Just eight years ago, a company serving the semiconductor industry was teetering on the brink of bankruptcy. It was losing its investors and was on the Singapore Exchange (SGX) Watchlist, set to be delisted if it could not meet requirements such as the minimum market capitalisation, or earnings.
Fast forward to 2020, and this same company has gained prominence as a global semiconductor test and handling company. Its share price has jumped about twice since the start of the year. It has also seen record earnings throughout the year.
The company is AEM Holdings, and the man behind its revival is executive chairman Loke Wai San. At this year’s Centurion Club, AEM took home a whole string of awards: Within the Software and IT Services as well as the Technology Equipment and Telecommunications Services industry sectors, AEM is being recognised for generating the best returns for shareholders, and also the best-weighted return on equity.
SEE: AEM Holdings holds sway as it rides semiconductor cycle upturn
But AEM is not only named the overall sector winner, its aggregate score of 76 points also beats all 156 other companies considered for the Centurion Club. The overall runner-up, Frencken Group, trails AEM with 53.02 points.
At the start of the year, AEM was trading at $2.09. The Covid-19 pandemic sent prices to a low of $1.37 in March, in line with the panic selling that hit the entire market during that period. However, when AEM started reporting better earnings and upgraded its guidance, its share prices surged to an all-time high of $4.29 on Aug 6. For the most recent 3QFY2020 end- ed Sept 30, AEM reported $29.9 million earnings, up 80.4% y-o-y. The revenue, in the same period, was up 93% y-o-y to $161.8 million.
While investors might be pleasantly surprised, the company’s management is not. “What you see as us doing well this year is a combination of eight years of work,” says Loke in an interview with The Edge Singapore.
Loke attributes AEM’s success to its culture and its people, and not to the products and services that the company provides. He explains: “It’s more of a celebration of us getting up each time we have a setback. That is the true recognition of teamwork, a true recognition of all the executives who have come and contributed.”
In 2011, he saw two paths in front of AEM — the company could either compete “with the big boys in the US and Japan” in either cost or innovation. He now says the decision was “ludicrous” at the time. However, Loke looked at the team and thought to himself, “within Singapore, we do have the talent. It’s just a matter of getting organised and motivating them. What you see today is that pivot towards innovation”.
In hindsight, he says investing and acquiring control in AEM was a risk. As he explains: “If you look at all the uncertainties and the instability of the company, it was a bad situation.” However, what he saw in AEM was that the company has a marquee customer, a leading global name in semiconductors. Loke, drawing on his prior experience in Silicon Valley, recognises that “one had to be very good to win this customer,” he says.
“This company in Singapore was working at a very high level of engineering with one of the best semiconductor companies in the world. That to me is very valuable,” adds Loke.
He spent the next eight years building what he calls the “AEM DNA” — identifying attributes and values that the company has to offer for its customers. As Loke explains, being a partner is not simply about presentations but about “keeping a promise, and delivering and understanding how to be a partner for your customer.” He also believes that being a partner means being a “co-problem solver” and not just someone who does it at a cheaper cost.
“If you want to be an innovator, you need to form a partnership with your customers, and you need your customers to give you feedback. And so, that part of DNA had to be built up,” says Loke.
‘Hard tech’ vs ‘soft tech’
While AEM itself has a strong foundation, there were “many gaps to fill” and the people at AEM had demonstrated a “constant resilience” to allow the company to emerge stronger.
Loke also believes that AEM now occupies a unique position in the technology value chain as a “hard tech” provider by providing the actual components that the current technological innovations run on. “It comes at a critical juncture where semiconductors have taken a different level of importance,” he says.
He says the Fintech disruptors — specifically the technology firms using Alibaba and Tencent models in China — are excellent at what they are doing. However, the way these companies operate has also accentuated the importance of the hardware, without which the software and apps offered by these companies could not run.
As the US-China tech and trade war of the past two years has shown, China has belatedly realised it does not have much of an “architecture” and even though there are plenty of companies operating in the mould of Alibaba and Tencent, they are heavily reliant on hard tech. “And when that spigot is turned off, to recreate ‘hard tech’ is about 10 years’ worth of work,” Loke says.
But even this “hard tech” that has driven AEM’s business will take a different form and shape in the years to come as technology push- es the limits of the current hardware. Loke believes that the current testing methods will no longer be relevant because semiconductors have become so complex.
“Even four years ago, it’s a different set of semiconductors. So, when you use these semi-conductors and 5G Edge to do applications like drone traffic management and autonomous driving, that requires a different level of test assurance, and that’s where AEM comes in,” he says.
Looking ahead, he believes “hard tech” and “soft tech” are going to merge. As semiconductor logic chips get more memory and software loaded on it, tests have to be done “as a system”.
SEE: AEM Holdings 1H20 earnings surge 149.9% to $55.3 mil
“If you look at a circuit board, it has your processor and a lot of components, that’s going to be shrinking down into a chip. You used to test the whole board as a system, now you test the chip as a system because it has its own operating system, switching fabric, and so on. The world of tests hasn’t changed in the past 25 years, but today it’s changing,” says Loke.
Soon, the world of tests will be more customised, due to different software being used across the world. As such, R&D has to be more targeted to enable these customised tests. Loke also says that AEM has “designed our technology [for tests] modularly. We have trained our development teams to think about building blocks and pulling together these building blocks.”
AEM has announced it would spend $2 million on R&D in 4Q2020 for future projects. The company have also hired more staff to boost core engineering capabilities. Despite this, Loke says the company’s biggest advantage is “the ability to customise very complex test solutions, in a very timely and cost-effective way that I don’t think our competitors are set up from day one to do.”
Having ended a phenomenal year, where does Loke see AEM in the future? Loke does not want to give specifics, but in the next five years he hopes AEM to be one of the world’s top three in tests. “It will be multinational. It will be serving customers across the US, Eu- rope, China and Asia.”
By then, perhaps, AEM will be elevated to the Billion Dollar Club.
