ANNUAL REPORT 2004 - ELMOS Semiconductor AG

MANAGEMENT BOARD ELMOS – THE COMPANY THE ELMOS SHARE CORPORATE GOVERNANCE
54
Expected sales from design wins 2000-2004
in million Euro
300
250
200
150
100
50
2001
2002
2003
2004
2000
0
2003/2004 2004/2005 2005/2006 2006/2007 2007/2008
Assumption: five years product life cycle
Increased sales and higher
capacity utilization
R&D expenditure meant to
rise in proportion to sales
New projects (design wins)
The foundation for the long-term growth of the ELMOS Group is primarily deter-
mined by the acquisition of new projects. The sustained interest of the customers in
individual solutions shows by the large number of newly won development projects.
29 development projects, also called design wins (2003: 31 projects), were acquired in
the past year, amounting to a projected sales volume of roughly 340 million Euro over
the life cycles (2003: 227 million Euro).
The majority of these projects, namely 22, consists of customer specific orders (ASICs)
and will be sales-effective only in about three years, following product development,
qualification, and release by the customer. The remaining seven projects are applica-
tion specific standard products (ASSPs). The ASSPs marketed by ELMOS are usually
derivates or generalizations of ASICs, always distinguished by innovative features
and protected IP (intellectual property).
PROFIT SITUATION
Gross profit
After deducting the cost of sales, the ELMOS Group achieved a gross profit of 73.6
million Euro. This increase is attributable in particular to the sales growth and the
higher utilization of production capacity. The disproportionately low increase of cost
of sales in relation to sales resulted in an increased gross margin of 51.3 percent in
2004 (2003: 50.6 percent). ELMOS thereby passed the targeted 50 percent clearly.
Owing to higher utilization of production capacity, this result was reached in spite of
the large number of production starts of new products (21 product starts in 2004),
typically achieving lower yields and therefore lower margins during the beginning
stages.
Operating income
Due to an altogether disproportionately low rise of cost of sales, the operating in-
come 2004 was raised to 29.6 million Euro. This corresponds with an increase of 8.0
million Euro compared to the previous year. The proportion of operating income to
sales came to 20.6 percent in comparison with 17.8 percent in the year before.
The expenditure for research and development rose to 24.4 million Euro, slightly out
of proportion to sales. These expenses amounted to 17.0 percent of sales compared
to 16.8 percent in 2003. Included in the expenditure for research and development
is above all the development of new products and processes. Because these lay the
foundation for the company’s future, it is the ELMOS objective to keep the future de-
velopment of R&D expenditure roughly in proportion to sales. However, considering
the numerous design wins, the expenditure for research and development shows
only a moderate cost increase.