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    MESSAGE TO STAKEHOLDERS

    To Our Stakeholders,

    We would like to express our sincere gratitude to all shareholders for your ongoing support of PALTEK CORPORATION.

    We would like to report on our results during the year ended December 31, 2014 (January 1, 2014 to December 31, 2014) as follows.

    In the electronics industry to which the PALTEK Group belongs, although the consumer market field remained sluggish due to the intensification of global competition, sales were strong for automotive applications, and the industrial equipment field performed firmly as a result of a recovery in corporate capital investment.

    Amid this business environment, in the semiconductor business, the Group’s foundation business, we focused efforts on further expanding sales in the core product FPGA(*1), launching products that will develop into the Group’s second pillar, and developing growth markets. As part of our sales expansion of FPGA, the Group expanded net sales for industrial equipment and communication equipment through measures including expanding sales to existing customers and increasing new customers. Furthermore, positioning Micron Technology, Inc., Linear Technology, Microchip Technology Inc., and NXP Semiconductors as the second-pillar semiconductor manufacturers after FPGA manufacturer Xilinx, we engaged in sales activities aimed at a wide range of customers, mainly for industrial equipment. As a result, net sales expanded in the semiconductor business. In other developments, the Group newly established Technology Innovation, Inc. in June 2014 to strengthen solutions for sensors and MEMS(*2), which are expected to grow in the future. Technology Innovation Inc. has obtained by transfer the semiconductor business and MEMS business of SiMICS Co., Ltd. and is proceeding with the development of signal processing IC for infrared human motion sensors.

    In the design service business, which the Group has positioned as an important business for improving profitability, the Group focused efforts on strengthening design outsourcing, further developing ODM(*3), and developing and selling products manufactured by the Group. As part of efforts to strengthen design outsourcing, consolidated subsidiary Explorer Inc. established the Sapporo Design Center in December 2014 and reorganized the business to allow for expansion of design outsourcing from customers related to hardware and software. In addition, orders increased for ODM, mostly in the medical field, and going forward, we will continue to focus efforts on acquiring orders. Concerning the development of products manufactured by the Group, Explorer Inc. has advanced two projects that are selected as an Innovation Commercialization Venture Support Project of the New Energy and Industrial Technology Development Organization (NEDO): “4K-compatible H.265 codec system with rate control” (selected NEDO project in fiscal 2012); and “ultra-low-latency, 8K-compatible HEVC-ECF hybrid distribution system” (selected NEDO project in fiscal 2013). Although the date for the start of sales of the 4K-compatible H.265 codec system has been delayed, order negotiations with customers are currently underway, and we are continuing with product development in line with customer needs. Furthermore, concerning other products manufactured by the Group, we worked jointly with Fuji Television Network, Inc. to develop H.264 Small live transmission equipment, and jointly with Japan Broadcasting Corporation to develop H.264 IP accumulation transmission equipped with adaptive rate control, and corresponding to HD.

    In the smart energy business, which the Group is undertaking as a new business, the main activity is providing LP gas-powered electricity generating systems and storage batteries, etc. to clinics and hospitals such as obstetrics and gynecology clinics. In this consolidated fiscal year, the Group commercialized and began to newly provide a low-priced LP gas-powered electricity generating system for nursing homes and the Bosai Oasis system that provides a backup of the essential lifelines such as electricity, gas and water. Through such activities, we are launching new businesses by appealing to the latent needs of customers.

    As a result, net sales in the semiconductor business increased significantly on the back of strong performance for telecommunication infrastructure such as LTE base stations, measurement equipment, medical equipment, office equipment, and factory automation, while net sales in the design services business increased marginally because of a focus on the development of products manufactured by the Group. Accordingly, net sales were 23,155 million yen, an increase of 31.5% compared with the previous fiscal year.

    Although selling, general and administrative expenses increased due to the execution of investments such as the development of products manufactured by the Group and establishment of Technology Innovation Inc., as well as the increase in personnel expenses, operating income was boosted by increased gross profit from the considerable growth in net sales and constrained costs owing to a significant increase in the valuation amount of U.S. dollar-denominated purchase allowances held by the Company toward suppliers due to a sharp depreciation of the yen against the US dollar in the fourth quarter, resulting in an operating income of 1,008 million yen, an increase of 30.5% compared with the previous fiscal year.

    Ordinary income was 1,052 million yen, an increase of 34.6% compared with the previous fiscal year, reflecting the recording of 70 million yen in subsidy income from NEDO for the development of H.265 codec systems, and net income was 563 million yen, an increase of 26.9% compared with the previous fiscal year.

     

    • (*1) FPGA (Field Programmable Gate Array) is a type of PLD (Programmable Logic Device). It is an LSI that enables programing of logic circuits while the designer is performing changes in the field.
    • (*2)  MEMS (Micro Electro Mechanical Systems) is a micro electro mechanical system whereby micro processing technologies such as semiconductor manufacturing technologies, etc. have been applied to create a system that embeds micro electro elements with mechanical elements as one unit on a circuit board. Recently they are being called the industry’s little hard workers, as they are a key device that is embedded in end products to create high added-value.
    • (*3)   ODM (Original Design Manufacturing) refers to not only designing the product to be sold under the brand of the ordering company, but also manufacturing it.

    For Inquiries Contact: Investor Relations ir@paltek.co.jp