Solomon Systech pins hopes on diversification

PUBLISHED : Monday, 25 February, 2008, 12:00am
UPDATED : Monday, 25 February, 2008, 12:00am


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Solomon Systech (International), a supplier of display chips used in mobile telephones, laptop computers and desktop monitors, plans to diversify its business to ease the impact of weak semiconductor market conditions this year.

The company hopes to transform into a full system solutions provider, offering a greater range of components and software to consumer electronics manufacturers.

'This diversification can help boost our gross margin and revenue while expanding our sources of income,' Solomon Systech chief executive Humphrey Leung Kwong-wa said.

Mr Leung said revenue from the higher-margin solutions-based business was expected to grow and make up at least 10 per cent of the company's annual sales.

'Most customers do not have the know-how to design the full range of modules needed to build sophisticated products such as mobile television, global positioning system devices and digital photo frames, so it is better for us to provide them with the complete solution,' he said. 'They only need to make a case with their logos and then start selling the products.'

Solomon Systech, which has its headquarters at the Hong Kong Science Park in Sha Tin, expects this diversification strategy to make it less reliant on big customers such as United States-based Motorola.

Mr Leung, who previously worked at Motorola for 16 years, said the contribution to Solomon Systech's annual sales from the world's third-largest mobile-telephone supplier was 20 to 30 per cent, down from 50 per cent two years ago.

Motorola's sales last year fell 14.5 per cent to US$36.62 billion, which resulted in a net loss of US$49 million compared with a net profit of US$3.66 billion in 2006.

That setback for Motorola affected Solomon Systech, which posted a 31 per cent year-on-year decrease in sales to US$103.4 million in the six months to June last year. Its net profit fell 45 per cent to US$9.8 million.

'We will spend more time studying consumer market trends and launch new modules to boost margin and sales,' Mr Leung said.

Solomon Systech's diversification strategy is also expected to help cushion the blow of a decrease in global demand for semiconductor products this year, caused by rising energy costs and the economic woes in the United States.

Global chip revenue for the first six months of the year would decline 4.5 per cent to US$135.9 billion from the second half of last year, US market search firm iSuppli said.

'We may suffer from a slowdown in the chip industry in the first half of this year due to a soft US economy. We're hoping for a rebound in the second half,' Mr Leung said.

Shares in Solomon Systech fell 3.7 per cent to 52 HK cents on Friday last week. They have dropped 67 per cent from a year earlier.

'Solomon Systech's shares are quite attractive now as their valuation is even cheaper than the amount of the company's cash on hand,' said Alvin Kwock, a vice-president of JP Morgan's Asia-Pacific technology research division. 'The company is heading in the right direction.'