SMT & Inspection | July 05, 2010

ViTechnology: success is based on excellent R&D

Evertiq talked to François Amblard, VP Finance & Corporate Development at Neptune Technologies, about the development of French inspection specialist ViTechnology. The strategic investor has been involved in the future direction of VIT for many years.

Fiscal 1st and 2nd quarter are completed . Where do you see the most improvement compared to the crisis year 2009?
As is probably the case for the whole SMT equipment industry, the 1H/2010 has been an excellent semester for ViTechnology, similar to the 1H/2008. VIT sees all regions bouncing back strongly from the 2009 low and although it may seem a bit surprising, Europe and the Americas are bouncing back stronger than Asia. This may be due in part to a much stronger price pressure in Asia, where volume are still important, but prices have gone down significantly.

The Inspection market is a very crowded market space. The crisis has seen two major players exiting the business: Orbotech and Agilent (even if they are back with other name, but not with worldwide coverage) and has weakened, and will continue to do so, several other important established players. At the same time we saw the emergence of local Asian players; driven in parts by an extremely advantageous exchange rate, particularly Korean players.

Over the last two years we have seen a convergence in the manufacturing cost of most players and a consequent decrease in pricing differences. As a result, competition on price only—which has been the strategy developed by some players—becomes a lot less effective. We are convinced that competition will increasingly be driven by innovation.

Asia seems to be a big growth market, for the electronics industry in general, but especially for equipment makers. Your take on it?
In the last couple of years, the SMT manufacturing pendulum swung all the way to Asia driven by a strongly unbalanced exchange rate situation, by low labour rates and by emerging indigenous electronics needs in Asia.

ViTechnology is a global player and a large part of our customers are global accounts. We initially accompanied our global accounts in Asia as they moved and transferred production there. We then saw the emergence of many strong Asia based EMS, ODM and OEM which we first strived to understand and then served successfully. At first, their requirements were different; today this is not longer the case.

The main characteristic of the Asian market place is volume production. From an inspection stand-point, this translates into the needs to have high speed inspections system capable of detecting all real defects while not being sensitive to small production variations which are not defects and can—for some competitive systems—generate numerous false calls which in addition to wasting operators time often results in wrong classification of real defects as false calls thus defeating the whole purpose of inspection.

Asia will remain a developing market as local consumption of electronics products will continue to grow strongly. The pendulum of SMT manufacturing moving to Asia will however stabilize in a more median position. Exchange rate will progressively converge to Purchasing Power Parity, labour rates will increase as cost of living increase and as people aspire to a better working environment and in general to better quality of life. These two factors will likely be stronger than productivity gains. Thus, in relative terms competiveness of Europe and the Americas will improve.

As a global player we aim to serve all three geographic markets successfully.

China has lately been in the centre of cheap labour discussions. Is ViTechnology affected?
From a ViTechnology standpoint, cheap labour in China does not have a significant impact for us neither from a competitive standpoint nor from an internal one. The success of ViTechnology will continue to be based on our ability to deliver and service innovative solutions to customers’ inspection and quality needs. Insofar—as the key to delivering this is based on an in-depth understanding of customer needs and our ability to translate these needs into highly innovative technical solutions— cheap labour prices in China has little impact on us. It is however important to benefit from a competitive and agile supply chain.

Our main operating cost is R&D,which represents 20% of our revenues and 25% of our workforce. In France, we benefit from a very strong government support for R&D which translates into a simple figure: over 60% of our R&D investments are government funded. Thus, we have access to an extremely qualified scientific pool for our core technologies in Software, Mechanics, Optics and Applied Mathematics (for image processing and algorithm developments) at a very competitive cost while in parallel benefitting from productive cooperation with leading Academic or research Institutes (INRIA, Mines de Paris, CEA, ...). Our R&D is entirely based in France at our HQ in Saint-Egrève. The second operating cost for us in Sales & Applications which we locate in the regions where we are doing business.

Coming back to market growth. What picture do you see in Europe?
Europe bounced back strongly and remains an essential part of ViTechnology business and focus. The main reasons are that Europe represents 35 to 40% of our activity and European—more specifically German customers—have strong technical leadership.

Europe is not a homogeneous market and the divide is not Western vs Eastern Europe. Germany is one of the few Western countries that have kept a very strong manufacturing base. For other Western European countries volume production no longer exists and mostly local high value/ low volume production remains.

We see growth remaining to be strong in Europe driven by the technology leadership of German customers on the one hand and volume production in Eastern Europe.

Where do you produce your equipment?
We have worked hard to build an agile and competitive supply chain which structurally limits our exchange exposure while delivering the same quality products everywhere in the world.

As a result, we manufacture both in Europe and in Asia.

Any investments planned in the near future?
Our investments are focussed primarily on R&D. Over the last three years and also during the 2009 downturn, we have significantly increased our R&D investments as well as the calibre of our researchers. One of 4 people at ViTechnology work in R&D aiming to develop revolutionary inspection solutions that have:

1. Ease to use
2. very high capture rate of all visual defects with extremely low false call in a production environment
3. high quality images for review
4. high speed capabilities
5. and of course excellent ROI

Thank you for the interview.
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