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QuestionsCategory: Business QuadrantMicromechanics
Jayden Lee asked 3 years ago

Hi Victor and Rusmin, 
 
I would like to ask a question about Micromechanics. 
 
In recent years, there have been many industries and companies that have been disrupted, like Starhub disrupted by Netflix, Comfort Delgro disrupted by Uber and Grab, and further back, Tower Records disrupted by Spotify and iTunes. 
 
In your view,
1. Do you think Micromechanics will be disrupted? 
2. And secondly, what does Micromechanics actually have in them that give them such beautiful numbers on the balance sheet. High return on invested capital. Zero debt. Increasing free cash flow. What’s their competitive advantage? 
3. And lastly, why is it that Chinese companies have not come in to copy what Micromechanics are doing and taken away their market leader position? 
 
Thank you. 
 
Regards,
Jayden 

2 Answers
Victor Chng answered 3 years ago

Hi Jayden,
 
Can you share with me your understanding of Micro-Mechanic business ?
 
I need to know where your understanding are so that I can move on from there.

Jayden Lee replied 3 years ago

Hi Victor,

From what I know, Micromechanics supply parts to the semiconductor manufacturers and these precision parts require higher quality finishing. I am guessing their competitive advantage is that they are able to keep up with the changes in the manufacturing process by innovating as chips gets smaller.

1. But something that puzzles me is that the Chinese companies have not come in to copy what Micromechanics are doing and take away their market leader position.

2. And do you think Microemechanics will ever be disrupted?

Victor Chng answered 3 years ago

Hi Jayden,
 
According to my understanding after talking to the management, they manufacture and design parts that pick up the chips during the testing. As the chips size get smaller and smaller, it gets harder to manufacture the parts to pick up the chips.
 
Parts that are handling the chips had to be high quality and free from electrostatic discharge, if not the chips will become defected. Even if the Chinese player are able to get hold of their product but they do not know how to manufacture it because it is the machines to manufacture the product that is important. Hence, price is never an issue for their customers.
 
Micro-mechanic (MM) have to keep spending money on R&D. The MM that you see today is because of the R&D that they did many years back and reaping the fruits now. Hence, the ability to continue to R&D is important to them. If their R&D failed, then their technology may get obsoleted.

Jayden Lee replied 3 years ago

Hi Victor.

This is very insightful. I will still keep Micromechanics in my portfolio to diversify.

Thank you!

Regards,
Jayden

Victor Chng replied 3 years ago

welcome :)