Sensor Business Digest
SENSOR INDUSTRY DEVELOPMENTS AND TRENDS

March 2003

The Sensor Industry Offers Attractive Opportunities to Companies with Relevant Manufacturing Expertise
SBD underscores that the sensor industry offers key opportunities to savvy producers of products that incorporate sensors. Companies that have strong sensor-related manufacturing skills and are adept at efficiently producing quality products at low cost can leverage these skills to cost-effectively produce sensors for others, thereby significantly expanding their served markets and customer base. By selling the sensors they produce, as opposed to only using the sensors in their own products, a company gains access to new sources of revenue and can establish a relationship that leads to its assuming responsibility for producing additional, value-added products (e.g., instruments or systems) for the customer.

To most effectively and expeditiously capture market share in the sensor industry, a company with internal sensor manufacturing expertise is wise to initially focus on ferreting-out and addressing markets/applications for its existing sensor technology. Moreover, to broaden its opportunities, the company is advised to explore the feasibility of producing or supplying sensors that measure the same parameters as those measured by its existing sensor technology but employ more advanced sensing technology.

For example, a company with skills in producing non-silicon-based pressure sensors, can initially concentrate on producing such sensors for sale to OEMs as well as other sensor companies. It could also benefit by evaluating and exploring opportunities for producing, or gaining access to, silicon micromachined pressure sensor technology. In assessing the most effective way to acquire semiconductor, or MEMS (microelectromechanical systems), sensor production capabilities, the company would weigh the cost/benefits of obtaining the equipment and processes required to make such sensors (which can include greater control over production schedules and costs, as well as intellectual property) versus using an outside fab (which alleviates the need to invest in a fabrication facility).

After the company gains a foothold as a supplier of sensors that measure the parameters in which it has particular expertise (for example, pressure or force sensors), it can seek to expand its sensor product offerings to include other types of sensors based on related technology that allow it to broaden its market coverage.

For example, a company with expertise in piezoresistive sensing technology for sensing pressure could, over time, expand its capabilities to include manufacturing force sensors, differential pressure flow sensors or level sensors, or (if economically feasible) acceleration/vibration sensors.

Bonso Electronics Ltd. (headquartered in Hong Kong, ++852-2605-5822) - a subsidiary of Bonso Electronics International, Inc. (Nasdaq: BNSO), and a manufacturer of electronic weighing scales and balances, clinical thermometers, health and fitness products, and wireless telecommunications devices - is looking to expand its sensor manufacturing and business activities and to leverage its sensor manufacturing expertise to serve as a low-cost supplier of sensors.

George O'Leary, a director at Bonso Electronics (Newport Beach, CA, 949-760-9611), explained that the company is, presently, primarily focusing on market opportunities for strain gauges used in pressure and force sensing. He noted that Bonso Electronics has proven, excellent manufacturing facilities and processes, which allow the company to cost-effectively produce high-quality metal foil strain gauge sensors and load cells for other companies who then incorporate such sensors into their systems or instruments.

O'Leary emphasized that Bonso Electronics' metal foil strain gauge technology can be produced very cost-effectively and the technology has been honed to provide the degree of reliability and performance required for sensors and load cells used in consumer electronics or light industrial applications (e.g., scales). The company is amenable to looking at the possibility of employing silicon sensor technology at some point, although O'Leary noted that a significant investment is required to establish a wafer fab facility and control and cost issues can occur if one goes fabless and outsources wafer fabrication.

Bonso would particularly like to arrange to make strain gauge pressure sensors or force sensors/load cells for an instrument company that now buys or makes such sensors, and over time become a producer of the entire instrument. Bonso Electronics, which is providing strain gauges for use in customers' systems, is also interested in providing strain gauges and load cells in high volumes to an expanding array of companies (including competitors).

O'Leary noted that Bonso Electronics, which was established in 1980 and was one of the first manufacturers to incorporate strain gauge load cell technology in its electronic bathroom scales, has a significant track record of economically producing build-to-order products for OEMs. The company's fundamental expertise lies in manufacturing product. Moreover, Bonso Electronics is very adept at readily collaborating with a customer's engineers and can readily accommodate othersÌ engineering designs. Bonso focuses on reducing its materials and processing costs and can produce metal foil strain gauges very economically. Moreover, O'Leary noted that Bonso Electronics has significant strain gauge sensor packaging capabilities. Currently, Bonso is producing over 2m strain gauge sensors per year for her own use.

Bonso Electronics has made a considerable investment in plant and equipment and has established tight quality control procedures. In April 1995, the company received international ISO 9001 accreditation. In 1998, a 500,000 square foot manufacturing facility in Shenzhen, China was completed. Bonso Electronicsí manufacturing facility has a high level of integration that facilitates efficient management and quality control during each step of the production process. In-house mold making, plastic molding, and metal stamping facilities ensure that highly reliable plastic and metal parts are used in Bonso's products. A just-in-time supply system implemented in the company's production lines facilitates a high level of quality at attractive prices. The company's high-speed surface mount technology machines allow high-quality and volume assembly of PCBs. Bonso also has significant, modern in-house strain gauge and load cell fabrication capabilities.

Historically, Bonso Electronics has primarily been a contract manufacturer of consumer electronics products, serving as a private-label, OEM supplier of electronic goods to companies in the U.S. and Europe. However, the company-a longstanding manufacturer of strain gauge sensors and scales, offers products sold under its own brand name. Bonso's products include bathroom scales, kitchen/diet scales, postal/letter scales, laboratory/jewelry/pocket scales, hanging scales, bench scales, clinical thermometers, digital blood pressure meters, digital pedometers, bicycle computers, cordless telephones and two-way radios.

Key elements of Bonso Electronics' overall strategy include a focus on vertical markets, further enhancing their services offerings, diversifying their product portfolio, improving internal systems/processes and optimizing customer relationship practices, and integrating their business processes/manufacturing services with those of their customers.

Bonso Electronics also maintains a strategy of accelerating its growth through acquisitions. In May 2001, they acquired Korona Haushaltswaren Gmbh & Co. KG from Augusta Technologie AG. Korona is engaged in the distribution of electronic scales in Europe. In July 2002. Bonso acquired 51% equity interest in Gram Precision, a privately owned Ontario corporation and distributor of digital scales for markets requiring precise, high-resolution measurements, such as laboratory, industrial, and jewelry applications. In their annual report for FY 20002, ended March 31, 2002, Bonso noted that: "In pursuing brand ownership in two distinct markets, we intend to further leverage our many years of technical and design innovations to make our China campus a global center of sensor-based scale technology."

For FY 2002 ended in March '02, Bonso Electronics had net sales of $53,303,101, an 80% increase over sales of $29,566,680 in FY '01. Net income in FY '02 was $1,805,606, or $0.32 per share, about a 13% gain over net income of $1,603,799, or $0.29 per share, in FY '01. In FY '02, Bonso's gross margin was 24.6% and their operating margin was 5.09%. In FY '02, scale products accounted for 63% of the companyís total revenues and telecommunications accounted for 33%.

For the nine months ended December 31, 2002, Bonso Electronics had revenues of $34,581,000, compared to revenues of $41,219,000 for the comparable period in FY 2002. Net income for the nine month period ended December 31, 2002 was $1,037,000, or $0.19 per share, compared to $1,502,000, or $0.27 per share, in the nine months ended December 31, 2001. Gross profit for the three months ended December 31, 2002 was $9,220,000, compared to $8,990,000 for the comparable period a year earlier.

For the third quarter ended December 31, 2002, Bonso Electronics had revenues of $13,853,000, compared to $14,790,000 for the third quarter of the prior year. Third quarter revenues reflect a rebound in the telecommunications business. Net income for the third quarter ended December 31, 2002 was $489,000, or $0.09 per share, a 15% increase from net income of $425,000, or $0.08 per share, for the third quarter of fiscal 2002. Gross profit for the three months ended December 31, 2002 was $3,538,000, compared to $3,112,000 in the third quarter of the previous year.

Anthony So, chairman, president, and CEO of Bonso Electronics stated, "Our scale business was up again for the quarter, but the large increases in orders for wireless products in the third quarter was the main factor in our improved sales trend over last quarter. We are cautiously optimistic that this improvement in our telecommunications business will continue for the remainder of this fiscal year."

In the third quarter of fiscal 2003, gross profit margin continued to improve, up 4.5% on lower revenues, compared to the same period in fiscal 2002. Mr. So attributed the increase to a formal program for enhancing manufacturing efficiencies and overall business processes.

According to SBD, North American revenues for both metal foil strain gauge force sensors/load cells and semiconductor piezoresistive/strain gauge force sensors/load cells (which include silicon micromachined piezoresistive force sensors and thin-film force sensors) totaled about $194.6 million in 2002, and are projected to increase at a 4.5% compound annual rate to reach about $242.7 million in 2007.

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