Micro-Mechanics eyes 'smart' factories to stay ahead

MICRO-MECHANICS (Holdings) is striving to turn its plants into smart factories, even as it continues to invest in research and development (R&D) to maintain an edge over its competitors.

"Throughout our five factories, we have initiatives under way to build a smart factory," chief executive officer Chris Borch told The Business Times, adding that it envisions boosting production without beefing up headcount in tandem.

One project currently under way involves installing radio frequency sensors in the tools used in its equipment, which lightens the workload for its employees while allowing for processes to be monitored and controlled in real-time.

"More and more data gives you... (the) ability to see problems quickly and completely," he pointed out.

Meanwhile, its R&D efforts - carried out in markets such as Singapore - focuses on developing proprietary materials or processing methods to set it apart from rivals and maintain its gross profit margin, which clocked 53.9 per cent in Q2FY20.

"In the medium to longer term, we really like the prospects for the semiconductor industry. The industry has never been in a more exciting position," said Mr Borch, pointing to growth in areas such as computing, automation and artificial intelligence.

Micro-Mechanics has two main business segments, the bigger of which involves the manufacture of consumable parts and tooling used in the assembly and testing of semiconductors. These can be used in consumer products such as smartphones and computers.

Meanwhile, in the United States, it has a fledgling business focusing on manufacturing precision parts and tools used in critical applications for semiconductor wafer-fabrication. Within the next three to five years, Micro-Mechanics is looking to build up this business to rival that of its consumable tools business, with growth likely to come from scaling up business from existing customers.

He added: "Demand for each (business), we believe, will continue to be very good."

Room for growth

Aside from Singapore and the United States, it also has factories in China, Malaysia and the Philippines. For the second quarter ended Dec 31, 2019, net profit was up 14.4 per cent year-on-year to S$3.57 million, while revenue rose 7.4 per cent to S$16.28 million. It counts companies such as Intel and Tokyo Electron among its client base.

In 2019, the global semi-conductor market stood at around US$409 billion, and Mr Borch sees room for further growth in the future.

"The big forces in the industry are densification and miniaturisation," he explained. "A node, or the device geometry, 20 years ago was 3 microns. Now, that same node is below 10 nanometres, and it's moving from 10 to 7 to 5."

"That means it becomes exponentially more difficult to fabricate semiconductors, and suppliers like us have to up our game in terms of precision, repeatability, cleanliness and process control. It's becoming so demanding that there may only be a handful of suppliers in the industry five years from now that can do what the industry needs us to do, which is a great opportunity (for us)."

To this end, Micro-Mechanics is investing to enhance its capabilities to better position itself to meet those needs. Failure to do so means that it could risk falling behind.

He added: "These long term trends play really well into our strengths. We're not the largest company out there but we have the strength now to afford expensive next-generation equipment." In addition, it employs about 100 engineers worldwide, giving it enough "engineering muscle" to tackle any issues that might crop up.

"One of the biggest challenges today is that skill-set requirements are changing so rapidly and people have to retool themselves," he said, adding the company is always encouraging its employees to learn new skills. "We think that is key, especially with automation. Automation can completely change what your job was 10 years ago. There's still a job in the factory but it's a different job and people have to get ready for that."

Aside from up-skilling its employees, Mr Borch also sees a need for more knowledge-oriented workers, who can sift through the data, identify problems and then get to work on solutions.

Other notable challenges facing the industry could very well include the Covid-19 virus outbreak, which has started to spread around the world and may pose a risk to the recovery of the semiconductor industry. World Semiconductor Trade Statistics (WSTS) had previously estimated that chip sales growth in all regions would lift the global semiconductor market by 5.9 per cent to US$433 billion in 2020.

Key market

In a filing to the Singapore Exchange in late January, Micro-Mechanics said its factory in Suzhou would be closed beyond the Chinese New Year period, in line with directives from the Chinese authorities, which resulted in a total closure of three weeks. It has since re-opened, although not all of its 100 or so employees in China are back at work. Its plant in Suzhou largely serves its customers in China, which accounts for about 30 per cent of the group's topline.

While it's still early days, the company isn't seeing demand take a massive hit, which Mr Borch describes as encouraging, adding that the Micro-Mechanics will probably have a better sense of how things will play out in the next one month or so. "We're back and running and we do see customers ordering," he said. "We are not seeing push outs of orders or cancellations. There's going be some lateness but not cancellations. There's a real concerted effort to keep everything moving and ramp back up production as reasonably quickly as is possible.

"I dont think we - or any other company - are going to be setting any records this quarter. But things could look a lot better next quarter."

Mr Borch also remains confident that China will remain a key market for the semiconductor industry. Asia currently accounts for the lion's share of the assembly and testing of semiconductors worldwide.

Meanwhile, even as the Singapore Exchange (SGX) has done away with mandatory quarterly reporting, the company remains committed to continuing with it, he said.

In fact, with uncertainty surrounding the exact impact of Covid-19 on businesses today, Micro-Mechanics sees the value of continuing with quarterly reporting now more than ever so that it can keep shareholders in the loop.

"I think it's become an X-factor for us," he said. "It benefits management to get all the numbers laid out in plain sight and explain it simply to investors and readers. It benefits our decision making internally. It's a great plus for Micro-Mechanics and our shareholders, so we're delighted to keep doing it."