Vtech 2004 Annual Report Download - page 13

11
VTech Holdings Ltd Annual Report 2004
Review of
Operations
its presence in the
European market by
working closely with leading
telecommunication operators in
the UK and Germany as well as the
Swissvoice Group. Sales of DECT cordless
phones rose by 91.1% over the previous
financial year. As a result of this increase,
sales in Europe accounted for 8.1% of the
total revenue of the telecommunication
products business in the financial year
2004, compared with 4.8% during the
financial year 2003.
In January 2004, the telecommunication
products business launched its first data
networking products sold under the AT&T
brand in North America. These products
included wireless routers, notebook and
PCI adapters, and other data networking
accessories. The launch of these products
provides an opportunity for future revenue
growth, and will support the development
of new telephony products that benefit
from the increasingly rapid convergence of
voice and data transmission, through
technologies such as Voice over Internet
Protocol (VoIP).
Once again, the telecommunication
products business’ customer-centric
approach was an important factor in its
success. During the financial year 2004,
customer relationships were further
strengthened as the business rolled out its
collaborative planning, forecasting and
replenishment programme to more key
customers. This
programme enables
both customers and
VTech to achieve better
inventory management. It further
enables VTech to match customers’
requests and requirements more closely
and with a higher degree of flexibility
through its lean manufacturing operations.
As a result of these and other
enhancements throughout the entire
supply chain, the business was able to
deliver significant revenue growth without
a corresponding increase in working
capital.
The telecommunication products business’
revenue growth was further supported by
a substantial increase in R&D spending
during the financial year 2004. This
resulted in an increased number of new
products launched in time for the Spring
2004 modular resets of key North
American retail customers and further
supported our expansion in Europe.
Overall, R&D expenditure for the
telecommunication products business
rose by 31.0% to US$22.0 million during
the financial year 2004. Through the introduction of
innovative and feature rich products, such as colour LCD
5.8GHz cordless phones with downloadable pictures and
recordable ring tones in North
America and more feature rich DECT
phones in Europe, the business
actively countered continuing
price erosion of maturing cordless
features and technology platforms.
In addition to increasing its
commitment to R&D, the
telecommunication products business
also embarked upon a comprehensive
upgrade of its internal IT infrastructure.
This project includes the
implementation of new Oracle database
and reporting modules for financial control
and reporting, order management, enterprise resource
planning, and customer relationship management. The
benefits from this upgrade will be seen beginning in the
financial year 2005.
Looking forward, management expects that the 2005
financial year ahead will be challenging. The
telecommunication products business operates in an
exceptionally competitive environment with strong
competitors, ongoing price erosion of existing technology
platforms, and the potential of disruption and unfavourable
pricing of key electronic components. Nonetheless, the
business is well positioned for further revenue and profit
growth, particularly given its improved market position and
performance over the past three years and its substantial and
ongoing investments in R&D, IT infrastructure, and most
importantly, its people.
“I am very pleased to report that the telecommunication products business continued to
perform well during the financial year 2004. Although we faced tremendous challenges
throughout the year, the extraordinary commitment of our team and the continued
support of our customers and suppliers enabled us to record a significant growth in
revenue for the first time in three years and further achieve a second consecutive record
year in terms of profitability.”
James C. KRALIK
Chief Executive Officer
Telecommunication Products Business
Telecommunication products business was awarded the prestigious “2003
Hong Kong Awards for Industry: Productivity Award” for its achievement in
the “Lean Manufacturing Project”.
The gz2456 2.4GHz cordless phone and
i5801 5.8GHz cordless phone handset were
awarded the Silver Award and Grand Prize
respectively in the HKEIA Award for Outstanding and Innovative
Product Competition.
Awards