Results for the financial year ended 30 June 2013 (FY2013)
Q1. Does the Group still experience seasonality in its quarterly revenues?
Yes, the Group's quarterly revenue is still subject to seasonal factors due mainly to our semiconductor tooling segment which serves customers that assemble and test semiconductors. With over half of all semiconductor chips finding their way into consumer applications, revenue from this segment is generally higher in the first and fourth quarters of our financial year (ie. from April to September) as our customers ramp-up production volumes for the year-end festive period.
Our Custom Machining & Assembly (CMA) Division which serves equipment makers in the high-technology aerospace, laser, medical and wafer fabrication industries, also experiences seasonality. CMA sales in the second quarter of our financial year (ie. from October to December) tends to be lower as semiconductor customers halt investments in new equipment to focus on the ramp-up for the year-end festive season.
Back to topQ2. Although your semiconductor tooling business showed a year-on-year improvement in gross profit (GP) margin to 55.8% in FY2013, this was below the GP margin of over 60% that the Group achieved after its listing in 2003. Please explain. Do you see scope for the GP margin of this segment to improve further in coming years?
The decline in GP margin of our semiconductor tooling business since 2003 has been due mainly to the depreciation of the US dollar against the Asian currencies, rising labor and other costs as well as the pricing pressure from customers typical of the semiconductor industry. To counter these cost and pricing pressures, we plan to continue working nonstop to improve our operational efficiency, cost structure and cycle time.
Q3. What synergies and benefits have you derived from the CMA business?
Our CMA business enables the Group to build a business that has more sectoral and geographical diversity. As its customers are mainly in the USA, our CMA business provides a good balance to our semiconductor tooling business which is increasingly centered on customers in Asia. Our customer base has also expanded to include other high-tech industries such as medical, aerospace and laser.
The CMA business has also given the Group access to technologies and new know-how that enable us to refine our manufacturing methodology organisation-wide to better meet customers' needs in an increasingly volatile market environment. Over the past few years, we have been working on a R&D project to develop a unique recipe for repeatable, scalable and cost-effective machining.
The experience and knowledge gained from developing 24/7 Machining at our CMA factory in the USA is also benefiting the operations of our semiconductor tooling business. During FY2013, we began introducing and implementing 24/7 production fundamentals - more automation and less manned operations - at our factories in Singapore and Malaysia. Through this exercise, we are seeing further improvements in our productivity, quality and cycle time.
Q4. How correlated are your semiconductor tooling and CMA businesses to the trend of global chip sales?
Our semiconductor tooling business supplies precision tools and parts that are used in the semiconductor assembly and test process. The usage of these tools correlates with the production volume of chips. As the tools and parts are consumable products, our semiconductor tooling business benefits from recurring demand and is therefore less susceptible to the cyclical swings that are typical of the semiconductor sector.
Our CMA business is involved in contract manufacturing of precision parts and assemblies for equipment makers in high technology industries, including the wafer fabrication sector. As a result, its sales tend to experience more volatility in tandem with the up and down cycles of the semiconductor equipment manufacturing industry, as well as the overall climate for capital investment.
Q5. Who are the key suppliers of the equipment and machines in your factories?
We generally purchase our machines from top-tier equipment makers in Japan and Europe. We implement a strict schedule for regular maintenance to ensure our machines remain in excellent working condition and have a long useful life. With some small improvements, many of our machines are still relevant to our precision manufacturing requirements today.