SilTerra sets sights on automotive industry

New venture: SilTerra’s plant in Kulim Hi-Tech Park. The company expects its tie-up with Beijing Yandong Microelectronics Co to help open doors to other China projects.

PETALING JAYA: Khazanah-owned SilTerra Malaysia Sdn Bhd, which specialises in the manufacture of semiconductor chips for integrated circuit (IC) design companies, is eyeing big opportunities within the booming automotive industry.

Chief executive officer and executive director Firdaus Abdullah said the global automotive segment offered good margins and business longevity.

“For many years, we were a consumer electronics manufacturer specialising in chips for cellphones. It’s a great business because it’s a high-volume one, but there’s also a lot of margin pressure and the longevity is not there,” he told StarBiz.

Within the telecoms industry, Firdaus said the company needed to keep coming up with new chips on a regular basis.

“The churn rate is high, something like every six to 12 months. So we decided that we need to go into an area where there are good margins and better longevity – a space we can play in over the next 10 to 15 years.

“Having margins and longevity makes good business sense to go into the market. Last year, we received certification to produce chips for the automotive industry and we expect good growth in this segment and hope to be a strong player in this sector in the next couple of years.”

Firdaus pointed out that Malaysia is the seventh largest electronics exporter in the world, even ahead of Japan.

“A large part of our electronics exports is for the automotive electronics market. Malaysia is the only country in the 600-million-population of South-East Asia that has the complete electrical and electronics (E&E) supply chain for automotive market.

“We believe the electric vehicle (EV) segment is Malaysia’s unique opportunity to gain leadership in the present global automotive and electronics market, by integrating our strength and capabilities in the global automotive electronics supply chain and our experience and resolve in the automotive market.”

Firdaus added that the automotive electronics segment is currently the fastest growing segment in the global semiconductor industry at more than 15% annually.

“By 2050, more than 85% of the new cars built would be EV or hybrid with varying degrees of autonomous driving capabilities, and electronic systems would account for more than 50% of the total cost of building a car.

“This is good news for Malaysia because we are already a major E&E exporter in the world and automotive electronics is a significant part of our E&E export.”

On the local front, SilTerra has been approached by the Malaysian Industry-Government Group for High Technology (Might) to participate in the third national car project.

Firdaus said the project is still in its preliminary stage and that he could not elaborate much.

The company was in the spotlight recently when questions arose over the project’s funding. In October last year, then-MCA deputy president Datuk Seri Dr Wee Ka Siong questioned the source of SilTerra’s investment funds relating to the third national car project.

Firdaus clarifies that SilTerra is only involved in the supply of the chips and not the development of the entire car.

“We’re not funding it. We are funding our capital expenditure (capex) for new equipment to service the power market and some of that will be used for the car. Might is talking to several parties (regarding funding),” he said.

In terms of capex, Firdaus said SilTerra is investing US$20mil this year for new technologies it has been developing. This is a mark-up from its US$14mil capex for 2018.

“Now that the technology we’ve been developing is essentially ready, we need to ramp up our capex a bit more. But the benefits will only be seen in 2020. “That’s because when you order the equipment, it will take six months to arrive and another three months to qualify. That’s almost a year already.”

A loss-making company in the past, SilTerra has since seen a turnaround in its fortunes in the past few years.

“We have been profitable over the last three years. Our profit has averaged RM60mil, with revenue at around RM600mil. Earnings before interest, taxes, depreciation and amortisation is over RM100mil.”

SilTerra operates from its plant in Kulim, Kedah, which is capable of producing 40,000 wafers a month and employs about 1,300 people – most of them Malaysians.

Firdaus said the company did have plans to expand its current facility.

“We have around 75 acres of land in Kulim and half of that is being utilised by our plant. If we don’t use it (the land), the state will take it back.”

Despite being Malaysia-based, nearly 100% of SilTerra’s earnings are from overseas business. “Our customers are from China (40%), Taiwan (30%), the US (10%), South Korea, Europe and even Brazil,” said Firdaus. “In the past, the US was a big contributor but we do see it growing back up in time.”

In November, SilTerra was appointed by China’s leading microelectronics producer, Beijing Yandong Microelectronics Co Ltd (YDME), to set up an eight-inch wafer fabrication plant worth RM2.9bil in Beijing.

The plant will cover 73,260 sq m and is expected to be in operation by the first quarter of this year. It is estimated to generate a monthly output of 50,000 wafers.

Firdaus said the tie-up with YDME would help to open doors to other China projects.

“YDME is quite strong in the power sector. There have been discussions to have a power joint venture both in Malaysia and China,” he said, adding that SilTerra has also been in talks to set up plants in other countries.

“We have also had interests from India, Vietnam and Turkey,” Firdaus said.

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