ANNUAL REPORT 2004 - ELMOS Semiconductor AG

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MANAGEMENT BOARD ELMOS – THE COMPANY THE ELMOS SHARE CORPORATE GOVERNANCE 66 Products tested several times The current ELMOS production capacity is sufficient for the growth targeted for 2005 and 2006. Parallel to the expansion of the manufacture in Dortmund, the process transfer to the Fraunhofer Institute in Duisburg was begun with in the year 2004, establishing another location for production from 2006 on. With this ELMOS gains access to additional production capacity allowing a maximum 200 wafer starts a day (200mm wafers), sufficient for the targeted sales increase until the end of this decade. PROCUREMENT The raw materials needed for ELMOS production are available from different suppli- ers worldwide and not subjected to monopolies. A certain dependence on individual Far East partners in the assembly segment is typical of the trade, though. In this re- spect, ELMOS determined the course for a vertical penetration of the added value chain by the acquisition of ELMOS Advanced Packaging. By the end of 2004 ELMOS Advanced Packaging provided approximately 57 percent of the assembly services re- quired by ELMOS. As a consequence ELMOS grows increasingly independent from the Far East partners or rather fluctuations of the US-Dollar. PRODUCT LIABILITY ASICs produced by ELMOS are integrated as components into complex electronic systems. Defects and malfunctions of the ASICs produced by ELMOS or of the electronic systems they are integrated into can directly or indirectly be damaging to the property, health, and lives of third parties. ELMOS cannot reduce or exclude liability in its sales contracts with regard to customers or third parties. ELMOS resolutely follows a zero defect strategy and constantly invests in the detec- tion and avoidance of sources of error and defects. The individual semiconductor chips are usually tested even several times at different temperatures with regard to quality and function inside the plant. Although the company puts to use quality con- trol systems certified in accordance with TS 16949, VDA 6.1, and QS 9000 and further comprehensive testing procedures before delivering its products, product defects might still show only after installation and use of the product by the consumer. If those product defects materialize, expensive and time-consuming product modifi- cations might ensue, leading to disrupted customer relationships and a loss of market shares. A quality problem of whole batches might additionally result in customers’ claims for compensation in the million Euro range. This risk is adequately covered by insurance. Still all this could affect the company’s assets, financial and profit situation in a negative way.
GROUP STATUS REPORT FINANCIAL STATEMENTS GROUP STRUCTURE GLOSSARY Business and economic framework Future of automotive electronics Profit, financial and assets situation Supplementary report ÿ Risk report Outlook report Production lines operated independently PARTICIPATIONS The high allocation of investments to the subsidiaries abroad results in an increased obligation to detect and minimize possible financial risks by means of adequate con- trolling instruments and continuous economic analyses as soon as possible. Business plans and budgets have been devised for all subsidiary companies in order to make sure that no existential risks will ensue from the business activity of those companies. INTERRUPTION OF BUSINESS Apart from the business risks already described and discussed, according to ELMOS assessment the single entrepreneurial risk capable of significantly damaging the development of the Group and jeopardizing its continued existence is the risk of the destruction of production facilities by fire or other disasters. Although the risk of the interruption of business by such an occurrence is adequately covered by insurance, a significant threat of losing key customers in such a case remains. This risk cannot be insured against. ELMOS already reduced this risk by its operation of an additional production line (200mm line) at the Fraunhofer Institute in Duisburg beginning in 2006. At a later point in time another production line can be constructed in a separate building at the Dortmund location. Thus ELMOS will have several independent production lines at its disposal which can be operated independently of each other. The other usual and insurable risks such as fire, interruption during fire-fighting operations, water, storm, theft, third party liability and, in particular, product liability, also in the U.S., and costs of a possible recall action are adequately covered by insurance. Further risks capable of significantly damaging the development of the Group or jeopardizing its continued existence are not discernable at present. elmos annual report 2004 67
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ANNUAL REPORT 2004
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Five-year overview ELMOS Group acco
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ÿ Chronicle 2004 1 ST QUARTER 2 ND
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ÿ Table of contents MANAGEMENT BOA
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ELMOS NETWORKS YOUR CAR EFFECTIVELY
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GROUP STATUS REPORT FINANCIAL STATE
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ANNUAL REPORT 2004 - ELMOS Semiconductor AG

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