COO's Message (January 2010)

From the desk of the Chief Operating Officer of the ESCATEC Group

Dear Customers, Suppliers and Soon-To-Be Customers!

2009 was a difficult year for most of our customers and, as a result, it was challenging for ESCATEC as well. We're starting to see signs of recovery from most of our customers, with order rates picking up now at the start of 2010 however.

We, like many of you reading this, had to take measures during 2009 to reduce cost in order to adjust to a lower order rate from our customers. In many cases, our customers' revenues are running ten or even forty percent or more down from the previous year. Fortunately we entered the crisis with a fairly healthy order book and several new customers in ramp-up stages, so whilst we did have a large drop in sales from 2008 to 2009, we did not suffer as deep a drop in sales as the EMS industry on average.

Nonetheless, during 2009 we had no choice but to undertake some painful restructuring including, unfortunately, retrenchments for the first time in our history in Switzerland and China. ESCATEC Switzerland was hardest hit by the recession, in that costs there tend to be more fixed than in Asia, and our customer base there was among the hardest hit. Various measures were taken, including work-time reduction, reorganization from two business units into one, and some retrenchments. Core competences are intact, however, and we believe we are now optimally sized for the reduced revenue level and poised for the anticipated recovery.

In China we scaled back our tool design and tool-making activities to support only our in-house needs for our plastic injection moulding operations in ESCATEC Mechatronics (Shanghai). We will maintain small tool shops there and in Penang to support our internal needs but will no longer offer export tools. We will however continue to apply our over 20 years of experience to manage all tooling and moulding activities in box-build assembly projects for our customers, but we will now source more tools from competent local toolmakers to supplement our scaled-back tool-making capacity. Mr. Hans-Peter Bouvard, who is Swiss, took over as our GM in China in August 2009 and is driving these changes. With the restructuring completed in both China and Switzerland, we expect these operations to operate both profitably in 2010 and fulfill their respective strategic roles for the Group.

Despite the recession both of our facilities in Malaysia showed solid growth during 2009, with several major new customers starting significant new mass production this year. The new customers came from the medical device industry (under our ISO 13485 certifications), the lighting industry, the residential/building controls industry, and the microprocessor industry. With all these ramping up, and with more in the pipeline, we have good reason to be optimistic about prospects for 2010, especially now that we have adjusted our cost base to be leaner and more competitive.

In the area of design and development 2009 was a highly successful year for us, operating at near capacity, especially in Penang and with a very healthy, challenging and wide-ranging series of design and development projects, from power tools to smart utility meters to high-end consumer and professional wireless audio products, among others. Since most of these projects are likely to lead to mass production for us, design & development remains an area of strategic focus for the Group and our Penang R&D center is under way to be certified ISO13485 for medical products development.

So although 2009 was a challenging year, we are emerging from this recession leaner and stronger than before, poised for growth well positioned to offer our customers a very competitive and full range of vertically integrated electronics manufacturing and design services.

We wish all of you likewise an early recovery and renewed growth and success in 2010!


At your service,
Markus Walther
COO, ESCATEC Group