SEMICONDUCTOR equipment maker AEM Holdings will adjust its inventory value and profit before tax in its results for the fourth quarter of 2023 after finding a shortfall in the group’s inventories, following an internal stocktaking exercise. 

The group has “found no evidence of fraud, illegal activity or physical loss of inventory”, and the shortfall is attributed to human error in transactions with the group’s enterprise resource planning system, it said on Monday (Jan 22). 

Excess inventory and profits are estimated at between S$18 million and S$25 million.

“The company, in consultation with its independent external auditors, has made a determination that the entirety of the S$18 million to S$25 million will be adjusted down in Q4 FY2023,” AEM said. 

For the first nine months of 2023, AEM’s revenue fell by 48.2 per cent to S$387 million, with profit before tax excluding exceptional items of S$43 million over the same period.

Giving more details on what caused the shortfall, AEM Holdings said on Monday that the error had occurred during the migration of production to the group’s Penang facility from Singapore.

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Full system build production orders were incorrectly closed during the transfer of the production order to the Penang facility. 

Production orders within the enterprise resource planning system for partially produced orders were incorrectly closed, without quantities being modified to reflect the actual number of modules and sub-assemblies produced, AEM Holdings said. 

Furthermore, data entry errors resulted in incorrect amounts recorded for goods received.

As a result, these errors resulted in excess inventory and profits within the system.

AEM said: “The company is in the process of investigating and addressing the weaknesses in the processes, controls and systems that attributed to the excess inventory issue.”

It is working to finalise year-end adjustments, and expects to clearly delineate changes to systems and processes to prevent a recurrence of the inventory issue.

“The board and the management take the shortfall in inventory issue very seriously. A full independent review is being launched to ensure that robust controls, processes and systems are in place, and staff are appropriately trained,” AEM Holdings said.

The group will report its full-year results for FY2023 no later than Feb 28.