Welcome to the FAQ page, which serves as a forum to answer common questions from investors about ElectroTech.
Q) What are ElectroTech's key business activities?
ElectroTech is an international contract manufacturer. Our two key business divisions, Mechatronics and EMS, tap the outsourcing needs of capital equipment manufacturers and consumer device manufacturers respectively.
Our Mechatronics division is predominantly based in The Netherlands with a subsidiary in Malaysia. It designs and manufactures complex electromechanical modules, and complete machines and equipment for leading Original Equipment Manufacturers ("OEMs") in the semiconductor, medical and analytical industries. On the other hand, our EMS division, which is based in Malaysia, manufactures plastic parts and components, PCBAs, electromechanical modules and complete box-built products for the consumer industries, namely the consumer electronics, telecommunication and office automation sectors.
Backed by strong engineering and technical capabilities, we have the ability to provide one-stop integrated services to our customers, ranging from product design and development, engineering and manufacturing to final test and assembly of complete modules or products.
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Given that ElectroTech's two business divisions, Mechatronics and EMS, are engaged in markedly different activities, is the Group able to derive any synergy between these two divisions?
While the two divisions operate in different market segments - its basic business model is exactly the same - that is, to provide contract design and integrated manufacturing services. As a matter of fact, ElectroTech is a contract manufacturing group that is able to offer one of the widest and most diverse range of technologies and capabilities to its customers.
In addition, we assist with local management support and cross sell our services in Mechatronics to potential customers in Asia, and our services in EMS to potential customers in Europe.
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Q) Who are ElectroTech's main customers and which are the key geographical markets? Is ElectroTech dependent on any particular products or customers?
Key customers for our Mechatronics division include:
Medical sector - Philips Medical, Bayer Diagnostics
Semiconductor sector - ASML, Leica Microsystems
Analytical sector - FEI, PANAlytical
Key customers for our EMS division include:
Office automation sector - Neopost Industrie, Canon, Xerox
Telcommunications sector -Shin-etsu/Koike, Fuji, Motorola
The main geographical market for the Mechatronics division is Europe and USA, while the primary markets served by our EMS division include Malaysia, Europe, the U.S. and Japan.
Our strategy is to target customers that are primarily leading players in their respective industries. We believe our diversified customer base that spreads across industries and geographical markets, differentiates us from most other contract manufacturers. This diversity means we are not so exposed to the high risk associated with serving a few customers from one particular sector.
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Q) What is the typical life cycle of ElectroTech's products? Does the Group hold ownership to the design of products developed for customers?
Our Mechatronics products generally have longer product lives spanning from 6 to over 10 years. Being the sole manufacturer of the systems we supply, customers continue to source products from us over the product life cycle. During this period of time, we may also earn additional fees from reengineering and re-designing of existing products. The long life cycles of the products, coupled with our continued participation over the entire life span, result in more stable revenue streams.
Our EMS products, excluding keypads, generally have product lives ranging from 3 years and above. For consumer equipment, we focus on providing low-to-medium volume with high mix turnkey projects that offer customers higher value-added services.
Like most other contract manufactuers, we do not hold the ownership rights to the design of products we develop for our customers. However, our full spectrum of services from design to engineering of processes for manufacturing, testing and assembly allows us to forge strategic partnerships with customers, thus increasing the entry barriers for other players.
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Q) What are the key raw materials used in ElectroTech's products? Does the Group experience any volatility in the cost of its raw materials?
The key raw materials used in our products are plastic resins, paints, various ferrous and non-ferrous metals and steel. Though we do experience fluctuations in the costs of our raw materials from time to time, our gross profit margins have remained fairly stable at between 20 to 24%. We have options in our customer agreements to revise our selling prices should there be significant and sustained changes in raw material prices.
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Q) What is the current state of the competitive landscape for the Group? Who are your key competitors and how easy would it be for ElectroTech's customers to switch suppliers?
To the best of our knowledge, there are not many companies worldwide that are presently able to offer both Mechatronics and EMS capabilities.
In the Mechatronics field, there are few qualified suppliers that develop and manufacture specialised capital equipment. With a proven track record of offering turnkey solutions and co-design services, we believe ElectroTech is at the forefront of competition. Companies that compete with us in certain ranges of our product offerings include Te Strake B.V., Nebato B.V. and Machinefabriek Mogema B.V.
While there are more players in the EMS arena, most of our competitors do not provide the wide range of integrated services offered by our EMS division. In addition, our primary focus is on niche customers with low to mid production volumes, as we are able to provide total design and production outsourcing solutions to these customers who generally prefer to concentrate their resources in other areas such as R&D and marketing. Companies that provide services similar to some, but not all, of our EMS division's services include Sunningdale, COB Technologies, and Inventec Electronics.
We are able to establish and strengthen strategic partnerships with our customers through our total outsourcing solutions which range from design, manufacture to rigorous test services. We work closely with our customers in the design and product development phases. This enables us to develop a better understanding of their needs and stronger relationships, which are instrumental in retaining existing customers.
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Q) What is ElectroTech's competitive edge?
ElectroTech's key strength lies in our technological and manufacturing competencies, which underpin our ability to provide fully-integrated manufacturing services. This enhances our value-add to customers and enables us to establish strategic partnerships with customers - as evident from the fact that we are in almost all cases, the sole supplier of our mechatronics products.
We serve a prestigious customer base comprising world-class companies in their respective industries. These customers serve as strong endorsements, which better positions us to secure new projects from existing customers as well as win new customers.
ElectroTech also has the advantage of wide market reach and knowledge, with customers hailing from various geographical markets and industries.
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Q) What are the main barriers to entry?
The main barriers to entry into both Mechatronics and EMS industries are the high capital nature of these businesses, sophisticated technological and manufacturing competencies required by manufacturers and the ability to provide an integrated solution. In addition, new players generally would not have the requisite track record nor established relationships with OEMs. The long product qualification and audit periods that are typical of these businesses may also deter some new entrants.
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Q) Which are expected to be the main growth markets for ElectroTech? Are there any new geographical markets the Group is targeting in the next 2 years?
For our Mechatronics division, we expect growth to be driven by new and re-engineering projects for our medical segment. We are also building our Mechatronics capabilities in Malaysia to penetrate and win more customers from Japan. At the same time, we see a trend among some of our OEM customers to outsource production of less complex systems and modules to lower-cost regions in the Far East.
For our EMS division, we are in the process of building up our business in the automotive market. For this purpose, we are setting up dedicated automotive production areas in our Malaysian facilities which are nearing completion. Presently, we are working on new products and projects for our automotive customers that are expected to begin contributing to the Group from the first half of 2007. Additionally, it is anticipated that the office automation segment, as well as some low volume high mix products, should drive the longer-term growth of the EMS division. Such projects should begin to show contribution from the latter half of FY2007 onwards.
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Q) What is ElectroTech's long-term growth strategy?
Our strategy is to become a niche contract manufacturing group that provides a total integrated solution with the widest range of technologies and capabilities for the convenience of our customers. This will enable us to position ourselves to participate right from the early 'design and development stage' of our customers' products.
To benefit from the continuing outsourcing trends for both our Mechatronics and EMS customers, we plan to:
- Increase our focus on high complexity and advanced technology turnkey projects with longer product life cycles
- Place more emphasis on product design and development, process engineering, assembly, test and safety certifications of modules and complete products
- Continue to leverage and expand our technological competencies through organic expansion, joint-ventures and acquisitions
- Enhance the stability of our business by strengthening our foothold in industries that display more steady growth potential such as the medical and automotive sectors, and focusing on higher value-add turnkey projects
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