4.4 INDUSTRY OVERVIEW
4.4.1 Overview of the Global and Malaysian Economy
The year 2006 will face greater challenges arising from high oil prices, tightening monetary policies especially in the US, widening global imbalances as well as continued geo-political tensions and security concerns. Nevertheless, given the resilience of major economies, the global economy is expected to expand at 4.3%, supported by China and the US. Economic growth in China is forecast to continue, but at a slightly lower rate of 8.2%, providing the impetus for growth in Asia in general and the ASEAN region in particular, while the US is projected to register a growth of 3.3%. In Japan, growth is projected to be firm at 2% as deflation eases and domestic demand sustains.
Economic activity in the euro area is also expected to improve, although uneven across the region, at 1.8%. The expected improvement is on account of favourable financing conditions, rise in business confidence amid signs of recovery in the services and manufacturing sectors and a strong external sector. As for fhe UK, growth prospects are envisaged to improve by 2.2% with the services sector spurring growth, supported by a more accommodative monetary policy.
The Malaysian economy is expected to maintain its growth momentum in 2006 in line with sustained private sector activities, favourable external environment and Government’s continuing efforts to further diversify the economy through new sources of growth. Growth is expected to be broadbased with expansion in all sectors, driven by private investment spending and strong activities in the services sector. Accordingly, real GOP growth is forecast to expand by 5.5% in 2006 and per capita income envisaged to rise further by 7.1% to RM18,995 (2005: 6.8%; RM17,741). In terms of purchasing power parity, per capita income will increase by 6.9% to USD11,030 (2005: 7.2%; USD1 0,323).
Following recovery in global electronics demand in the second half of 2005, growth of the manufacturing sector is anticipated to grow by 4.9% (2005: 4.8%). The landscape of the manufacturing sector is expected to change in tandem with new developments and the shift towards technology-driven manufacturing processes with more R&D activities. New developments include advanced technologies such as nanotechnology, biotechnology and advanced manufacturing practices, which encompass high knowledgecontent processing technologies. These developments are expected to contribute positively to growth of the manufacturing sector.
(Source: Economic Report 2005/2006, Ministry of Finance Malaysia)
4.4.2 Overview of the Semiconductor Industry
Semiconductors industry. after a sharp downfall in 2001 caused by collapse of end-users electronics markets which was doubly impacted by September 11 terrorist attacks, has experienced a steady recovery in 2002 and 2003.
Despite persistent excess inventory concerns, the worldwide semiconductor industry delivered 23.4 percent growth in 2004, with revenue totalling USD
(Source: Gartner Dataquest’s “Gartner’s Final Semiconductor Vendor Market Share Resuns Shows tndustry Grew 23 Percent ;n 2004” 23 March 2005)
Allhough macroeconomic factors, such as the rise in the price of oil, and devastating natural disasters. such as Hurricane Katrina. had no noticeable effect on the semiconductor market in 2005, the market is settling into a pattern of modest growth during the next few years.
Worldwide semiconductor revenue is forecast to reach USD235 billion in 2005, a 6.9 percent increase from 2004. This will be the first time that the semiconductor industry has surpassed the previous record-selling year in 2000 when revenue reached USD223 billion. In 2006, the market is forecast to grow 7.6 percent, before a mild slowdown in 2007 with growth of 5.1 percent.
(Source: Gartner Dataques/’s “Forecast: Semiconductors, Worldwide, 2002-2010 (4005 Update)” 16 November 2005 and “Market Share: Semiconductor Revenue, Worldwide, 2005 (Preliminary Estimates)” 6 December 2005)
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Based on data from Gartner Dataquest, the ATE market is valued at USD3.021 billion in 2003, USD4.790 billion in 2004 and estimated to be USD3.780 billion in 2005.
For the first half of 2005, revenue dropped significantly for many key ATE providers. However, ATE spending picked up in the second half of 2005. The details of the forecast for 2006 is as follows:
Global Semiconductor Capital and Equipment Spending Forecast (In USD Million)
Capital Equipments ATE 2006 (F) 36,413 4,875
(Source: Ganner Dataquesl “Da/aques/ Alen: Semiconductor Capital Equipment Demand 10 Rise in 2006” 19 December 2005)
4.4.4 Players and Competition
The ATE industry is an intensely competitive and fragmented market. We
compete with other suppliers of IC test equipment in the various geographical
markets in which we operate.
We believe we have no local competitors but face competition from international companies such as ASTI, ICOS and IPT.
Significant competitive factors in the back-end semiconductor manufacturing include product performance, such as speed, accuracy and reliability, cost effectiveness, quality, price and flexibility in adapting products to customers’ needs. Our Directors believe that we are able to be competitive with respect to these factors and will also continue to develop and design new and improved products in order to maintain our position.
4.4.5 Laws and Regulations
The semiconductor equipment production industry in Malaysia is generally governed by MITI, Industrial Coordination Act 1975, and other relevant laws and regulations.
We have applied and secured the licences required for our operations as set out in Section 4.2.5 of this Prospectus.
4.4.6 Demand and Supply
The demand for our products and for ATE in general depends on the performance of the overall semiconductor industry as described in Section
Based on our observation, the supply of the IC tesVbackend equipment has experienced consolidation following the recent slowdown in the semiconductor industry.
We further believe that suppliers who are competitive will be able to take opportunity of the more cautious outlook in the industry. In this regard, we believe that we will be able to expand our market reach with our range of competitive products.
4.4.7 Substitute Products/Services
We believe that our products are not easily substituted due to their performance capabilities. However, there are products from direct competitors such as ASTI, ICOS and IPT with similar functions and features available (such as gravity-feed electrical test, vision inspection and TNR system) in the local and global markets. However, we believe that our products are superior as they have higher processing speed, occupy lesser floor space and offer more operational flexibilities compared to competitors’ products.
4.4.8 Reliance on and Vulnerability to Import
A few of the main raw materials used for our product such as camera components, vision components and motion control components are imported from Singapore, as there are no local distributors for them. However, such reliance may not be viewed as critical as there are many available suppliers for these materials worldwide.
4.5 MAJOR CUSTOMERS
Our ten major customers for FYE 2005 are as follows:
Customers Country Level 01 Sales (%1 Length of relationship (Years)
STATS ChipPAC Malaysia Sdn Bhd Unisem (M) Berhad ZMC Technologies Pte Ltd STATS ChipPAC Shanghai Co Ltd Allegro Microsystems Philippines Inc Cirtek Electronics Corporation RF Micro Devices, Inc Device Dynamics (Malaysia) Sdn Bhd Intotest Sdn Bhd Omega Semiconductor Sdn Bhd Malaysia Malaysia Singapore China Philippines Philippines USA Malaysia Malaysia Malaysia 28% 17% 12% 11% 9% 6% 5% 4% 4% 2% 2 years 1 year 2 Y2 years 2 V2 years Y2 year 1 year Y2 year 1 year 2 Y2 years 1 Y2 year
We have a diversified customer base in China, Malaysia, Philippines, Singapore and the USA. We intend to further diversify our customer base to include other IDMs and SCMs in Malaysia as well as overseas.
All the customers in the major customer list are IDMs and SCMs except for Intotest Sdn Bhd and ZMC Technologies Pte Ltd, which are our distributors.
4.6 MAJOR CONTRACTORS / SUPPLIERS
Our ten major contractors/suppliers for FYE 2005 are as follows:
Suppliers ProductsJServices Purchased Level of Purchases (‘Yo) Length of relationship (Years)
Kinzoku Technology Sdn Bhd Fabricated parts t5.34% 3 years
Flexible Automation System Sdn Bhd Standard Components 9.74% 3 years
Datar Machining Manufacturers Sdn Bhd Fabricated parts 9.38% 3 years
Loi Machinery Fabricated parts 8.90% 3 years
HF Technology Sdn Bhd Computer hardware and software 7.00% 3 years
S.M.C Pneumatics (SEA.) Sdn Bhd Pneumatics parts 6.75% 3 years
NCS Sales and Services Sdn Bhd Computer hardware 4.5t% 3 years
MGLD Works Fabricated parts 4.04% 3 years
Impressive Edge Precision Sdn Bhd Fabricated parts 3.39% 3 years
Precision Optical System Singapore Camera components 3.37% 3 years
We are not overly dependent on any single contractor / supplier and we will not face any difficulty in obtaining major raw materials and components as there is a wide network of contractors / suppliers.
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4.7 SUMMARY OF FIVE (5)-YEAR BUSINESS DEVELOPMENT PLAN
Our strategy is built around our vision to be the semiconductor industry’s top choice of equipment solution provider through technical innovation, best-in-c1ass perlormance, excellent service and support, cost effectiveness, environmental friendliness and partnership with customers, peers, suppliers and employees, We have identified the following strategic programs that are crucial towards the successful implementation of our vision:
i) Product Strategy
Common Platform Concept
A common platform design brings a lot of advantages to both our customers and to us. It reduces complexity across product range, eases maintenance and learning curve, minimises spares support and reduces R&D cost.
New Products Development
With substantial years of experience and in-house core technologies in mechatronics, control software and vision inspection, we will continuously intensify our R&D activities to roll out new equipments in the pipeline. Currently, we are constructing T8, which utilises 30 vision inspection technology based on laser triangulation. In the future, transfer equipment in CSPIWLP will be developed.
Segmentation of Products
A distinctive feature of our products is that there are no substitute products; there are only direct competitors’ products. Our products compete on a global basis, with a majority of them exported. A common approach of new entrants into the industry is to introduce low to medium cost equipments to attract cost-conscious customers who are not too concerned about perlormance and functionaiity. To counter threats from these entrants, we also position ourselves with products in the low to medium cost market segment in the industry. Since we already have the G3 to serve the low cost market, we plan 10 introduce equipmenls for the medium cost market. The G5 test and inspection equipment, which will be launched to fill the gap between the G3 and G6, will cater for the medium cost market. Similar product line-up will be developed for the OEM vision inspection market.
ji) Growth Strategy
Product Differentiation and Branding
With our focus on core competencies in mechatronics, control software and vision inspection, our products are developed with the most advanced technology. These products have been sold to local semiconductor assembly houses and well-known semiconductor manufacturing MNCs with worldwide presence. with the support of aggressive sales and marketing efforts and effective distribution channels.
Our product differentiation and branding policy are structured to position us in the correct segment of the market in order to penetrate new markets based on our reputation.
New Markets Development
Traditionally. the vision inspection technology is widely used in the
semiconductor industry although there exists vast market potential for
application of vision technology in other non-semiconductor industries.
As a strategy to reduce our dependency on only one (1) industry. we will target other industries. which require mark and shape inspections. such as the printed circuits board assembly and pharmaceutical industries.
Growth by Acquisition
In order to strengthen our presence and secure greater market share in the ATE industry globally. where opportunity arises. we may acquire smaller size competitors with other core competencies. for example bare die handling technique. as part of our growth strategy.
iii) Sales and Marketing Strategy
To better serve our global customers. we intend to set up regional sales and distribution centre. complete with equipment demonstration and storage facilities in major locations in the world. for example Shanghai in China. San Jose in the USA and Hsinchu in Taiwan. With the localised sales and marketing functions and physical presence at our global customers’ factory sites. we are able to understand more of their needs. Personal after-sales services can be provided more effectively and efficiently to these customers where important feedbacks will be obtained for future product and service enhancements.
In order to further enhance the after-sales services to our customers. we plan to set up divisions of service engineers in the respective sales representative offices. Consistent and up-to-date technical training of the service engineers will be held to ensure that they possess the necessary skills and knowledge to carry outlheir functions.
As we are relatively new to the market. we will embark on a brand building exercise for our range of products by leveraging on the substantial combined years of experience of our engineering team in the industry. We will promote the functionality and performance of our range of products by advertising in technical journals/magazines such as Semiconductor InternationaJ®, Semiconductor Manufacturing and Vision System® Design. amongst others. Webpages will be set up with detailed write-up on our history. our engineering team. core technologies and technical capabilities of our range of products and services. We will participate in international semiconductor industry trade shows. for example Semicon West USA. Semicon Shanghai. Semicon Taiwan. Semicon Singapore etc. which allows us to demonstrate the equipments that we have designed and assembled.
iv) Technology Strategy
Besides developing and improving our own technology. we are constantly looking out for relevant prevalent enabling technology that will help us to move ahead faster in the industry.
Technical publications. new trends and latest image processing methods in related fields are regularly reviewed by our team of engineers to obtain better design and implementation ideas.
For our next generation of 3D inspection, laser triangulation technique using an ultra advanced and high-speed camera, which is capable of acquiring twenty thousand (20,000) 3D profiles per second, is currently under development. Once developed, this new technology can be applied to a wide range of shapes and sizes of objects to plot out their 3D profiles,
With the rapid evolvement of technology in today’s environment, organic growth by way of in-house R&D activities alone is not sufficient to catch up with the pace of development of new technology. Where opportunity arises, we may acquire companies that possess their own core competencies in specialised technology to strengthen our technological standing in the market place. Strategic synergy will be obtained by the combination of our mechatronics, control software and vision inspection technologies with other leading technologies in the semiconductor industry.
4.8 INFORMATION ON LAND AND BUILDINGS
We do not own any landed property. However, as at 20 February 2006, we entered into a sale and purchase agreement to acquire two (2) pieces of land held under HSM 1600 and HSM 1603 (PT No. 3841 and 3844 respectively). with a land area of 36,005 square feet for each land in Mukim Bukit Baru, Melaka for a total consideration of RM963,488 of which we have paid a deposit RM96,349, which represents 10% of the total purchase consideration.
Details of the sale and purchase agreement are included in Section t 2.4 of this Prospectus.
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