Electronics Production | April 21, 2009

Videoton sees possible growth

evertiq spoke to Mr Tunkli, Vice president Business Development at Hungarian EMS-provider Videoton, about the current situation of the company and possible future investments.

How did 2008 go for Videoton?
Last year can only be evaluated in comparison with the year before. In 2007, we saw an increase of 15% - both in revenue and in profit. Until May 2008, the revenue increased 10%. However, in the second half of 2008, the financial and economic crisis started to set in and the overall 2008 revenue is around 1.3% lower than 2007. Not a really big change, but instead of growth we saw a slight decrease.

The exact figures for 2007 are: revenue €324 million, profit €33 million. In 2008, revenue was €320 million and profit €28 million. For this year, we estimate for the entire Videoton group a revenue decrease of 20% compared to 2008.

The EMS-Industry is affected by the general economic downturn. How does this affect Videoton?
45% of our total revenue is coming from the Automotive Industry, an area that is most hit by the crisis. Other business areas are also affected, but not that much. We also have Industrial and Medical, but here we do not really see a decrease. Then we have Household Appliances, which is also affected negatively. Due to the downturn, many companies have a lot of stock and inventory that was not sold. The demand from the market is therefore not that strong and consequently do we notice this. But, we already have several new projects that will start by the end of the year / beginning of next year – meaning that the affects of the economic downturn are not so severe.

When – do you believe – will the EMS-industry and the global economy pick up again?
This is very hard to say – if not impossible. Videoton tries to adapt to the new circumstances and the current economy. It would certainly require a stable and appropriate exchange rate – something that is not predictable now. We would prefer if the Hungarian Forint would not slip below 300 (to the Euro) – the current exchange rate. We believe now that it will become stronger towards the end of the year – around 260 and 280. This would help the industry to recover.

However, we also see that a weak Hungarian currency in this region helps us to be more competitive – within some frames and borders of course. As an example – it would not be good if the Hungarian Forint would reach 200 (to the Euro). This would mean increased risk and destabilisation. In all, the current situation is not as dark as it seems and if the currency does not become any weaker, we could also get some new business.

Do you plan new investments?
Our financial situation is very strong. We do have investments plans and we also have acquisition plans. We will adjust all our plans to the current situation, however. We have projects were we will invest into machinery, equipment and our production facilities – however, not to the extend of previous years.

The cash position of Videoton is very strong and we do not have any big loans. So we have the financial capabilities to invest, the question is rather – whether we find a suitable project or not.

Many companies reduce their staff numbers. How is Videoton going to weather the crisis?
If the situation is not worsening more, than we will not have any large scale redundancies. In the middle of 2008, we had around 8300 employees, now we have around 7500 staff. This refers to the entire workforce of Videoton.

What we implemented in many subsidiaries of Videoton is a 4-day workweek. Of course, this is not something that we can keep up forever, but we believe that some parts of the business will pick up again. Fortunately for us, one of our subsidiaries already went back to a normal workweek – from April 1st – as their order book has improved in the meantime. Of course, if we should be able to secure more projects we will also add new employees.

Something else that is quite unique to Videoton is the fact that we can ‘hire out’ employees from one Videoton subsidiary to the other. If we have a lot of big projects in one unit, we can employ staff from other units. In this way, we seldom have the necessity to lay off people.

Are there specific business/ industry sectors that Videoton would like to enter?
We are in a very good position as a group and have a fairly broad portfolio. This does not mean that we are very large in all of them – rather the contrary. Because of our broad portfolio, we do not see the need to enter even more market segments.

What we are thinking about is to change the picture. This has already started. Previously (in 2000), over 1/3 of the income was generated with Consumer Electronics. Today, this specific segment covers less than 10%. As mentioned earlier – Automotive and Household Appliances have gained in the portfolio. We expect expansion within Household Appliances, as we have a few new projects coming up – despite the crisis. Similarly, we are getting stronger in the Industrial segment, as we are planning a new project at the beginning of next year.

Most importantly, we want to provide higher value-added services to our customers. We have made significant steps in this direction recently and our customers support us in this. We believe that these added-value services are the future and we already provide development services for some of our customers. This is specifically the area were we are getting new business.

Do you see tightened competition in the EMS-industry?
Certainly, the crisis generates more competition within the industry. You see a reduced total sales volume and fewer products can be sold on the market. Because of that, companies will have less quantity to outsource. Many companies will also call back outsourced projects to their own facilities. This is not a dramatical change, but we do see it. Quite a few Western European companies are pulling back their projects.

But then you have also those companies that have really big problems and they will eventually go bankrupt. Their projects need to be transferred to other manufacturing providers. Videoton has received such production volumes in the past and we do expect more to come. So this is actually a two-sided sword.

There is actually another development, which is quite interesting. Due to the weakening of Eastern European currencies, many companies actually move production back from China. This affects mostly those segments were short delivery times are essential. This is not a massive process, but it is getting more and more significant.

Many ‘foreign’ EMS-providers have established manufacturing facilities in Hungary? How do you see this development?
Let me say it this way: Companies are coming and companies are going. We saw a significant increase in the number of EMS-providers in Hungary. Their number is now stagnating. Many of them are now exploring other countries; Romania, Ukraine and Bulgaria. Bulgaria is certainly growing within the EMS-Market and Videoton has a very well-established subsidiary in Bulgaria.

The crisis also changes this situation. Some new projects will come in this region, others will be moved elsewhere. So we do not see this development as new competition, but rather as a challenge and an opportunity for new business.

Thank you for the interview.


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