Business

Monday November 2, 2009

Penang firms to diversify

By DAVID TAN


Manufacturers supplying to electronic sector plan to produce for other industries

GEORGE TOWN: Publicly-listed automated equipment manufacturers in Penang that serve the semiconductor, hard-disk drive (HDD) and light emitting diode (LED) industries are looking to come up with new products for other industries as well as exploring new markets as the recovery in the semiconductor and electronics sector has yet to trickle down to them.

Although there was a pick-up in the HDD and printed circuit board assembly (PCBA) industries, it had yet to result in an increase in demand for automated equipment, industry players said.

The impact of the global economic crisis on the semiconductor and LED industries is another reason driving local automated equipment manufacturers in Penang to seek fresh business.

Beh Lai Lien ... ‘The pick-up has yet to reach a level to require the HDD industry to place new orders.’

There are over 600 local automated equipment manufacturers in Penang, each generating annual revenues ranging from RM2mil to RM150mil.

ATS Systemisation Bhd managing director Beh Lai Lien told StarBiz that the group planned to start manufacturing automated in-line production systems for the food, medical and construction sectors besides the PCBA industry.

“There is an urgent need for automated equipment makers supplying to the semiconductor and HDD industries to diversify into making other products,” Beh said.

“Although the business in the hard-disk drive industry has improved, the pick-up has yet to reach a level that would require the HDD industry to place orders for new automated equipment such as the pick-and-place equipment from us,” he added.

Beh noted that “the business for the printed circuit board assembly (PCBA) industry had also picked up,” but “the problem is that automated equipment manufacturers here supply low-value automated parts and components to the PCBA industry.”

“This is why there is a need to diversify into the manufacture of other types of automated equipment,” he said.

MMS Ventures Bhd, which makes LED test handlers for the automotive and digital audio-visual industries, plans to move on to another product after seeing a 50% drop in business in the first nine months of the year due to the slowdown in global demand.

“This has led to the erosion of prices of LED test handlers by 15% and 20%. We are now moving into the manufacture of LED automated testers, which yield better margins, and have better growth prospects,” said managing director T.K. Sia. “So far we have invested about RM2mil to develop the automated testers, which will be commercialised soon.”

Tan Cheik Eaik ... ‘We are moving into the production of LED testers for the public and commercial lighting market.’

Sia also stressed the need for the group to go overseas, as the domestic market for its products had shrunk by over 20% this year, compared with 2008.

Elsoft Research Bhd chief executive officer Tan Cheik Eaik noted that before the global economic crisis last year, there had been a steady purchase of test handlers in the semiconductor and LED sectors.

But since the crisis erupted, the group’s sales of test handlers have dropped about 30%.

“There is recovery, but the volume of semiconductor products produced has yet to return to pre-crisis level.

“Thus, we are moving into the production of LED testers for the public and commercial lighting market, where there is better potential for growth.

“This year, we spent about RM3mil to develop a new range of LED testers to test the current and voltage in the public and commercial lighting sectors.

“Future research and development spending will be for improving the LED testers,” Tan said.

Main market-listed Pentamaster Corp Bhd executive chairman C.B. Chuah said competition had intensifed in the semiconductor automated equipment market as China recently emerged as a key player in the business.

“Chinese entrepreneurs, through various forms of grants and loans from their government, have started making semiconductor automated test handling equipment to compete with those from Malaysia, South Korea, Japan and the United States.

T.K. Sia ... ‘So far we have invested about RM2mil to develop the automated testers, which will be commercialised soon.’

“Their pricing is between 30% and 50% lower than those of their competitors.

“The quality of their equipment may not be on par with those from the competing countries but in a couple of years, I believe China-made semiconductor equipment would be as good as their competitors,” he said.

Chuah said that for this reason, Pentamaster had to manufacture automated equipment for other industries and export them to countries other than China.

Two years ago, Pentamaster’s sales to China contributed about 15% to the group’s revenue.

“The automated equipment that Pentamaster is doing now include glove recycling, auto-packing, and auto-stripping equipment for the glove industry.

“The group recently utilised a RM5mil research and development grant from the Malaysian Industrial Development Authority to design and develop LED testers, which will be released into the market soon,” he said.

US-based research house Gartner Inc recently forecast the semiconductor automated equipment market would grow by 34.3% over 2009.

But global spending on automated equipment was projected to fall 47.9% this year, despite a 47.3% rebound in the second half so far, it said.

“Equipment purchases for the remainder of 2009 and the first half of 2010 will be mostly technology buys, as memory companies get ready for copper implementation.

“Capacity will begin to ramp up in the second half of 2010 as businesses and consumers begin to open up their pockets to purchase electronic goods, and more consistent semiconductor growth should be occurring worldwide,” said Gartner vice-president for research Dean Freeman.

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