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China JV repositions Aemulus in semiconductor test market

China JV repositions Aemulus in semiconductor test market

11 Aug 2021

The first 11 years after its inception in 2004 were good for ACE Market-listed automated test equipment (ATE) manufacturer Aemulus Holdings Bhd as it recorded a commendable compound annual growth rate (CAGR) of around 50% in revenue.

However, the past three financial years of FY2018 to FY2020 have been challenging for the Penang-based equipment vendor because of the US-China trade war, and the company’s failed business strategies in the China semiconductor test market.

In a nutshell, its failure was due to two reasons. First, although Aemulus’ strength is in making specialised testers, it decided to launch a generic product in the belief that it could sell more. It didn’t, though.

Second, the company had been relying on its US customers in China, and struggled massively when China prioritised orders from Chinese integrated device manufacturers (IDMs) during the US-China trade war.

Realising that he had misread the market, Aemulus co-founder, executive director and CEO Ng Sang Beng knew he had to learn fast and act quickly. Through a joint venture (JV), the group was repositioned to penetrate the complementary metal oxide semiconductor (CMOS) image sensor market in China. In the final quarter of last year, Aemulus teamed up with Tangren Microtelligence Co Ltd to form the 40:60 JV, named Tang Ming Sheng Shi (Jiashan) Technology Co Ltd (TMSS), to enter the China market.

As reflected in Aemulus’ financial performance, it did not take too long for the JV to bear fruit. The group returned to the black with a net profit of RM3.66 million in the first half ended March 31, 2021 (1HFY2021) from a net loss of RM4.73 million in 1HFY2020.

“To put things into perspective, China contributed only 11% to our group revenue of RM19.3 million in FY2020. But in 1HFY2021, it made up 44% of our revenue of RM27.4 million, which was already more than our revenue for FY2020,” stresses Ng, who has been involved in the semiconductor industry for over two decades.

Tangren Microtelligence is a technology firm specialising in developing and making advanced packaging equipment for semiconductor devices. It is worth noting that one of its major shareholders is Lizhu Intelligent Equipment (Tianjin) Co Ltd, which also owns several semiconductor equipment businesses.

“It is pretty obvious that our JV in China is working out well. At this point, we know we are doing the right thing by partnering with Tangren Microtelligence. The trend is looking positive for us. Going forward, we will be looking at two main markets: China and the rest of the world,” Ng tells The Edge in a virtual interview.

He graduated with a degree in electrical engineering from the University of Technology Malaysia in 1999 and began his career with Altera Corp (M) Sdn Bhd in 2001 as a test development engineer and component applications engineer. He was promoted to component applications supervisor in 2002.

Two years later, he left Altera to co-found Aemulus with Yeoh Chee Keong, who is now the group’s executive director and chief operating officer. Today, Ng, 45, is the single largest shareholder of Aemulus, with an equity interest of 22.52%, followed by Yeoh, who owns 10.07%.

Headquartered at the Bayan Lepas Free Industrial Zone, Aemulus is a design house that makes semiconductor testers, also known as ATE, focusing primarily on the radio frequency (RF) and mixed-signal semiconductor test markets, followed by the automotive and lighting markets.

Its market coverage ranges from consumer gadgets and enterprise storage to automotive and Internet of Things (IoT). In particular, its fifth-generation (5G) RF tester is catered for the mobile phone and tablet markets; its RF filter tester for consumer electronics; and its CMOS image sensor (CIS) tester for IoT devices.

Year to date, shares in Aemulus have gained 78%, to close at RM1.07 last Wednesday, valuing the company at RM648.38 million. The counter is currently trading at a historical price-earnings ratio of over 125 times.

US$23 bil industry

Ng points out that the global CIS industry has grown tremendously over the last decade.

CIS market revenue was worth about US$5 billion in 2010, or 2% of the global semiconductor industry (see chart). It almost quadrupled to US$19.3 billion in 2019, contributing almost 5% of global semiconductor industry revenue, which itself was also growing.

“CIS is actually one of the most common technologies being used in cameras. It is the cheapest way to construct the sensor of a camera. Today, it is estimated that the global CIS industry is worth over US$23 billion (RM97 billion). Despite the drop in smartphone shipments to China in 2018, the CIS market continued to grow, because there was strong demand from the security camera, CCTV and anti-terrorism camera [segments],” Ng explains.

According to him, the upcoming big growth area for the CIS market is the automotive segment.

“Self-driving cars and electric vehicles would need more cameras, which means more CIS. All in all, CIS is a huge and mature industry that is still growing,” Ng observes.

He acknowledges that over the years, CIS players have been using Japanese and Taiwanese testers, but asserts that Aemulus aims to be a new market challenger.

“The Japanese tester is the de facto tester, but it is very expensive. We believe we can provide a cheaper option for our customers. And in terms of performance, we are not far behind [the Japanese],” Ng stresses.

Recently, Aemulus secured a 3½-year contract worth US$5 million from a Chinese firm — a top six global CIS player that is backed by Will Semiconductor Co Ltd Shanghai — to collaborate in developing a CIS-specific tester model for the China market.

“This contract is a big thing for us, as we now feel more confident to increase our exposure to the CIS market. We could be small today, but with the connections of Tangren Microtelligence, we have the potential to become big in China one day,” Ng says.

Recalling his mistakes in China, he admits that Aemulus, whose strength is serving the niche market with its customised products, had scaled up too quickly in its bid to grow faster. It had come up with a generic product called AMB 5600, which it hoped would increase its sales exponentially.

“However, we failed terribly. In 2019, we realised that was actually one of our biggest mistakes. AMB 5600 is a powerful tester, but we were not able to sell even one unit. Last year, we decided to modify the non-performing AMB 5600 tester into a specialised tester to serve the CIS market, which we think is our best bet,” he explains.

The product proved popular with the market and orders started to come in. In FY2020, CIS accounted for 15% of group revenue.

The other problem the company faced was China.

“In the past, we used to do pretty well there. When we served US design houses that had manufacturing operations in China, they would specifically request their [subcontractors] to use Aemulus’ testers because of our cost and performance,” says Ng.

But following the US-China trade war, China started to develop its own RF products to compete with the US, thus allowing Huawei and the Chinese IDMs to book higher capacity.

“As a result, the demand from our US customers in China dropped substantially. Suddenly, we realised that we had a weak market reach in China, as we didn’t build a relationship with the Chinese IDMs in the past,” he says.

With the Tangren Microtelligence JV progressing smoothly, however, Ng is confident the same mistakes will not be repeated in China.

Source: The Edge Markets

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