UMS Holdings

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From AR2013 of AMAT:

It is interesting to note that:

- Applied does enter into patent and technology licensing agreements with other companies when management determines that it is in Applied’s best interest to do so. Applied pays royalties under existing patent license agreements for the use, in several of its products, of certain patented technologies.
- Some key parts are subject to long lead-times and/or obtainable only from a single supplier or limited group of suppliers.
- No idea on the size of its "strategic investments" - did suffer losses on some investments though.

(vested)
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Patents and Licenses

Management believes that Applied’s competitive position significantly depends upon the Company’s research, development, engineering, manufacturing and marketing capabilities, and not just on its patent position. However, protection of Applied’s technological assets through enforcement of its intellectual property rights, including patents, is important. Therefore, Applied’s practice is to file patent applications in the United States and other countries for inventions that Applied considers significant. Applied has approximately 10,400 patents in the United States and other countries, and additional applications are pending for new inventions. Although Applied does not consider its business materially dependent upon any one patent, the rights of Applied and the products made and sold under its patents, taken as a whole, are a significant element of Applied’s business. In addition to patents, Applied also possesses other intellectual property, including trademarks, know-how, trade secrets, and copyrights.

Applied enters into patent and technology licensing agreements with other companies when management determines that it is in Applied’s best interest to do so. Applied pays royalties under existing patent license agreements for the use, in several of its products, of certain patented technologies. Applied also receives royalties from licenses granted to third parties. Royalties received from or paid to third parties have not been, and are not expected to be, material to Applied’s consolidated results of operations.

In the normal course of business, Applied periodically receives and makes inquiries regarding possible patent infringement. In responding to such inquiries, it may become necessary or useful for Applied to obtain or grant licenses or other rights. However, there can be no assurance that such licenses or rights will be available to Applied on commercially reasonable terms, or at all. If Applied is not able to resolve or settle claims, obtain necessary licenses on commercially reasonable terms, and/or successfully prosecute or defend its position, Applied’s business, financial condition and results of operations could be materially and adversely affected.

Risk Factors

Manufacturing interruptions or delays could affect Applied’s ability to meet customer demand and lead to higher costs, while the failure to estimate customer demand accurately could result in excess or obsolete inventory.

Applied’s business depends on its timely supply of equipment, services and related products that meet the rapidly changing technical and volume requirements of its customers, which depends in part on the timely delivery of parts, components and subassemblies (collectively, parts) from suppliers, including contract manufacturers. Some key parts are subject to long lead-times and/or obtainable only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers located in countries other than the countries where Applied conducts its manufacturing, including China and Korea.

Cyclical industry conditions and the volatility of demand for manufacturing equipment increase capital, technical, operational and other risks for Applied and for companies throughout its supply chain. Further, these conditions may cause some suppliers to scale back operations, exit businesses, merge with other companies, or file for bankruptcy protection and possibly cease operations.
Applied may also experience significant interruptions of its manufacturing operations, delays in its ability to deliver products or services, increased costs or customer order cancellations as a result of:
• the failure or inability of suppliers to timely deliver sufficient quantities of quality parts on a cost-effective basis;
• volatility in the availability and cost of materials, including rare earth elements;
• difficulties or delays in obtaining required import or export approvals;
• information technology or infrastructure failures; and
• natural disasters or other events beyond Applied's control (such as earthquakes, floods or storms, regional economic downturns, pandemics, social unrest, political instability, terrorism, or acts of war), particularly where it conducts manufacturing.

If a supplier fails to meet Applied’s requirements concerning quality, cost, socially-responsible business practices, or other performance factors, Applied may transfer its business to alternative sources, which could entail manufacturing delays, additional costs, or other difficulties. In addition, if Applied needs to rapidly increase its business and manufacturing capacity to meet increases in demand or expedited shipment schedules, this may exacerbate any interruptions in Applied’s manufacturing operations and supply chain and the associated effect on Applied’s working capital. Moreover, if actual demand for Applied’s products is different than expected, Applied may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. If Applied purchases inventory in anticipation of customer demand that does not materialize, or if customers reduce or delay orders, Applied may incur excess inventory charges.

Applied is exposed to various risks related to protection and enforcement of intellectual property rights.

Applied’s success depends in significant part on the protection of its intellectual property and other rights. Infringement of Applied’s rights by a third party, such as the unauthorized manufacture or sale of equipment or spare parts, could result in uncompensated lost market and revenue opportunities for Applied. Policing any unauthorized use of intellectual property is difficult and costly and Applied cannot be certain that the measures it has implemented will prevent misuse. Applied’s intellectual property rights may not provide significant competitive advantages if they are circumvented, invalidated, rendered obsolete by the rapid pace of technological change, or if Applied does not adequately protect or assert these rights or obtain necessary licenses on commercially reasonable terms. Furthermore, the laws and practices of other countries, including China, India, Taiwan and Korea, permit the protection and enforcement of Applied’s rights to varying extents, which may not be sufficient to adequately protect Applied’s rights. In addition, changes in intellectual property laws or their interpretation, such as recent changes in U.S. patent laws, may impact Applied's ability to protect and assert its intellectual property rights, increase costs and uncertainties in the prosecution of patent applications and enforcement or defense of issued patents, and diminish the value of Applied's intellectual property.

The failure to successfully implement and conduct outsourcing activities and other operational initiatives could adversely affect results of operations.

To better align its costs with market conditions, locate closer to customers, enhance productivity, and improve efficiencies, Applied conducts certain engineering, software development, manufacturing, sourcing and other operations in regions outside the United States, including India, Taiwan, China, and Korea. Applied has implemented a distributed manufacturing model, under which certain manufacturing and supply chain activities are conducted in various countries, including the United States, Europe, Israel, Singapore, Taiwan and other countries in Asia, and assembly of some systems is completed at customer sites.

In addition, Applied outsources certain functions to third parties, including companies in the United States, India, China, Korea, Malaysia and other countries. Outsourced functions include contract manufacturing, engineering, customer support, software development, information technology support, finance and administrative activities. The expanding role of third party providers has required changes to Applied’s existing operations and the adoption of new procedures and processes for retaining and managing these providers, as well as redistributing responsibilities as warranted, in order to realize the potential productivity and operational efficiencies, assure quality and continuity of supply, and protect the intellectual property of Applied and its customers, suppliers and other partners. If Applied does not accurately forecast the amount, timing and mix of demand for products, or if contract manufacturers or other outsource providers fail to perform in a timely manner or at satisfactory quality levels, Applied’s ability to meet customer requirements could suffer, particularly during a market upturn.

In addition, Applied must regularly implement or update comprehensive programs and processes to better align its global organizations, including initiatives to enhance the Asia supply chain and improve back office and information technology infrastructure for more efficient transaction processing. Applied also is implementing a multi-year, company-wide program to transform certain business processes or extend established processes, including the transition to a single enterprise resource planning (ERP) software system to perform various functions. The implementation of additional functionality to the ERP system entails certain risks, including difficulties with changes in business processes that could disrupt Applied’s operations, such as its ability to track orders and timely ship products, project inventory requirements, manage its supply chain and aggregate financial and operational data. During transitions Applied must continue to rely on legacy information systems, which may be costly or inefficient, while the implementation of new initiatives may not achieve the anticipated benefits and may divert management’s attention from other operational activities, negatively affect employee morale, or have other unintended consequences.

If Applied does not effectively develop and implement its outsourcing and relocation strategies, if required export and other governmental approvals are not timely obtained, if Applied’s third party providers do not perform as anticipated, or if there are delays or difficulties in enhancing business processes, Applied may not realize anticipated productivity improvements or cost efficiencies, and may experience operational difficulties, increased costs (including energy and transportation), manufacturing interruptions or delays, inefficiencies in the structure and/or operation of its supply chain, loss of its intellectual property rights, quality issues, reputational harm, increased product time-to-market, and/or inefficient allocation of human resources.

Changes in tax rates or tax assets and liabilities could affect results of operations.

As a global company, Applied is subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Applied’s future annual and quarterly tax rates could be affected by numerous factors, including changes in the: (1) applicable tax laws; (2) amount and composition of pre-tax income in countries with differing tax rates; (3) plans of the Company to permanently reinvest certain funds held outside of the U.S.; or (4) valuation of Applied’s deferred tax assets and liabilities.

To better align with the international nature of its business, Applied conducts certain manufacturing, supply chain, and other operations in Asia, bringing these activities closer to customers and reducing operating costs. Applied has received authorization to use tax incentives that provide that income earned in certain countries outside the U.S. will be subject to tax holidays or reduced income tax rates. To obtain the benefit of these tax provisions, Applied must meet requirements relating to various activities.

Applied’s ability to realize benefits from these provisions could be materially affected if, among other things, applicable requirements are not met, or if Applied incurs net losses for which it cannot claim a deduction In addition, Applied is subject to regular examination by the Internal Revenue Service and other tax authorities, and from time to time initiates amendments to previously filed tax returns. Applied regularly assesses the likelihood of favorable or unfavorable outcomes resulting from these examinations and amendments to determine the adequacy of its provision for income taxes, which requires estimates and judgments. Although Applied believes its tax estimates are reasonable, there can be no assurance that the tax authorities will agree with such estimates. Applied may have to engage in litigation to achieve the results reflected in the estimates, which may be time-consuming and expensive. There can be no assurance that Applied will be successful or that any final determination will not be materially different from the treatment reflected in Applied’s historical income tax provisions and accruals.

Impairments of Strategic Investments

Equity investments in privately-held companies are generally accounted for under the cost method of accounting and are periodically assessed for other-than-temporary impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. If Applied determines that an other-than-temporary impairment has occurred, the investment will be written down to its estimated fair value based on available information, such as pricing in recent rounds of financing, current cash positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. During fiscal 2013, 2012 and 2011, Applied determined that certain of its equity investments held in privately-held companies were other-than-temporarily impaired and, accordingly, recognized impairment charges of $6 million, $17 million and $3 million, respectively.
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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Yield should be at 9.3%

(vested)
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Falling Knife of the Week: UMS Holdings Limited

By Sudhan P - June 14, 2014

This week’s Falling Knife features UMS Holdings (SGX: 558). The stock has slumped 17% this week to close at $0.56.

UMS specializes in manufacturing high precision front-end semiconductor components and performs complex electromechanical assembly and final testing services. It serves a diverse range of industries which include the semiconductor, electronic, machine tools, aerospace and oil & gas industries.

Applied Materials (NASDAQ: AMAT), a listed company in the United States, had owned 6% of UMS until recently.

On 2 June this year, Applied Materials sold down its stake in the company from 6% to 5.95%. This was not really a significant change. However, on 5 June, its holdings in UMS went from 5.63% to 4.83%. This was made public on 9 June.

Stock exchange operator Singapore Exchange stipulates that whenever a whole-number percentage change in a significant shareholding occurs, it must be announced. Applied Materials now ceases to be a substantial shareholder of UMS as it holds less than 5% of the company.

The market did not take well to this move, punishing the stock by causing it to decline 14.4% to $0.595 on 10th June. UMS derives a majority of its revenue from Applied Materials. In 2013, the revenue from Applied Materials accounted for around 80% to90% of UMS’ total revenue.

For the first quarter of 2014, UMS saw revenue of S$34.3 million, a 23% surge from S$27.8 million a year ago. This was on the back of higher semiconductor component sales during the quarter. Net profit was at S$8.6 million, which ballooned 63% from S$5.3 million a year ago.

Currently, the stock is trading at 8 times its historical earnings and has a dividend yield of 7%.

http://www.fool.sg/2014/06/14/falling-kn...s-limited/
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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This is the risk an investor has to take when a company's fortune hinges on a single large customer. You need to invest with a margin of safety and that's why one should not invest at valuations above the historical PE. Any negative news or events will trigger a sell down when the stock is "over bought".
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(15-06-2014, 08:58 AM)Boon Wrote: Yield should be at 9.3%

(vested)

Currently, the stock is trading at 8 times its historical earnings and has a dividend yield of 7%.

http://www.fool.sg/2014/06/14/falling-kn...s-limited/

The article was taking 4 cents dividend post-bonus, rather than your 5.2 cents. In other words, the article was taking only 5 cents (exclude special dividend), rather than 6.5 cents pre-bonus, which is the common practice.

I have joined with buddies, who has been catching the "falling knife", with prices between 55-56.5 cents. Big Grin

(vested)
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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(15-06-2014, 08:32 PM)CityFarmer Wrote:
(15-06-2014, 08:58 AM)Boon Wrote: Yield should be at 9.3%

(vested)

Currently, the stock is trading at 8 times its historical earnings and has a dividend yield of 7%.

http://www.fool.sg/2014/06/14/falling-kn...s-limited/

The article was taking 4 cents dividend post-bonus, rather than your 5.2 cents. In other words, the article was taking only 5 cents (exclude special dividend), rather than 6.5 cents pre-bonus, which is the common practice.

I have joined with buddies, who has been catching the "falling knife", with prices between 55-56.5 cents. Big Grin

(vested)

Welcome aboard Cityfarmer Tongue

Note tomorrow, bonus shares should be credited in.

(Vested)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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(15-06-2014, 08:55 PM)Nick Wrote:
(15-06-2014, 08:32 PM)CityFarmer Wrote:
(15-06-2014, 08:58 AM)Boon Wrote: Yield should be at 9.3%

(vested)

Currently, the stock is trading at 8 times its historical earnings and has a dividend yield of 7%.

http://www.fool.sg/2014/06/14/falling-kn...s-limited/

The article was taking 4 cents dividend post-bonus, rather than your 5.2 cents. In other words, the article was taking only 5 cents (exclude special dividend), rather than 6.5 cents pre-bonus, which is the common practice.

I have joined with buddies, who has been catching the "falling knife", with prices between 55-56.5 cents. Big Grin

(vested)

Welcome aboard Cityfarmer Tongue

Note tomorrow, bonus shares should be credited in.

(Vested)

Thanks Nick. I knew this stock via your and Boon's posts.Big Grin

I am ready for one more round, in case there are bigger "falling knife" tomorrow or days after
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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Interesting insights on global supply chain management + perspective from AMAT

(vested)
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Workshop Archives

If you're going to supply the whole world, be fast on your feet, experts say

BY BRUCE GOLDMAN

Don't you just love it when the customer in front of you spends 10 minutes fishing for exact change while the folks on either side of you go whizzing past their respective checkers?

Anyone who has mastered the art of straddling two supermarket lines with one grocery cart has grasped, at a deep intuitive level, the value of keeping your options open. Companies supplying market-driven business clients are learning to keep their options open, too, by putting off the differentiation of the products they make until as late in the assembly process as possible. That's because in a fast-evolving high-tech world, businesses frequently respond to shifting demands from their customers (who may be other companies or end-users) by calling their suppliers and modifying their own orders late in the game.

The power of procrastination (in business parlance, "mass customization through postponement") was extolled by Carlos Nieva, Spain-based manufacturing operations director of Lucent Technologies, at an all-day workshop held at Stanford on April 13. The workshop, co-sponsored by the Alliance for Innovative Manufacturing at Stanford (AIMS) and the Stanford Global Supply Chain Management Forum (SGSCMF), featured representatives from several multinational corporations who provided case histories and business tips on the day's theme: "Managing Global Enterprises and Global Supply Chains." The workshop was orchestrated and hosted by Laura Kopczak, consulting associate professor of management science and engineering and director of research for SGSCMF.

AIMS and SGSCMF are campus-based joint ventures initiated by Stanford's Graduate School of Business and School of Engineering and corporate partners to promote the exchange of technical ideas and techniques between academia and industry. AIMS works with a broad array of large manufacturing companies addressing numerous concerns, while SGSCMF partners with more than 40 affiliates on advanced theory and practice specifically for the field of supply-chain management.

Lucent, once known as Bell Labs, manufactures high-tech telecommunications systems. It's not uncommon, Lucent's Nieva told the group of nearly 80 participants, for customers in this field to want to tinker with order specifications or quantities late in the game. One hypothetical way to prevent this propensity from sticking you with a load of unsalable inventory, he said, is the "take it or leave it" approach, a technique that might - might - have worked back in the old days when Lucent was part of the huge monopoly called Ma Bell, but - in an age of fierce competition among numerous suppliers bearing no corporate ties to the order-placing entity - just won't cut it.

Another approach might be to improve forecast accuracy. A company with a perfect crystal ball would always manage to have the right parts and product inventory available at just the right time to satisfy total demand, said Nieva. Unfortunately, in a dog-eat-dog, leapfrogging-technology, morphing-customer world, that's not how it works. "Low forecast accuracy is and will remain a fact of life."

The best alternative, Nieva said, is to delay the differentiation of your products (whether a serial port should be on the left or the right side of an electronic appliance, for example) for as long as possible, so you can roll with the punches when customers change their minds. He suggested several routes to achieve this delay, including simplifying the product, standardizing the components, and eliminating options that customers don't care about in the first place.

A key global market exemplifying the ascendancy of flexibility over forecasting is the semiconductor industry, noted John Hoffman, vice president and co-general manager of the etch-products business group at Applied Materials of Santa Clara, Calif. Applied Materials is a leading manufacturer of semiconductor fabrication equipment, which must meet ultra-precise specifications. "Our customers' expectations regarding the time from order to delivery are around 16 to 18 weeks," Hoffman said. "About eight weeks into that cycle is when they send their contractors and plumbers in and they change their specs. So, we want to start our customization after the eighth week."

Toward that end, Hoffman said, Applied Materials has been employing mass customization by standardizing parts and modularizing components. This is difficult, he said, due to such factors as differing safety regulations in, say, Japan, Taiwan and Germany.

Adding to the difficulty are the exquisite technical sensitivities inherent in the semiconductor fabrication business. Competitive pressures constantly force efforts to lower costs, Hoffman told the audience. "Once, we came up with a new screw and saved some money. Then one day, a customer calls us and says, 'Hey, all of a sudden, our microprocessors are running a little bit faster - what changed?' It turned out our new screws were sputtering silver into their semiconducting materials and messing up their microprocessors."

Forecasting the market for semiconductors that Applied Materials' equipment is designed to produce is no easy feat. One thing is clear, Hoffman said: "Whether you're forecasting low growth or high growth, it's big growth. Demand has exploded. We'll double our output from the first to the third quarters of this year." But that growth is saltatory, doubling every year for three years during the "boom" part of the cycle, then taking a 50 percent dive during the next year when the "bust" phase hits. "We have to exercise great flexibility in the treatment of contracting our own suppliers," some of whom could be put out of business if Applied Materials were to cut its order rate too callously, he said.


Don McKay, director of logistics development at American President Lines (APL), a global shipping company, related a case history exemplifying the necessity of thinking locally.

A few years ago, a multinational automotive giant hired APL to manage the flow of vehicles from plants to dealerships in an eastern China province. But when APL went to select a local logistics partner, "some very capable local logistics providers declined to participate in the bidding process. We didn't know why, so we talked to them, and we learned that they didn't like our selection process - they thought there was too much paperwork and they were uncomfortable with making presentations. They found the entire process demeaning, kind of like begging."

So APL changed its ways. "We met with each supplier individually. Then we did the research and paperwork. We made decisions, talked to the small number of finalists, described the project in more detail to them and went on site visits." The result, McKay said, was that "virtually all qualified suppliers did bid. And we made sure those that didn't win understood why, so if they were stronger in another province, they'd want to try for the job there."

Two executives from accounting and financial-consulting giant Ernst & Young, Rick Cooper and Jim Goodbout, warned participants always to consider the tax implications before making big international supply-chain decisions.

Globalization and e-commerce are changing the playing field, opined Cooper. Manufacturing and distribution centers don't stay in one place so long anymore. But once you start moving things around, there are big tax implications - many tens or even hundreds of millions of dollars' worth - to every move you make, or don't make.

Only about a quarter of the taxes businesses pay are on income; the rest goes for such things as value-added tax, customs tariffs, property taxes and employment taxes. Thus, it's necessary to consider which countries are going to be, for tax purposes, the "locations" handling inherently delocalized transactions or owning inventory at various phases of assembly.

But tax planning is more than just moving your operation to Singapore or Mexico, he said. "You don't always choose the place with the lowest tax rate," he said. "You have to consider where your people are now and whether they're movable, as well as what kind of telecommunications backbone a potential host country has. If you make the right decisions, you can improve your cash flow by 20 to 80 percent."

COMMENTS? Contact Richard Reis, Executive Director AIM (650) 725-0919

email: reis@cdr.stanford.edu

http://www.stanford.edu/group/AIM/AIMPro...alent.html
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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(12-06-2014, 02:20 PM)mslee888 Wrote: I have spoken to their IR. Though they are not able to share any "insider" info or any additional info not discussed here, they are of the view that the company is still in good shape. Its also not easy to remove UMS as their vendor as a lot of biz are some kind of strategic partnership..maybe joint collaboration, etc.

Still vested.

I did email the third-party IR company and they have replied as follows:

"We like to assure you that the business of UMS is as per normal and there is no material impact to its fundamentals - we will definitely relate your concern to the company"

(vested)
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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(16-06-2014, 02:18 PM)Boon Wrote:
(12-06-2014, 02:20 PM)mslee888 Wrote: I have spoken to their IR. Though they are not able to share any "insider" info or any additional info not discussed here, they are of the view that the company is still in good shape. Its also not easy to remove UMS as their vendor as a lot of biz are some kind of strategic partnership..maybe joint collaboration, etc.

Still vested.

I did email the third-party IR company and they have replied as follows:

"We like to assure you that the business of UMS is as per normal and there is no material impact to its fundamentals - we will definitely relate your concern to the company"

(vested)

It is unlikely that the third-party IR will be informed immediately if Andy expected something bad on the company.
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I got the same written reply from their IR too.
I know there will be people sceptical of their standard reply..but it is the best answer now unless Andy himself says something...right?
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