This article first appeared in The Edge Malaysia Weekly on October 5, 2020 - October 11, 2020
AS the US-China trade war intensifies, electrical and electronics (E&E) firms in Malaysia are carefully navigating the divergence of technology and supply chains in the semiconductor space. While the impact of the trade war is significant, it is not the only factor that will determine the future of the E&E industry. What do industry captains have to say about their companies’ prospects?
Chu Jenn Weng
Founder and president, ViTrox Corp Bhd
ViTrox has a 10-year plan: we want to build an ecosystem and retain our local talents. We want to create a supply chain cluster from both the technology and industrial aspects.
Today, there are a lot of uncertainties in the world, but I believe technology will continue to advance. In fact, the pandemic and the trade war will only accelerate the progress. Factories are accelerating the use of artificial intelligence (AI) and robotics. This is a global trend, not just in China, but also the US and Europe.
We believe that technology will go into Industry 4.0, automation and smart factory. These are the mega trends that ViTrox is betting on. We will be investing in software, AI and talent, based on these trends.
Of course, we are seeing tremendous opportunities amid the trade war, but we are also looking beyond that. I think Malaysia has to be very clear about its direction. What are we really good at? Personally, I think technology equipment is one area that we should be focusing on.
If you look at the automated test equipment (ATE) manufacturers and technology equipment companies listed on Bursa Malaysia, their combined market capitalisation about 20 years ago was probably less than RM200 million. Today, they are collectively worth more than RM20 billion. Other than the rubber glove industry’s growth recently, I don’t know which other industry can grow as fast as ours. The ATE and equipment makers continue to show consistent earnings growth over the years, and we even outperform the chip designers and Osat (outsourced assembly and test) companies.
Why? That’s because we have the competitive edge, and we can compete with the global players. Today, if you look at the likes of ViTrox, Greatech Technology, Pentamaster Corp and MI Technovation, most of our equipment is exported to developed countries such as China, the US and Europe.
ViTrox has the world’s fastest 3D X-Ray inspection equipment, with more than 40% global market share. Greatech, Pentamaster and MI Technovation are great companies. Then, we have another few non-listed equipment players that are equally good.
Over the years, some big, foreign technology equipment players have relocated to Malaysia because it has a strong talent pool. If Malaysia plays it right, we could become the technology equipment hub of Asia, if not the world. It may not be very high-end technology like aerospace or something like that, but I think semiconductor could well just be our niche.
ViTrox is one of the leading providers of automated vision inspection systems and equipment for the semiconductor and electronic packaging industries.
Tan Eng Kee
CEO, Greatech Technology Bhd
In order to expand Greatech’s organic growth and move from being too heavily dependent on just one or two industries, we are broadening our market range from solar to other industries, especially in emerging markets, namely the energy storage industry.
As we have always mentioned, to witness a new horizon for Greatech, one would need to give us at least two years to flourish from where we are now. To be in line with our direction, Greatech is working aggressively to diversify our customer base and not solely focus on solar and semiconductor.
We are putting a lot of attention now on two products that we are developing. At this stage, we can only disclose that we are satisfied with the outcome of research and development and we believe this is in line with our direction — of not just increasing the market share of our existing core business, but with the additional products, we want to diversify our strategy [and go] into emerging markets.
We are hoping to secure more customers in the medical device and energy storage sectors in the coming years, while adding more accounts in the two core products.
In line with our objective to increase our exposure and presence in the electric vehicle (EV) sector, our organisation will be investing about US$5 million to set up a new facility of about 10,000 sq ft in Detroit in the US for final test activities.
Besides, we have just hired a business development director in Arizona to penetrate the semiconductor and energy storage markets. As for the medical device sector, we are also looking to hire the right talent to break through in the medical industry in Chicago.
The focus on global expansion, particularly in Europe, will take place in 3Q2021, with the energy storage and medical sectors in mind.
What is important is that we do not allow the Covid-19 crisis to deter our business plan. We review our plans, assess which method or solution works best for the organisation in uncertain times … and implement policies and strategies that are agile and resilient enough to respond to the crisis. We are moving in the right direction and we are glad that we have been able to secure orders from a new client.
Greatech is a factory automation solutions provider that designs, develops and produces the system, machinery and equipment for its customers’ manufacturing processes.
Ong Choon Heng
CEO, FoundPac Group Bhd
“FoundPac experienced a profit decline in the financial year ended June 30, 2017 (FY2017), and FY2018, mainly due to the impact of the Broadcom-Avago merger. Recall that Broadcom Ltd was our single largest customer. But following the merger with Avago Technologies Ltd (in 2016), Broadcom slowed down its purchasing activities. This affected our sales.
Since then, we have been diversifying and expanding our customer base. In FY2019 and FY2020, our financial performance improved. Our precision engineering businesses — high-performance test sockets and stiffeners — have not been affected by the pandemic.
We supply a lot of these products to our customers for their research and development activities. These R&D activities do not stop, not even during the lockdown period. Surprisingly, our customers have been chasing us for the supply of goods.
Of course, during the Movement Control Order (MCO) period, we faced some challenges in delivery of our goods. We needed to communicate with our customers and manage their expectations so that we did not lose their orders. Fortunately, they understood the situation and they have been very supportive.
Meanwhile, our laser stencil business has been doing well, although it was affected by the pandemic. Back in January and February, there was a supply chain disruption because of the lockdown in some cities in China. And hence, the demand for our stencils was also reduced. In March and April, Malaysia was put under the MCO. So, in total, we were caught for about four months. The lead time for stencils is very short. Once the customers place the orders, they expect us to deliver within one to two days. They usually need it urgently, so this has been a big challenge for us.
Compared with our competitors, I would say FoundPac has a more diversified business and customer base. We position ourselves as a precision engineering solution provider. If you look at our products, we co-design them with our customers. We modify them and change the materials to suit the customer’s needs.
Going forward, we are planning to penetrate further into the automotive sector. With more sensors in cars, our test socket business will definitely benefit. But don’t forget, we are essentially a precision engineering firm that happens to be focusing on semiconductor clients. That doesn’t stop us from going into the automotive segment. We see a lot of business opportunities in supplying precision parts to the automotive industry. We want to leverage our strength in precision engineering.
Foundpac produces stiffeners and high-performance test sockets, which are mainly used by multinational semiconductor corporations.
Ng Meng Thai
Managing director, Oppstar Technology Sdn Bhd
Oppstar aims to build its reputation in the integrated circuit (IC) design sector by providing a conducive, secure and high-quality service, even throughout the pandemic. Despite the numerous challenges faced as a result of the outbreak, remote working models have allowed overseas projects to be brought back to, and executed, in Malaysia. This could possibly signal a new era in the local contract design industry.
Business opportunities are improving as we turn ourselves into a global player. In our first three years of operations, we have largely been dependent on local business opportunities, which is limited as the demand in Malaysia is limited to several common players. As we move overseas, we are able to offer our services to Singapore, China, Japan, South Korea, Turkey, Egypt, Germany, the US and other countries that are highly keen to develop ICs.
Given that the semiconductor sector is growing at an above-average pace compared to global economic growth, the endeavour to move overseas presents many opportunities that we had not experienced previously.
Further to that, the US-China trade war presents a different opportunity as it now seems that some countries are preparing themselves for deglobalisation. One of the key defensive moves for any country would be making itself less dependent on other countries for semiconductor technologies. Hence, we have now got enquiries on chip design from many countries besides the US and those in Europe.
Another opportunity would be rising demand for semiconductor design from Asian countries such as China, South Korea and Japan. These are countries that are closer to Malaysia in terms of culture, giving us an advantage over competing companies from the US, India and Europe.
We will still tread carefully despite the opportunities presented. On market share, we are still very small. For perspective, the IC design market demand in China itself is US$50 billion per year. Hence, to us, it is more of getting the right job opportunities while building our brand name through our deliveries.
At the moment, we do not have specific plans to list. We may revisit the plan in the next one to two years. We have been profitable since our incorporation in 2014, except for the first year of operation. We are, however, open to private investments, especially the strategic ones.
Oppstar is one of the very few home-grown premier IC design houses in Malaysia. The non-listed firm provides complete IC designs and system solutions to its clients.
Matin Ng Chin Liang
Deputy group CEO, UWC Bhd
“At UWC, we always believe in transformation and diversification of business. From time to time, we need to transform to another level, because customers will always be expecting cheaper prices, and that would mean our margin will also be squeezed. As we are now in the business of manufacturing front-end semiconductors, the margin has been higher.
Our belief in diversification is also because we don’t want to put all our eggs in one basket. While we are involved in the semiconductor industry, we are also involved in the life sciences segment.
We are very excited for FY2021 and we are optimistic and confident in seeing growth in our top and bottom lines this year, based on the order books secured, which are mainly from the semiconductor and 5G segment.
We are optimistic as order enquiries are getting better and are even stronger than last year’s. Before the MCO, our order book was RM60 million. Currently, it is RM70 million, which would last us for three months. There were no cancellation of orders during the MCO.
For now, we will stay focused on the manufacturing of front-end semiconductor equipment — especially wafer fabrication equipment and 5G equipment. I believe this is the future, at least for the next three years.
Although industry growth is only 13%, UWC’s growth is more than that. We are optimistic about prospects in the industry as we can see the spillover effect of the US-China trade war and order diversion from China to Malaysia or to the US.
The Covid-19 outbreak is a wake-up call for global MNCs — they shouldn’t be dependent on China manufacturing in their supply chain.
The pandemic or the trade war can only slow down technology, they cannot stop it from evolving.
We are also looking at autonomous vehicles. For instance, during those days, the electrical and electronic parts in the car were probably just the radio. Now, in luxury cars, all are sensors, and there are so many chips needed to make the car smarter.
UWC is running at 85% production capacity. Thus, moving forward, in order to secure more orders, the company’s strategy is partnering strategic allies, which are our suppliers.
We are going to offload less-critical items to our suppliers and we are going to take in more high-value critical items to run them in our factories. With that, we are expecting to free up our capacity by 20% to 30%.
We will be getting some of our key suppliers to invest in the equipment. We have given a commitment that we will place certain orders from them within the specific period.
UWC is an integrated engineering support services provider principally involved in the manufacture of automated test equipment for players in the semiconductor, life science, medical technology and heavy equipment industries.
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