SERIAL SYSTEM: Weighs Opportunities in Transformation Drive

Serial System's cleanroom operation for its medical device manufacturing and distribution business. (Photo: Company)

When opportunity knocks, how will you answer?

This is one question that frequently swirls in the back of Derek Goh's mind, keeping the Chief Executive Officer of Serial System Ltd focused on what he enjoys most - growing profits and maximising returns for shareholders.

By spending his entire career exploring and capitalising on opportunities that emerged along the way, Goh has transformed a one-man operation into the largest electronics components distributor listed on Singapore Exchange, with annual revenue of more than US$1 billion.

"Life isn't fair, and money is hard to earn. I wasn't born with a silver spoon in my mouth, in fact, all I had was a rusty spoon - one which I had to polish very hard," Goh recalled wryly.

"So when opportunities come your way, better grab them with both hands, because when they're gone, you might regret it."

Goh, who loves tinkering with electronic components, founded Serial System in 1988 in the back room of his wife's florist shop.

At the time, the florist business was profitable, but Goh dreamed of building something more substantial.

"How many flower arrangements can you sell a day? And how much can you make from that?"

With dogged determination, he established Serial's electronics distribution network from scratch, and in 1997, listed the company on SGX's then-Sesdaq second board.

Three years later, the company was upgraded to the Mainboard.

But that moment of triumph proved brief. Shortly after, the company entered a period of turmoil, triggered by Goh's handover of the business to his long-time buddy Eddie Chng, who took the reins in September 1999.

The next few years were marked by boardroom battles, operating losses and broken relationships with customers and suppliers. In 2001, Goh wrestled back control, and began the arduous process of returning the business to profitability.

"Our banks, suppliers and customers were all worried. I had to reassure each one of them, and restore their trust. It was a difficult time for my family as well - everyone could feel the tension," Goh recalled.

Looking back on the Group's milestones and speed bumps, Goh underscored the importance of maintaining focus and discipline.

"In Singapore, if you can work, you won't starve. But if you want to eat abalone or bird's nest and drink Dom Perignon, working hard isn't enough. You need a real strategy."

And a lack of discipline can be your downfall, driven by one of the most pervasive qualities of human nature - greed.

"A common cause of business failure is poor discipline. It takes many years to build an empire, but only a year or two for it to burn to the ground," he said with a grimace.

Despite challenges in the operating environment, the Group's outlook remains bright. Serial is targeting revenues of US$5 billion to US$10 billion over the next decade. "I believe US$5 billion is 100% achievable in the next five years," Goh added.

Most of this growth will come from the steady expansion of Chinese demand. "Hong Kong and China currently account for 55% to 60% of our group revenues, with Singapore contributing only 3% to 5%."

In October, market research firm Gartner forecast a 19.7% year-on-year jump in 2017 global semiconductor revenues to US$411.1 billion, up from an earlier projection of US$401.4 billion, and representing the strongest growth since the 2010 recovery from the Global Financial Crisis. Next year, Gartner expects global semiconductor revenues to rise further to US$427.4 billion.

To grow the electronics distribution business, Goh plans to use both organic and inorganic means. "As venturing into the US or EU via organic growth is very tough, M&As are the way to go, but obviously, there are integration risks with this approach," he added.

The EU, in particular, offers more acquisition opportunities. "In the US, there is an oligopoly of three large players, but in EU, with so many countries and markets, choices abound. We're looking for more franchises there."

Serial will also continue to streamline its consumer products distribution business, and explore promising investment options to improve overall performance.

When it comes to expanding the business, it's all about cash. If you have cash, you're prepared. When opportunities arise, but you have no money, that's when you're a sitting duck.

- Derek Goh
Executive Chairman and Group CEO

Serial System

While these irons are in the fire, Goh, who owns 39.6% of Serial, is putting in place a succession plan for the Group.

"I'm 55 now, and hope to be semi-retired in the next 10 years. I want to find someone to run the core business so that I have the bandwidth to pursue other higher margin ventures - time is an issue here," he said.

"I have lots of ideas, but I need time to explore and execute them."

Finding the right talent for the company, however, is a constant bugbear. "It's so hard to get reliable staff," he sighed.

Other issues that keep Goh up at night include production quality woes, delinquent suppliers, and difficult customers. Challenges thrown up by the rise of Internet of Things (IoT) also weigh on his mind.

"Going into the Internet requires high investment and R&D costs, and you have to be prepared to burn at least US$3 million to US$4 million every year. Whether you're successful or not - well, that's another story," he said.

Going into the Internet requires high investment and R&D costs, and you have to be prepared to burn at least US$3 million to US$4 million every year. Whether you're successful or not - well, that's another story. - Derek Goh Executive Chairman and Group CEO Serial System

"It's basically a gamble."

Work aside, the father of two boys and two girls aged 19 to 26 is focused on giving back to society, as well as practising core values of humility and honesty.

Philanthropy has always been a priority for the Group. Between 2014 and 2016, Serial and a charity organisation founded by Goh donated a total of S$4.5 million to the needy, supported by dollar-for-dollar matching from the Singapore government.

"I've always taught my kids to be grateful for what they have, and to lend a helping hand to others," Goh said.

"I remind them to be humble, because you never know when God will punish you if you get too arrogant."

• Global demand for semiconductors and electronics remains buoyant, driven by the proliferation of state-of-the-art smartphones, smart-city initiatives, autonomous vehicles and other technology-reliant projects and applications. With one of the largest distribution networks in Asia for electronic components, the Group is well-positioned to benefit from this overall positive trend. In particular, demand for high-quality chips and electronic components in Asia, especially Greater China, is expected to remain resilient in the foreseeable future.
• The Group's outlook is underpinned by Gartner's latest assessment of the global semiconductor market. The market research firm has forecast worldwide semiconductor revenue of US$411.1 billion in 2017, up 19.7% from 2016. This represents the strongest growth since the 2010 recovery from the global financial crisis. Strong demand for memory products, particularly dynamic random access memory, is expected to fuel this increase, according to Gartner, which sees global semiconductor revenue rising further to US$427.4 billion in 2018 from 2017.
• While the broad outlook for the semiconductor industry is favourable, the Group remains mindful of the competitive pressures in many of the markets it operates in. The Group will monitor the competition and endeavour to differentiate itself in each of these markets with the view of shoring up its profit margins.
• The Group's plan to list its 91%-owned Hong Kong electronic components distribution subsidiary, Serial Microelectronics (HK) Ltd group, on the main board of the Stock Exchange of Hong Kong remains on track. The listing will enable SMHK group to raise funds on its own in order to better meet strong business demand in Greater China.
• The Group's efforts to prop up its consumer products distribution business remain a work-in-progress. The priority is to reduce exposure to non-performing markets and low-margin products and pursue more promising projects.
• Barring unforeseen circumstances, the Group expects to be profitable in FY2017.