Managing Director's Review
Extracted from Annual Report 2008
Financial Performance
We close 2008 feeling cautious, yet appreciative. Despite the fact that the world economy fell into one of the most serious recession after World War II in the fourth quarter of 2008, with a solid business foundation and prudent cost control measures, we are able to sustain a profitable business with commendable revenue and healthy net profit margin.
We ended our financial year with RM26.4 Million in revenue and RM8.6 Million in profit before tax (PBT). Revenue declined 27% from RM36.2 Million while our PBT declined 42% from RM14.9 Million one year ago. The decline in both revenue and profit were mainly attributed to lower sales, which was affected by economic uncertainties worldwide and locally.
Our earnings per share (EPS) declined from 9.3 sen in 2007 to 5.4 sen in 2008 and our return of equity decreased from 32% in 2007 to 17% in 2008. We do not have any short term and long term borrowings as at 31 December 2008.
Product Development and Operation
Introduction
Vitrox is a cutting-edge solution provider of innovative, advance and cost effective automated vision inspection system & equipment for the semiconductor and electronic packaging industries. We develop, manufacture and sell three core product portfolios namely machine vision system (MVS), automated optical inspection (AOI) and electronics communication system (ECS). We serve customers from semiconductor packaging industry, printed circuit board industry, electronics assemblies and original equipment manufacturers around the world. Our solutions are used to inspect & control manufacturers product quality before they are used in down stream manufacturers to produce consumer electronics, communications and computing products such as PC, mobile phone, game console, MPE etc. We provide inspection solutions in 2D and 3D measurements that come as a standalone module or a complete integrated inspection equipment.
The digital revolution of mobile telecommunication, medical, automotive and computing will continue to drive the demand for the need of higher complexity circuitry, larger volume and smaller size Integrated Circuits (IC) packaging and Printed Circuits Board (PCB). Each of these trends calls for more inspection for higher quality standard and Vitrox will be benefited from such development in long run. Our expanded product portfolio in its 3 core businesses and our regional coverage put us in a good position to secure more businesses from customers in the semiconductors and electronics assembly markets when the market recovers.
Over the past one year, we continued to stay focused and strengthened our core business in the development, manufacturing and sales of MVS, AOI and ECS.
Machine Vision System (MVS)
Vitrox provides complete vision inspection solutions for semiconductor component test & packaging operation. Our high speed, high accuracy MVS are mainly integrated on automated test and vision handler to perform 2D & 3D measurements on semiconductor components at semiconductor back-end assembly and packaging operations.
Vitrox's MVS products provide reliable, high speed and cost effective inspections to detect semiconductor components' dimensional and visual defects automatically. The systems typically perform 2D Mark & Orientation Inspection, Pad and Package Inspection, 3D Lead/Ball Co-planarity Inspection, 5 Sides Pad & Package Inspection and In-Tape Mark/Lead Inspection. With capability to inspect up to 50,000 units per hour and with an installed base of more than 6,000 systems worldwide, we are now positioning ourselves as one of the world leading vision inspection solution provider for this market.
New and improved models of vision inspection solutions were rolled out in 2008 to meet increasing demands. Among others, we successfully shipped and bought off the Color Vision Inspection System for Quad Flat No-Lead (QFN) & Micro Lead from frame Package (MLP) devices and low cost Light Emitting Diode (LED) Vision Inspection System. Once the market situation improves, these solutions expect to generate new business opportunities for Vitrox.
While we continue to en chance our capability to serve our customers with superior inspection solution to meet increasing needs for higher speed and higher quality production output in 2008, we successfully pursue customers to upgrade their existing old vision inspection systems for better performance and ease for maintainability. We are proud to say that we achieved more than 80% growth in this sector in 2008 compared to 2007. With more than 6,000 MVS systems installed worldwide for the last 8 years since inception, we are confident the system upgrade and replacement business will continue to grow in the coming years.
Automated Optical Inspection (AOI)
Under Vitrox's AOI division, we design, manufacture and market technological advanced and cost effective automated optical inspection (AOI) systems and related products, providing quality improvement solutions that are able to detects which occur during the manufacturing process for printed circuit board (PCB) industry, flexible printed circuit board (FPC) industry and high density interconnect substrate (HDI) industry. Our customers are manufacturers for PCB, FPC and HDI.
In a nutshell, AOI system consists of an image acquisition unit integrated on a moving stage and a image processing unit that performs sophisticated image processing algorithms to detect defects on PCB. The most common defects on PCB include open, short circuit, line width variation, trace intrusion, trace protrusion, pin-hole and via-hole variation. AOI system is usually deployed of inner layers, outer layers and artworks of PCB and FPC with line width as small as 25 um.
Our improved AOI flagship products, Challenger HS1802 & VF-10 have been successfully accepted by our customers in China. These products are built with customers' need in mind for ease of use, lower cost of ownership, higher inspection capability and more throughput as compared to its predecessor.
Electronic Communication System (ECS)
Vitrox designs, manufacturers and markets ECS products via its 100% owned subsidiary, ViE Technologies Sdn. Bhd. We produce a wide variety of ECS products for machine automation community, who use our products for data communication and motion control. These products include high speed digital input and output PC interface card, high speed low cost remote input and output controller PC interface card and remote modules, high speed high resolution motion controller and driver boards, universal light source controller and digital signal multiplexing card.
In 2008, we continue to roll out new and enchanced ECS products to the markets. These products include new generation motion controller, enchanced with more functionalities and high speed Remote Input and Output (I/O) digital interface boards can operate in higher speed and mainly used in automation industries for various motion and digital I/O control applications.
As many of the ECS products are built backward compatible with existing similar overseas products in the market, we are able to provide customers with a lower cost and customizable alternative to meet their stringent cost and performance needs.
With solid technical foundation in System-On-Chip (SoC) and embedded system design and development, our product development team is ready to move forward to embark on higher end electronics communication products that will bring more business opportunities to the Company on the new future.
Operation
Vitrox has a lean organization structure that allow us to operate with low operation cost and adapt quickly to changing needs of our customers. We run activities that are higher value and with higher complexity, such as sales and marketing, research and development, prototyping and final assembly, testing and quality control in our facilities while outsourcing other less complex and high labor content tasks to carefully selected sub-contractors in the region. With this structure, we able to maintain an optimum overhead to run over businesses effectively.
While we continue to selectively expand our business in product innovation and market expansion in this challenging time, we pay attention on our business fundamental, particularly in our cash flow management, to ensure that our operation is running in good health. Various cost control measures were initiated by the management in Q4'08 to mitigate the anticipated downturn in demand of our products due to the global recession. We re-looked at our operation to Find wastes in every areas, minimize or eliminated them in a systematic manner without jeopardizing the quality of our performance. We work closely with our supplies to reduce inventories and meantime, we ensure our receivables are always in good control. These indicators will be monitored closely and hence actions can be taken immediately when needed.
Lean Initiative
In our continued efforts to make our operation more efficient and effective, we started a company wide lean initiative in the middle of 2007. In 2008, we conducted various training programs internally and externally to equip our people with the right skills to get things done effectively. We implemented a number of lean projects to eliminate wastes and improve productivity in various functions in the organization, which include production, sales and marketing, research and development, administrative and support functions. Company-wide management review meetings were conducted on quarterly basis to ensure continuity and continuous improvement. Lean tools are being refined everyday. Our objective is clear, we want to focus primarily on delivering values added ones in our business processes as we believe that by doing so, we will be able to create lower cost and higher value added and services in a shorter time that are perceived as important by our customers. Ultimately, we will gear ourselves to deliver products and services to our customers with the right cost and quality and at the right time. In 2008, more than 50% of our people have attended various lean trainings. Moving forward, we will ensure that all our people will be trained on lean methodology and be able to apply the lean concept in their daily work.
Research and Development
Our research and development team is responsible for developing and improving our various products and creating new technology and products for the future. The R&D team focuses of few core areas namely image acquisition and optical technology development, software architecture and platform development, advanced inspection algorithm development, control system development, system-on-chip development and high performance computing cluster development.
We spent RM3.64 million, approximately 13.8% of our revenue in FY2008, for research and development activities. Meanwhile, we have capitalized RM1.01 million as research and development expenditure under intangible assets. Once again, we showed our strong commitment towards product innovations and technological advancements amid the global recession.
We will continue to focus our R&D resources on high-end and advanced machine vision system, high performance automated optical inspection system and electronics communication system development for the semiconductor packaging and electronics assembly's market, such as the high speed 3D multi device inspection system, 3D/5Sided color vision inspection system, automated optical inspection (AOI) System for bare PCBs, flex-PCB and PCB assemblies, and highly flexible & high speed digital electronics communication boards.
We believe that our success will depend upon the technical competence and innovativeness of our people as well as the ownership of and the ability to enforce intellectual property rights. As such, we initiated a few patent filings in 2008 for our core MVS and AOI products. To-date, we successfully filed two patents in Malaysia for our proprietary 2D & 3D inspection method for non-contact dimensional measurement of semiconductor packages.
Besides remaining committed to our continuous own R&D efforts to develop and enhance our products, we constantly collaborate with universities and research institutions on various research and development activities. With regard to a collaboration project with a local institution in the field of medical imaging for automated grading and monitoring system for retinopathy, we successfully completed a working prototype system in 2008. The system is currently under 9 months clinical trial in one of the renown hospitals in Malaysia.
To continue to thrive in this high technology business and ensure long-term sustainability, product innovations and technological enhancements are the key thrusts of our committed research and development (R&D) efforts. Our R&D team is committed to continuously develop and enhance our products offerings whilst at the same time exploring the technologies and products of the future.
Sales and Marketing
As in previous year, ViTrox took part in international trade shows to promote our products and to establish a global network with oversea OEMs, end-users and sales representatives.
For the MVS division, we showcased our newly launch products; namely the Color Vision to inspect for exposed-copper defects on semiconductor contact pads/leads, and also the 3D J-lead vision inspection system for LED components, during Semicon China 2008. In additional, we also participated in the Hannover Fair 2008, together with MIDA, to generate global awareness on the technological solutions that we offer, namely MVS, AOI & ECS.
In 2008, we showcased new AOI products in the international Printed Circuits Assembly Exhibition (HKPCA) in Shenzhen, China in December 2008. At the same time, we appointed two sales representatives in Asia Pacific regions covering China and Taiwan for our AOI products. However, the current economic downturn had caused potential AOI customers to either hold-off or delay their capital investment. Nevertheless, we successfully delivered an enhanced AOI for flexible printed circuit board to a customer in Southern China in Q3 '08.
Following the successful roll out of cost effective and high speed intelligent ECS products to the market with fast turn-around time by our highly committed team, orders from new OEM customers were encouraging in 2008. Sales and promotions strategies were stepped up through establishment of internal sales & support forces and appointment of new distribution channels in South East Asia and participation in local and international trade shows such as the Nepcon Exhibition Malaysia in June 2008 and the Hannover Fair 2008 in April 2008.
Business Strategies
According to the Gartner's report published on 18 December 2008, the worldwide semiconductor capital equipment spending is expected to decline 32% in 2009. In view of the current downward trend in the global semiconductor manufacturing and equipment industries and economic downtown, we expect the financial year ending 2009 to be very challenging.
With this in mind, we will continuously fine-tune our strategies from time to time, implement various cost control measures, stay focused on our core technologies innovation and market expansion and remain committed to providing the most innovative, advanced and cost effective machine vision solution and electronics communication system.
Despite various cost control measures during the current economic downturn, we will continue to pursue our R&D programmes for product innovations to fulfill the growing expectations of the machine vision market while leveraging on its leading edge technologies to add breadth and depth to the business. Meantime, we will strengthen our production lines to achieve shorter lead time, higher out-going product quality, strive for operational efficiencies to contain cost and maintain profitability, embark on selective market expansion plans whilst improving our customer service and tap on our human resource talents to propel us towards the next level of company and personal success.
We are also taking this downturn as on opportunity to strengthen our human capital by recruiting more talented people to our team and by providing more trainings for existing workforce. We believe that now is the right time for us to invest in human capital, training and R&D while competitors are cutting back their spending, so that we are well prepared ourselves and be ready with better product and service offering to our customers when the market recovers.
We will maintain our sales and support office in Suzhou, China to ensure that our customer are well served and taken care of in this turbulent time. In the meantime we will tap on opportunities to further enhance sales not only for the vision systems but the AOI as well. The representative office in USA will remain as a beachhead to establish a strategic presence in the North American market for potential business collaboration.
Our People
In ViTrox, we have a group of dynamic and committed workforce who always strive to create the best in class machine vision solution and electronics communications products.
We grow our company from 10 people in 2001 to 122 people in 2008. Over the years, we have built a solid foundation not only in our core technologies but also our core values. We successfully created a "second home" for our people, a big family that treat one another with trust and respect, we work as a team and we take accountability for every decision we make at every level. We always strive to do our best to add value to our customers and our organization. We treat everyone fairly and we are flexible in dealing with changes. Many things have changed and improved over the years to bring us to who we are today, but there is one thing that has never changed, it is our passion to be a world leading technology company from Malaysia in providing world class machine vision solution and electronics communication systems. In spite of the economic turmoil, we continue to invest in our people by providing necessary trainings and tools for them to do their job more efficiently.
It has also been a year filled with numerous awards. We were ranked 6th in the 2008 Top 100 KPMG Shareholder Value Awards based on the highest Economic Profit over Invested Capital amongst all the public listed companies in Malaysia. At the same time, we have been awarded the Golden Bull Hall of Fame 2008 Award and the Malaysia HR Award 2008-2009 under the SMI category. We are especially proud to receive the Malaysia HR award this year because the award is a very good testimonial to demonstrate our commitment in continuous learning, training and HR development and a recognition of HR as strategic resource in the growth of our company.
On behalf of the management team, I wish to thank the Board, our customers, shareholders, business associates and relevant governmental authorities who have helped us one way or another in 2008. I look forward to your continued support as we venture into new and exciting journey in the year ahead.
I would like to personally thank my entire team, who are passionate, dedicated and committed to their job and the company. I feel so fortunate that we are able to work hand in hand as ONE team to build up the business from very humble beginnings. I look forward to working with you again for many years to come and together we build a long lasting world leading machine vision and electronics communication system company in the near future.
Chu Jenn WengManaging Director
28 April 2009
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