Review of Operations

Extracted from Annual Report 2007

Overview

The Group's FY2007 results were achieved against a backdrop of challenging business conditions.

While the wireless sector continues to be bullish, a few of our customers in this space continues to face challenges which has resulted in a significant and sudden drop in orders for our print circuit board assembly ("PCBA") orders. We were also affected by under-utilisation of certain facilities as we have expanded our production capacities and headcount in anticipation of a recovery in orders in 4Q07, which did not materialise.

However, we have done remarkably well to forge new revenue streams which helped to mitigate the loss in earnings and ensured our continued profitability. We have also acquired new capabilities in manufacturing and design, developed a beachhead in Latin America and increased operational and financial efficiency.

Much has been done, and much still needs to be done as we continue to execute our strategies over the next couple of years. We believe that the culmination of these efforts will position the Group for better growth in the years ahead.

Strategic review to improve revenue and efficiencies

The Group is currently reviewing all its subsidiaries and business assets. Those which have the potential will be nurtured, fixed or divested as we focus on businesses with good return on assets ("ROA") to enhance shareholder value.

We expect orders from our major customer to remain weak in the short-term and thus, will focus our efforts to secure more customers for our EMS business. In particular, we will be looking for new businesses that are of higher value-add with a high-mix-lowvolume product portfolio. We also intend to dispose excess production capacities and realign our manufacturing footprint to derive greater cost savings.

We believe that demand for our EMS capabilities remains strong, and we will be able to secure new customers by providing greater value-add with our vertically integrated operations, key product domain knowledge, and global presence.

The Group seeks to be asset-light, and may consider sale-and-lease-back agreements for some of its existing facilities. Under this agreement, we will retain use of our facilitieslmachinerles while using proceeds from such sales to strengthen our cash position. This asset-light strategy will enable us to better cope with market volatility and improve our ROA.

Subsequent to the year-end, the Group sold off its stake in its plastic components subsidiary, SEB Pte Ltd, to Singapore Exchange-listed MAP Technology Ltd via a share-swap transaction. This transaction clearly demonstrates our strategy to divest our non-core business to gain entry into the hard disk drive ("HDD") precision component industry, thus achieving a more diversified customer base.

These transactions, along with the asset-light approach, will strengthen our balance sheet and reduce gearing, while positioning the Group for future growth.

Growing on three main pillars - EMS, ODM and Components

With over 20 years' experience and solid track record behind us, our EMS operation is today a mature outfit with seven facilities around the world. Building upon this strength, we have developed other core competencies to move up the value-chain and provide greater value-add to our customers.

Jurong Tech is today capable of providing ODM services for a variety of products in the wireless communications, healthcare and consumer electronics industries. The ODM business is particularly attractive as it is asset-light, delivers better margins and complements our EMS operations to yield synergistic benefits.

To grow our ODM business, the Group will continue to boost its portfolio of IP (intellectual property) either through in-house R&D processes or joint-collaborations with other companies. In time, we will have a business structure that is valued not only on production facilities but also for IP.

Together with a leading global technology partner, we have developed a ULC GSM module that provides integrated GSM, SMS and colour LCD functionalities at a fraction of the usual cost of producing such a phone. We have also completed the design and manufacture of mobile phones and wireless local loop ("WLL") phones using the new GSM modules as platform; and secured distributors and mobile phone makers in various regions as customers.

Our ULC handsets have been well-received and are now shipped to major phone operators in 15 countries worldwide. We managed to ship a remarkable 2.5 million units by the end of FY2007, despite commencing volume production only in 3Q07. The ULC handset segment accounted for 15% of total sales in 4Q07.

We continue to work closely with our major technological partners to drive new innovations in ULC handset capabilities. We achieved a breakthrough in February 2008 when we launched the world's first ULC phone with web-based messaging functionalities at the Mobile World Congress in Barcelona, Spain. It is through such innovation and continued investments in technology that the Group is able to differentiate itself from other ULC handset manufacturers from Taiwan and China, and stay at the forefront of the fast-growing ULC handset market, which is estimated to account for 16% of the current mobile handset market.

If our ODM business is the new growth driver, then our EMS segment would be the mainstay of our business with its significant contribution to our bottom-line. Our wireless accessories business, which includes handset battery packs and Bluetooth headsets, has continued to record steady growth every quarter. It now accounts for close to 48% of our revenue, up from 15% a year ago.

Through our ODM segment, we expect to gain further knowledge and capabilities to enlarge our EMS product mix, enabling us to move towards a high-mix low-volume business model. We are also looking to expand beyond the telecommunications industry to provide EMS solutions to the consumer electronics and medical sectors.

The third pillar of growth strategy - components - represents our strategic investments in the metal and plastic components business. Through these investments, the Group is able to derive synergistic benefits from the use of their capabilities for our EMS operations. We will also benefit from significant cross-selling opportunities to their customer base.

Latin America - the new frontier

Jurong Tech established operations in Jaguariuna. Sao Paulo, Brazil, in 2006 to support our major handset customer's operations in the country. This provided us with the platform to explore other business opportunities in the world's fiffh most populated country, which is also the largest economy in Latin America.

We have made good progress in expanding our presence in Brazil and have started shipping our ULC handsets and PC motherboards to new customers in the region. Sales to Brazil market shot up from virtually zero to S$102.9 million within a year and accounted for 10.6% of our overall FY2007 revenue. We have also expanded our staff strength in our Brazilian operations to 1.400 currently to cope with the increased activities.

We have capitalised on our first-to-market advantage in Brazil and now have established operations and sales channel in the country. This has resulted in other companies approaching us to bring their products to the huge Latin America market. We believe that, going forward, this will present excellent growth opportunities for our Brazilian operations.

Fully integrated mega-plant in Nusajaya, Malaysia

The Group has started operations in its new plant in Nusajaya. Malaysia, although construction on other parts of the plant is still underway. Once completed, the plant will be fully integrated, housing all our manufacturing capabiliies under the same roof, including EMS. ODM, battery pack, plastics and metal stamping operations.

We have obtained favourable terms to establish the facility in Nusajaya, which provides substantial cost savings. With a built-up area of 32,000 sqm, the facility would also provide us with sufficient production capacity to pursue future growth as we reallocate operations In other facilities.

The Nusajaya site represents the Group's strategy of consolidating smaller production sites into one large vertically integrated facility to achieve better efficiencies and economies of scale. In view of its vast growth potential, the Group has targeted Brazil as a potential site for its next vertically integrated mega-facility.

Mr Cheang Chee Ming
President and Chief Executive Officer