Dynex Updates Progress of the Expansion of its Fabrication Facilities
Lincoln, England, February 23, 2011 – Dynex Power Inc., a leading specialist high power semiconductor company, today provided investors with a status report on the capital expenditure program to upgrade and expand its fabrication facility for silicon chips to be used in insulated gate bipolar transistor (IGBT) modules.
The Company announced that the program is nearing completion, on-time and on-budget. The first of Dynex’s two new 6-inch IGBT lines has been completed and is in the ramp-up phase of production. The construction of the second line will be completed in the current quarter and will begin its ramp-up thereafter. The Company expects a positive impact on its financial performance from the capital expenditure program starting at the end of the second quarter of 2011.
For the past 18 months, Dynex has been replacing its existing production line, which processed 4-inch diameter silicon, by two 6-inch lines. The expansion increases production capacity approximately tenfold. The largest portion of the project output is expected to be sold to Dynex’s majority shareholder, Zhuzhou CSR Times Electric Co., Ltd., to take advantage of the significant opportunities in China. The expansion was fully funded by a rights issue completed in December 2009.
China’s publicly disclosed, long-term growth plans for rail expansion are dramatic and unprecedented, coming on top of an existing organic growth rate of 8.0% per annum. According to a research report prepared recently by Standard Chartered Bank, China is adding 35,000 kilometres of the new railway network, as from 2009. They are also adding 1,733 kilometres of mass transit rail lines and substantial volumes of new rolling stock by 2020, with an additional 3,600 kilometres of mass transit rail lines in the planning stage. The Standard Chartered Bank research report also suggests that China’s expenditure programs may continue well beyond 2020.
Dynex’s majority owner, CSR Times Electric, is part of a robust Chinese enterprise that supplies nearly half of the railway trains in China, which positions Dynex well to take advantage of the Chinese rail opportunity. CSR Times Electric’s total demand for IGBT products is expected to exceed Dynex’s production capability even after the current capital expenditure project is complete.
The transformational program was well designed and has been well executed, and positions Dynex very well for the future. However, as management had anticipated, the construction disrupted operations, which had a negative impact on recent financial performance. The anticipated combination of production disruption and a softening order book led Dynex to announce its expectation for weaker revenues in Q3 and Q4 of 2010 and in Q1 and Q2 2011. The revenue weakness precedes the full benefits Dynex expects from its opportunities in China.
While other sectors of the semiconductor markets have shown improvement, global high power semiconductor markets remain soft. For three quarters in a row, Dynex’s order book declined. However, the Company believes its order book may be beginning to stabilize. Certainly, the Company believes its future opportunities remain very attractive.
Dr. Paul Taylor, President & Chief Executive Officer, explained, “I remain pleased with the progress of the expansion program. Dynex has carefully managed the program. As a consequence, costs remain on plan and the construction work is being completed as planned. We intend to take as much advantage as we can of the massive Chinese rail expansion. Our prospects should be exciting over the medium term, at least.”
Dr. Taylor continued, “The formation of the Research and Development Centre described in our press releases of September 9, 2010, goes hand in hand with the expansion program. Working together with CSR Times Electric’s own semiconductor business, we aim to be a global top-3 high power semiconductor company. The R&D Centre and our Chinese revenue opportunity position Dynex very well for consistent, longer-term performance.”
Bob Lockwood, Finance Director and Chief Financial Officer, added, “We announced that the soft high power market would have a negative impact on Dynex’s revenue. That impact has continued, along with the disruption from the construction, impairing our revenue and our margins in 2010. We expect that impairment to continue until the capital expansion project is completed, with the overall impact in line with our expectations.”
Mr. Lockwood continued, “We remain pleased with our expansion project. We continue to anticipate that improved performance will be evident starting in towards the end of the second quarter of 2011.”
For more information:
Dr. Paul Taylor
President and Chief Executive Officer
Finance Director and Chief Financial Officer
Dynex Power Inc.
Tel: UK +44 1522 500 500