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Taking its position on the global stage
ALMOST a decade ago, AEM Holdings was on the Singapore Exchange watchlist, dragged by poor management and a loss-making business unit. Still, executive chairman Loke Wai San was not deterred from betting his chips on the company.
Back then, the buzz surrounding AEM was for its "almost distressed price" and checkered history when it came to management, says Mr Loke.
Adding to the company's woes was its substrates business unit that was deep in the red.
Its equipment business unit, while profitable, was not enough to support the ailing company.
But Mr Loke noticed that AEM had built a track record with what he says is among the best companies in the semiconductor space in the United States.
Although not disclosed by AEM, most research reports suggest this customer is semiconductor giant Intel Corporation. The customer now contributes over 90 per cent of AEM's revenue.
"That was what I saw - an undervalued company with great execution skills. While in need of a bit more technology, (it) had the trust and working relationship with one of the best companies in the world," he says.
Against this backdrop, Mr Loke, who runs technology buyout fund - Novo Tellus Capital Partners - made a cold call to AEM in 2011 to invest and acquire control of the company.
He attributes his foresight to "pattern recognition" that he gained from earlier career experiences.
Years in engineering, strategic consulting for technology companies and eventually investing in technology firms played a huge role in shaping his views on scaling a company.
His eight years in Silicon Valley revealed that many companies had great technology but fail at the commercialisation stage, he says.
They fail on many fronts because customers are looking to adopt solutions, which means just having technical merits would not suffice, he says. "What these companies lacked was innovation," he adds.
With AEM's existing strong customer relations, Mr Loke saw room to develop the company's innovative capabilities.
"The key was what else do you do with that relationship? Do you improve your value proposition to that customer and then bring the rest of the company up with you?".
With the goal of enabling semiconductor companies "to deliver mission critical applications at the lowest cost", AEM invested some S$10 million to S$15 million over 2013 to 2018 to develop research and development (R&D) and engineering capabilities.
POSITIVE GROWTH PATH
By 2012, the firm exited the SGX watchlist. It propelled itself towards a positive growth trajectory by securing sustainable sales growth from its key customer with its new handling platform.
For the third quarter ended Sept 30, 2020, AEM's net profit jumped 77.4 per cent to to S$24.3 million from S$13.7 million in the year ago period.
Revenue for the quarter rose 93 per cent year on year to S$161.8 million due to increased orders for tools, consumables, and services.
Meanwhile, it has revised its FY2020 revenue guidance upwards for the second time between September and November.
Most recently, AEM raised its FY2020 revenue guidance to between S$500 million and S$520 million based on sales order visibility and business outlook.
Mr Loke says he expects growth to be further supported by the growing demand for more complex semiconductor chips on the back of emerging technologies such as artificial intelligence (AI), 5G and Internet of Things, which have been accelerated by the Covid-19 pandemic.
For instance, work-from-home measures have resulted in more businesses moving to online platforms. On an industrial level, people are looking into things like lights-out factories, where manufacturing processes are fully automated and do not require manpower on site.
As the applications become more complicated, new types of chips are required.
"It's almost like taking a printed circuit board with all the chips and shrinking all of that into one chip," says Mr Loke.
"I think that's one of the bigger trends that will benefit AEM - more complex chips that require a higher level of quality assurance that will drive tests," he says.
"They're going to shift from consumer grade towards automotive or military grade quality," he adds.
Against this backdrop, one area AEM is looking into is for ways for customers to perform machine learning on tests.
At the component level, more work is being put into developing and enhancing thermal management in test equipment.
For instance, AEM's handlers are currently capable of testing semiconductor chips at various temperatures in one sitting and facilitating extreme test scenarios efficiently to roll out complex chips.
MERGERS & ACQUISITIONS
As AEM, which snagged the Enterprise Award at this year's Singapore Business Awards, continues to scale its business, mergers and acquisitions (M&As) are also key to its growth.
"M&A is an enabler for some of our technologies that we bring in house and stitch together with the rest of our technology building blocks," says Mr Loke.
"We think of M&As quite holistically. They bring in customers, they bring in their own product revenue, and then they also help us with technology building blocks to extend our leadership in the space," he adds.
For instance, its most recent acquisition of US-based DB Design, which supplies automation fixtures, device kits and other test-related products, exposes AEM to new customer touch points and a different product line.
"They also bring to us engineering skillsets that we are integrating into our delivery suite for our key customers," says Mr Loke.
While AEM has seen robust growth, the company is not resting on its laurels.
"The moment I tell you we have all the pieces in place, I think that's the time we've become complacent," says Mr Loke.
Furthermore, one company alone cannot support the rapidly changing semiconductor industry.
"We're just one part of the value chain, but what we've done is actually demonstrated that we can help the industry improve the quality assurance at lower costs," he says.
GLOBAL TALENT POOL
As AEM continues to anchor itself in the industry at a global level, Mr Loke says the company has reached a stage to bring on board more senior executives from across the world.
In August, industry veteran Samer Kabbani joined the firm as chief technology officer.
He previously served as executive vice-president at chip-making equipment supplier Advantest and Astronics Test Systems, which offers automatic test solutions to electronics manufacturers.
Separately in April, the company named Chandran Nair as its chief executive officer.
He was previously president of the robotics and autonomous systems business unit at ST Engineering.
"This is a global talent pool that we have been able to convince to join us for the journey," says Mr Loke.
"It's a two-way street - we have to convince executives that we are a company with vision, purpose and potential, and they're betting their careers by joining us," he says.
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