POSITIVE SEMI-CONDUCTOR OUTLOOK

PRC's entry into the WTO has led to the gradual removal of trade barriers and other restrictions. This gradual opening up of the PRC economy and the increasing investments made in PRC have made PRC an attractive and growing market. The large population and growing middle class in India also represents a market with good potential. With the rising affluence in many countries in Asia, the demand for electronic products and electronic components used to manufacture these products, should increase.We believe that the outlook for the semi-conductor industry in the Asia Pacific region, especially in China and India, is positive and the industry has good growth prospects for the next few years. We are of the view that our Group is diversified, both in terms of product range and geographical coverage, to capitalise on the industry's predicted growth.

ROBUST GROWTH IN DEMAND FOR TELECOMMUNICATION DEVICES

Rapid advancements in telecommunication technology have led to a constant rollout of new telecommunication devices with improved functions and features. Today, the general acceptance of handsets as a part of our daily lives has fuelled the strong growth in the demand for telecommunication devices. The introduction and rising popularity of colour displays, digital imaging and converged handheld devices, otherwise known as smartphones, which have integrated personal computing, digital imaging and other features, are driving the growth of the worldwide handset market.

The robust growth in the demand for telecommunication devices represents an opportunity for our Group. With our established network and research and development capabilities, our Directors are of the opinion that we are well-positioned to expand our business in the growing handset market.

GLOBAL CONSOLIDATION TREND IN THE ELECTRONIC COMPONENTS DISTRIBUTION INDUSTRY

Customer demand for a single point of contact within a distribution network has led to a global consolidation trend within the electronic components distribution industry. In many regions in the world, the benefits arising from economies of scale have led to mergers and acquisitions among industry players. The advantages of operating with a wide geographical network have also prompted many players to expand, either via organic growth, alliances, acquisitions or mergers, across different geographic regions.

We have observed that the electronic components distribution industry in Asia is fragmented and we believe that the consolidation trend in the American and European markets will be repeated in the Asian markets in the future. In view of this consolidation trend, our Directors believe that we are well-positioned to capitalise on the benefits arising from economies of scale due to our geographical coverage and the size of our operations.

EVOLVING ROLE OF ELECTRONIC COMPONENTS DISTRIBUTORS

Electronic components distributors have evolved from the traditional role of being mere middlemen between component producers and manufacturers to a more complex role that encompasses a wide array of value-added services. Distributors are expanding beyond the traditional boundaries of the distribution business and are getting increasingly involved in their customers' businesses. This enables distributors to increase the value they add to customers, to sharpen their competitive edge and to deter or prevent competitors from infringing into their markets.

Distributors have been moving progressively towards the demand creation model which benefits both component producers and electronic product manufacturers. This is because component producers are able to avoid adding technical and sales staff while electronic product manufacturers can save on research and development expenses and are serviced with an efficient supply chain. Our Directors are of the view that the trend of moving towards a demand creation model will continue to be the dominant theme in the industry. Therefore, our Directors are confident that our current demand creation business will remain relevant and effective in the changing industry landscape.

In view of the above, our Directors are confident of the prospects of our Group.