Results for the financial year ended 30 June 2018 (FY2018)
Q1. The global semiconductor industry had sales growth of around 20% during 2017 and 2018. However, the Group's sales grew at a slower 13.8% in FY2018 and decreased in each subsequent quarter from 32.5% in 1Q18 to 1.5% in 4Q18. What are the reasons for this divergence between the industry and the Group?
While the Group serves primarily the semiconductor industry, we do not see a perfect correlation between the global semiconductor sales and our revenue. This can be partly attributed to the flow in the supply chain as the tools and parts we manufacture are typically purchased by our customers well before the sale of the finished chip is recorded. As a result, the Group's revenue growth generally tends to indicate the future direction of the semiconductor industry. Indeed, our top line growth slowed to 1.5% during 4Q18 compared to the same quarter a year ago which reflects the World Semiconductor Trade Statistic's projection for industry growth to slow to around 4% to 5% in the second half of 2018.
As such cyclicality is typical for the semiconductor industry, our approach is to focus on its long term trends and not to get sidetracked by short-term variations. We continue to believe the semiconductor industry is poised for a prolonged period of solid growth as chips are becoming increasingly embedded in nearly every aspect of modern life, from today's smart phones to tomorrow's driverless cars. Hence, the key to the Group's success lies in our continuing ability to seize long-term opportunities and correctly identify the initiatives and investments that bring value to our customers.
Back to topQ2. What are the new trends in the area of the semiconductor industry that MMH operates and how does this present new challenges as well as opportunities for the Group's business?
As chips get smaller, they are increasingly more sensitive to contamination. This is a challenge for our semiconductor tooling business as customers are placing greater emphasis on factors such as cleanliness, low or zero electrostatic discharge (ESD), high temperature and high pressure bonding. Micro-Mechanics is working to be prepared for the opportunities in this “Nano” world of semiconductor manufacturing. Our R&D team in Singapore has already produced several proprietary materials that we believe are essential for 10 nanometer and below device geometries. Although the landscape is more challenging due to the ever-changing nature and increasingly stringent demands of the semiconductor industry, we believe these requirements play well to our technical, financial and managerial strengths and our focus on building stakeholder value that is sustainable.
Q3. The Group invested a record S$10.6 million on new equipment during FY2018. How much of this was used to expand your production capacity? How much of your expected capital expenditure budget of S$6 million will be on capacity expansion?
About half of the Group's investments on new equipment in FY2018 was to expand the production capacity of our worldwide factories, particularly our plant in the USA. For FY2019, our capital expenditure budget will be focusing more on raising the productivity of our operations through automation and replacing/upgrading our existing machines, rather than on expanding capacity.
Q4. Please update on the progress of the Group's subsidiary in the USA (MMUS) during FY2018.
MMUS has made encouraging progress during FY2018 following our decision to focus its business on serving the wafer fabrication equipment makers. Sales at MMUS increased 29.6% to S$12.3 million in FY2018 which enabled it to turnaround with a modest net profit of S$0.5 million compared to a loss of S$0.6 million in FY2017. During 4Q18, our engineers in California completed the development of a critical part used in the wafer-fabrication process. While this engineering initiative involved more than 18 months of difficult and costly work, we expect our efforts to begin generating initial revenue during FY2019.
Although MMUS has a much larger addressable market compared to our semiconductor tooling business, it also faces competition from entrenched suppliers including some of the world's biggest contract manufacturers. As a result, we are working hard to become a new breed of supplier with competitive advantages so far not seen in terms of quality, repeatability and efficiency. With its encouraging performance, growing customer engagement and the positive long term outlook for the semiconductor industry, we see exciting opportunities ahead for MMUS.