Hard Disk Drive Components

Sales in HDD components segment decreased by 15.8% (or $10.7 million) as compared to the previous financial year. The decrease was mainly caused by lower sales of air-combs and VCM plates due to a drop in customers’ demands. On the other hand, there was a substantial increase in the sales of Baseplates upon completion of phasing in its manufacturing in the third quarter.

HDD components segment reported a loss before taxation of $17.6 million as compared to $0.7 million in FY2017. The loss was attributed to four main factors. Firstly, high materials, labour and overhead costs were incurred during the initial stage of Baseplates production. Secondly, during the year, Baseplates inventories damaged by heavy rainstorm caused by Typhoon Hato were written-off ($1.3 million). Production was also disrupted due to down-time required to repair and reset machines that were damaged. Thirdly, customer had tightened the Baseplates specifications, which led to a substantial amount of Baseplates inventories being written-off ($1.3 million). In addition, extra sorting and rework was required for Baseplates leading to higher materials, labour and overhead costs. The additional costs were not passed on to the customer. Lastly, included in overhead cost was a one-time amortisation expense ($1.8 million) arising as a result of change in useful life of toolings and fixtures used in the manufacturing of Baseplates. The change in useful life is upon the completion of phasing in of Baseplates and further assessment by the engineering team. This reflects a more accurate representation of the useful life for toolings and fixtures.

Besides the above factors contributing to high cost of sales, there were other one-time expenses incurred during the year that led to the segmental loss. Firstly, there was an allowance for impairment on property, plant and equipment of $3.3 million. The impairment allowance was made on helium leak testers ($0.7 million) that were no longer required due to a change in the manufacturing process of Baseplates. In addition, forging presses, high speed milling machines, robotic arms and ovens (totalling $2.6 million) were left idle as a result of reduction in customer’s demand for Baseplates. Secondly, there was a write-off of tools and equipment and renovation of $1.6 million which were damaged by Typhoon Hato, identified during the annual property, plant and equipment review. Thirdly, staff cost amounting to $319K was incurred due to internal restructuring. Lastly, repair of machinery and equipment damaged by the typhoon amounted to $208K.