Vtech 2002 Annual Report Download - page 20

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VTech Holdings Ltd18
“Our ability to maintain profitability was a great achievement during the year when
contract manufacturing suffered a downturn globally. This shows how competitive
VTech Communications is in our chosen market area. With the market recovering,
we look forward to achieving higher growth next year.”
Andy LEUNG Hon Kwong
Chief Executive Officer, VTech Communications Ltd
Market Overview
Contract manufacturing is an established trend. The rise of
mainland China as an unrivalled manufacturing base, the
ability to build extended supply chains and pressures on
companies to reduce time to market, are changing the way
companies operate. Increasingly, companies are outsourcing
manufacturing, design and assembly to be able to
concentrate on sales and marketing. This has resulted in
growth of 20% or more in contract manufacturing during the
past decade to create a US$100 billion industry.
The year 2001 saw an abrupt halt to this upward momentum,
with a decline in global turnover. The recession in the United
States and the running down of inventories by firms
worldwide led to significant drop of orders for contract
manufacturers, especially those producing communications
products, which account for about one third of the total
demand.
Performance Review
Affected by the prevailing market conditions, turnover of
contract manufacturing services fell by 27.0% to US$92.8
million. VTech’s diversified customer base, however, combined
with tight management, left profits stable.
During the financial year, we placed particular emphasis on
minimizing potential write-offs that would affect the bottom
line. Inventory was kept at low levels, while despite the
difficulties in the market, accounts receivable were
maintained at normal ratios. This testifies to VTech’s close
relationships with customers, which helped us to forecast
demand and production schedules accurately.
These relationships were strengthened through the successful
implementation of our New Product Introduction (NPI)
program, which puts us at the leading edge of the contract
manufacturing services business. The aim of NPI is to help the
customers we work with shorten their product development
cycles and reduce outturn costs.
We are achieving this through dedicated NPI teams actively
involved in the design process at an early stage. Through this
engagement, our engineers can advise on the design from
both production feasibility and component price
perspectives, thus reducing the cost of the final product while
at the same time enabling the final design to be put into
immediate production.
Another initiative that has won praise from a number of
customers was our decision to improve the operations from
an environmental point of view. Through addressing areas
exceeding customer expectations
understanding customers‘ needs quality productsstate-of-the-art manufacturing factilities
Review of Operations