing uptake of smartphones and tablets. Computers have become one (1) of the most used technological items today. In fact, computers enable IT which is the application of computers and other equipment to store, retrieve, transmit and manage digital data. As an increasing volume of digital data is managed and stored globally, IT is increasingly integrated with consumer lifestyles and business operations. In other words, consumers and businesses have become increasingly dependent on computers for connectivity as well as to perform daily tasks such as accessing information and preparing business documents. Based on SMITH ZANDER’s research, the market potential for computers can be depicted through total worldwide IT expenditure, which was valued at RM11.7 trillion 7 (USD3.7 trillion) in 2013, an increase of 15.6% from RM11.3 trillion 8 (USD3.2 trillion) in 2009. The convergence of electronics into consumer lifestyles creates continued demand for electronics Consumer electronics play an important role in consumer lifestyles today, particularly among urban population, as many use and interact with their devices on a daily basis, where they are widely used in communications, entertainment as well as for office use. Consumer electronics such as computers, mobile and wireless devices, audio-visual products, digital cameras and home electronics are now the largest contributors to E&E product sales globally, comprising 36.5% of total E&E product sales worldwide. In 2014, 52.8% of the households in Malaysia had access to laptops, while 34.1 % of the households had access to tablets. This is an increase from 49.0% and 21.8% respectively in 2013. Computers have also become one (1) of the most used technological items today. Computers enable IT, which is the application of computers and other equipment to store, retrieve, transmit and manage digital data. As an increasing volume of digital data is managed and stored globally, IT is increasingly integrated with consumer lifestyles and business operations. As such, consumers and businesses have become increasingly dependent on computers for connectivity as well as to perform daily tasks such as accessing information and preparing business documents. Rapid technological advancements drive consumer electronics sales Moving forward, it is expected that the number of electronic products which are integrated with the lifestyle of today’s society will only increase further. Rapid technological developments within the electronics industry will continue to promote new product launches as industry players (Le. manufacturers and/or brand owners) continuously launch new products to ensure they remain competitive and are not obsolete. 6 Source: International Telecommunication Union 7 Exchange rate from USD to RM in 2013 was converted based on average annual exchange rates in 2013 extracted from published information from Bank Negara Malaysia at USD1 =RM3. 1511 8 Exchange rate from USD to RM in 2009 was converted based on average annual exchange rates in 2009 extracted from published information from Bank Negara Malaysia at USD1 = RM3.5236 18 7. INDUSTRY OVERVIEW (Cont’d)
The electronics industry has seen developments in terms of performance, size and technology of various products. For instance, computers have transformed from when it was first introduced in 1961 as mainframe computers, to the current portable size of notebooks/laptops today. Within the last few years, new computer models were constantly introduced to the market with advancements made in terms of its processor performance and reductions in weight and size. Likewise, mobile phones have experienced similar advancements in the 21 st century, in terms of its design, performance, features and reductions in weight. Mobile phones are no longer just a telecommunication tool for making telephone calls and sending and receiving messages; more advanced smartphones now have functions for internet access, photography, data storage, entertainment and social media networking. Computers and laptops have evolved in recent years from the traditional keyboard and touchpad interface to touch technology that adds touch and gesture functionalities through touchscreen monitors on these devices. Computers and laptops with touch technology allow users to touch, tap and swipe touchscreen monitors to carry out various tasks on these devices. Consumers are highly receptive to these new product innovations, reSUlting in relatively shorter product lifecycles for most electronic products, and especially consumer electronics. As a result, new and enhanced versions of products are constantly introduced to the market, and these new introductions have been the key driving factor for electronics sales. Bluetooth as a key connectivity technology in loT The loT refers to a network of devices and sensors that are able to communicate and transfer data between them and other parties in a seamless manner, and is a concept that seeks to leverage on communication technologies to facilitate daily human activity and address urban development challenges. loT encompasses the concept of integrated computer based systems of machine-to-machine communications and ubiquitous sensor networks that communicate with one another where information is gathered, measured, processed and communicated to devices that are able to convey this data. The loT environment allows for smart interconnected environments like homes, workplaces and cars to be intelligent, enabling them to facilitate with everyday tasks that introduces convenience to these environments. The Ubiquity and prevalence of Bluetooth technology in everyday devices today like smartphones, tablets, laptops, and various peripherals such as headphones and smartwatches has made it a key technological component of the loT environment. The evolution of Bluetooth and the adaptability of this technology has enabled new kinds of devices to tap into new markets with a range of products that have been made possible by the miniaturisation, cost efficiency, and low power consumption of Bluetooth hardware. With the introduction of the Bluetooth 4.0 ecosystem, Bluetooth technology has been strengthened in relation to the technological environment today and has made the technology adaptive to the evolving needs of the modern consumer. New low energy Bluetooth Smart Ready chipsets that have been designed to operate in low power environments have enabled Bluetooth to go beyond being present in smartphones, tablets, laptops and earphones to now operating in sensors, smartwatches, hearing aids, fitness and health trackers as well as being embedded in apparel. This expansion of its footprint and target markets has seen growth in devices and peripherals with integrated Bluetooth functionality in the last few years. The constant evolution and development of new Bluetooth functionality and devices that leverage on this functionality bolsters the position of the technology in the modern environment. Products such as the Bluetooth Smart Beacon, i.e. small devices that transmit location information to smartphones and are powered by Bluetooth Smart, enable end-user features such as mobile wallet functionality, mobile couponing, and location-based services. These features can be repurposed for applications in industries 19 7. INDUSTRY OVERVIEW (Cont’d)
and spaces that are beginning to become more connected and intelligent such as hospitals, airports and transit stations. The evolving loT environment will result in more Bluetooth-enabled devices and sensors entering the market with the aim of creating a smart environment that is able to offer the user a sense of convenience that leverages on technology. The technology industry is a competitive industry with an ever changing landscape. Bluetooth technology plays an important role in the connected electronic environment today and has the potential to be a key part of the vision for a more connected society through loT. Increasing global income levels have made consumer electronics within economic reach of larger portions of the global population Economic development and increased global trade have led to increased economic activity in more integrated global markets, resulting in rising global income levels. These effects have varying distribution effects worldwide as populations in more economically developed regions have historically on average enjoyed higher proportions of income compared to developing regions. However, developing regions have a greater proportion of unlocked economic potential that may be capitalised moving forward. These rising income levels and wealth creation have led to increased prosperity and the increased availability of products and services to sections of the global population to whom these products and services are within economic reach. Gross domestic production (“GOP”) per capita metrics capture income per capita and is an indicator of the prosperity of the population of a region. GOP per capita of advanced economies increased from US033,733 in 2004 to US044,630 in 2014 at a CAGR of 2.8%, while GOP per capita of emerging and developing Europe increased from US012,474 to US020,479 in the same period at a CAGR of 5.1%. GOP per capita of Middle East and North Africa increased from US011,350 in 2004 to US017,472 in 2014 at a CAGR of 4.4%, while GOP per capita of Latin America and the Caribbean increased from US010,102 to US015,551 in the same period ata CAGR of 4.4%. The GOP per capita of the Association of Southeast Asian Nations five (5) (“ASEAN-5”) economies that consist of Indonesia, Malaysia, Philippines, Thailand and Vietnam increased from US05,963 in 2004 to US010,584 in 2014 at a CAGR of 5.9%, while GOP per capita of emerging and developing Asia increased from US03,835 to US09,334 in the same period at a CAGR of 9.3%. Regional growth in GOP per capita between 2004 and 2014 was highest in emerging and developing Asia, the ASEAN-5 economies, and emerging and developing Europe. These regions exhibited the highest growth of average income in their populations and are among the regions with the greatest market growth potential globally. Increasing GOP per capita translates to increased economic prosperity and thus, greater purchasing power for essential and non-essential goods such as consumer electronics for a larger segment of society. The demand for touchscreen laptops and computers will be driven by the pervasive use of laptops and computers globally arising from the growth in global income levels that have made these devices within economic reach of larger portions of the global population. Continued global economic growth and GOP per capita, particularly in developing regions, creates growth potential for the consumer electronics industry moving forward, which would ultimately benefit industry players that are involved in the consumer electronics manufacturing value chain. 7.  INDUSTRY OVERVIEW (Cont’d)
Global consumer electronics market -GOP per capita by region  50,000   45,000

0­2.30 ,000  ~25,000  “‘

 

 

o  2004 2005  2006 2007 2008 2009 2010  2011 2012 2013 2014  -Advanced economies  -+-Emerglng and developing Asia  …..Emerglng and developing Europe  -<l>-ASEAN-5  …….. Latin America and the Caribbean  -# ·Middle East and North Africa

 

GOP per capita (USO) —–CAGR 2004 2014
Advanced economies 33,733 44,630 2.8% Emerging and developing Asia
3,835 9,334 9.3% Emerging and developing
12,474 20,479 5.1% Europe ASEAN-5
10,5845,963 5.9% NN~~ Latin America and the Caribbean 10,102 »»-» 4.4% Middle East and North Africa
15,551 17,472 4.4%11,350 Source: International Monetary Fund rrhe rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
Key Supply Conditions Availability of raw materials for the manufacture of consumer electronics Raw materials are a key facet for the manufacturing of consumer electronics worldwide. Critical aspects involving raw materials in the manufacture of consumer electronics include the selection of appropriate materials that meet quality specifications, selection of suitable suppliers from which such materials can be reliably sourced and delivered at an appropriate cost, and ensuring adequate inventory levels. The raw materials involved in the manufacture of consumer electronics include, but are not limited to, various metals and alloys, polycarbonates, as well as rubber-based materials. These materials play various roles in the finished products of various consumer electronics devices, and are used to produce electronic components and parts, casings and enclosures within which electronic components are housed. It is integral that materials sourced for these purposes fulfil certain quality criteria and functionality that enable them to fulfil their designated functions within the finished product. As such, the supply chain of raw materials for the manufacture of consumer electronics is a critical factor in the production process. Manufacturers that are able to secure a steady and reliable supply of raw materials that meet the required quality standards in a cost effective and timely manner are able to remain sustainable and competitive in the longer term. Availability of human resources for the manufacture of consumer electronics Labour and talent are components of human resources that are critical to the manufacturing operations of consumer electronics. Labour typically refers to unskilled personnel that carry out primarily physical functions in the production line of consumer electronics, which include, but are not limited to, the operation of various machinery, product assembly and quality inspections. Talent typically comprises skilled personnel with a specialisation specific to functions within the manufacturing operations of consumer electronics, including but not limited to, design, engineering, research and development. While a number of functions in the production line of consumer electronics have become increasingly mechanised and automated with technological advancement and thus allowing for machinery and specialised tools to playa larger role in manufacturing processes, there remains a need for personnel to operate certain kinds of machinery and to assist with various non-mechanised aspects of the production line. In certain countries where the cost of labour is low, it may be more cost effective to have minimal mechanisation on production lines and maintain a large labour force on the production line. This then creates a reliance on labour for manufacturing operations and thus, maintaining a workforce of the appropriate size is an important consideration to ensure effective and efficient operations. Talent is represented by personnel with specific skillsets that allow them to carry out specialised functions within the manufacturing operations of consumer electronics. It is important for industry players to be able to attract and retain talent as it is critical to maintaining the efficiency of output, the implementation of processes that streamline manufacturing operations, and new product development. A competent talent pool would also enable a manufacturer to build a reputation for itself in the industry and remain competitive within the marketplace, enabling it to attract and retain customers looking to render their services. 7. INDUSTRY OVERVIEW (Cont’d)
Supply and availability of machinery required to meet customer specifications Technological progress has allowed for the mechanisation and automation of several functions and processes across the production line in the consumer electronics manufacturing industry. It has enabled the development of specific machinery that allow for certain functions beyond human capability to be carried out in a consistent, reliable and cost effective manner. These machinery enable manufacturers to undertake more demanding tasks in the manufacture of consumer electronics products that require a greater degree of precision, scale and cost efficiency. With the rapid pace of technological advancement and an increasingly demanding consumer electronics market, product development of consumer electronics has advanced and is incorporating newer functionalities, as well as adopting more specialised techniques and greater precision in manufacturing processes. These demands create a pressure on consumer electronics manufacturers to meet these demands and carry out precision manufacturing on a large scale. The identification of the appropriate machinery and the suppliers of such machinery will allow industry players to expand their range of products and volume of output. Securing the appropriate machinery in a manner that expands functionality and maintains cost efficiency is critical for consumer electronics manufacturers to remain competitive in the evolving consumer electronics marketplace. Availability of funding for the expansion of operations and to carry out manufacturing activities at scale In order to remain competitive in the global marketplace, industry players must be able to meet customer demands from both technical and economical perspectives. Manufacturers need to be able to offer an expanded range of services that are competitively priced in order to attract and retain customers. Remaining competitive is increasingly important as fast pace technological developments take place and manufacturing demands increase in complexity. A certain degree of capital investment is required on the part of the consumer electronics manufacturer to be able to expand its services at competitive cost levels. This includes, but is not limited to, the acquisition of new or additional machinery, acquisition and development of additional factory floor space, and the development of additional infrastructure. To this end, a manufacturer may depend on external funding should internal funds be deemed insufficient. The availability of funding is critical, thereby allowing a manufacturer to expand production capacity and/or to undertake additional functionality in the manufacturing process of consumer electronics, and would have longer term implications on business growth. rrhe rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
Product/Service Substitution Electronics manufacturing services rendered by third party electronics manufacturers may also be carried out in-house by OEMs or brand owners themselves. Nonetheless, SMITH ZANDER notes that since the 1980s, the consumer electronics value chain experienced change as brand owners increasingly adopted the services of third party manufacturing firms for contract manufacturing services. There are various factors that drive brand owners to seek the services of third party design and manufacturing firms, where cost reduction is a primary factor. Nonetheless, in addition to cost reduction, third party design and manufacturing firms can provide: • a second manufacturing resource to that of the brand owner of electronic products, which can absorb some or all of the fluctuations in the demand cycle;
• reduction of working capital for the brand owner of electronic products;
• immediate availability of trained and experience staff;
• shortened time for availability or the acquisition of new technologies; • optimisation of yield and rework costs;
• ability to offer after sales and warranty services;
• ability to work with design, pre-production and other services which may be in short supply in-house;
• an experienced supply chain management; and
• a reduction in business risk with capital tied up in plant and equipment.

As such, this allows brand owners to concentrate on areas such as research and development, design and branding and marketing activities. Outsourcing to third party design and manufacturing firms further allows brand owners to gain access to the latest equipment, process knowledge and manufacturing technology without having to incur significant investments in plant and equipment. Competitive Landscape Brand owners of consumer electronics have been largely reliant on third party design and manufacturing firms for electronics manufacturing services. Third party design and manufacturing firms may provide more than manufacturing services, including unit assembly and testing for brand owners of electronic products, as they may offer value added services such as product design support services, aftermarket support, warranty repair, supply chain management, global distribution, logistics and quality control management. These third party design and manufacturing firms serve a large end-user base such as consumer electronics, telecommunications, automotive and industrial electronics. The development of the electronics manufacturing services industry is competitive where brand owners in various industries are prone to focus on their core competencies while outsourcing non-core business processes to third party design and manufacturing firms. There is a distinct trend in the shifting of outsourced manufacturing activities from high-cost regions such as North America and Western Europe to low-cost regions such as Southeast Asia and East Asia where countries such as Malaysia, the People’s Republic of China and the Republic of China (“Taiwan”) are located. This trend of outsourcing is expected to continue, reinforced by the sustained general thrust among brand owners to concentrate on their core competencies and global competitive positioning, marketing, sales and 24 7. INDUSTRY OVERVIEW (Cont’d)
business development strategies, and to leverage on the cost advantages provided by third party design and manufacturing firms. While the electronics manufacturing services industry is competitive in nature, there are barriers to entry that can restrict the entry of new firms into this industry. These barriers to entry include: • Capital intensive industry
The electronics manufacturing services industry is capital intensive as initial investments are required to secure manufacturing space, machinery and equipment, as well as raw materials for manufacturing activities;
• Strong technical skills
Industry players in the electronics manufacturing services industry require a certain degree of technical competence and know-how in order to deliver tailored solutions to brand owners;
• Complex business model built on strong supply chain network
Electronics manufacturing services industry players rely on a complex supply chain network in order to fulfil the requirements of brand owners, and deliver services that meet service level agreement parameters throughout the design, procurement, manufacturing and delivery activities;
• Product and quality certification

Products manufactured by electronics manufacturing services industry players must adhere to country and/or region specific quality certifications and licenses. Electronics manufacturing services industry players must undergo quality certification audits that require rigorous testing procedures to ensure manufactured products operate within predetermined parameters. Salutica Berhad is principally involved in the design, development and manufacture of Bluetooth devices for external brands; product conceptualisation, design, development, manufacture, marketing and sales of Bluetooth devices for its in-house brand, FOBO; and manufacture of other electronics and precision parts and components for external brands. Thus, Salutica Berhad competes in the global consumer electronics manufacturing services industry. Salutica Berhad competes with major players in the consumer electronics manufacturing services industry including Benchmark Electronics Inc.; Compal Electronics Inc.; Flextronics International Ltd.; GoerTek Inc.; Hon Hai Precision Industry Co., Ltd.; Inventec Corporation; K-mate General Electronics Co., Ltd.; Kinpo Electronics Inc.; OSI Systems Inc.; Pegatron Corporation; Primax Electronics Ltd.; Sanmina Corporation; Shenzhen Kaifa Technology Co., Ltd.; and Universal Scientific Industrial (Shanghai) Co., Ltd. These players are present in various geographical segments and provide manufacturing and/or design solutions for various brands of consumer electronics comprising both Bluetooth and non-Bluetooth products. In 2014, Salutica Berhad shipped 2.1 million units of Bluetooth headsets and smartwatches under external brands, as well as Bluetooth-enabled devices under its in-house FOBO brand, namely FOBO Tag, FOBO MAX and FOBO Tire.9 Global Bluetooth device shipments in 2014 totalled 3.0 billion units, of which other Bluetooth-enabled devices that are in the same categories as the Bluetooth products designed and manufactured by Salutica Berhad include products such as smartwatches, Bluetooth headsets, Bluetooth speakers, computer peripherals and Bluetooth sensors, comprised 1.2 billion units. Based on the 2.1 million 9 Source: Sa/utica Berhad 25 7. INDUSTRY OVERVIEW (Cont’d)
SMITH ZANDER units of Bluetooth devices shipped by Salutica Berhad in comparison to the volume of other Bluetooth­enabled devices of 1.2 billion units, Salutica Berhad achieved a global market share of 0.18% in 2014. [The rest of this page is intentionally left blank]
o.1024781-T 7. INDUSTRY OVERVIEW (Cont’d)
Consumer electronics manufacturing services industry ­ profiles of selected global industry players a  Headoffice  I  “””  ”  I  Latestavailable  I  Revenue  P ft b f ro I e ore  P f ftro It a er  Industry player ‘I t” oca Ion  Prmclpal activity  Products  I  f”” I mancl~  (USD ‘000)  tax (USD ‘000)  tax (USD ‘000)  yearendmg
Benchmark  United States  Design and manufactUring  • Wireless technology  31  2,540,873  90,039  95,401  Electronics Inc.  services and provision of integrated electronics manufacturing services to OEMs of industrial control equipment (including equipment for the aerospace and defense industry), telecommunication equipment, computers and related products for business enterprises, medical devices, and testing and instrumentation products  • Storage • Optics • Servers • Bluetooth products • Telematics • Semiconductors • PCBA • Industrial control systems  December 2015  Com pal  Taiwan  Design, development.  • Electronic readers  31  26,791,508  308,159  144,317  Electronics Inc.  manufacture and sales of computing, communications and consumers products  (“e-readers”) • Smartphones • Tablets • Wireless technology • Liquid crystal display (“LCD”) television and monitors • Set-top boxes • Notebook and netbook computers, and personal computers • Smart accessories • Cloud infrastructure  December 2014
125 [I Company No. 1024781-T II 7. INDUSTRY OVERVIEW (Cont’d) , Headoffice ..”” Industry player I t” Principal activity oca Ion Flextronlcs Singapore Design, build, ship and International service complete Ltd. packaged consumer electronics and industrial products for OEMs
SMITH ZANDER , Latest I . ‘available Revenue Profit before Profit after Products f” I (USD ‘000) tax tax lnancl~ (USD ‘000) (USD ‘000)year ending • Business  31 March  26,147,916  670,655  600,801  telecommunications  2015  systems and core  routers and switches  • Power chargers  • Aftermarket services  for notebooks  • Tablets  • Smartphones
• Enterprise telecommunications infrastructure
• Radio base stations for Long Term Evolution (LTE) and Global System for

Mobile Communications (GSM) infrastructure • Fitness tracker
• Notebook and netbook computers, personal computers and all-in-one desktops
• Processors
• Sync modules, lighting products, solenoids and motion control electronics
• Processors
• Gaming and computer peripherals

126
Company No.1 0247 7. INDUSTRY OVERVIEW (Cont’d)
Headoffice …. a~:~:~~e Revenue Profit before Profit after Industry player I cation PrmClpal activity Products , fin n . I (USD ‘000) tax taxIo a CI~ (USD ‘000) (USD ‘000) I year endmg , communication, wearables and connected liVing devices • Office equipment and imaging GoerTek Inc. People’s Research and 2,171,542 Republic of i development, production • Miniature 31
microphones December China : and sales of electro­• Miniature speaker/ 2015 i acoustic components, receiver i i electric accessories, light
• Bluetooth headsets !~~~~~e~ffi’Iiiisealing and related I-Hon-Hai—~I. Taiwan-···_···….··_··–b:s~i~~dc-e-v-e;-Io-p-m·-e-nt;-, —+_·~_·-SmartPhone-S –i –31-·_·__ ···_-13-3:47·1:8-47···1····
5,516,073 4,196,978 Precision I engineering, procurement, • Tablets I December ! Industry Co., manufacturing, logistics • E-readers 2014 i Ltd. and after sales services • Game consoles I for E&E productslinventec ····························Taiwan Design, manufacture and 31 13,799,657• Notebook computers 306,681 211,163! Corporation sales of smartphones and December electronic dictionaries; • Servers
• Storage

2014design and manufacture • Switches of all-in-one personal • Mobile devices computers and solar • Tablets batteries; and the design • E-readers and manufacture of solar • Cloud infrastructure battery modules K-mate General Taiwan Design and manufacture Not available Not available Not available Not Electronics Co., • Bluetooth headsets of Bluetooth modules as available Ltd. b • Bluetooth car kits well as Bluetooth and • Bluetooth non-Bluetooth transmitters and accessories receivers • Bluetooth speakers 127 I Company No. 10247 7. INDUSTRY OVERVIEW (Cont’d)
I Latest . I . Headoffice ‘” . available Revenue Profit before I Profit after Industry player I’ Prmclpal activity Products f’I (USD ‘000) tax ~ tax
Iocatlon mancl~ I (USD ‘000) (USD ‘000)I year endmg , chargers • Docking speakers , • Frequency
L! ;~::~~:~~~s(FM)m ••••• 80,48631 m 1,381,351 74,813I~::~~onics Inc. j Taiwan~~~~:~:;~:~:~~ij:S~~t~~2:s technology December and as an ODM • Power management 2014 I • Three (3)­I dimensional (“3D”) printing • Robotics
• LED products
• Electronic controls
• Global positioning system (“GPS”) modules
• E-readers
• Tablets
• Printers
• Game console peripherals
• Keyboards
• Calculators
• PCBA
• Set-top boxes
• Touch screen insulin pump
• Wi-Fi modules
• Smartwatches and smart bands

• Medical and fitness _–,__ ._….__L _ bio clothing
….-_–_.__._._.-‘_._…•__.-.__._ _ _-~–.__ _——–_._..: 128
~ Company No. 1024781-T ~ 7. INDUSTRY OVERVIEW (Cont’d)

I systems and components , I I I for critical applications I L… 831,974 . 599,620 Ir··~~~;~~~~~~_·······l’raTw·a·n···· ·····_·····T~:~~~:~~~~·~~·sTgn··aii-a··-·-;··~~~e~~;~:~~tnputers·_·-~:~~~·:::· .’,'” ········32:304·:975 , peripherals and I components of electronics  computers • Motherboards  2014  I  I products  • Video graphics array  (VGA) cards  • Mobile internet  devices  • Cable modems  • Set-top boxes  • Smartphones  • Switches and  routers  • Tablets  • E-readers  • Game consoles  • LCD television  • Multimedia players  Primax  Taiwan  i Manufacturing of E&E  • Bluetooth headsets  31  1,341,836  51,743 I  48,935  Electronics Ltd.  I products, as well as  • Audio transmitters  December  : industrial and construction  • Hands-free car  2014  l parts, provision of  headsets and car  l information services, and  accessories  : trading, wholesaling and  • Identification card  l retailing of electrical,  headphones  electronics and IT  • Image viewers  software  • Digital pens  • GPS receivers  • Charging cradles  • Data cables  • Car chargers
129 Company NO.1 024781-T II 7. INDUSTRY OVERVIEW (Cont’d)
• Camera modules
• Keyboard modules
• Computer input devices
• Digital writing tablet/stylus
• Printers and scanners
• Smart television remote control
• Wireless audio products
• Wireless portable

storage devices Internet music box Salutica Berhad Malaysia Design, development and • manufacture of Bluetooth devices for external • brands; product conceptualisation, design, • development, • I, manufacture, marketing and sales of Bluetooth • devices for its in-house I brand, FOBO; and •Imanufacture of other I electronics and precision • I parts and components for external brands •I I•I 1 • ……………………………………………..1….. …………………………………………..1.. ………1.
Bluetooth mono 30 June 49,271 5,191 7,016 headsets 2015 Bluetooth stereo headsets Bluetooth speakers Bluetooth smartwatch Bluetooth handsfree car kit Bluetooth-enabled TPMS Bluetooth electronic sensors Bluetooth tracking devices Bluetooth beacon transmitters Camera lenses

130 ~ Company No. 1024781-T II 7. INDUSTRY OVERVIEW (Cont’d)

” Latest. I . Headoffice ‘.. . . available Revenue’ Profit before i ProfIt after Industry player I t” Prmclpal actIvity Products f”” I US I tax I tax oca Ion mancl~ (D’000) (USD ‘000) I (USD ‘000) yearendmg • Camera body
• 3D glasses
• Optical light guide for electronic book (e-book) readers and printers
• Electronic industrial door locks
• Plastic parts for

, 1 lighting , ” 1 “‘-‘. Base station-s–“—27—.”‘—-,6~375350o-“-‘–‘-fr6;o60·’-“‘-377:ifoO” manufacturing solutions, • Routers and September components, products switches 2015 and repair, logistics and • Optical wiring aftermarket services • Storage primarily to OEMs in the • Set-top boxes communications • Point of saleInetworks, computing and equipment Corporation ‘1 storage, multimedia, • Casino gaming industrial and equipment I semiconductor capital • Touchscreen equipment, defense and operated equipment aerospace, medical, • LED products 1 j energy and clean • Semiconductors I technology and • PCBAI automotive industries • Processors • Professional and automotive audio/ video/multimedia …………………………._. __.._ .. ..__..1 ~.c1~~I?f1.1.~~t __ .
I ·· ··..”3·1’ , 2-;;:,40’56s~Shenzhen Kaifa PeopTe’s” Turnkey manufacturing ‘. Smart meters ‘I Technology Republic of services which include • Payment terminals December Co., Ltd. China I research and • Automation 2015 I development, production, equipment , • Cover lens for optics
131 Company No. 10247 7. INDUSTRY OVERVIEW (Cont’d)

7. INDUSTRY OVERVIEW (Cont’d)
3 ANALYSIS OF THE CONSUMER  ELECTRONICS INDUSTRY IN  MALAYSIA  Industry Performance, Outlook and Prospects

Malaysia’s E&E industry has been acknowledged as a pillar of the nation’s economy, as it is the largest manufacturing sub-segment of Malaysia’s economy, contributing to approximately 26.5% of the manufacturing sector GOP and 6.1 % of Malaysia’s total GOP in 2015, as well as about a third of the nation’s export income. The E&E industry’s GOP was valued at RM64.6 billion in 2015, growing by 7.9% from RM51.4 billion in 2012. Consumer electronics industry in Malaysia -economic performance of Malaysia’s E&E industry Year  National GOP I(RM billion)  2012  912.3  2013e  955.3  2014p  1,012.5  2015p  1,062.6

E&E industryE&E industry GOP contribution to national (RM billion) GOP (%) 51.4 53.7 59.5 _. 64.6 —–_.~-_ ..­5.6  5.6  5.9  .. 6.1 ._-~—–~._­
e Estimate p Preliminary Source: Department of Statistics Malaysia Over the years, Malaysia has built a reputation as a producer and assembler of components and parts of manufactured goods with good product quality. This has led to a continuous demand for Malaysia’s E&E products from various end-user markets such as consumer electronics, telecommunications and automotive for both the domestic and export market. In light of this, Malaysia’s exports of E&E products grew from RM231.3 billion in 2012 to RM277.9 billion in 2015. Most consumer electronics today are equipped with the ability to transfer data in order to be able to share information between devices and/or log metrics and/or activity to a device that accumulates such data. These data connections can take place throUgh wired connections, where a device is connected to another device via an appropriate and compatible physical data cable enabling the data transfer, or wirelessly, where both devices are able to establish a connection through one (1) of several kinds of wireless technologies or protocols. The advancement of technology and the development of wireless technologies have lowered the cost of implementing wireless capabilities on an increasing number of devices and peripherals today. This has allowed wireless technologies such as Wi-Fi, near field communication (NFC) and Bluetooth to be increasingly pervasive and seen as standard features in many consumer electronics today. The manufacturing sales value of consumer electronics in Malaysia grew from RM55.9 billion in 2012 to RM65.0 billion in 2015 at a CAGR of 5.1 %. Prior to 2012, the consumer electronics manufacturing industry was impacted by the European financial crisis in 2011, followed by its after-effects thereafter in 2012 and 2013, which lowered consumer spending on personal computers and other consumer electronics such as mobile phones, laptops and peripheral equipment. Nevertheless, as the European economy recovered and with the substantial rise in demand for mobile and wireless devices such as smartphones and tablets, 35 7. INDUSTRY OVERVIEW (Cont’d)
consumer electronics manufacturing sales in Malaysia rebounded and grew from RM55.9 billion in 2012 to RM65.0 billion in 2015. Consumer electronics industry in Malaysia -consumer electronics manufacturing sales value 66.0 2012 2013 2014 2015
Source: Department of Statistics Malaysia The export value of E&E products in Malaysia grew from R1VI231.3 billion in 2012 to RM277.9 billion in 2015 at a CAGR of 6.3% post the European financial crisis as confidence returned to global consumers and global consumer spending improved, thus positively impacting the nation’s consumer electronics manufacturing industry. [The rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
Consumer electronics industry in Malaysia -E&E export value 300.0 CAGR 6.3% C ~ :c 250.0 ~ e:­I/) t5 ::l 200.0-0 1:: 0. ill O/lill 150.0 .a ~ (l) ::l Oi > t::: 100.00 ~ ill 50.0 0.0 2013 2014 2015

 

Source: Deparlment of Statistics Malaysia The consumer electronics industry is expected to post strong sales in 2015 on the back of increased demand for smartphones and tablets. Consumer spending on smartphones is projected to increase predominantly from emerging markets, driven by declining average selling prices of smartphones and the introduction of new products from major mobile and wireless device brands as exhibited by the Apple and Samsung brands who have introduced new product lines in the consumer wearables category, which encompasses smartwatches and fitness trackers, alongside updates to existing product lines. Strong global demand for consumer electronics will subsequently boost consumer electronics manufacturing activities in Malaysia and the nation’s E&E product exports as manufacturer order books grow to meet increasing demand. This creates positive upside for consumer electronics manufacturing industry players in Malaysia, with industry players seNicing global brands well poised to benefit from this trend. rrhe rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
Reliance and Vulnerability to Imports The E&E industry is a key economic contributor for Malaysia, both from the manufacturing and external trade perspectives. At present, Malaysia’s ability to develop talent and resources with technical capabilities and skills to undertake activities in various segments of the E&E value chain has led to a strong foundation for its E&E industry, thereby reducing the nation’s reliance and vulnerability to imports. The development of the E&E industry in Malaysia has transformed Malaysia into a major player in the global E&E industry. Malaysia has built a reputation as a producer and assembler of components and parts of manufactured E&E products with good product quality, as can be seen by the continuous demand from export markets such as United States and Singapore. This has led to continuous demand for Malaysia’s E&E products from various end-user industries such as consumer electronics, telecommunications, and automotive, for both the domestic and export market. In light of this, Malaysia’s exports of E&E products grew from RM231.3 billion in 2012 to RM277.9 billion in2015 ata CAGRof6.3%. Asa major global exporter of E&E products, Malaysia’s E&E industry is not vulnerable to imports. Relevant Laws and Regulations Factories and Machinery Act 1967 The Factories and Machinery Act 1967 provides for the control of factories with respect to matters relating to the safety, health and welfare of persons therein, the registration and inspection of machinery and for matters connected to it. The Factories and Machinery Act 1967 is applicable to the manufacturing, mining and quarrying, as well as construction industries. The Factories and lVlachinery Act 1967 mandates the appointment of Chief Inspector of Factories and Machinery and Deputy Chief Inspector of Factories and Machinery with the power to enter, inspect and examine any factory, and the machinery, plant and appliances contained therein. Failure to comply with any order lawfully provided by the inspecting Chief Inspector of Factories and lVlachinery or Deputy Chief Inspector of Factories and lVlachinery, or willful delay or willful withholding of information can result in a fine not exceeding RM5,OOO or imprisonment of a term not exceeding two (2) years or both. The Factories and Machinery Act 1967 also makes specific provisions relating to the safety, health and welfare of employees in the manufacturing, mining and quarrying, as well as construction industries. Employment Act 1955 The Employment Act 1955 and its regulations stipulate the benefits and entitlements that employees are entitled to, and which all employers are required to comply with. These include the need to ensure that the benefits and entitlements of employees are fulfilled in terms of their wages, hours of work, rest days, and sick and annual leaves. The Employment (Restriction) Act 1968 also states that an employer is required to obtain a permit to employ legal foreign workers under contracts of services, and ensure their welfare and rights are fulfilled in terms of their wages, hours of work, rest days, and sick and annual leaves. The Ministry of Human Resources is responsible for monitoring and ensuring that companies are in compliance with the employment laws. 38 7. INDUSTRY OVERVIEW (Cont’d)
Occupational Safety and Health Act 1994 All employers possess a general duty of care to the employees. In accordance with the Occupational Safety and Health Act 1994, employers need to ensure that the work site facilities and systems are practicable, safe and without risks or hazard to the employees’ health and safety. It ;s also the obligation of the employer to provide employees with the training, knowledge, information and supervision, in providing a safe working environment without risks to their health, safety and welfare. The Department of Occupational Safety and Health is authorised to ensure that companies have taken proper steps to ensure a safe working environment for their employees. Environmental Quality Act 1974 The Department of Environment Malaysia is responsible for the implementation and monitoring of Malaysia’s environmental regulations and policies. The Environmental Quality Act 1974 prohibits industrial activities which cause air, sound, soil, and water pollution without obtaining a valid license. Therefore, the burning of waste or rubbish or any open burning is prohibited without obtaining the necessary licenses or permits. Under this regulation, effluent is not permitted to be diluted, whether raw or treated, at any time or point after it is treated, without first obtaining a written authorisation which approves the effluent to be treated according to the terms and conditions of the authorisation. Industrial Co-ordination Act 1975 The Industrial Co-ordination Act 1975 is an Act introduced with the objective of maintaining the co­ordination, orderly development and growth in Malaysia’s manufacturing sector. The Act requires manufacturing companies in Malaysia with shareholders’ funds of RM2.50 million and above or with 75 or more full-time employees to apply for a manufacturing license for approval by the Ministry of International Trade and Industry (“MITI”). Applications for the manufacturing license are to be submitted to the Malaysian Industrial Development Authority (UMIDA”), and this license will sUbsequently be approved and issued by MIT!. The licenses are non-transferable unless with prior approval has been obtained from MIT!. [rhe rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
4 OVERVIEW OF THE GLOBAL AUTOMOTIVE MARKET Industry Performance, Outlook and Prospects Global production of vehicles, comprising both passenger and commercial vehicles, grew from 74.8 million units in 2010 to 90.7 million units in 2015, registering a CAGR of 3.9%. Of this, global production of passenger vehicles grew from 58.3 million units in 2010 to 68.6 million units in 2015 at a CAGR of 3.3% while global production of commercial vehicles grew from 16.5 million units in 2010 to 22.1 million units in 2015 at a CAGR of 6.0%. Global sales of vehicles grew from 75.0 million units to 89.7 million units between 2010 and 2015 at a GAG R of 3.6%, of which global sales of passenger vehicles grew from 55.4 million units to 66.3 million units at a GAGR of 3.7% while global sales of commercial vehicles grew from 19.6 million units to 23.4 million units at a GAGR of 3.6%. Growth in the production and sales volumes of vehicles during this period were underpinned by increased global economic activity as a result of increased global consumption and trade flows. Passenger vehicles and commercial vehicles playa central role in the transport of goods and people between locations and supplement other forms of transportation, allowing global markets to function efficiently and in a timely manner. Global automotive market -production and sales of vehicles Europe North America Africa Latin America Others Total  7 ,  42,549.0 19,044.9 19,410.6 1,550.3 5,821.3 1,301.9 ~~-­89,678.0  7. 4.0 -1.8 2.7 -3.6
[The rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
Global automotive market -production and sales of passenger vehicles 32,203.5 39,862.5  4.4
18,537.7  1.4  » __H~m~_~ 5,052.2 604.8  ‘H_’H”‘”,,”,=”~ 6.4 11.1 -0.8 4,344.8  159.9  -4.9  68,561.9  3.3
35,480.1 17,271.1 16,424.4 ~-­3,698.2 8,285.7 356.9 1,125.5 ‘-‘ 4,529.9 4,377.7 205.3 618. 58,264.9 66,311.9 Global automotive market -production and sales of commercial vehicles 7,750.6  7.3  2,558.7 -9,331.3  0.2 8.0  Africa  231.2  —~-­8.3
Latin America Others Total -2,236.3 2.2,”‘—-,,—~-_..­13.1 -19.5 ,121.2 6.0 7,676.1 2,308.8 7,025.8 346.7 1,772.4 472.1 7.7 19,601.9 3.6 Globally, total vehicles in use increased from 1.1 billion units in 2010 to 1.2 billion units in 2014 at a CAGR of approximately 4.0%, where total passenger vehicles in use grew from 775.6 million units to 907.1 million units at a CAGR of 4.0%, and total commercial vehicles in use grew from 281.3 million units to 329.3 million units at a CAGR of 4.0%. [fhe rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
Global automotive market -total number of vehicles in use a CAGR Total :4.0%1,400 Personal vehicles :4.0%
‘~,Personal vehicles -Commercial vehicles -Total a Latest available as at 6 April 2016 Regionally, the distribution of vehicles in use was highest in Asia at 387.3 million units in 2014 (31.3% of the share of global vehicles in use), followed by Europe at 382.2 million units (30.9% of the share of global vehicles in use), North America at 280.9 million units (22.7% of the share of global vehicles in use), Latin America at 122.9 million units (9.9% of the share of global vehicles in use) and Africa 42.5 million units (3.4% of the share of global vehicles in use). [The rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
Global automotive market -distribution of vehicles in use by region a
TPMS as an aftermarket solution is a segment of the automotive accessories market that has significant growth potential as there is a large number of vehicles in use that do not have TPMS installed as a factory specification. Factory specification refers to the technical specifications for vehicles that leave the production line where these specifications have been defined by brand owners and/or manufacturers. These specifications must be met by parties involved in the automotive supply chain, including OEMs and vendors. TPMS is a safety feature that is a relatively new addition to vehicle specifications. TPMS gained prominence in the recent decade as developed countries such as the United States have passed legislation making it mandatory for new production vehicles to be equipped with TPMS. In markets where such legislation is not in place, manufacturers are not legally required to have TPMS as part of the factory specification. Given the additional cost involved for the inclusion of TPMS as a factory specification, automotive brand owners and/or manufacturers have typically not included TPMS as a standardised feature across vehicle lines in all geographies. Thus, there is a large percentage of vehicles in use and newly produced vehicles that do not have TPMS installed as a factory specification. These passenger and commercial vehicles in use as well as new vehicles coming off the production line represent growth potential for TPMS industry players. Strong growth in the global automotive industry combined with increasing regulation and recommendations by the respective country authorities will benefit TPMS industry players, opening new and untapped markets for these industry players. The TPMS industry is competitive in nature, where industry players comprise multinational brands as well as local brands. Major multinational brands include Continental AG; Denso Corporation; Doran Manufacturing LLC; Hitachi Ltd.; Huf Hulsbeck & Furst GmbH & Co., KG; Knorr Bremse AG; Lear Corporation; Omron Corporation; Orange Electronic Co., Ltd.; Pacific Industrial Co., Ltd.; Robert Bosch GmbH; Salutica Berhad; Schrader International Inc.; and ZF TRW Automotive Holdings Corp. These players are present in various geographical segments and provide both OEM and aftermarket TPMS 43 7. INDUSTRY OVERVIEW (Cont’d)
SMITH ZANDER solutions comprising Bluetooth and non-Bluetooth technologies for passenger and commercial vehicles, as well as motorcycles. Global automotive market -global TPMS industry players
Doran Manufacturing LLC  United States  Hitachi Ltd.  Japan  –‘-Huf Hulsbeck & Furst GmbH & Co., KG  _.. Germany  Knorr-Bremse AG  Germany  …..~ ………………………………………………………. Lear Corporation  United States  ..” ……………………………… …………………………………….. Omron Corporation  Japan  Orange Electronic Co., Ltd.  Taiwan  —_._–­Pacific Industrial Co., Ltd. Robert Bosch GmbH Sal utica Berhad  Japan Germany Malaysia  ~–~.._–Schrader International Inc.  United States  ._.__._-~……_._……__………_._._.. ZF TRW Automotive Holdings Corp.  United States
a List of brands may not be exhaustive’ · Aftermarket • Aftermarket · OEM Aftermarket · OEM Aftermarket · · · OEM Aftermarket OEM Aftermarket Aftermarket · · OEM Aftermarket Aftermarket · Aftermarket · OEM Aftermarket OEM Aftermarket · · · Motorcycles Light vehicles vehicles Light vehicles • Heavy vehicles · ·Light vehicles Heavy vehicles · · · Motorcycles Light vehicles Heavy vehicles …………….·v·………”………………..
· · · · · · · ·· · · · · Light vehicles .!::!.~.~.~X.. ~.~~ic:I.~.~ …… Light vehicles vehicles Motorcycles Light vehicles vehicles Light vehicles vehicles Light vehicles Heavy vehicles Motorcycles Light vehicles vehicles Motorcycles Light vehicles Heavy vehicles Light vehicles • Heavy vehicles · Doran …………………………….
• Hitachi · Huf · · · Beru IntelliSens SmarTire ……………………….”‘··.. v
· Lear · Omron _ …_ .._–­· Orange Electronic · Pacific ………………_………..
· Bosch · FOBO · ….” ……….~,–~ ………………._………-Schrader ~· TRW [The rest of this page is intentionally left blank] 7. INDUSTRY OVERVIEW (Cont’d)
5 PROSPECTS AND OUTLOOK FOR SALUTICA BERHAD Bluetooth has become one (1) of the most prevalent and pervasive wireless technologies available today as its role has evolved with the advancement of technology and the expansion in the consumer electronics product lines to accommodate relatively new functions such as the connected home and wearable technology. With new low energy Bluetooth Smart Ready chipsets that have been designed to operate in low power environments, Bluetooth has gone beyond being present in smartphones, tablets, laptops and earphones to now operating in sensors, smartwatches, hearing aids, fitness and health trackers as well as being embedded in apparel. Connectivity is a key capability required in loT applications, both for consumer and enterprise infrastructure devices. Consumer electronics are already popular around the world, driven by consumer enthusiasm and increasing internet access. Ownership of consumer electronics is expected to grow as consumers demand a more seamlessly connected environment that enables them to manage daily tasks in a time efficient and effortless manner. This is expected to drive demand for key products such as smartphones, tablets, and laptops as well as peripherals that are able to interact with them towards meeting this end. Bluetooth-enabled device shipments worldwide grew from 1.8 billion units in 2011 to 3.0 billion units in 2014 representing an impressive CAGR of 18.6%. Bluetooth-enabled device shipments worldwide are projected to grow from 3.0 billion units in 2014 to 4.9 billion units in 2018 at a strong CAGR of 13.0% owing to the expansion in the role of Bluetooth in consumer electronics, as well as other end-user industries as loT further develops as a concept and expands into new areas of consumer lifestyle. Based on SMITH ZANDER’s research, global Bluetooth device shipments in 2014 primarily comprised smartphones which accounted for 1.3 billion units or 42.8% of global Bluetooth device shipments in 2014. Other major Bluetooth device product segments in 2014 include laptops and personal computers, as well as tablets, that accounted for 315.9 million units (10.5% of global Bluetooth device shipments in 2014) and 229.6 million units (7.7% of global Bluetooth device shipments in 2014) respectively. Other Bluetooth­enabled devices including products such as smartwatches, Bluetooth headsets, Bluetooth speakers, computer peripherals, and Bluetooth sensors comprised the remaining 1.2 billion units (39.0% of global Bluetooth device shipments in 2014). Brand owners of consumer electronics have been largely reliant on third party design and manufacturing firms for electronics manufacturing services. There is a distinct trend in the shifting of outsourced manufacturing activities from high-cost regions such as North America and Western Europe to low-cost regions such as Southeast Asia and East Asia where countries such as Malaysia, the People’s Republic of China and Taiwan are located. This trend of outsourcing is expected to continue, reinforced by the sustained general thrust among brand owners to concentrate on their core competencies and global competitive positioning, marketing, sales and business development strategies, and to leverage on the cost advantages provided by third party design and manufacturing firms. Global production of vehicles, comprising both passenger and commercial vehicles, grew from 74.8 million units in 2010 to 90.7 million units in 2015, registering a CAGR of 3.9%. Global sales of vehicles grew from 75.0 million units to 89.7 million units between 2010 and 2015 at a CAGR of 3.6%, of which global sales of passenger vehicles grew from 55.4 million units to 66.3 million units at a CAGR of 3.7% while global sales of commercial vehicles grew from 19.6 million units to 23.4 million units at a CAGR of 3.6%. Growth in the production and sales volumes of vehicles during this period were underpinned by increased global economic activity as a result of increased global consumption and trade flows. Globally, total vehicles in use increased from 1.1 billion units in 2010 to 1.2 billion units in 2014 at a CAGR of approximately 4.0%, where total passenger vehicles in use grew from 775.6 million units to 907.1 million 45 7. INDUSTRY OVERVIEW (Cont’d)
units at a CAGR of 4.0%, and total commercial vehicles in use grew from 281.3 million units to 329.3 million units at a CAGR of 4.0%. Tyre pressure is one (1) of the aspects of road safety that has become a focus for authorities in developed countries owing to the correlation between insufficient tyre pressure and road traffic incidents. The United States has legislation in place in the form of the TREAD Act requiring the installation of TPMS on all light vehicles effective 1 September 2007. The European Union regulation ECE-R 64 requires vehicles to be equipped with TPMS as of 1st November 2012 with all newly registered vehicles required to be fully compliant from 1 November 2014. Japan, the Republic of Korea, the People’s Republic of China and India are all currently in the process of adopting similar legislation with the Republic of Korea confirming its intention with the passing of TPMS legislation. Japan, the People’s Republic of China and India are expected to follow with Japan estimated to enact TPMS regulations in 2017, the People’s Republic of China in 2018 and India in 2019. TPMS as an aftermarket solution is a segment of the automotive accessories market that has significant growth potential as there is a large number of vehicles in use that do not have TPMS installed as a factory specification. These passenger and commercial vehicles in use as well as new vehicles coming off the production line represent growth potential for TPMS industry players. Strong growth in the global automotive industry combined with increasing regulation and recommendations by the respective country authorities will benefit TPMS industry players, opening new and untapped markets for these industry players. In 2014, Salutica Berhad shipped 2.1 million units of Bluetooth headsets and smartwatches under external brands, as well as Bluetooth-enabled devices under its in-house FOBO brand, namely FOBO Tag, FOBO MAX and FOBO Tire. Global Bluetooth device shipments in 2014 totalled 3.0 billion units, of which other Bluetooth-enabled devices that are in the same categories as the Bluetooth products designed and manufactured by Salutica Berhad include products such as smartwatches, Bluetooth headsets, Bluetooth speakers, computer peripherals and Bluetooth sensors, comprised 1.2 billion units. Based on the 2.1 million units of Bluetooth devices shipped by Salutica Berhad in comparison to the volume of other Bluetooth­enabled devices of 1.2 billion units, Salutica Berhad achieved a global market share of 0.18% in 2014. SMITH ZANDER believes that the prospects for Salutica Berhad will be supported by the growth in Bluetooth device shipments on the back of greater demand for consumer electronics including smartphones, tablets, and laptops as well as the continued adoption of Bluetooth technology across key verticals such as health and wellness, sports and fitness and industrial and home automation. [fhe rest of this page is intentionally left blank]

 

 

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