Management Discussion and Analysis by the CEO Print E-mail


Going into the year of 2022, Globetronics Technology Bhd.remained vigilant in managing the extraordinarily cyclicaldemand of semiconductors and components, underpinned by the Group’s resilient operational fundamentals. In the first half of 2022, demand remained stable in consumer sectors and saw positive projections for industrial and automotive related sectors. Investments in digitalization, automation and value engineering to drive operational efficiencies amidst burgeoning headwinds from rising energy and labour costs increased agility in resource mobilization and productivity gains. Resurging lockdowns in China in the second half ofthe year 2022 highlighted the high dependency of global supply chains on specific nations, triggering uncertainties indemand especially in consumer-based segments. Extensive negotiations and alignment with both suppliers and customers were triggered to further comprehend state of inventory levels and anticipated upside in cost. Systems and sensitivities developed throughout the volatile 2-year period of the pandemic enabled the team to remain agile in the face of volatility.

Strategic decision of withdrawing from weakening crystal timing devices segment due to declining margins was concluded scrupulously with no major upsets or unforeseen exposure.

Malaysia’s investment position in term of Foreign Direct Investment (“FDI”) increased by RM14.4 billion, reaching a record RM875.1 billion as at the end of fourth quarter 2022. Manufacturing sector remained the largest recipient with a value of RM380.6 billion1.Mega-scale manufacturing facilities along side exponential demand for skilled talents triggered an industry wide talent grab/war. The unintended consequences of salary hikes and spike in cost to acquire or retain talent became nascent industrywide.

Year 2022 earmarked the stewardship passing onfor the organization by our esteemed founder Mr.Michael Ng (Executive Chairman) and industryrevered CEO (Dato’ Heng Huck Lee). The seamless partnership and synergistic vision of our leaders for the past 3 decades brought the organization through steadfast profitability and enabled the organization with strong and structured fundamentals.

We thank Mr. Michael and Dato’ Heng Huck Lee for their passion in cultivating next generation leaders. With the new leadership of our forward-looking Executive Chairman, our exercise to reimagine the Group to Globetronics 2.0 have kick started and will set the tone for the Group’s long-term strategies.

We continue to maintain grade “A” ratings for the Verband DerAutomobilindustrie (“VDA”) based audits from our customers.In the year 2022, our customer awarded us with a “Supplier Appreciation Awards” in recognition of our comprehensive and unwavering support in Quality, Cost, Delivery and Services(“QCDS”).

Sustainability policies continue to be embedded in our cultureand business decisions. Traditional supply chain strategy focuseson service, cost and quality while new areas of focus includes sustainability, agility and resilience. The task force created to drive sustainability efforts covers leaders from governance, social,economic and environment.

Group Financial Review

Notwithstanding the various challenges and headwinds, the Group posted a respectable set of financial results with revenueof RM180.1 million and a net profit of RM45.5 million, which represents a drop of 12.6% and 14.1% as compared toRM206.0 million and RM52.9 million respectively in year 2021. The drop in revenue was mainly due to the exit of quartz crystal timing devices business as well as softening in demand towards end of second half of 2022 triggered from strict lockdowns in China.

Total assets decreased from RM334.9 million in year 2021 to RM326.8 million in year 2022, which were mainly attributed tothe decrease in property, plant and equipment of RM11.0 million.In terms of liquidity, the operations continue to generate positive cash flows and closed the year with cash and cash equivalents of RM201.5 million. Net cash generated from operating activities was RM61.8 million in year 2022 comparedto RM88.4 million for year 2021. The lower amount generated from operating activities was mainly due to lower volume loadings from certain of the Group’s customers and higher tax paid due to the expired tax incentives for one of our subsidiaries.

Group Outlook and Prospect

Group Outlook and ProspectAs with the cyclical nature of the industry, various global predictions anticipated potential slowdown in semiconductor demand in the year of 2023, citing inventory oversupply and cautious consumer spending. The anticipated short-term downturn is the result of a confluence of factors such as rising inflation, geopolitical unrest and lingering effects of the pandemic. Our customers remain cautious in forecasting the demand for year 2023 with increased efforts in identifying markets and verticals for potential growth engines.

Potential demand drivers will come from the increasing adoption of 5G infrastructure rolled out across many geographical areas where the needs for smart sensors becomes pertinent. The extended Covid-19 pandemic permanently transformed the digital and infrastructure landscape around the world. Greater application and consumption of semiconductors is inevitable especially the demand for semiconductors for automotive, data servers, cloud usage, contactless and automated solutions. Consumer electronics remain as our focus for the growing end market segments in 5G, Internet of Things (“IoT”), sensors and virtualisation.

Sensor Division

Operating Environment

The sensor division predominantly operates in the consumer market segment where we observe increasing weakness in demand toward end of year 2022 through to 2023. Consumer discretionary spending reprioritization to areas such as travel and leisure with borders reopening have a negative effect on technology spending. The demand for our light sensors in mobile applications remain stable as we work with the customerto design next generation solutions. Planning for supplychain resiliency saw consolidation of legacy products to divert chip supply to flagship products. Liabilities related to potential product obsolescence has been assessed with no material risks observed. We observe the compounded impact of second source strategy by the end customer alongside proliferation of alternative consumer products in the True Wireless Stereo (“TWS”)segment. Risk in market share shrinkage for our gesture sensor is anticipated as the TWS product becomes increasingly commoditized into a highly price sensitive product.

Strategic Response

We plan for our core offerings and know-how in miniaturized optical packages (micro System In Package (“uSIP”), Land Grip Array (“LGA”), Chip Scale Package (“CSP”) and microelectromechanical systems (“MEMS”)) to be leveraged and expanded horizontally across emerging geographies. Early discussions with new original equipment manufacturer (“OEM”) and original device manufacturer (“ODM”) customers were kickstarted in late year 2022, with 2 potential prototype builds, MEMS and Optical Sensing to kick start in late year 2023. We continue to explore new solutions across diversified verticals and to increase variety in customers in anticipation for a more sustainable and well-balanced business organization.

Sensor fusion for both die design as well as advanced packaging are the key driver for next generation wins where our package innovation capabilities set a differentiation versus our industry peers. Through continued engagement with our existing customers and cost effective compact solutions, we observe 2-3 high potential project wins for our mid-term pipeline towards year 2025 – 2026. Our business model in early product creation engagement remains a central component of our organizational strategy.

Highlights and Accomplishments

The sensor business, led by Mr. Yip Wai Chee (Vice President of Business and Operations), improved productivity via focused and value engineering efforts as well as implementation of smart factory related technologies. The sensor Group successfully launched 2 new products with launch yield of more than 99%. The tribal knowledge of the core development team remains with strong fundamentals to acquire new and exciting prospects.

Digitalization and Innovation

The “lights-off”, smart factory strategy is central to our vision in workforce transformation. We continue to transform the face of manufacturing from a highly laborious sector to one that utilizes leading edge technologies. This initiative kickstarted with detailed value stream mapping exercise and solution design enabled a highly agile organization which remain productive amidst market volatility. Deployment was planned in phases. To date, we have enabled remote control of two key manufacturing processes. The conventional operation of physically manning of equipment has been elevated to a centralized event triggered platform. The ability for manufacturing sectors to operate in a hybrid environment has become increasingly important to combat uncertainties rising from changing landscapes and unexpected events.

We remain committed in supporting our local technology ecosystems. Together with extended reality (“XR”) specialist, our sensor Group jointly designed, created, tested and deployed the use of Augmented Reality technology for our technician consumables changeover process. This served to deliver a two-prong benefit of standardizing Mean Time Between Assist (“MTBA”) as well as noticeably reducing cycle time to train and deploy new technical hires.

Our collaboration with local Artificial Intelligence (“AI”) specialist to marry computer vision data (which we have accumulated massively over the last ten years) with deep learning-based image analysis enabled clarity in our variation baseline for human judgement and additional layer of defect classification abilities from generic classification such as Foreign Material to specific source identification. We continue to feed the neural networks and established models with live data to enable more specific insights such as anomaly cluster detection. The investment in these capabilities is aligned to our vision for a closed loop, predictive quality capability operations.

The industry 4.0 team, led by Mr. Yip Wai Chee and supported by our dedicated operations team demonstrated resilience and strong technical know-how in transforming a brown field platform. We thank our out-going CEO, Dato’ Heng Huck Lee for his visionary direction as well as Malaysian Investment Development Authority (“MIDA”) for supporting Globetronics’ journey of transformation.


LED and Optoelectronics

Operating Environment

The LED, Laser and Optoelectronics business experienced a year 2022 of two different halves. In the first half of the year, optimism in product goinginto industry and automation segments was high, where the Group focused on expanding workforce to support the anticipated increase in demand. The second half of the year, our customers turn heedful and vigilant in monitoring inventory levels especially in segments with exposure to the China consumer market. Unprecedentedly high inventory levels may result in extended slowdown in specific product lines.

Efforts to expand the workforce in the first half increased our operating costs coupled with the intricately manual and customized product portfolios became agility constraint for the organization to react instantly to the rapidly changing demand.

Strategic Response

Nevertheless, Ms. Lim Guat Li (Vice President of Business and Operations) led successful discussions with both customers and vendors on services and product repricing strategy. Through unyielding cost controls and supportive customers in linearizing loadings, major impact of escalating costs were mitigated.

Cost reduction and ever-ready capacity emerge as main themes for year 2023. Automotive and Electric Vehicle verticals remain stable amidst the precariousness of other sectors. Equipment platform supporting lead frame based and plastic packages are being expanded to create capacity to support up-coming engagements for lead frame-based packages such as Quad-Flat No-leads (“QFN”) and TO Leadless (“TOLL”) packages.

Leveraging the best practices and deployment success from the sensor business’s digitalisation and automation efforts, the division have lined up product lines and process to undergo similar transformation efforts. First phase of paper to digital transactions have been implemented with blessing from our customers. The first Group of efficiency upgrading of equipment qualification is planned to “go live” by end of year 2023.

Highlights and Accomplishments

Product development efforts received high praise from customers which translated to a project win in high power LED module. Prototype builds for qualification kickstart in year 2022 with intent to translate to mass production in end of year 2023. The project satisfies a two-prong objective of elevating manufacturing value from component to module as well as expansion into the medical vertical.

Emerging Technology and Verticals

New product pipeline development slowed down for the past two years amidst juggling Covid-19 pandemic related constraints. Intensive efforts to drive business diversification and expansion in automotive and communication verticals have improved our new customer pipeline. Reshoring activities triggered by geopolitical divide created a space for Malaysian based semiconductor supply chain.

Strategic Collaboration

The Group remains focused in investing in leading technology platforms. The potential partnership in wafer level technology such as bumping, redistribution layer (“RDL”) and cu pillar complements our in-house capability to support flip-chip packages. The focus of year 2023 to develop structured business and capital investment plans to support the advanced packaging capabilities are on-going.

China’s stronghold as the manufacturing location of the world stems from the comprehensive supply chain. Strategic partnership with IC design companies as well as test partners were developed to provide customers with fully integrated end to end solution.

In year 2023, the Group will remain focused in operational and quality excellence while redirecting our resource and focus to enter emerging and high growth verticals.