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BY SUKI LOR
The merger of the two companies in a stock-for-stock transaction worth US$1.6 billion was a 'game-changer', he said. Using the analogy of the English Premier League (EPL), he said the deal catapulted STATS from a Tier 2 division player into the premier league. It may well have saved the company too.
'If we hadn't done that acquisition back in 2004, I'm absolutely convinced that this company would not have survived today. We would have been totally marginalised and we would not be where we are today, a tier 1 player, fourth-largest in absolute size.'
Mr Tan was quick to credit his management team for STATS ChipPAC's success, saying that the biggest achievement was what 'we - not me, but we, the team - did to successfully integrate the acquisition that we made in 2004 and turn this company from an also-ran into a competitive company'.
It was no walk in the park, though. Few would have realised the difficulties involved. 'There are not many companies which have gone through the experience that we have,' Mr Tan said.
First, it was a cross-border deal. The acquisition was in the technology sector, not an easy field to navigate, and to complicate matters, it involved a company that was about the same size as STATS.
'Mergers and acquisitions are littered with failures, and mergers and acquisitions of two companies of equal size are fraught with even more failures - and here you have two companies of about equal size.
'We treaded water, we did all the hard work ... to integrate people, integrate systems, rationalise the customer base, rationalise the manufacturing footprint. Then in 2006, 2007 and 2008, the business model was transformed,' Mr Tan added.
STATS ChipPAC had net income of US$77 million in 2006, rising to US$94 million in 2007 before dropping to US$26 million last year.
Mr Tan is gratified that he and his team successfully 'took on something that was very high-risk, in untested, uncharted territory'.
'Because we made it work, today we're talking about how to be world-class, how to be even more competitive. We're not talking about how to stay in the game. We're talking about how to win the game.'
The company was able to slash its debt from around US$800 million when the acquisition of ChipPAC took place to under US$500 million today, as well as build up its cash reserves. With a cash position in excess of US$300 million, 'when this financial crisis hit us, we were not financially vulnerable'.
That's not to say that there were no problems. Revenue dived from US$472 million in the third quarter of 2008 to US$220 million in the first quarter of 2009.
'But financially there was no question in our minds that we would be able to ride out the crisis because our balance sheet was strong, our liquidity position was strong. We were not over-leveraged and were able to continue to generate free cash even when the revenue collapsed because we were able to rein in our capital expenditure.'
The financial crisis forced STATS ChipPAC to restructure to be profitable at lower revenues, Mr Tan said. It took major steps to cut costs, including slashing its global workforce by 2,200, or about 17 per cent, early this year. With these measures, 'I know that when the business rebounds I will be able to ride it because we remain competitive. That's a very different position from where we were in 2002, when it was quite clear that even though the industry was doing well we were not going to do well'.
Backed by a strong balance sheet, STATS ChipPAC has continued to invest in research & development and technology. Having repositioned itself for long-term sustainability, it is well-placed to face any future challenges, according to Mr Tan.
He reckons that the worst is over where the current crisis is concerned. The semiconductor industry has rebounded very strongly following the dramatic collapse in the first quarter of this year when STATS ChipPAC suffered a loss of US$51.1 million, after taking into account US$12.9 million in restructuring charges. Revenue, meanwhile, plunged by 48 per cent year-on-year to US$220.5 million.
'Q1 was like jumping off a cliff, but Q2 was jumping off the cliff and landing on a trampoline' as revenue recovered to US$320.7 million. The company also returned to the black with a net income of US$2.2 million in the second quarter.
Third-quarter results were even better. Sales picked up to US$389.8 million and net income jumped to US$25.1 million.
The years Mr Tan has spent at STATS and STATS ChipPAC have been anything but placid, but he has taken it all in his stride.
The year that he joined STATS, the dotcom bubble burst. 'So I had personally experienced the two sharpest falls in this business - the 2000 Internet bubble and the 2008/2009 financial crisis. I've gone through the whole volatility of this business.'
When STATS combined with ChipPAC into a much bigger entity, it was better able to compete and attract higher-calibre staff.
'Today we probably have the strongest management team ever in the history of this company,' he said with conviction. He described the company's chief operating officer (COO), chief technical officer (CTO), and head of sales as 'world-class individuals with the calibre to take this company to the next level'. With the right people in place, he does not need to travel so much. 'If you ask me do I go around all my factories all the time, I don't have to do that because my COO should be doing that.' Similarly, with the chief sales officer in place, Mr Tan only needs to visit customers 'three or four times a year'.
'I have factories in Korea, China, Thailand, Singapore, Malaysia, Taiwan. All my customers are in the US and Europe. I have no customers here. I have to manage across cultures.' All that can only be done with a team, and a good one at that.
Mr Tan is heartened that with the three top-notch business honchos in place, 'I can go on an extended holiday and the place won't fall apart'.
He sees his move into the CEO post at STATS ChipPAC as a natural transition from being the CFO. But helming a large corporation was not something that he had aspired to do as a youth.
'My parents were working-class people with no formal education. So when I was growing up there were no aspirations.' His father worked as a bus conductor while his mother ran a tailoring shop.
Mr Tan excelled at his studies and went on to become a Colombo Plan scholar, graduating with a Bachelor of Engineering (First Class Honours) degree from the University of Adelaide. However, he did not think that being an engineer was his cup of tea.
As a scholar, he had a bond to serve, which he did in the administrative service, for seven years. After realising that his interest lay in finance, he joined United Overseas Bank. He then decided to go to business school - he picked Wharton School in the US - as he wanted to work for a Wall Street firm. He landed a job at Salomon Smith Barney as an investment banker.
For his only child, a son aged two-and-a-half, he would advise a more direct career path. 'I would tell him if you want to be a Wall Street banker, you go to an Ivy League school. Then join a Wall Street firm. That's the way to go.'
Having a child has changed him. 'I want to live for as long as I can so that I can see him grow up. I'm now more health conscious. My wife has always been very health conscious. That has been very helpful.'
To keep fit, he works out on a treadmill at home. Despite peppering the interview with talk about the English Premier League, he is not a soccer fan, having long outgrown his schoolboy craze.
Mr Tan and his wife - whom he described as an 'early retiree' - used to play golf, but stopped after their son was born. The couple used to go on golfing holidays to places such as Phuket. They both like to travel, although they may differ on their choice of destinations.
'My wife enjoys a more adventurous kind of travel. I'm a little more sedate. I like more of the luxury kind of holidays,' he said. Before they became parents, every three years she would have her pick of holidays, which have taken them off the beaten track, to places like Outer Mongolia and Tibet before they became popular.
As for STATS ChipPAC, the future looks bright, underpinned by a strong management team and the business transformation which has put it on a solid footing.
Mr Tan sees growth coming from various areas. For one thing, the industry on the whole will expand. Based on industry projections, the semiconductor industry is forecast to post a compounded annual growth rate (CAGR) of 10 per cent in sales from 2009 to 2012, which Mr Tan said is 'huge'.
'We're going to ride on faster growth because of more outsourcing. Companies are trying to be more and more focused on their core competencies and outsourcing to people like us.'
For the outsourced semiconductor assembly and test sector, CAGR is projected to be a higher 15 per cent. 'Obviously with all the things we're doing about resetting the cost base, investing in technology, we hope that growth would also translate into better profitability.'
STATS ChipPAC is just five years old, from the time of the merger. Mr Tan said: 'What people don't realise is that in a short one or two years, we went from division 2 to division 1; and in a short two to three years, we became competitive in division 1. We're not necessarily the Manchester United of today but we're competitive.
'We're riding a cyclical long-term wave that is positive for us with a lot of tailwind. I think the decisions that we've made in the last three years and in response to the crisis have further strengthened our ability to be successful.'
These articles first appeared in the December issue of Pulses, produced by The Business Times.
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