Excerpts from Executive Chairman Loke Wai San's message in the FY18 annual report

Overview
For those who became shareholders recently in 2018, welcome. For those who have been with us longer, you will know that AEM’s journey and evolution is not easily summarized with just a review of our annual financial performance.

Many years ago, AEM started as an automation company, and over time, focused on automating the aspects of the semiconductor back-end test.

We were fortunate to have worked with leading edge customers who recognized our solid engineering core and pushed us to innovate with them.

Since 2011, we have invested substantially in our engineering capabilities, from R&D to manufacturing to field service support. This enabled us to grow globally with our customers and to become a full-fledged product engineering company.

We also expanded our R&D repertoire beyond mechanical engineering to include electrical/ electronics and software. Where the gaps were significant, we made acquisitions.


LokeWaiSan AR18Today, AEM stands as a niche but global company that is focused on helping our customers deliver exceptional quality through vigorous testing at the lowest possible cost.

As the world deploys 5G networks and develops new mission critical applications that run on them, we are optimistic, standing on the foundation that we have built over the years, that AEM will remain relevant, and perhaps even lead in the growing market for testing solutions.

With that, I will go into the review of FY 2018. FY 2018 has been another year of achievements for AEM. At the start of 2018, we put forward a set of growth targets that we shared with our investors. I am extremely pleased to announce that the team at AEM delivered on our targets despite a slowdown in the last quarter of 2018, primarily due to the global trade disputes.

The Group generated revenue of S$262.3 million and operating profit before tax of S$42.6 million in FY2018. Throughout 2018, we continued to invest in our engineering and secured follow-on projects from our key customer to develop hybrid extensions to our existing handlers. These new projects are expected to deliver meaningful revenue in 2020 and beyond, while our current handlers continue to be deployed.

Vertical and Horizontal Acquisitions
In late 2017, we completed the acquisition of InspiRain Technologies Pte Ltd, which opened up the radio frequency and advanced networking testing markets for us.

As our business continued to generate a healthy level of operating cash flow, we explored opportunities for other meaningful acquisitions to further enhance our technological capabilities and solutions offerings.

In March 2018, we completed the acquisition of the 100% stake in Afore Oy (“Afore Oy”) and the 100% stake in IRIS Solution Pte Ltd (“IRIS Solution”).

Afore Oy, based in Finland, is an industry pioneer and global leader in waferlevel Microelectromechanical Systems (“MEMS”) testing and handling solutions. MEMS devices are penetrating the vast landscape of the digital economy, from mobile phones to advanced heart sensors, autonomous vehicles, wearable electronics, and many other industrial and consumer applications.

Research shows that the MEMS market is expected to grow at a CAGR of 17.5% in the 2018-2023 period to reach US$31 billion in 20231 . Against this backdrop, MEMS testing and handling with a current market size of US $100 million, is expected to grow commensurately.

Afore Oy, as the only commercial-scale wafer-level solution available today, has a 6% global market share now and is well positioned for the next phase of growth. The acquisition is highly synergistic with AEM’s global footprint in engineering, manufacturing, field support and sales.

I am also delighted to highlight that Afore Oy together with Bluefors recently developed a first-of-its-kind tool for wafer level probing at cryogenic temperatures of below 4 Kelvin. The new solution is developed for Intel’s quantum computing program, and we are hopeful that this new tool can help us grow into new markets in the quantum computing field that require testing and characterisation at temperatures near absolute zero.


IRIS Solution engages in the research, development and integration of advanced machine vision solutions that are used in test handlers. Its world-class capability in vision systems design not only complements AEM’s current product portfolio, but also helps differentiate our solutions in the semiconductor and industrial sectors.

The acquisition of IRIS Solution has been accretive to AEM on both net income and EBITDA basis.

The world is in the early stages of the next technological revolution supported by 5G networks. 5G networks are intended to bring massive data transmission and computation together with billions of devices, and provide the world with new and often mission critical applications. According to IHS Markit, 5G has the potential to unlock up to US$12.3 trillion of revenue across a broad range of industries.

"We are strategically positioned to tap the growth brought by this technological revolution, and we are committed to playing a meaningful role in a thriving 5G economy, capitalizing on our existing capabilities and innovative solutions.” 

-- Loke Wai San

Equipped for Growth Opportunities in the New 5G Era
In October 2018, we were selected by Huawei Technologies Co., Ltd. (“Huawei”) for the testing and development of its high-performance short reach cabling links for Huawei’s 5G backhaul network.

As part of the project, we are co-authoring the standards for the test solution, in collaboration with China Electronics Technology Group Corporation No.23 Research Institute. We are on schedule to deliver the first solution for the testing of the 100Gbps links in 2019.

This is a testament by the largest telecom equipment supplier in the world on AEM’s advanced test technology and our ability to customize the test solution.

The combined advantage of AEM’s high performance communications cabling test system and our expertise in automating the test environment will enable us to achieve the stringent quality and cost targets for 5G component testing.


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