ANNUAL REPORT 2004 - ELMOS Semiconductor AG

MANAGEMENT BOARD ELMOS – THE COMPANY THE ELMOS SHARE CORPORATE GOVERNANCE
64
Little competition for ELMOS
by large manufacturers
In the past the car market used to be subjected to considerable fluctuations as a re-
sult of mergers of manufacturers, restrictive environmental laws, and other factors. A
certain dependence is surely detectable in the ELMOS customer structure. However,
it has to be taken into account that sales generated by a single customer are not usu-
ally attributable to a single product, i.e. overlapping life cycles are involved as well.
Due to the importance and specialization of ASICs by ELMOS for the products of the
car manufacturer suppliers, the relationship with the customer is really characterized
by mutual dependence. Large sales volumes achieved with a few major customers
can therefore indicate promising long-term customer relationships with correspon-
ding sales potential. It very rarely happens that two suppliers are commissioned to
develop one and the same ASIC at the same time. That is because the suppliers to the
automobile industry operate under considerable cost-effecting pressure themselves,
and the simultaneous development of one ASIC by two suppliers would lead to sig-
nificant additional costs, both during development and later during production due
to the lower unit numbers realized by each ASIC supplier.
COMPETITION AND EMPLOYEES
There is a large number of competitors offering products similar to the ones ELMOS
offers, based on a similar technological foundation, on the market for automotive
semiconductors. In addition it also cannot be ruled out that large semiconductor
manufacturers not yet engaged in the automotive semiconductor market, or just
to a limited extent, might try to penetrate this market segment in the future. This
particular happens in phases in which the classic semiconductor business suffers
drops in the segments memory chips and telecommunication. Attempted market
penetrations by several competitors could be observed in the year 2004. However, as
considerations with respect to profitability force these large manufacturers to focus
on high-volume projects, their commitment to the niche market for customer spe-
cific circuits is always relatively low. On the other hand ELMOS has won an increasing
number of high-volume contracts recently. Therefore ELMOS will compete with the
large manufacturers increasingly in the future and feel the corresponding pressure
on pricing.
The company’s extremely development–intensive business activity leads to a clearly
pronounced and highly specific engineering know-how, although not necessarily to
patents. As a result ELMOS is increasingly dependent on individual employees. The
risk of fluctuation is reduced at ELMOS by the perceptibly high motivation of the
staff and their strong identification with the company. The employees for example
participate in the success of ELMOS through a share option program.