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Year 2016 turned out to be an extremely challenging year for our Group mainly because the resources and focus that we put into our sensors division, which represented one of the major performance contributors in 2015, did not correspondingly translate into the adoption of our end customer’s core products of smartphone and tablets.

While the sensor division experienced a soft spot, the operations, business and R&D team from all our 3 major subsidiaries stepped up to the challenge through sheer dedication, hard work and perseverance, delivering on the following key areas :

  1. Pursuing and implementing new manufacturing solutions that enabled process automation and simplification.
  2. The automation of line processes to reduce the number of headcounts in the production line.
  3. Delighting our customers through a very strong support in new product development, experimentation and sample designs.
  4. Cross sharing of resources and equipment between the subsidiaries to maintain a lean cost structure.
  5. Pursue & obtain new customer and businesses

KEY BUSINESS UNITS PERFORMANCE

The following are the performances of our key subsidiaries, where they are measured in three key business units and whose operations are reviewed regularly.

Globetronics Sdn Bhd / Globetronics Manufacturing Sdn Bhd / Globetronics (HK) Limited

For the sensor division, we successfully secured 3 very crucial projects that will be adopted into the next model of smartphone to be launched in 2017. All these sensors form critical features in the new product introduction, hence our customer subjected us to very thorough detailed technical and design-for-manufacturability process and controls. While much progress has been made, the components that were qualified this year had been incorporated into wearable and accessories / peripheral applications that did not represent the high volume we anticipated of it going into the smartphone. With these new components, we have expanded our reach in the ecosystem to now be in the areas of smartphone -> wearable -> peripherals.

Our existing proximity sensor volume for the smartphone was also lower this year due to the end-customer working on re-designing and phasing in new technology, that will eventually replace the old proximity sensor completely. We strongly believe the 2 new projects that we had been aggressively qualifying will perform new and multiple functions including the original function that was provided by the proximity sensor.

The developmental efforts are starting to bear fruit and we expect one new smart sensor component to begin mass production in Quarter 2 2017. The recent acquisition of our Swiss customer by another big European player further add testimonies that our developmental sensors are moving in the right direction and going to be incorporated in the core devices in Year 2017 and beyond. Our in-development pipeline is very healthy with multiple new sensor products with applications of light, health and imaging showing good progress towards the direction of qualification.

We target and started to spend a big Capex amount of up to RM60million in the first half 2017 to preposition ourselvesfor these exciting new projects and together with the preparation of additional human and technical resources, we are highly charged up for the mass production of newsensors in 2017 and beyond. Horizon risks include the successful qualification of the fully installed line in order for mass production to begin; the other would be that the product has to be designed into the phone and tablets for optimum product volume loading in our installed line.

The Integrated Circuits (I.C) segment remains flat and we do not see improvement in this area as growth is dependent on economies of scales from higher loadings and Capex investment, something which we are not providing equal focus in term of resources in view of the matured products and cost competitiveness involved.

Our wafers and optical lens processing segment was stable and showed improvement in Year 2016. The sawing and sorting for general lighting and automotive products showed a slight improvement year on year and we also managed to diversify our business portfolio to providing dicing and sawing services for a new Infrared (IR) LED product that goes into the consumer electronics market. This new business is provided to a European customer with mass production starting in second half 2016. We are expecting to see new package types to be transferred to us in 2017 and are looking at growth opportunities in this area. As this component is confirmed to be part of a new sensor that will help to enhance the security features of smart devices, we had also committed to installed additional production capacity to support monthly production ramp that could be 2-3 times higher.

Globetronics KL Sdn Bhd (GKL)

GKL continues to be the biggest manufacturing partner to our Japanese timing devices partner. We are producing more than 100 million units of various timing components for automotive, consumer electronics and mobile devices. In total, we manufacture around 10 product models for our customer who is the world’s biggest producer of timing devices in terms of monthly production output.

Our Japanese customer faced average selling price (ASP) erosion pressures to sustain their market share, and maintaining this lead depended heavily on relentless productivity and cost reduction drives. Thanks to our team’s solid efforts and creativity, we managed to make continuous breakthroughs in reducing our operations costs to stay competitive and relevant.

In spite of continual cost down pressures and requests, tributes are due to our hardworking, committed and creative team in GKL for successfully implementing timely process automation and productivity improvement programs that managed to mitigate some of our labor cost escalation, which was further compounded by the minimum wage increase from RM900 to RM1,000.

To ensure continued growth in our business portfolio, we remained steadfast in reinventing our manufacturing processes to stay lean and competitive to support our customer in remaining the market leader in this segment. On another front, we remain on the lookout for new business opportunities with the experience and capabilities we have built up to further consolidate and diversify our volume loadings.

Pending the fruits of new business opportunities, we are expecting a flat to down 2017 due to ASP erosion.

ISO Technology Sdn Bhd

For our LED business division, we saw a flat year with some of our LED modules faced with inventory and price erosion issues. Together with our end-customers, multiple efforts and improvement were carried out to make existing models more cost competitive while at the same time, new and improved products were developed and launched.

We made new inroads and expansion into the niche LED segment with a US customer that though is a general lighting product, caters to more specific areas like ambient lighting for restaurants and boutique stores. Overall, there has been a healthy volume growth for this area is 2016 and we are also expecting the growth from this area to continue into 2017.

One of the new projects secured will transform Globetronics into one of the 3 main laser LED automotive lamp manufacturers globally. We believe the significant effort and work put forth by our team in 2016 will bear positive and exciting results in 2017 for our LED business segment.

We are expecting our new laser LED module to go into mass production by end 2017 and coupled with our niche LED module continuing to maintain its strong market share, we expect the LED division to become an even bigger contributor after 2017.

Other Initiatives

Since end of 2015, our management team had initiated our strategy of Globetronics 2.0. After more than 12 months of incubation and hardwork, we are seeing a very positive and encouraging breakthrough. Our young and talented IT team has successfully developed our own APPs-based clinic management system that would allow patients to use IOS or Android-based smart devices to manage their clinic visit, as well as allowing clinics to adopt this system in managing their clinic operations and do away with the old and conventional manual/paper system. We will start to market this under our own brand by partnering the clinics and hospitals in Malaysia starting Janaury’2017. We are hopeful that this could eventually (within the next 3-5 years) become one of the main pillars to Globetronics future business and financial contributors.

Prospects

Looking ahead, we are optimistic and ready to deliver growth with the potential new products in 2017 to be incorporated in the latest technological applications and further entrench our presence in the smart devices, IOT and automotive ecosystem.

The developmental sensors we have worked on for the past year are in the final qualification stages and should be turned on to mass production mode in late first half 2017. This would be our key focus area and all the resources of equipment and manpower are gearing up in anticipation of record monthly sensor volumes. We are highly charged up and ready for what looks to be a very exciting Year 2017.

In our new product development pipeline, we are also seeing at least 2 more new product/projects that will come on board around end of 2017. We are optimistic that these will further strengthen our prospects and potential in 2018 and beyond.

Risks

As we had committed and started to invest around RM60 million of Capex and all human resources to support the exciting volume growth of our new products, we may face possibility of non-linearity in our month to month production output as this is also directly related to the demand of the end customers’ various mobile devices.

In view that our sensors had already been approved to be designed into the new model of mobile devices to be launched in 2017, we see a very low risk of product exclusion or delays.