Review of Operations

Extracted from Annual Report 2006

Overview

Despite the very competitive environment in the EMS industry, the Group has made further improvement in its earnings and significant progress in its business diversification efforts.

The Group's new wireless accessories business has taken off strongly with volume increasing since production commenced in 2Q06. We have also made good progress into the automotive, consumer products, PC peripherals, and systems integration industries with several new programmes commencing production in FY2006.

Against this backdrop of new developments, the Group continues to do well in its mainstay wireless communications business with increased orders for its wireless PCBA, Bluetooth modules and handset box-build services. With rising global demand for handsets and wireless modules, the Group is confident that this segment will remain the cornerstone of its future growth.

Wireless Communications Sector

Riding on the growth of the mobile handset industry, the Group secured new customers as well as higher orders from existing customers for its wireless PCBA and handset box-build services in the year under review. The Group also recorded strong volume for its Bluetooth modules together with the launch of new modular products.

In 2Q06, the Group started the assembly in volume for various types of battery packs, for its major handset customer from its China and Brazil plants. This new business segment has since surpassed expectations with volume growth in consecutive quarters and now accounts for 15.4% of total revenue.

To cope with increasing orders, the Group has expanded its production capacity with the addition of new assembly lines in Brazil and China. The Group's new plant in Suzhou, China, also commenced operations in 2Q06 and was able to cater to capacity demand after progressing to mass production in 3Q06.

According to industry estimates, the handset industry achieved a landmark shipment of 1 billion units in 2006 and is expected to maintain its growth momentum in 2007. Jurong Technologies is poised to benefit from this growing trend with its wider product portfolio and enlarged customer base, and secure higher orders for its wireless PCBA, handset box build, and wireless accessories products.

The wireless modules segment is also expected to benefit from the launch of new Bluetooth and RF modular products in FY2006 and resume its growth with increasing volumes in FY2007.

Others

The Group is starting to reap the benefits of its business diversification efforts with new project wins from customers in the automotive, consumer electronics, PC peripherals, and networking industries. Having commenced production of some of these new programmes, the Group expects volumes to increase in FY2007.

Due to further consolidation of the HDD industry, the Group was affected by several HDD-related PCBA programmes reaching end-of-life status by the end of FY2006. However, the relationships with existing customers remain strong and the Group expects increasing volume for its external drives programmes while continuing to explore new business opportunities.

Growth Strategies

Jurong Technologies remains positive about the overall outlook for the macro-economic environment in FY2007 with continued trend of major US, European and Japanese OEMs outsourcing their EMS operations to lower-cost Asian contract manufactures.

To capitalise on this growing trend, the Group will continue to optimise its manufacturing processes and increase vertical integration of its operations. The Group intends to leverage on its strong relationships with its strategic partners to develop new plastic and metal parts businesses to provide full-turnkey solutions for its customers, which will help reduce production costs and improve efficiency.

The Group will also continue to seek new customers across new and existing product segments to diversify revenue streams and mitigate customer concentration risks. With its wide geographical network and strong manufacturing track record, the Group is confident of attracting more customers and developing new avenues of growth.

Lee Lok Fui
President and Chief Executive