Bangkok Post – Delta bets on hot tech sectors

As global electronics demand is projected to pick up in the second half of 2024 following inventory destocking, Delta Electronics (Thailand) expects to be a beneficiary thanks to its product mix, continued expansion and geopolitical diversification.

Although revenue and gross margin were lacklustre in the first quarter, the largest electronics manufacturer on the Stock Exchange of Thailand (SET) belief products related to electric vehicles (EVs) and data centers could boost growth in the latter half. Around 30% of its revenue is related to data centers, with a similar portion coming from EVs.

“Delta’s businesses related to data centers, telecom power and EVs are well positioned,” chief executive Victor Cheng told the Bangkok Post.

While the rapid growth of data center and server power business has plateaued, companies are building artificial intelligence (AI) factories to handle large data, leading to data center upgrades and market transitions, said Mr Cheng.

Though EV demand remained soft in the first three months of this year, Delta noticed a slight rebound in the second quarter and expects a strong recovery in the second half, he said.

Delta could see the revenue contribution from AI data centers rising to a double-digit percentage in 2024, up from single digits last year, said Mr Cheng.

MAJOR STRATEGIES

Looking forward, Delta outlined strategies for its business to capitalize on trends.

The company focuses on solutions for trends such as electric mobility, networking and data centers, ICT and energy infrastructure, and automated technology for industrial applications and smart cities.

“These positions us for sustained growth, particularly in ICT and EV-related products during this time,” he said.

In terms of financial strategies, Delta strives for a healthy revenue mix of high-margin product lines while controlling operating expenses as “we are transitioning from a component supplier to a solutions provider,” said Mr Cheng.

Delta’s EV-related business reached profitability last year and predicts cost optimization through larger-scale production as demand grows, he said.

As for strategic priorities in unstable markets, he said the company’s priority is production expansion, including construction of four new plants in Thailand (two in Wellgrow and two in Bangpoo industrial estates) to support high-growth segments such as EVs and AI.

Production at India’s Krishnagiri site is ramping up, while its Slovakian plant is expanding, said Mr Cheng.

Smart manufacturing has been accelerated to improve productivity and cost efficiency, he said.

Supply chain localization is being pushed by engaging overseas vendors and partners to invest in Thailand, said Mr Cheng.

“This can minimize material shortages, enhance sourcing flexibility and reduce delivery lead time, easing cash flow burdens for long lead times for overseas shipments,” he said.

Mr Cheng said Delta is strengthening its R&D capabilities with state-of-the-art centres in Thailand, Bangalore (India) and Soest (Germany), which is under construction, while it continues to drive environmental, social and governance (ESG) efforts for sustainable growth through various investments and strategic initiatives.

“We are developing local engineering talent in collaboration with academic institutions and government entities,” he said.

GLOBAL EXPERTISE

Following a 2019 tender offer, Taiwan-based Delta Inc became Delta Electronics Thailand’s major shareholder with a 63% stake.

“This unlocks valuable synergies by leveraging Delta Group’s extensive global network across various businesses and regions instead of fostering competition,” Mr Cheng said.

Delta Electronics Thailand brings expertise in the manufacturing, product development and sales of server power supplies, telecom power systems, automotive fans, and EV power electronics, complementing Delta Group’s existing portfolio, he said.

“Delta Group is strategically diversifying its manufacturing. Delta Thailand’s established presence in Europe, Southeast Asia and India strategically complements Delta Group’s existing geographic reach,” said Mr Cheng.

Delta Thailand also benefits from the group’s vast resources to accelerate growth and broaden its product portfolio, he said.

“This aligns with Delta Group’s vision of transitioning from a component supplier to an integrated solutions provider. We spearhead the expansion of the solutions business in the region, particularly infrastructure and automation,” said Mr Cheng.

“The partnership has proven to create excellent synergies providing mutual benefits. Delta Thailand plays a crucial role in Delta Electronics Inc and vice versa. Delta Thailand will continue to manage Delta’s manufacturing base in Southeast Asia, India and Eastern Europe.”

GEOGRAPHICAL RESILIENCE

To fuel growth, he said Delta Thailand has significantly increased capital spending.

Investments totaled nearly US$200 million in 2022, rising to $345 million last year. This trend is expected to continue, with at least $500 million planned over the next 3-5 years, said Mr Cheng.

“Delta is strategically expanding key production clusters across Thailand, India and Europe. This distributed manufacturing approach strengthens resilience, allowing them to meet long-term customer demand while reducing Delta’s carbon footprint through shorter delivery distances,” he said.

The company is preparing to meet future demand by expanding manufacturing capacity, building new plants, upgrading facilities and developing skilled talent, said Mr Cheng.

“These investments support our RE100 target (100% renewable energy by 2030) through various projects and strategic partnerships,” he said.

Delta is also prioritizing developing local engineering talent and expanding R&D capabilities.

“New R&D centres in Thailand, India and Germany demonstrate Delta’s commitment to staying at the forefront of technology,” said Mr Cheng.

“Targeted initiatives also aim to broaden market access, increase sales, forge partnerships and contribute to the advancement of Thailand’s electronics and EV sectors.”

The company predicts a limited impact from geopolitical issues.

“Our multi-sourcing strategy minimizes potential disruptions from trade tensions. Similarly, the Delta Group customer base is also well diversified,” he said.

“This diversification helps mitigate risks associated with specific market volatilities.”

As a leader in ESG, Mr Cheng said Delta conducts regular risk assessments on all material issues, including geopolitics.

“We will continue to manage any foreseeable risks diligently and take decisive actions to maintain sustainable development of our business,” he said.

“Our outstanding results even during the pandemic is proof of Delta Electronics Thailand’s effective sustainable development strategy.”