Precision engineering firms are a key driver of the manufacturing sector, providing high-quality products and services mainly for an international clientele. The sector could generate total output of about $28 billion by 2018. But to be globally competitive, local firms need to find new ways to add value. In the third of a six-part, fortnightly series sponsored by Spring Singapore, Francis Chan and Dickson Li look at how two leading companies engineered breakthroughs to achieve that competitive edge.
AVI-TECH Electronics boss Lim Eng Hong, or E. H. Lim, as he is better known, knows a thing or two about economic cycles, having deftly side-stepped more than his fair share of potholes.
The company he founded in 1983 has not only survived the early test of the 1986 recession but also navigated its way through several storms since.
Mr Lim, 60, puts it down to how Avi-Tech is able to add value for customers in ways that can help them save costs, while still ensuring high quality when delivering the final product or service.
"Our core business was in semiconductor burn-in services, but in the early days, without any track record, customers were reluctant to give us those jobs," said Mr Lim.
"So I had to use my engineering experience to do, for example, board repair for them to show I can add value."
That has helped Avi-Tech expand from its home base to establish a market presence in Malaysia, Thailand, the Philippines, Taiwan, China, Japan, Europe and the United States.
Its production facility in Singapore has a total built-up area of 12,000 sq m and 120 burn-in systems to support a wide variety of semiconductor devices such as micro-processors, memory chips, circuit boards and micro-chips.
Broadly, burn-in systems test electronic components before they are installed in the final product.
Many of the burn-in systems at Avi-Tech were designed and fabricated in-house, thanks to a capability Mr Lim added to the firm about six years ago.
"If I buy a burn-in system, it would cost me about $100,000, but if I design and build my own system, it would cost me $30,000," he said.
"I need to be cost-competitive, and at the same time, I need to respond to a customer fast enough when he requires a design change to the system."
Key customers include the Who's Who in the global electronics and semiconductor sphere, including Texas Instruments, Panasonic and Infineon.
Mr Lim, a father of two, started out at National Semiconductor, but was urged to strike out on his own by his brother- in-law.
"I was working as a test manager for a long time, and the job was becoming too mundane and no longer challenging for me, so I decided maybe it was time to try my hand at running my own business," he recalled.
At 33, Mr Lim quit his job and started to put together a business plan for investors that his brother-in-law had roped in.
"They were from the fishery business and did not know anything about semiconductors, so I had to put a plan together to convince them that it could work," said Mr Lim.
Mr Lim took over a year before raising the $800,000 seed money he needed to start Avi-Tech.
"Even though it was not a small sum, it was still not enough after purchasing the equipment and tools," he said.
"So I had to stay lean... In fact, during my first few years, I even made deliveries personally in my own Toyota Corolla."
Things started to come together for Mr Lim after he scored a $3 million contract from tech-giant Texas Instruments in 1984.
"They had a few thousand boards that they were supposed to scrap and replace with new ones," he said.
"But I went in, reviewed the situation, managed to salvage the boards by repairing them and in the end, saved the client a couple of million dollars, adding value and gaining the customer's confidence."
The floodgates opened and jobs from large semiconductor firms poured in, allowing Mr Lim to build up on his core business of burn-in services and product manufacturing.
The next 20 years were also spent negotiating the ups and downs of the semiconductor business cycles - from the Asian financial crisis in 1997 to the dot.com crash in 2001 and the 2003 Sars outbreak.
Mr Lim capped Avi-Tech's progress by going public in 2007. And within a year of its listing, Avi-Tech became one of the first small and medium-sized enterprises to win the prestigious Singapore Quality Award for Business Excellence.
Revenue for the firm was a record $74.3 million for 2008, up from $70.4 million in 2007.
Although revenue for the last financial year was down due to the downturn, business is picking up steadily as the global economy recovers, said Mr Lim.
"We were hit quite badly in 2008/9," he said referring to standstill in the semiconductor industry early last year.
"But things are getting better... Hopefully, business continues to pick up."
Last week, Avi-Tech reported 38.2 per cent growth in third-quarter revenue to $7.4 million, but revenue for the first nine months of 2010 was down 14.9 per cent from $24.8 million to $21.1 million.
It also stated that its burn-in boards and boards manufacturing business was "well on the way to recovery".
Mr Lim had a last stab at how he has managed to steer Avi-Tech through the downturns over the last two decades.
"Our overheads always have been kept very low," he said.
"That is the reason why during the last crisis, many of my competitors were losing money but I remained profitable."
ADDED VALUE FOR CLIENTS
"They had a few thousand boards that they were supposed to scrap and replace with new ones... But I went in, reviewed the situation, managed to salvage the boards by repairing them and in the end, saved the client a couple of million dollars, adding value and gaining the customer's confidence."
Mr Lim, on the trust Avi-Tech tried to build with tech-giant Texas Instruments in 1984.
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