Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information appearing elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our ordinary shares. You should carefully read this prospectus, including our financial statements and related notes beginning on page F-1, and the registration statement of which this prospectus is a part in their entirety before investing in our ordinary shares, especially the risks of investing in our ordinary shares, which we discuss under “Risk Factors.”Overview
We are a leading provider of foundry services to optical component, module and subsystem, or optics, OEMs. Our services are based on precision optical and electro-mechanical process technologies and know-how that we have obtained through our focus on the industry since our inception in early 2000. We also design, manufacture and sell application-specific bulk optical materials and components, such as glass, crystals, prisms, lenses, laser components and substrates. Recently, we have also begun to provide foundry services to the sensors market, a market that requires precision optical and electro-mechanical process technology similar to the optics market. Examples of products that we manufacture for our OEM customers include selective switching solutions, reconfigurable optical add-drop modules, or ROADMs, and positioning sensors. We believe that there is no other provider of foundry services with similarly advanced optical and electro-mechanical process technology capabilities that does not compete with its customers in their end-markets.
We believe we are uniquely positioned to help our OEM customers reduce their manufacturing costs while maintaining or improving the quality, reliability, design and delivery times for their products. We offer a full range of foundry services that cover the entire manufacturing process, including design, supply chain management, manufacturing, product assembly and test. We believe our optical and electro-mechanical process technologies, coupled with our bulk optical materials and components technologies, have created a key competitive advantage for us. These technologies include:
Our end-to-end capabilities enable us to provide solutions that often lead to improvements to our customers’ product development cycles, manufacturing cycle times, quality and reliability, input cost and lead times, manufacturing yields and end product costs. We offer an efficient, technologically advanced and flexible manufacturing infrastructure that is designed to enable the scale production of low-volume, high-mix products, as well as high-volume products. As of September 30, 2007, our facilities comprised approximately 754,000 total square feet, including approximately 114,000 square feet of office space and approximately 640,000 square feet devoted to manufacturing and related activities, of which approximately 180,000 square feet were clean room facilities. Of the aggregate square footage of our facilities, approximately 515,000 square feet are located in Thailand and the balance is in the PRC and the U.S.
Our customers include seven of the ten largest optics companies worldwide in terms of revenue in 2006, according to Ovum-RHK, a marketing research firm. In many cases, we are the sole foundry partner used by our customers for the products that we produce for them in our facilities. We have passed the rigorous facility and product-specific qualification processes of our customers and our customers’ customers and believe that we have established a strong reputation for quality and reliability with both groups.
Our leadership in providing foundry services to optics OEMs has enabled us to deliver a strong financial track record of increasing revenues and profitability. Our total revenues have increased from $202.0 million in fiscal 2005 to $375.7 million in fiscal 2006 to $496.1 million in fiscal 2007, a compound annual growth rate of 56.7%. Our gross margins and operating margins have increased from 5.6% and 2.4%, respectively, in fiscal 2005 to 9.6% and 6.7%, respectively, in fiscal 2006 to 14.6% and 10.9%, respectively, in fiscal 2007. We have been consistently profitable since our inception and have achieved 30 quarters of consecutive profitable operations.
Industry Background
Consistent increases in network traffic volumes driven by the demand for enhanced voice and video applications delivered over internet protocol, or IP, networks, coupled with competition to deliver converged voice, data and video services, have resulted in higher network utilization and the need for carrier networks to increase their bandwidth capacity. This demand for increased capacity has spurred an increase in carrier demand for infrastructure equipment, including optical communications equipment. According to Ovum-RHK, annual sales for the global optical components market increased at a compound annual growth rate of 9.8% between 2002 and 2006, reaching approximately $3.9 billion in 2006. Ovum-RHK projects that annual sales will increase at a compound annual growth rate of 8.1% to reach approximately $5.1 billion by 2011.
Since 2001, the optics industry has undertaken to reduce manufacturing capacity and transition to a low-cost and more efficient manufacturing base. By outsourcing production to third parties, optics vendors are better able to concentrate on what they believe to be their core strengths, such as research and development, marketing and sales. Outsourcing production often allows these vendors to reduce product cost, achieve accelerated time-to-market and time-to-volume production, and access advanced design and manufacturing technologies. By undertaking this transition, these vendors may also reduce their costs, leverage best-of-breed manufacturing processes, improve reliability and yields, and centralize production in low-cost geographies.
The optical and electro-mechanical process technologies used in the optics market also have applications in the sensors market. According to Global Industry Analysts, Inc., or GIA, annual sales for the global sensors market increased at a compound annual growth rate of 6.8% between 2002 and 2006, reaching approximately $46.0 billion in 2006. GIA projects that annual sales will increase at a compound annual growth rate of 7.5% to reach approximately $61.3 billion by 2010. This growth is driven by improved functionality and reduced costs, as well as advances in embedded processing and wireless networking, enabling new applications across a variety of industries and device platforms. Sensors are used in many diverse industries, including medical device, automotive and test and measurement equipment, logistics, oil and gas, chemical and other industries. Similar to the optics market, the manufacturing of sensor components is complex, utilizing customized environments and a variety of specialty processes, including optical packaging technology, such as laser welding, and fiber handling and alignment.
We believe that we are uniquely positioned to provide foundry services in the optics and sensors markets. In addition to the high barriers to entry associated with the complexities of optical and electro-mechanical manufacturing processes, critical customer intellectual property is involved in the manufacture of our customers’ products. Most companies with our expertise have chosen to introduce their own products and as a result directly compete with their customers. Intellectual property risks, as well as the technical challenges of achieving high yields and quality levels have historically made OEMs reluctant to outsource production of their products to more than a single trusted partner. We believe that we are unique in our target markets because we have adopted a pure foundry business model, in that we exclusively produce optics for our customers and do not compete with them. As a result of our model, we believe that we are more closely aligned and better able to develop a long-term relationship with our customers than our competitors.
Our Competitive Strengths
We believe that we have become the optical foundry market leader due to our long-term investment in optical and electro-mechanical process technology and our strategic alignment with our customers. More specifically, our key competitive strengths include:
Our Growth Strategy
Our mission is to further strengthen our leadership position in optical foundry services and to become the leading provider of foundry services for sensor products and solutions worldwide. To achieve this mission, we plan to:
Risks Associated With Our Business
We face numerous challenges and risks in our business, including those that we describe under “Risk Factors.” In particular, we may be subject to:
Our Corporate Information
We were organized under the laws of the Cayman Islands in August 1999 and commenced our business operations in January 2000. We have eight direct and indirect wholly-owned subsidiaries. Our principal executive office is located at Walker House, 87 Mary Street, George Town KY1-9009, Cayman Islands, and our telephone number at that address is (662) 998-9956. Our agent for service of process in the United States is Corporation Service Company, 1090 Vermont Avenue, N.E., Suite 430, Washington, D.C. 20005, and its telephone number at that address is (800) 927-9800. Our website address is www.fabrinet.com. The information on or accessible through our website is not part of this prospectus.
Fabrinet, CASIX and VitroCom are registered trademarks of Fabrinet. The Fabrinet logo is a registered stylized trademark of Fabrinet. All other trademarks appearing in this prospectus are the property of their respective holders. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
Unless the context otherwise requires, we use the terms “our company,” “we,” “us,” and “our” in this prospectus to refer to Fabrinet and its subsidiaries.