13 Feb 2013
SilTerra in Global Fast Lane

By Rupa Damodaran, NST
Khazanah Nasional Bhd's semiconductor wafer foundry SilTerra Malaysia Sdn Bhd has to work overtime these days with its plant running at maximum capacity to meet growing global orders]

"Our jobs are completely sold out for the first and second quarters of this year," says chief executive Dr Kamarulzaman Mohd Zin, adding that with demands thrice its capacity, SilTerra is now boot-strapped to the fast lane.

It will soon be getting jobs from Tier 1 electronic companies for this year and more Asian giants are likely to hook up with its Kulim Hi Tech Park plant as they divert their supply chain ex-China.

Purchase orders are coming in for the chips which are already found in most of the top brand mobile applications, particularly in the display drivers of smart phones.

Google Nexus 4, which is tagged as one of the world's best smart phones, LG Optimus G or the Amazon Kindle e-reader tablet , all have touch controller , with the SilTerra chip.

SilTerra, which has spread its wings in the global tech scene, is today more well-known in Taiwan and China and the giants of the industry worldwide, than in Malaysia.

Malaysia has the attributes to be a sustainable semiconductor fabrication hub for mature technology market (0.22 to 0.09 micron) and it is cost competitive compared to Taiwan, Korea South Korea and Singapore.

Also, the US IDMs and European foundries are keen to explore extending their footprints in Malaysia.

Things are already looking up for SilTerra with negative cash flow tides having been reversed sharply over the past five years.

"We have been operating profitably for five years now, running in a sustainable manner," said Kamarulzaman, in an interview here last week.

Annual operating profit is around RM50 million per year and this can be sustained for at least three more years with minimal capital requirements.

But despite its flourishing profits curve, Kamarulzaman admits that he gets flustered by the negative public perception SilTerra is often placed in.

Often mistaken for the others in the assembly and test and product assembly, which describes the traditional electrical and electronics (E&E) industry in Malaysia, SilTerra actually stands in at the top end of an industry where the gestation period can take up to a decade before one can enjoy positive returns.

But that is now all in the past as SilTerra has been kept very busy, having finally found its niche in the small panel display drivers (below five inches). However, it is continuously facing challenging demands for high and greater resolution as it keeps up with the latest technology.

"It is a challenging industry but one that will always look north, what with electronics already embedded in our lives , from telecommunications, healthcare to transportation," Kamarulzaman said.

SilTerra is ranked number 15 (based on revenue) in the global ranking of leading pure-play foundries, where it serves the mature tech segment of the market valued at US$30 billion (RM90 billion) per year.

One of the reasons for SilTerra to be mired in difficulties in its early years was its attempt to be in the race with the global players.

The big four - highly-capitalized TSMC (Taiwan), Global Foundries (US), UMC Group (Taiwan) and SMIC (China) - control 75 per cent of the global market share, leaving companies like SilTerra to depend on "sustainable scraps" which it considers as substantial.

Cumulatively, SilTerra has exported RM5 billion worth of products since 2001, out of which 75 per cent has local value-added.

The Economic Transformation Programme (ETP) recognizes that aspect and Kamarulzaman also pointed out that SilTerra has already achieved many of the targets envisioned by ETP.

"Local value-adding to its annual revenue of RM500 million to RM600 million is measured at 70 per cent, far higher than the overall E&E industry average of 25 per cent of the overall electrical and electronics (E&E) industry."

On the prospects of listing SilTerra, Kamarulzaman said it will likely take place once the debts are cleared.

The company has had cumulative losses totaling RM7.3 billion for the 10 years up till 2011 which was one of the main reasons it has been placed in bad light.

"But have a look at the numbers -as 79 per cent is due to depreciation and impairment plus financing costs (due to initial hefty borrowings), and it has nothing to do with our operations," he said, adding that the company can turn around into profits.

Revenue totaled RM4.8 billion to date while the EBIDTA (Earnings Before Interest, Taxes, Depreciation and Amortization), which was negative in the initial three years, turned positive for seven years out of the 12 years.

With the full redemption of the sukuk come June 2014, SilTerra is expected to show profits.

To Kamarulzaman, the Kulim plant, which is estimated to be valued at RM4.3 billion, can continue to operate for another 20 years.