This little-known Malaysian company may be a trade war prize

A key supplier in the production of chips used by BMW and Samsung, JF Technology is positioning itself to win in the era of disruptive technologies, such as 5G and IoT

At the heart of technology

Whether you’re driving a car, making a call, scrolling through Facebook, or making a Google search, chips are being used one way or another.

Everyone knows what computer chips are. But few know about, which connect chips and test equipment, enabling high-accuracy tests.

With millions of chips rolling off production lines everyday, test sockets have a super-important role: ensuring only high-quality products reach the shelf.

When the world’s top chipmakers need a new test socket...

An expert in test sockets, has built up a remarkable client base of tier 1 chipmakers supplying Fortune 500 companies like , , and . The group also makes test sockets for other test socket companies, acting as a contract manufacturer.

from an original equipment manufacturer(OEM) player into an original design manufacturer. With 20 granted patents and 34 pending patents, JFTech now owns highly valuable test socket designs that are sold to global chipmakers across the world.

As one of just a handful of test socket makers worldwide, JFTech has positioned itself to benefit from these technology trends, which are boosting demand for new chips.

Expert in low volume, high-value test sockets

Test equipment, fitted with custom-made test sockets, is used to test new chips before they’re sent for production in large quantities, or sold in the market.

Every new chip design needs a new test socket; RIGHT: Adesigned by JF Technology

Test equipment companies, in turn, work together to design a test socket just for that chip.

For example, a different smartphone may use different chips, enabling different functions and features.

If a company starts making millions of chip units, and its design is found to be faulty, it will be too late!

. The purpose of a test socket is to connect the chip and tester. Chips are placed on the test sockets, and then the test process starts.

Inside JFTech’s factory

Low volume, high-value

Even though not many test sockets are made, the global test interface market is estimated to be worth US$0.7 billion.

A test socket must also be highly durable, able to withstand boiling hot temperatures and be used thousands of times over and over again.

A single socket is sold for anywhere between US$3,500 to US$6,000. Usually, a client will order three or four sockets . If the client decides to use this chip design, the client will use the same test sockets to test its chips.

Inside the test socket industry

JFTech’s foreign rivals include

In Malaysia, JFTech has only one peer — Foundpac Group, which is also listed on the Kuala Lumpur Stock Exchange.

Pogo pins; TOP: Cantilevers in JFTech’s socket

Neither company is superior to each other — as JFTech and Foundpac’s sockets are used to test different types of chips, depending on the chip design.

In addition, Foundpac is also involved in other businesses, such as the manufacturing of circuit board stiffeners and stencils.

The 5G future is here, firing up chip demand

RF is used by devices to send signals to each other wirelessly, enabling phone calls, for example.Today, 22% of JFTech’s sockets are used for RF applications — in mobile devices, and IoT, for example.

It once took 8 hours to download a high-definition, full-length movie over a 3G connection. With 5G — it would take just 3 seconds. With faster speeds and instant response time, many new technologies such as and can be brought to life.

Using tech developed by Huawei, a Chinese surgeon recently conducted the world’s first 5G-enabled surgery; RIGHT: 5G will help smart devices to communicate with each other

according to U.S. chipmaker Skyworks Solutions. To use 5G, every 5G-enabled device will need many more RF parts, such as antennas and chips.

The need for speed: Studies show a longer a smartphone user waits to download content, the more disappointing his/her experience

This will be a rebound for chip sales, which suffered a 12.8% decline in 2019 due to an oversupply of certain components.

Cars: driving the need for chips

Today, 43% of the sockets JFTech makes are used to test automotive chips.

Cars are getting smarter “brains”: chips that do the driving, and the braking; CENTER, RIGHT: Ford’s C-V2X is a wireless communication technology that can “talk” to and “listen” for similarly equipped vehicles, people and traffic management infrastructure such as traffic lights to relay important information and help make city mobility safer and less congested
The automotive industry is very difficult to penetrate. One reason is that it takes up to 5 years to design and launch a new car model. This means a carmaker must get all its suppliers and vendors ready long before it starts making a new car.

Already, advanced driver-assistance systems(ADAS) — technology that allows cars to park themselves, or drive safer and better, are entering our roads.

Sales of automotive chips are expected to hit US$42.9 billion in 2021, almost double 2016 levels, according to IC Insights.

After a stellar run, revenue growth has taken a hit

J Johnstech alleged the group’s Zigma product had infringed a U.S. patent.

However, its appeal was dismissed in 2019. As a result of the court decision, JFTech is not able to sell Zigma in the U.S.

The company also made a provision for RM6.1 million in damages.

This was an indirect impact of the legal case, despite U.S. patent laws not applying outside the U.S. JFTech is allowed to sell Zigma outside the U.S.

Still, this event has hit the growth of JFTech’s revenue, which had surged 3x between 2013–2017.

..but new products could help JFTech bounce back

Both products are used to test 5G and RF chips and are being sold in the US market.

JFTech’s Alpha and Zigma products

New products such as Thor and Hercules will seize on demand from the automotive chip market, while upcoming ones — the Unicon and Bell Mat — are aimed at meeting demand from 5G RF and IoT industries.

Chips: the biggest prize in the trade war

The U.S. government has also reportedly tried to stop Taiwan Semiconductor Manufacturing Company(the world’s largest chipmaker) from selling chips to Huawei.

Although China is one of the world’s biggest electronics manufacturers — 3 out of 5 of the world’s biggest smartphone makers are Chinese — it buys most of its chips from other countries.

As of 2018, China was importing over 95% of chips it uses to make computers and servers. As part of its “” plan, China aims to make 70% of its own chips. It plans to spend US$150 billion to build up its own chipmaking capacity, aiming to create a world-class chip industry.

It takes years to design a single chip, and design changes are made at a microscopic level. We think this is why China has failed — so far — to overtake the U.S. as the world’s biggest chipmaker, despite China’s superb manufacturing and engineering capabilities.

In The China Integrated Circuit Industry Investment Fund tried to acquire Xcerra Corp, which is based in the U.S. But another test socket maker, Cohu Inc., asked the US government to stop the deal. Cohu said if Xcerra was sold to the Chinese fund, it could result in valuable technology being transferred to Chinese chipmakers. After the Xcerra deal was called off by the U.S. government, Cohu bought Xcerra.

As most existing test socket makers are U.S.-based, Malaysian companies for Chinese chip players.

Chip R&D is growing at the fastest pace since 2008

Compared to all other industries, semiconductor industry players reinvest the most revenue into R&D(research and development).

Engineers and technicians are familiar with Moore’s Law, which predicts computer chips double speed and power every two years — while costs drop by 50%.

With smartphone and auto manufacturers racing to be the first to introduce more features into their products — such as “driverless” cars and even foldable or flexible phones — demand for thinner and more complex chips will only grow.

as companies seek to differentiate themselves in the marketplace, with new, unique features.

Caccording to IC Insights. This would be the fastest pace of growth since the Global Financial Crisis, when R&D spending rose at just 3.3% CAGR.

Tin our view. As we mentioned earlier, there aren’t many global suppliers serving the test-socket sub-sector. A delivery of faulty or subpar sockets would deliver a big blow to JFTech’s reputation.

Since its establishment in 1999, JFTech has built up a customer base that includes most of the world’s biggest chipmakers. Given the high technology demands of this industry, this is no easy feat.

https://www.bloomberg.com/news/articles/2019-12-03/china-stockpiles-foreign-tech-as-silicon-curtain-descends

But with new products designed to seize blockbuster trends in 5G and auto, JFTech aims to revive sales growth.

There are only a handful of test socket players, including JFTech, that are able to meet the demands of top chip players. Without test equipment, nothing new can be developed.

With Chinese firms potentially cut off from buying chips and related components from the U.S., the future of China’s electronics industry is in peril.

This will naturally lead to a race to ensure secure supply of test sockets. What could this hold in store for JFTech?

Meet the JFTech’s Managing Director at our upcoming event

On Dec. 11, 2019, meet at the EquitiesTracker Theatrette. Dato’ Foong will share in-depth insights into the chip industry and JFTech’s growth strategy.

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