This article first appeared in The Edge Malaysia Weekly on December 9, 2019 - December 15, 2019
IPOH-BASED Salutica Bhd is best known as a vertically integrated manufacturer of wireless Bluetooth headset products for an American-Swiss peripheral device giant.
For its financial year ended June 30, 2019 (FY2019), Bluetooth headsets made up about 90% of the group’s total revenue of RM138.97 million, with just that single customer contributing RM124.139 million.
Although some think Salutica has bright long-term prospects because of its exposure to the growing true wireless stereo market, others are concerned that it is overexposed to one client.
Salutica managing director and CEO James Lim Chong Shyh says since the beginning of the year, the group has been working to expand its clientele to mitigate the risk of single-client concentration.
“Currently, we have five clients from the US, Switzerland, Sweden and Japan, but only one of them — an American-Swiss multinational corporation — is involved in Bluetooth headsets. However, this situation will only be temporary. Within the next year or so, we will definitely have a few more customers,” he tells The Edge in an interview.
James reveals that Salutica is in the midst of securing six new customers — one each from Australia, Canada, Europe and Vietnam and two from the US.
“Over the next six months, we will probably launch some products for them. The Australian customer is involved in Bluetooth headsets, while the others are in other types of product applications such as security access and identification, smart homes and cognitive assessment,” he says.
He estimates that these new clients could eventually contribute an additional 40% to Salutica’s top line.
“But this will not happen overnight. They will start off with a small project, and once that has been proven, they will scale it up. Even if it is a big project, they will kick start it with small volumes,” James explains.
The 61-year-old electrical and electronics engineer joined Salutica Allied Solutions Sdn Bhd in 2004, where he set up the research and development (R&D) division.
Nine years later, he led a management buyout of Salutica Allied from Balda AG Group, which wanted to focus on its core business of medical precision plastic parts and solutions.
Salutica was listed on the ACE Market of Bursa Malaysia in May 2016 before it migrating to the Main Market in March 2017.
Today, the group specialises in designing, developing and manufacturing consumer and business electronic products, primarily Bluetooth stereo headsets, which has been its bread and butter over the years.
It also makes non-Bluetooth products such as light guides, camera sub-parts, smart home controllers and switches. Apart from that, it develops products for its in-house brand FOBO, including tyre-pressure monitoring systems for light vehicles and multi-axle vehicles as well as tracking devices.
‘Not just another contract manufacturer’
Salutica’s deputy CEO and executive director Joshua Lim Phan Yih stresses that the group is not just another contract manufacturer or electronics manufacturing services (EMS) provider.
It is essentially a technology firm with capabilities to undertake product development and mechanical design. Many investors may have the perception that it is a contract manufacturer or EMS player as it operates a factory that produces electronic devices.
“Our selling point is that if customers want to launch innovative products, they can’t just go to any contract manufacturer because they need a whole R&D team to support them. These are the customers who are best matched with us,” says Joshua, who is James’ son.
The father-and-son team controls Salutica via a 55.72% stake held through family vehicle Blue Ocean Enlightenment Sdn Bhd. Joshua, 35, who was appointed to the board in September 2013, is a founding partner of law firm Joshua Lim & Lee.
In FY2019, Salutica saw its revenue drop 46.8% year on year to RM138.97 million. It incurred a net loss of RM550,000 compared with a net profit of RM11.36 million a year ago owing to weaker demand for the current generation of Bluetooth headsets as well as the longer-than-expected development cycle of the latest generation of these devices co-developed with its European design partner.
But James maintains that the worst is over.
“Last year, in terms of financial results, we hit rock bottom. Moving forward, we should be able to maintain our profitability. We know what we want to achieve over the next three to five years.
“The losses last year happened because of weak market sentiment arising from the [US-China] trade war, but we cannot stop spending and hiring ... we have to look beyond one year. We are on a different journey now. In fact, we feel better than before because we are going blue ocean, says James.
Hearables the next big thing
Joshua says in the coming years, headsets will evolve to become hearables, and will no longer be worn inside our ears just to listen to music or for phone calls.
“They are going to have a lot more functions such as fitness and health tracking as well as the ability to pick up voices accurately enough that your voice could become the next input function for your smartphone,” he says. Hearables are a growing market estimated at US$18 billion.
Today, when users communicate with virtual assistants such as Apple’s Siri and Amazon’s Alexa, the computing is largely dependent on voice input, he explains.
“People want to be able to have computing around us anytime, anywhere. I want to be able to say something and get a response from my smartphone and computer. The only way for this to work in a seamless fashion is to pick up voices in an accurate manner,” he says.
Hence, Salutica needs a strong technology partner to miniaturise the current form of its products.
That is why the group has formed a strategic partnership with a Dutch-based company, whose engineering team is able to provide exclusive chipset technology that uses very low power consumption.
“That means we can put in a smaller battery and make smaller products. We have to balance the industrialisation process and the chipset architecture. Both come hand in hand to create the hearables of the future,” says Joshua.
Year to date, Salutica has risen 70% to close at 70 sen last Thursday, giving the company a market capitalisation of RM269.49 million.
James says if everything goes well, he hopes to see Salutica’s market capitalisation exceed the RM1 billion mark within the next three to five years.
“My goal is for Joshua is to make Salutica a RM2 billion company before I retire,” he says, half in jest.
“To me, it is just like playing golf ... you don’t worry too much about where the ball goes. You make sure that your swing is correct, hit the ball correctly, and under the law of physics, it will go where it should go. As long as we focus on the technology, customers and the market, things will never go wrong.”
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